<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1998
Registration No.333-66221
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
R.A.B. HOLDINGS, INC.
(Exact name of co-registrant as specified in its charter)
Delaware 5122 13-3893246
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
organization) Code Number)
R.A.B. ENTERPRISES, INC.
(Exact name of co-registrant as specified in its charter)
Delaware 5122 13-3988873
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
organization) Code Number)
444 Madison Avenue, Suite 601
New York, New York 10022
(212) 688-4500
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(Address, including zip code, and telephone number,
Including area code, of each co-registrant's principal executive offices)
James A. Cohen, Esq.
Senior Vice President-Legal Affairs and Secretary
----------------------------------------------------
444 Madison Avenue, Suite 601
New York, New York 10022
(212) 688-4500
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(Name, address, including zip code, and telephone number,
Including area code, of each co-registrant's agent for service)
Copy to:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
-----------------------
[See also table of additional co-registrants below]
-----------------------
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of each class of securities Amount to Offering Price Aggregate registration
to be registered be registered Per Unit Offering Price (1) fee
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<S> <C> <C> <C> <C>
13% Senior Notes due 2008 of $48,000,000 $1,000 $48,000,000 $13,344
R.A.B. Holdings, Inc.(2)
10-1/2% Senior Notes due $120,000,000 $1,000 $120,000,000 $33,360
2005 of R.A.B. Enterprises,
Inc.(3)
Guarantees (4) $120,000,000 -- $120,000,000 --
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</TABLE>
(1) Based on the value of each security being registered.
(2) Consists of the notes issuable upon the exchange of $48,000,000 principal
amount of 13% Senior Notes due 2008.
(3) Consists of the notes issuable upon the exchange of $120,000,000 principal
amount of 10-1/2% Senior Notes due 2005.
(4) Pursuant to Rule 457(n) of the Securities Act of 1933, as amended, no
additional consideration will be received for the guarantees by each of The
B. Manischewitz Company, LLC and Millbrook Distribution Services Inc. of
the 10-1/2% Senior Notes due 2005 of R.A.B. Enterprises, Inc. registered
hereby.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
<TABLE>
<CAPTION>
TABLE OF ADDITIONAL REGISTRANTS
(Each of the following subsidiaries of R.A.B. Enterprises, Inc., and each other subsidiary that
is or becomes a guarantor of certain of the securities registered hereby, is hereby deemed to be a registrant)
====================================================================================================================================
Primary
State or Standard
Other Industrial I.R.S. Employer
Jurisdiction of Classification Identification
Name Incorporation Number Number
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The B. Manischewitz Company, LLC Delaware 5149 51-0374244
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Millbrook Distribution Services Inc. Delaware 5122 41-0754020
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</TABLE>
<PAGE>
Subject to completion, dated December 29, 1998
PROSPECTUS [LOGO]
<TABLE>
<S> <C> <C>
EXCHANGE OFFERS FOR
R.A.B. HOLDINGS, INC. AND R.A.B. ENTERPRISES, INC.
$48,000,000 $120,000,000
13% Senior Notes due 2008 10-1/2% Senior Notes due 2005
(Guaranteed by The B. Manischewitz
Company, LLC and Millbrook
Distribution Services Inc.)
</TABLE>
TERMS OF THE EXCHANGE OFFERS
o Each of the exchange offers expires at 5:00 p.m. New York City time on
________________, 1999, unless either is extended.
o If you decide to participate in an exchange offer, the new notes
issued to you will have substantially the same terms as your notes,
except the new notes will be registered and will be able to be resold
without complying with the registration requirements of the Securities
Act of 1933. Any notes not exchanged will continue to have
restrictions on their transfer.
o There is no existing public market for your notes, and there will be
no public market for the new notes issued in the exchange offers.
o Your notes can be traded in the Portal Market and the new notes issued
in the exchange offers will be eligible for trading in the Portal
Market.
o R.A.B. Holdings, Inc. or R.A.B. Enterprises, Inc. will exchange all of
the notes that you validly tender and do not validly withdraw.
o You may withdraw tenders of your notes at any time before the
expiration of the exchange offers.
o The exchange offers will not violate any applicable law or
interpretation of the staff of the Securities and Exchange Commission.
o Neither R.A.B. Holdings, Inc. nor R.A.B. Enterprises, Inc. will
receive any proceeds from the exchange offers.
o The exchange of your notes into new notes will not be a taxable
exchange for U.S. federal income tax purposes.
----------
Neither the Securities and Exchange Commission or any state securities
commission has approved or disapproved of the new notes or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
This investment involves risks. We urge you to read the "Risk Factors"
section of this prospectus beginning on page 21 which describes
specific risks associated with the exchange offers.
----------
_______________, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
WHERE YOU CAN FIND MORE INFORMATION............................................3
PROSPECTUS SUMMARY.............................................................4
SUMMARY FINANCIAL DATA........................................................18
RISK FACTORS..................................................................21
THE TRANSACTIONS..............................................................28
USE OF PROCEEDS...............................................................28
CAPITALIZATION................................................................29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS..............................................................30
SELECTED HISTORICAL FINANCIAL DATA............................................36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................41
BUSINESS......................................................................51
MANAGEMENT....................................................................62
CERTAIN TRANSACTIONS..........................................................66
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.............................68
THE EXCHANGE OFFERS...........................................................69
DESCRIPTION OF THE NEW NOTES OF ENTERPRISES...................................77
DESCRIPTION OF THE NEW NOTES OF HOLDINGS.....................................112
DESCRIPTION OF CREDIT AGREEMENT..............................................144
BOOK - ENTRY; DELIVERY AND FORM..............................................145
PLAN OF DISTRIBUTION.........................................................146
FEDERAL INCOME TAX CONSEQUENCES..............................................147
LEGAL MATTERS................................................................147
EXPERTS......................................................................148
INDEX TO FINANCIAL STATEMENTS................................................F-1
-2-
<PAGE>
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WHERE YOU CAN FIND MORE INFORMATION
R.A.B. Holdings, Inc., R.A.B. Enterprises, Inc., The B. Manischewitz
Company, LLC and Millbrook Distribution Services Inc. have filed a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933. This registration statement covers the notes that either Holdings or
Enterprises will issue to you if you exchange your notes for new notes in an
exchange offer. The rules and regulations of the Commission allow us to omit
some of the information in the registration statement from this prospectus. This
prospectus is a summary of information and any statements made in this document
as to the contents of any contract, agreement or other documents are not
necessarily complete. If we have filed such contract, agreement or other
document as an exhibit to the registration statement, we urge you to read the
exhibit carefully for a more complete understanding of the document or matter
involved. We qualify all of our statements by reference to the complete
documents. The registration statement and its exhibits and schedules may be read
at no cost to you and copied at the public reference section of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may call the Commission at 1-800-SEC-0330 for further
information on its public reference rooms or visit the Commission's web site at
http://www.sec.gov which contains reports, proxy and information statements and
other information filed electronically with the Commission.
Following the exchange offers, we will be required to file annual,
quarterly and special reports, and other information, with the Commission. Even
if we will not be required to file this information with the Commission in the
future for any reason, the indentures governing your notes, and the indentures
governing the new notes you receive after your exchange, require us to prepare
and deliver copies of these reports and other information to you upon your
request and without any cost to you.
-3-
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<PAGE>
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PROSPECTUS SUMMARY
The following summary highlights selected information about the exchange
offers and may not contain all of the information that you would find important
in making your decision to participate in an exchange offer. This prospectus
summary includes the terms of the exchange offers and the new notes being
offered to you, as well as selected business information and financial data. You
are strongly encouraged to read the whole prospectus.
Except as otherwise required by the context, references in this prospectus
to "we," "us," or "our," refer to the combined business of R.A.B. Holdings,
Inc., R.A.B. Enterprises, Inc., The B. Manischewitz Company, LLC and Millbrook
Distribution Services Inc.
Also, for ease of reference throughout this prospectus, "Holdings" means
R.A.B. Holdings, Inc., "Enterprises" means R.A.B. Enterprises, Inc., "Millbrook"
means Millbrook Distribution Services Inc., and "Manischewitz" means The B.
Manischewitz Company, LLC. In addition, "Credit Agreement" means the credit
agreement originally dated as of March 31, 1997 as amended and restated as of
May 1, 1998 to which Millbrook and Manischewitz are parties.
In this prospectus, future, or "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 are made about
the financial condition, results of operations and business of Holdings,
Enterprises, Manischewitz and Millbrook. All of these forward looking statements
are based on estimates and assumptions made from information that was currently
available. Although we believe these estimates and assumptions are reasonable,
they are uncertain. Therefore, you should not rely completely upon these
estimates and assumptions. We cannot assure you that any of these estimates or
assumptions will occur and it is likely that actual results will differ
significantly. Important factors that could cause actual results to differ
materially from such estimates or assumptions are disclosed throughout this
prospectus, including the section on "Risk Factors", as cautionary statements.
All subsequent written and oral forward looking statements are qualified in
their entirety by these cautionary statements. We have no obligation to release
to the public the result of any revisions to our forward looking statements to
reflect events or circumstances occurring, or of which we become aware, in the
future. We also advise you that the "safe harbor" for forward looking statements
provided by the Securities Litigation Reform Act of 1995 does not apply to
initial public offerings.
-4-
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<PAGE>
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THE EXCHANGE OFFERS
You are entitled to exchange your notes for new notes which have been
registered under the Securities Act of 1933. The new notes will have
substantially the same terms as the notes you currently hold, except that the
new notes will be registered under the Securities Act of 1933 and will not have
registration rights. As a result of this registration, and only if you
participate in an exchange offer and exchange your notes for new notes, Holdings
and Enterprises believe that you may resell the new notes without complying with
the registration and prospectus delivery provisions of the Securities Act of
1933. Following the exchange offers, any notes held by you that are not
exchanged will continue to have the existing restrictions on their transfer and,
except in certain circumstances, we will have no further obligation to register
your notes under the Securities Act of 1933. If you hold notes of Enterprises,
you should be aware that your notes are fully and unconditionally, and jointly
and severally, guaranteed by its subsidiaries, Manischewitz and Millbrook, and
certain future subsidiaries. The new notes of Enterprises will also have the
benefit of these guarantees.
Holdings entered into an exchange and registration rights agreement dated
May 1, 1998 with Chase Securities, Inc., the initial purchaser of the Holdings
notes. Enterprises, Manischewitz and Millbrook also entered into an exchange and
registration rights agreement dated May 1, 1998 with Chase, the initial
purchaser of the Enterprises notes. Under these agreements, we must deliver this
prospectus to you and file a registration statement with the Commission to
register the new notes. You should read the discussion under the headings
"Prospectus Summary-- Summary of the Exchange Offers" for further information
regarding the exchange offers and resales of the new notes. You should also read
the discussions under the heading "Prospectus Summary--Summary of Terms of the
New Notes", "Description of the New Notes of Holdings" and "Description of the
New Notes of Enterprises" for further information regarding the new notes.
-5-
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<PAGE>
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SUMMARY OF THE EXCHANGE OFFERS
Securities Offered................... Holdings is offering $48,000,000 in
principal amount of 13% Senior Notes due
2008. Enterprises is offering
$120,000,000 in principal amount of
10-1/2% Senior Notes due 2005. These new
notes have substantially the same terms
as the notes you hold, except these new
notes have been registered under the
Securities Act of 1933 and will be
freely transferable.
Registration Rights Agreement........ At the time the notes were sold we
entered into exchange and registration
rights agreement which requires us to
make theses exchange offers.
After the exchange offers are complete,
you will no longer be entitled to
exchange your notes for registered
notes. Under certain circumstances, we
may be required to file a shelf
registration statement under the
Securities Act of 1933 with respect to
your old notes.
The Exchange Offers.................. Holdings and Enterprises are offering to
exchange $1,000 principal amount of new
notes for each $1,000 principal amount
of the notes held by you. In order to be
exchanged, your notes must be properly
tendered and accepted. All notes that
are validly tendered and not validly
withdrawn will be exchanged.
Today, there are $48,000,000 principal
amount of outstanding notes of Holdings
and $120,000,000 principal amount of
outstanding notes of Enterprises.
We will issue new notes on or promptly
after the expiration of the exchange
offers.
Ability to Resell New Notes.......... Holdings and Enterprises believe that
new notes issued in the exchange offers
may be offered for resale, resold and
otherwise transferred by you without
compliance with the registration and
prospectus delivery provisions of the
Securities Act of 1933 if:
o the new notes issued in the
exchange offers are being acquired
in the ordinary course of your
business;
o you are not participating, do not
intend to participate and have no
arrangement or understanding with
any person to participate in the
distribution of new notes issued to
you in the exchange offers; and
o you are not our affiliate.
If this belief is inaccurate and you
transfer any new note issued to you in
the exchange offers without delivering a
prospectus meeting the requirements of
the Securities Act of 1933 or without an
exemption from registration of your new
notes from such requirements, you may
incur liability under the
-6-
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<PAGE>
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Securities Act of 1933. We do not assume
or indemnify you against such liability.
Each broker-dealer that is issued new
notes in an exchange offer for its own
account in exchange for notes which were
acquired by such broker-dealer as a
result of market-making or other trading
activities, must acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act of
1933 in connection with any resale of
the new notes issued in the exchange
offer. A broker-dealer may use this
prospectus for an offer to resell,
resale or other retransfer of the new
notes issued to it in the exchange
offer.
The exchange offers are not being made
to:
o holders of notes in any
jurisdiction in which the exchange
offers or their acceptance would
not comply with the applicable
securities or blue sky laws of that
jurisdiction; and
o holders of notes who are our
affiliates.
Consequences of Failure to
Exchange Your Notes............... If you do not exchange your notes for
new notes in an exchange offer, you will
continue to have restrictions on
transfer provided in the notes and in
the indenture governing the notes. In
general, your notes may not be offered
or sold unless registered under the
Securities Act of 1933, except if there
is an exemption from, or a transaction
not governed by, the Securities Act of
1933 and applicable state securities
laws. We have no current plans to
register your notes under the Securities
Act of 1933.
Expiration Date...................... Each of the exchange offers will expire
at 5:00 p.m., New York City time, on
________, 1999, unless either of them is
extended. The expiration date is the
latest date and time to which we extend
an exchange offer.
Conditions to the Exchange Offer..... The exchange offers have certain
customary conditions that may be waived.
There is no minimum amount of notes that
must be tendered to complete the
exchange offers.
Procedures for Tendering Your Notes.. If you wish to tender your notes for
exchange in an exchange offer you must
transmit to The Chase Manhattan Bank,
the exchange agent for each of the
exchange offers, on or before the
expiration date of the exchange offers:
either
o a properly completed and executed
letter of transmittal, which has
been provided to you with this
prospectus, or a facsimile of the
letter of transmittal, together
with your notes and any other
documentation requested by the
letter of transmittal, to the
exchange agent at the address set
forth in this prospectus under the
-7-
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<PAGE>
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heading "The Exchange Offers--
Exchange Agent," and on the front
cover of the letter of transmittal;
or
o a computer generated message
transmitted by means of the
Depository Trust Company's
Automated Tender Offer Program
system and received by the exchange
agent and forming a part of a
confirmation of book entry transfer
in which you acknowledge and agree
to be bound by the terms of the
letter of transmittal.
By executing the letter of transmittal,
each holder of notes will make those
representations described under "The
Exchange Offers--Procedures for
Tendering."
Guaranteed Delivery Procedures....... If you wish to tender your notes and
time will not permit the documents
required by the letter of transmittal to
reach the exchange agent prior to the
expiration date of the exchange offers,
or the procedure for book-entry transfer
cannot be completed on a timely basis,
you must tender your notes according to
the guaranteed delivery procedures
described in this prospectus under the
heading "The Exchange Offers--Guaranteed
Delivery Procedures."
Special Procedures
for Beneficial Owners.............. If you are a beneficial owner whose
notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your notes in the exchange offer,
you should contact such registered
holder promptly and instruct such
registered holder to tender on your
behalf. If you wish to tender on your
own behalf, you must, prior to
completing and executing the letter of
transmittal and delivering your notes,
either make appropriate arrangements to
register ownership of the notes in your
name or obtain a properly completed bond
power from the registered holder.
We must advise you that the transfer of
registered ownership may take
considerable time and may not be able to
be completed prior to the expiration
date of the exchange offers.
Withdrawal Rights................... Unless the date is extended, you may
withdraw the tender of your notes at any
time prior to 5:00 p.m., New York City
time, on the expiration date.
Federal Tax Considerations........... The exchange of notes is not a taxable
exchange for United States federal
income tax purposes. You will not
recognize any taxable gain or loss or
any interest income as a result of the
exchange. For additional information
regarding federal income tax
considerations, you should read the
discussion under the heading "Federal
Income Tax Consequences."
Use of Proceeds...................... Neither Holdings nor Enterprises will
receive any proceeds from the issuance
of new notes in the exchange offers.
Holdings and Enterprises will pay all
expenses incident to the exchange
offers.
-8-
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<PAGE>
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Exchange Agent....................... The Chase Manhattan Bank is serving as
the exchange agent for both of the
Exchange Offers. The address, telephone
number and facsimile number is:
The Chase Manhattan Bank
Global Trust Department
379 Thornall Street, 12th Floor
Edison, New Jersey 08837
Attn: Julie Salovitch-Miller,
Vice President
Phone: 732-603-2837
Fax: 732-603-2818
Please review the information contained under the heading "The Exchange
Offers" for more detailed information concerning the Exchange Offers.
-9-
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<PAGE>
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SUMMARY OF TERMS OF THE NEW NOTES
The new notes of Holdings and Enterprises to be issued to you in an
exchange offer will evidence the same obligations of Holdings or Enterprises as
the notes you currently hold. You should be aware that the indenture that
currently governs your notes is the same indenture that will govern the new
notes, except that there will be no legends on the new notes restricting your
transfer of them. A more detailed description of each indenture can be found
under the section headings "Description of the New Notes of Holdings" or
"Description of the New Notes of Enterprises".
New Notes of R.A.B. Holdings, Inc.
Total Amount of New Notes Offered.... $48,000,000 in principal amount.
Maturity............................. May 1, 2008.
Interest Payment Dates............... May 1 and November 1 of each year,
commencing on May 1, 1999.
Security............................. $17.0 million of the net proceeds from
the original sale of Holdings notes was
placed in an escrow account for the
benefit of those note holders. This
amount has been decreased by the amount
of interest paid on those notes on
November 1, 1998. The remainder of the
funds in the escrow account shall be
used to pay interest on both those
outstanding notes and the new notes you
will receive in the exchange, for the
next five scheduled interest payments.
Optional Redemption.................. On or after May 1, 2003, Holdings may
redeem the new notes, in whole or in
part, at the redemption prices described
under the section heading "Description
of the New Notes of Holdings," plus
accrued and unpaid interest, if any, to
the date of redemption.
Change of Control of Holdings........ Upon a change of control of Holdings,
Holdings will be required to offer to
purchase the notes from you at a
purchase price equal to 101% of their
principal amount, plus accrued and
unpaid interest, if any, to the date of
repurchase.
Guarantees........................... None.
Ranking.............................. The new notes:
o are unsecured obligations of
Holdings;
o rank senior in right of payment to
all subordinated debt of Holdings;
-10-
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<PAGE>
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o rank equally in right of payment
with all existing and future
unsecured senior debt of Holdings;
and
o are subordinated in right of
payment to all indebtedness of
Enterprises and its subsidiaries
(including the outstanding notes
and new notes of Enterprises).
As of November 30, 1998, Holdings had no
debt outstanding other than the
outstanding notes. The subsidiaries of
Holdings had approximately $135.9
million of outstanding debt (including
the outstanding notes of Enterprises).
Certain Covenants.................... The indenture under which the new notes
will be issued contains covenants for
your benefit which restrict the ability
of Holdings to, among other things:
o borrow additional money;
o pay dividends on or redeem capital
stock of Holdings, or make certain
other restricted payments or
investments;
o sell certain assets;
o enter into certain transactions
with affiliates of Holdings;
o merge or consolidate with any other
person;
o sell all or substantially all of
the assets of Holdings; or
o impose restrictions on the ability
of a subsidiary to make certain
payments to Holdings and to its
subsidiaries.
Form of the New Notes................ The new notes will be represented by one
or more permanent global securities, in
fully registered form, deposited with a
custodian for, and registered in the
name of a nominee of Depository Trust
Company, or DTC, as depository. You will
not receive notes in registered form
unless one of the events under the
section heading "Book-Entry; Delivery
and Form" occurs. Instead, beneficial
interests in the new notes will be shown
on, and transfers of these interests
will be effected only through, records
maintained in book-entry form by DTC and
its participants.
-11-
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<PAGE>
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Absence of a Public Market........... The new notes generally will be
transferable without any restrictions
but will be new securities for which
there initially will not be a market.
Accordingly, there can be no assurance
that a market will develop or if
developed, will continue. Chase
Securities, Inc. has advised Holdings
that it currently intends to make a
market in the new notes. However, it has
no obligation to make a market, and any
market making with respect to the new
notes may be discontinued at any time
without notice. Holdings currently does
not intend to list the new notes on any
securities exchange or to seek approval
for their quotation on the National
Association of Securities Dealers
Automated Quotation or any other
automated quotation system.
-12-
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<PAGE>
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New Notes of R.A.B. Enterprises, Inc.
Total Amount of New Notes Offered ... $120,000,000 in principal amount.
Maturity............................. May 1, 2005.
Interest Payment Dates............... May 1 and November 1 of each year,
commencing on May 1, 1999.
Optional Redemption.................. On or after May 1, 2002, Enterprises may
redeem the new notes, in whole or in
part, at the redemption prices described
under the section heading "Description
of the New Notes of Enterprises," plus
accrued and unpaid interest, if any, to
the date of redemption. In addition, at
any time on or prior to May 1, 2001,
Enterprises may, at its option, redeem
up to 35% of the principal amount of the
new notes with the net cash proceeds of
one or more public offerings of equity,
at a redemption price equal to 110.5% of
the principal amount to be redeemed,
plus accrued and unpaid interest to the
date of redemption; however, at least
65% of the principal amount of the new
notes must remain outstanding
immediately following such redemption.
Change of Control of Enterprises..... Upon a change of control of Enterprises,
Enterprises will be required offer to
purchase the new notes from you at a
purchase price equal to 101% of their
principal amount, plus accrued and
unpaid interest, if any, to the date of
repurchase.
Subsidiary Guarantees................ The new notes will be fully and
unconditionally, and jointly and
severally, guaranteed by Manischewitz
and Millbrook, each subsidiaries of
Enterprises, and certain future
subsidiaries of Enterprises. The
guarantees will be senior unsecured
obligations of each of these guarantors.
Ranking.............................. The new notes and the guarantees:
o are unsecured obligations of
Enterprises and the guarantors;
o rank senior in right of payment to
all subordinated debt of
Enterprises and the guarantors;
o rank equally in right of payment
with all existing and future
unsecured senior debt of
Enterprises; and
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<PAGE>
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o are subordinated in right of
payment to all secured debt of
Enterprises and the guarantors
(including the debt of the
guarantors under their Credit
Agreement to the extent of the
value of the assets securing such
debt).
As of November 30, 1998, Enterprises had
no outstanding debt other than the
outstanding notes. The guarantors had
approximately $27.1 million of
outstanding debt, excluding the
guarantees. In addition, the guarantors
had approximately $40.4 million of
additional borrowing capacity under the
Credit Agreement.
Certain Covenants.................... The indenture under which the new notes
will be issued contain covenants for
your benefit which restrict the ability
of Enterprises or any of the guarantors
to, among other things:
o borrow additional money;
o pay dividends on or redeem capital
stock of Enterprises, or make
certain other restricted payments
or investments;
o sell certain assets;
o enter into certain transactions
with affiliates of Enterprises or
the guarantors;
o merge or consolidate with any other
person;
o sell all or substantially all of
the assets of Enterprises and its
subsidiaries; or
o impose restrictions on the ability
of a subsidiary to make certain
payments to Enterprises and to its
subsidiaries.
Form of the New Notes................ The new notes will be represented by one
or more permanent global securities, in
fully registered form, deposited with a
custodian for, and registered in the
name of a nominee of DTC, as depository.
You will not receive notes in registered
form unless one of the events under the
section heading "Book-Entry; Delivery
and Form" occurs. Instead, beneficial
interests in the new notes will be shown
on, and transfers of these interests
will be
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<PAGE>
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effected only through, records
maintained in book-entry form by DTC and
its participants.
Absence of a Public Market........... The new notes generally will be
transferable without restrictions but
will be new securities for which there
initially will not be a market.
Accordingly, there can be no assurance
that a market will develop or if
developed, will continue. Chase has
advised Enterprises that it currently
intends to make a market in the new
notes. However, it has no obligation to
make a market, and any market making
with respect to the new notes may be
discontinued at any time without notice.
Enterprises currently does not intend to
list the new notes on any securities
exchange or to seek approval for their
quotation on the National Association of
Securities Dealers Automated Quotation
or any other automated quotation system.
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ABOUT OUR BUSINESS
WHO WE ARE
o Holdings and Enterprises.
Holdings was organized in 1996 to enter the distribution business and to
expand this business by acquiring food manufacturers with brand names known to
the general public. In March 1997, Holdings acquired Millbrook. Millbrook is a
full service independent distributor of specialty foods, health and beauty care
products and general merchandise. To expand Holdings' specialty food product
offerings, Holdings established Enterprises. Enterprises acquired Manischewitz,
a manufacturer of Kosher food products, in May 1998 for approximately $126.2
million. At the same time as the closing of the acquisition of Manischewitz,
Holdings contributed all of the capital stock of Millbrook to Enterprises, and
Millbrook became a wholly owned subsidiary of Enterprises.
o Millbrook.
Millbrook offers over 35,000 items in its three primary product categories:
specialty foods, health and beauty care and general merchandise. Through
Millbrook, we provide distribution services to over 13,000 retail locations in
40 states east of the Rocky Mountains. Millbrook also carries a line of its own
private label brands as well as store brands and other special need items for
specific customers. Millbrook Retail Solutions(sm), one of Millbrook's
divisions, provides a variety of merchandising services, without associated
product sales, to manufacturers, distributors and retailers across various
product categories in all trade channels.
o Manischewitz.
Manischewitz, founded in 1888, is a manufacturer of processed Kosher food
products including matzos, noodles, crackers, cake mixes, cookies, soups and
processed fish products. Manischewitz markets products under the brand names
Manischewitz(R), Horowitz Margareten(R) and Goodman's(R). We believe that
Manischewitz products have significant brand recognition and customer loyalty.
We believe that sales of Kosher for Passover products are stable as most of the
Jewish population in the U.S. attend Passover seders each year at which matzo
and other Kosher for Passover products are consumed.
The organizational structure of our companies is set forth on the chart
below:
---------------
HOLDINGS
---------------
|
|
|
---------------
ENTERPRISES
---------------
|
___________|____________
| |
| |
------------- ----------------
MILLBROOK MANISCHEWITZ
------------- ----------------
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<PAGE>
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OUR CUSTOMERS AND SUPPLIERS
Millbrook's principal customers include supermarkets and mass merchandisers
such as Shaws, Star Market, Stop & Shop, Food Lion, Ukrop's, Dierbergs,
Albertsons, Ames and Super Kmart. Millbrook carries a line of its own private
label brands as well as store brands, and other special need items for specific
customers.
Millbrook has over 1,500 supplier relationships nationally, including
relationships with major consumer product companies such as Procter & Gamble,
Johnson & Johnson, Gillette, Rubbermaid and BestFoods.
Manischewitz principally sells its products to independent distributors
operating throughout the U.S. and Canada. Manischewitz's five largest
supermarket customers are American Stores, Ralph's, Shoprite, Pathmark and A&P.
In addition, Manischewitz has developed a marketing arrangement with Wal-Mart to
carry Manischewitz's products in its supercenters and general merchandise
stores.
HOW WE HAVE DONE
We have presented pro forma financial information in this prospectus. You
should be aware that pro forma information does not indicate actual results and
may not indicate future results. We have provided pro forma information because
we believe our acquisitions in 1997 and 1998 make the pro forma information more
meaningful to you. For details of our financial results, we urge you to read the
sections under the headings "Summary Financial Data", "Unaudited Pro Forma
Condensed Consolidated Statements of Operations", "Selected Historical Financial
Data" and "Management's Discussion and Analysis of Financial Conditions And
Result of Operations."
OUR EXPANSION PLANS
We actively evaluate acquisition candidates in the specialty food and
distribution businesses. We do not currently have a binding agreement with
respect to any acquisition.
--------------------------
Before you decide to exchange your notes for new notes, you should
carefully consider all of the information in this prospectus and, in particular,
should evaluate the specific factors under "Risk Factors" beginning on page 21
for risks involved with your exchange of your notes for new notes. We also
encourage you to read the section headings "Management's Discussion and Analysis
of Financial Condition and Results of Operations", "Business", and "Management"
for a more complete understanding of our business and operations.
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc. are Delaware
corporations. Our executive offices are located at 444 Madison Avenue, Suite
601, New York, New York 10022 and our telephone number is (212) 688-4500.
--------------------------
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<PAGE>
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SUMMARY FINANCIAL DATA
Summary Pro Forma Financial Data
R.A.B. Holdings, Inc.
and R.A.B. Enterprises, Inc.
The following table sets forth summary pro forma consolidated financial data of
Enterprises and Holdings for the fiscal year ended March 31, 1998, and for the
six month period ended September 30, 1998. The unaudited pro forma consolidated
financial data have been derived from Enterprises and Holdings consolidated
historical financial statements for the fiscal year ended March 31, 1998 and the
six month period ended September 30, 1998 and give effect to the acquisition of
Manischewitz and the issuance of the notes as of the beginning of each period
presented. The unaudited pro forma consolidated financial data are not intended
to represent and are not indicative of what Enterprises and Holdings results of
operations actually would have been nor are they intended to project Enterprises
and Holdings results of operations for any future period. The following
information is qualified by reference to, and should be read in conjunction
with,"The Transactions," "Capitalization," "Unaudited Pro Forma Condensed
Consolidated Statements of Operations," "Selected Historical Financial Data of
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc.", "Selected Historical
Combined Financial Data of The B. Manischewitz Company, LLC," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
Holdings and Enterprises consolidated financial statements and unaudited
condensed consolidated financial statements, and notes thereto, and
Manischewitz's combined financial statements and unaudited condensed combined
financial statements, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
--------------------------- ---------------------------
Enterprises Holdings Enterprises Holdings
----------- -------- ----------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $524,575 $524,575 $236,622 $236,622
Operating expenses.......................... 507,895 507,903 237,377 237,377
Operating income (loss)..................... 16,680 16,672 (755) (755)
Other Financial Data:
Ratio of earnings to fixed charges(a)
</TABLE>
(a) For purposes of determining the pro forma ratio of earnings to fixed
charges, "earnings" consist of income before income taxes and fixed charges
and "fixed charges" consist of interest on all indebtedness, amortization
of deferred financing costs and that portion of rental expense that
management believes to be representative of interest. On a pro forma basis,
the deficiency in earnings to fixed charges was $92,000 for Enterprises and
$5.499 million for Holdings for the fiscal year ended March 31, 1998 and
$8.605 million for Enterprises and $11.267 million for Holdings for the six
month period ended September 30, 1998.
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<PAGE>
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Summary Historical Financial Data
R.A.B. Holdings, Inc.
and R.A.B. Enterprises, Inc.
The following table sets forth summary historical consolidated financial data of
Enterprises and Holdings for the fiscal year ended March 31, 1998, and for the
six month periods ended September 30, 1997 and 1998, and historical financial
data of Millbrook (the "Predecessor") for each of the two years in the period
ended March 31, 1997. The historical consolidated financial data for the fiscal
year ended March 31, 1998 have been derived from Enterprises and Holdings
audited consolidated financial statements, included elsewhere herein. The
historical consolidated financial data for the six month periods ended September
30, 1997 and 1998 have been derived from Enterprises and Holdings unaudited
condensed consolidated financial statements, included elsewhere herein, which in
the opinion of management include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the information. The
Predecessor financial data for each of the two years in the period ended March
31, 1997 have been derived from the Predecessor's audited financial statements,
included elsewhere herein. The unaudited condensed consolidated financial
statements for the six month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
following information is qualified by reference to, and should be read in
conjunction with, "Selected Historical Financial Data of R.A.B. Holdings, Inc.
and R.A.B. Enterprises, Inc.," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," Holdings and Enterprises
consolidated financial statements and unaudited condensed consolidated financial
statements, and notes thereto, and the Predecessor financial statements, and
notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Predecessor(a) Enterprises Holdings(b) Enterprises Holdings(b)
-------------- ----------- ----------- ----------- -----------
Fiscal Year Ended Fiscal Year Ended Six Months Ended Six Months Ended
March 31, March 31, September 30, September 30,
--------------------- ----------------------- ---------------------- ----------------------
1996 1997 1998 1997 1998 1997 1998
--------- --------- ----------------------- --------- --------- --------- ---------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues $ 563,099 $ 476,175 $ 470,201 $ 470,201 $ 222,772 $ 234,455 $ 222,772 $ 234,455
Operating income (loss) 13,611 7,375 7,383 7,375 2,300 (908) 2,296 (908)
Net income (loss) 6,169 1,941 1,182 1,174 (287) (5,027) (291) (7,276)
</TABLE>
- ----------
(a) The Predecessor was acquired on March 31, 1997. Financial information with
regard to the Predecessor is based on historical results and, accordingly,
does not reflect purchase accounting adjustments or interest associated
with debt incurred to finance the acquisition. The Predecessor was a wholly
owned subsidiary of McKesson Corporation. As a wholly owned subsidiary of
McKesson Corporation, the Predecessor was provided certain corporate and
general and administrative services, including, among other things,
treasury, certain financial reporting, data processing and legal services.
Accordingly, the operations of the Predecessor include an allocation of
expenses for such services. Additionally, because McKesson Corporation
managed cash and financing requirements centrally, interest expense and
borrowing requirements were based on the then existing capital structure.
The financial position and operations of the Predecessor may differ from
results that may have been achieved had the Predecessor operated as an
independent entity.
(b) Holdings, which was formed in 1996, did not have any income or expenses
prior to the fiscal year beginning April 1, 1997.
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<PAGE>
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Summary Historical Combined Financial Data
The B. Manischewitz Company, LLC
The following table sets forth summary historical combined financial data of
Manischewitz for each of the three years in the period ended July 31, 1997, and
for the nine month periods ended April 30, 1997 and 1998. The historical
combined financial data for each of the three years in the period ended July 31,
1997 have been derived from the audited combined financial statements of
Manischewitz, included elsewhere herein. The historical combined financial data
for the nine month periods ended April 30, 1997 and 1998 have been derived from
unaudited condensed combined financial statements of Manischewitz, included
elsewhere herein, which in the opinion of management include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the information. The historical combined financial data for the nine month
period ended April 30, 1998 are not necessarily indicative of results that may
be expected for the full fiscal year. The following information is qualified by
reference to, and should be read in conjunction with, "Selected Historical
Combined Financial Data of The B. Manischewitz Company, LLC ," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Manischewitz's combined financial statements and unaudited condensed combined
financial statements, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended July 31, April 30,
-------------------------------------- -----------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues(a).................... $ 49,581 $ 52,399 $ 54,787 $ 46,387 $ 44,481
Operating income..................... 7,348 8,211 9,807 9,445 9,381
Net income(b)(c)..................... 2,267 1,932 5,321 6,057 6,291
</TABLE>
(a) In June 1997, Manischewitz sold its Chicago distribution operation. This
operation had revenues of $4.083 million for the nine month period ended
April 30, 1997.
(b) Fiscal 1996 net income includes an extraordinary charge for the early
extinguishment of debt ($1.965 million) and a charge for the cumulative
effect of a change in accounting principle relating to post retirement
benefits ($754,000).
(c) Effective May 31, 1996, The B. Manischewitz Company was reorganized as a
limited liability company. Accordingly, deferred income tax attributes of
$2.42 million at May 31, 1996 flowed through the provision (benefit) for
income taxes. Subsequent to May 31, 1996, income taxes, if any, are the
obligation of the shareholders and partners of Manischewitz. Pro forma
income tax expense and pro forma net income (loss) as if Manischewitz had
been a taxable entity is $1.952 million and ($165,000) for the fiscal year
ended July 31, 1996; $2.415 million and $2.906 million for the fiscal year
ended July 31, 1997; $2.749 million and $3.308 million for the nine months
ended April 30, 1997, and; $2.735 million and $3.556 million for the nine
months ended April 30, 1998.
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<PAGE>
RISK FACTORS
A decision to invest in the new notes involves a high degree of risk.
Before making your decision to invest, you should give careful consideration to
the following factors, as well as the other information in this prospectus.
RISKS ASSOCIATED WITH THE EXCHANGE OFFERS
Consequences of your failure to participate in an Exchange Offer - If you
do not elect to exchange your notes for new notes you will hold securities that
are not registered and that contain restrictions on transfer.
As we explained earlier, the notes not tendered or exchanged will remain
restricted securities. That means that if you desire to resell, pledge or
otherwise transfer your old notes at some future time, your notes may be resold,
pledged or transferred only as follows:
o if such security is eligible for resale pursuant to Rule 144A under
the Securities Act of 1933, to a qualified institutional buyer that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A;
o in an offshore transaction in accordance with Regulation S under the
Securities Act of 1933;
o under an available exemption from registration provided by Rule 144 or
Rule 145 under the Securities Act of 1933;
o in reliance on another exemption from the registration requirements of
the Securities Act of 1933, but only upon the receipt by the registrar
of a certification of the transferor and a satisfactory opinion of
counsel to the effect that such transfer is in compliance with the
Securities Act of 1933; or
o under an effective registration statement under the Securities Act of
1933, in each case in accordance with any applicable securities law of
any state of the United States.
Following the exchange offers, if you do not elect to participate in an
exchange offer you will not be entitled to any further registration rights under
the registration rights agreements or under the purchase agreement governing
your notes, except for certain shelf registration rights. See "The Exchange
Offers -- Purpose and Effect". Neither Holdings nor Enterprises currently intend
to file a registration statement to register your outstanding notes except in
connection with these exchange offers.
No Public Market for the New Notes - There is no publicly traded market for
the new notes and there is no certainty that a market will develop in the
future.
Although Chase Securities, Inc. has informed Holdings and Enterprises that
it currently intends to make a market in the new notes, it is not obligated to
do so and any such market making may be discontinued at any time without notice.
Accordingly, we cannot assure you that any market for the new notes will develop
or, if it develops, whether a holder will have the ability to buy and sell the
new notes easily in what is commonly known as a "liquid" market. To the extent
that your notes are exchanged in an exchange offer, the trading market for the
notes you do not exchange may be even more limited. While the new notes are
expected to be eligible for trading in the Portal Market, Holdings and
Enterprises currently do not intend to list the new notes on any securities
exchange or to seek approval for their quotation on the National Association of
Securities Dealers Automated Quotation or any other automated quotation system.
-21-
<PAGE>
RISKS ASSOCIATED WITH A SIGNIFICANT LEVEL OF DEBT FINANCING
Ability to Pay Debt Obligations may be Impaired - Payment of the interest
and principal on the new notes will require a significant amount of cash flow
from our subsidiaries. These cash flows are limited by many factors.
If there is a default under the Credit Agreement, distributions from
Millbrook and Manischewitz may not be available to Holdings and Enterprises to
pay the interest on the new notes. In addition, a default under the indenture
governing the new notes of Enterprises will prohibit dividends or distributions
by Enterprises to Holdings sufficient to pay interest on the new notes of
Holdings on or after November 1, 2003. Prior to that time, dividends or
distributions by Enterprises to Holdings are permitted only to the extent that
such payment is permitted by the indenture.
While we believe that Millbrook and Manischewitz are currently in
compliance with the covenants contained in their Credit Agreement and are able
to make distributions to Enterprises to pay scheduled interest payments on the
new notes of Holdings and Enterprises, future compliance cannot be assured. You
should be aware that $17.0 million of the net proceeds from the original sale of
Holdings notes was placed in an escrow account for the benefit of the holders of
those notes and holders of new notes will receive the benefits of the escrow
account. See "Prospectus Summary -- Summary of Terms of the New Notes."
The future operating performance and financial results of Manischewitz and
Millbrook cannot be assured and may limit the cash available to pay our debt.
Factors such as prevailing economic conditions and financial, business and other
factors, which are beyond the control of Manischewitz and Millbrook, may affect
the future operating performance and financial results of Manischewitz and
Millbrook.
There currently is not enough cash flow available to make principal
payments on the new notes. Unless Manischewitz and Millbrook increase their
revenues from sales and their profitability, Holdings and Enterprises will not
meet their obligations. We are currently analyzing new products and formulating
plans to increase revenues but have not been successful to date.
Significant Level of Debt - Our substantial debt obligations could
adversely affect our financial health and future profitability and also prevent
Holdings and Enterprises from fulfilling their obligations under the new notes.
This high level of debt may limit our ability to:
o obtain additional financing for working capital, capital expenditures,
acquisitions or general corporate purposes;
o make capital expenditures;
o weather general economic or business downturns; or
o compete effectively or take advantage of business opportunities.
In addition, the debt under the Credit Agreement is at variable interest
rates. If market interest rates increase, this variable-rate debt will create
higher debt service requirements for Manischewitz and Millbrook, which would
adversely affect our cash flow. On May 1, 1997, we entered into a 3-year
interest rate protection agreement that effectively caps rates on a notional
principal amount on $50.0 million of borrowings at 7-5/8% for London Interbank
Offered Rate loans.
-22-
<PAGE>
The final payment of the debt under the Credit Agreement must be paid
before the final payment of the outstanding notes and the new notes. If the
Credit Agreement cannot be refinanced, or funds cannot be raised to repay the
Credit Agreement through asset sales, sales of equity or otherwise, the ability
to pay the principal of and interest on the new notes would be adversely
affected.
The ability to pay interest on the new notes will depend on our future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors beyond our control. There can be no
assurance that the operations of Manischewitz and Millbrook will generate future
earnings sufficient to pay the principal and interest on the new notes. Without
adequate operating results and cash flows, we may be required to adopt
alternative strategies, some of which may not be permitted by the indentures.
These strategies include reducing or delaying capital expenditures, disposing of
material assets or operations, refinancing the debt represented by the notes,
seeking additional equity capital to meet debt service obligations or causing
Manischewitz and Millbrook to refinance the Credit Agreement.
We cannot assure the timing of any of these actions, our ability to take
these actions under our existing financial agreements or the proceeds that we
could realize after we complete them, and we cannot be sure that any such
refinancing would be possible at that time or that such proceeds would be
adequate to meet our current obligations.
You should read the sections "Description of Credit Agreement,"
"Description of the New Notes of Enterprises" and "Description of the New Notes
of Holdings" for more information about our debt obligations and the
restrictions we have on our operations as a result of our debt.
Cross Default Provisions in the Credit Agreement and the Indentures - a
default under a debt instrument may result in a default under the Credit
Agreement and the indentures.
An event of default will occur under the Credit Agreement if Millbrook or
Manischewitz is in default with respect to any debt instrument having an
outstanding principal amount of $1,000,000 or more and the creditors under the
debt instrument may declare all amounts borrowed under such debt instrument to
be immediately repaid in full. If an event of default has occurred under the
Credit Agreement, the creditors may require that all amounts borrowed under the
Credit Agreement be immediately repaid, and the commitment to make further loans
to Millbrook and Manischewitz under the Credit Agreement could be terminated.
The guarantee of the Enterprises' notes by Millbrook and Manischewitz is
considered debt under the Credit Agreement. If Millbrook and Manischewitz
default under their guarantee, an event of default will occur under the Credit
Agreement.
An event of default will occur under each of the indentures if Holdings,
Enterprises, Millbrook or Manischewitz is in default with respect to any debt
instrument having an outstanding principal amount of $2,000,000 or more that has
resulted in the acceleration of the payment of such debt or fails to pay such
debt when due. If an event of default has occurred under the indentures, holders
of at least 25% of the outstanding notes may require that the notes be
immediately repaid in full. So if an event of default occurs under the Credit
Agreement and the creditors accelerate payment of the debt, an event of default
will occur under the indentures.
Prior Lien on Assets - Your right to receive payment on the new notes and
the guarantees of the new notes of Enterprises are junior in right of payment to
the secured debt under the existing Credit Agreement and any future secured
debt.
Before final payments are made on the new notes and on the guarantees of
the new notes of Enterprises, all of the secured debt of Millbrook and
Manischewitz under the Credit Agreement must be repaid, to the extent of the
value of the assets securing such debt.
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<PAGE>
If an event of default occurs under the Credit Agreement, creditors with a
security interest will have a prior secured claim on the capital stock of
Millbrook and the pledged assets of Millbrook and Manischewitz. If such
creditors attempt to foreclose on their collateral, our financial condition and
the value of the new notes would be affected materially and adversely. The
holders of the new notes have no claim on the assets of Millbrook or
Manischewitz. You should read the discussions under the section heading
"Description of Credit Agreement" for further information regarding the security
under the Credit Agreement.
Restrictive Debt Covenants in the Credit Agreement and the Indentures
governing the New Notes - certain provisions in our debt instruments may
restrict our ability to expand, pursue business strategies and make payments on
the new notes and contain other limitations.
The Credit Agreement imposes certain financial and operating covenants on
Millbrook and Manischewitz which are summarized in the section heading
"Description of Credit Agreement."
The indentures governing the new notes contain a number of significant
covenants which are summarized in the section heading "Prospectus Summary --
Description of the New Notes", "Description of the New Notes of Enterprises" and
"Description of the New Notes of Holdings."
Any of these restrictions, and other covenants in the Credit Agreement and
the indentures not mentioned above, may restrict our ability to expand or to
pursue our business strategies and may restrict the ability of Enterprises or
Holdings to make payments, including interest payments, on the new notes.
Financing Obligations upon a Change of Control - If a change of control
occurs, we may not have the assets necessary to satisfy our obligations under
the Credit Agreement or the indentures.
Upon a change of control of Holdings or Enterprises, Holdings or
Enterprises will be required to make an offer to repurchase their outstanding
notes, including the new notes, at a price equal to 101% of their principal
amount, plus accrued and unpaid interest. If a change of control occurs, the
Credit Agreement prohibits Holdings or Enterprises from purchasing their
outstanding notes until the debt under the Credit Agreement is fully paid. This
failure of Holdings or Enterprises to repurchase its outstanding notes upon a
change of control, including the new notes, would result in a default under the
indentures governing the notes. A change of control also constitutes a default
under the Credit Agreement. If a change of control occurs, we cannot ensure that
we will have sufficient cash flow or assets to satisfy our obligations under the
notes or the Credit Agreement. You should read the section headings "Description
of Credit Agreement," "Description of the New Notes of Enterprises --Change of
Control" and "Description of the New Notes of Holdings --Change of Control" for
more information on the change of control provisions.
Fraudulent Conveyance Considerations for the New Notes and the Guarantees -
Federal and state statutes allow courts, under specific circumstances, to
possibly void our obligations under the new notes and the guarantees.
The incurrence of debt, including the new notes, and the use of proceeds
from the issuance of debt, are governed by relevant federal and state fraudulent
conveyance statutes in a bankruptcy or reorganization case or a lawsuit by or on
behalf of any of the creditors of Holdings or Enterprises. Under these statutes,
a court will determine if the obligations, including the new notes, were
incurred:
o with the intent of hindering, delaying or defrauding present or future
creditors or if Holdings or Enterprises received less than a
reasonably equivalent value or fair consideration for their
obligations and, at the time of the occurrence of the obligations, the
obligor:
-24-
<PAGE>
o was insolvent or rendered insolvent as a result of the obligations; or
o was engaged or was about to engage in a business or transaction after
which its remaining unencumbered assets constituted unreasonably small
capital; or
o intended to or believed that it would incur debts beyond its ability
to pay such debts as they matured or became due.
If a court determined that the above was true, it could void Holdings' or
Enterprises' obligations under the new notes, subordinate the new notes to other
debt of Holdings or Enterprises, or take other action detrimental to the holders
of the new notes.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied in any
proceeding. We cannot assure which standard a court would apply to evaluate the
parties' intent or to determine whether Holdings or Enterprises was insolvent at
the time of, or rendered insolvent on completion of, the acquisition of
Manischewitz. Moreover, regardless of the standard it applies, a court could
determine that Holdings or Enterprises was insolvent at the time of, or rendered
insolvent on completion of, the transactions mentioned above, and we cannot give
any assurance that a court would determine otherwise.
In addition, the guarantees of the new notes of Enterprises may be reviewed
under relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the guarantors of these notes. In such a case, the analysis set forth
above would generally apply. A court could void a guarantor's obligation under
its guarantee, subordinate the guarantee to other debt of a guarantor or take
other action detrimental to the holders of the new notes of Enterprises.
RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS
Seasonality as a result of the Passover Holiday - the business of
Manischewitz is highly cyclical in nature and is dependent on receipt and
availability of cash at specific times.
Sales of Manischewitz's products increase during the Passover holiday and
as a result Manischewitz's revenues and net income generally increase in the
first quarter of the calendar year. During the twelve month period ended
September 30, 1998, approximately 54% of Manischewitz's revenues occurred in the
first quarter of the calendar year. As a result of this seasonality,
Manischewitz's working capital requirements have historically increased
throughout the year, peaking in the March and April period when Manischewitz's
utilization of the revolving credit portion of the Credit Agreement is likely to
be at its highest level. If cash flow from operations is insufficient to provide
working capital necessary to fund operations during the second quarter of any
calendar year, Manischewitz will need to borrow additional funds under the
Credit Agreement or seek other sources of capital. Although we believe that
funds available under the Credit Agreement, together with cash generated from
operations, will be adequate to provide for cash requirements, there can be no
assurance that such capital resources will be sufficient in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--The B. Manischewitz Company, LLC."
Strong Competition in the Distribution Industry - Millbrook and
Manischewitz compete against distributors and manufacturers across all of their
product lines and against other larger companies with greater resources.
The entrance of new competitors into the industry or the expansion of
operations by existing competitors could have a material adverse effect on
Millbrook's results of operations. Moreover, the distribution industry has
narrow gross profit and operating profit margins. As a result of these narrow
margins, any variations in sales and operating
-25-
<PAGE>
costs magnify the impact on operating results. In the specialty foods category,
supermarkets are constantly demanding increased product offerings to entice new
customers into their stores while retaining existing clientele. In the
distribution of health and beauty care products, supermarkets demand delivery
and inventory techniques which maximize limited shelf space and enhance product
variety while helping to keep prices low. Similarly, supermarkets increasingly
rely on distributors of general merchandise to carry items specifically matched
to customer profiles.
Manischewitz competes for shelf space with other manufacturers in the
Kosher section of supermarkets. Outside of the Kosher section, Manischewitz
products compete with the products of a significant number of companies of
varying sizes, including divisions or subsidiaries of larger companies. Many of
these competitors have multiple product lines as well as substantially greater
financial and other resources available to them. There is no assurance that
Manischewitz products can successfully compete against the products of these
competitors. See "Business--Business of Millbrook--Competition" and
"Business--Business of Manischewitz--Competition."
Management Information Systems - Millbrook is highly dependent on its
systems to operate its business and a failure to successfully implement its new
systems could have a material and adverse effect on them.
In connection with the acquisition of Millbrook, Millbrook entered into a
transitional services agreement in March 1997 with McKesson Corporation, its
former parent, whereby Millbrook utilizes, for a fee, certain computer and data
processing services and programming services of McKesson. Since the transitional
services agreement will expire in March 1999, in October 1998 Holdings entered
into a multi-year agreement with an independent service bureau to out-source
certain of its computer and data processing services. Holdings expects these
services will be provided by the independent service bureau in February 1999.
Concurrently, Millbrook is in the process of implementing new management
information systems that affect broad aspects of its operations. These systems
are expected to be completed in three to five years with projected capital
expenditures of $6.0 to $7.0 million. We cannot assure that these systems will
be successfully implemented. Moreover, additional capital expenditures may be
required to complete these systems and implementation of these systems may
result in a disruption of Millbrook's operations.
Executive Officers - We depend on the services of several key officers and
the loss of certain of our executives could have a significant detrimental
effect on us.
While we believe that we have assembled an effective management team and
that the loss of one of our members would not materially affect our operation,
the loss of either Mr. Bernstein or a number of the executive officers of
Holdings and Enterprises at any one time could have a material adverse effect on
us. Holdings and Enterprises do not maintain "key person" life insurance on the
lives of any of its executive officers. Our continued success will also depend
on our ability to retain existing, and attract additional, qualified personnel
to meet our needs. See "Management--Directors and Executive Officers."
Ability to Process Information in the Year 2000 - If our computer
technology cannot recognize the year 2000 it could result in severe business
interruptions detrimental to our business.
We use computer technologies throughout our business to carry out its
day-to-day operations effectively. Similar to most companies, as the year 2000
approaches we must determine if our systems are capable of properly recognizing
and processing date sensitive information. We are using a multi-phased
concurrent approach to address our year 2000 project, which include the
awareness, assessment, remediation, validation and implementation phases. An
interruption of our ability to conduct our business due to a year 2000 readiness
problem could have a material adverse effect on us.
We have contacted our significant suppliers, customers, and critical
business partners to determine the extent to which we may be vulnerable if these
third-parties fail to properly remediate their own year 2000 issues. While we
are not presently aware of any such significant exposure, there can be no
guarantee that the systems of third-parties will be
-26-
<PAGE>
converted in a timely manner. Since we rely on certain other companies, a
failure of these other companies to properly convert its systems could have a
material adverse effect on us.
For a complete discussion and analysis of our year 2000 project, including
the costs incurred, please see the section heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Project".
-27-
<PAGE>
THE TRANSACTIONS
The Acquisition
On May 1, 1998, Enterprises acquired Manischewitz from entities controlled
by and individuals affiliated with Kohlberg & Co., L.L.C., a New York merchant
banking firm, for a purchase price of approximately $126.2 million. This amount
included the repayment of Manischewitz's existing debt of approximately $38.8
million, and an estimated $1.9 million of fees and expenses.
The gross proceeds of $168.0 million raised in connection with the sale of
the outstanding notes of Holdings and Enterprises were used to:
(1) pay the purchase price for Manischewitz of approximately $126.2
million;
(2) reduce outstanding borrowings by approximately $18.8 million under the
revolving credit portion of the Credit Agreement,
(3) fund an interest escrow account with $17.0 million to pay interest on
the notes of Holdings for the first six scheduled interest payment
dates for the benefit of the holders thereof; and
(4) pay fees and expenses of approximately $6.0 million relating to the
sale of the outstanding notes.
Financing of the Acquisition
Holdings contributed the net proceeds of the sale of their notes ($29.4
million) to the common equity of Enterprises. Enterprises used the net proceeds
of the sale of its notes, together with the capital contribution from Holdings,
to complete the acquisition of Manischewitz. Concurrently with the acquisition
of Manischewitz, the Credit Agreement was amended to provide, among other
things: (1) for Manischewitz and Millbrook to be co-borrowers under the Credit
Agreement, (2) the granting of a security interest in the accounts receivable,
inventory and intellectual property of Manischewitz to provide collateral under
the Credit Agreement and (3) certain assets of Manischewitz to be included in
the determination of the borrowing base under the Credit Agreement. As of
November 30, 1998, Manischewitz and Millbrook had approximately $40.4 million of
additional borrowing capacity under the Credit Agreement.
USE OF PROCEEDS
Neither Holdings nor Enterprises will receive any cash proceeds from the
issuance of the new notes offered hereby and the issuance of the new notes will
not result in any change in the capitalization of Holdings or Enterprises.
-28-
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents and
capitalization of Enterprises and Holdings as of September 30, 1998. This
information should be read in conjunction with "The Transactions," "Selected
Historical Financial Data of R.A.B. Holdings, Inc. and R.A.B. Enterprises,
Inc.," "Selected Historical Financial Data of The B. Manischewitz Company, LLC,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Holdings and Enterprises consolidated financial statements and
unaudited condensed consolidated financial statements, and notes thereto, and
Manischewitz's combined financial statements and unaudited condensed combined
financial statements, and notes thereto, included elsewhere herein.
As of
September 30, 1998
-----------------------
Enterprises Holdings
----------- --------
(Dollars in Thousands)
Cash and cash equivalents .......................... $ 4,099 $ 4,099
======== ========
Long-term debt (including current portion):
Credit Agreement(a) ............................. $ 15,878 $ 15,878
Enterprises Notes ............................... 120,000 120,000
Holdings Notes .................................. 48,000
-------- --------
Total long-term debt ............................ 135,878 183,878
Total stockholders' equity ...................... 35,637 3,900
-------- --------
Total capitalization ............................ $171,515 $187,778
======== ========
(a) At September 30, 1998, $15.9 million was outstanding under the Credit
Agreement, consisting of revolving credit borrowings of $7.1 million and an
amortizing term loan of $8.8 million, and approximately $49.5 million of
additional borrowing capacity was available under the Credit Agreement.
-29-
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
fiscal year ended March 31, 1998 and the six month period ended September 30,
1998 include the historical operations of Enterprises and Holdings for the
fiscal year ended March 31, 1998 and the six month period ended September 30,
1998, respectively, and give effect to the acquisition of Manischewitz and the
issuance of the outstanding notes, as if they had occurred as of the beginning
of each period presented. The pro forma adjustments give effect to the
utilization of the excess proceeds from the sale of the outstanding notes to
repay a portion of the amounts outstanding under the Credit Agreement.
The aforementioned acquisition has been accounted for by the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values, based on preliminary allocations of
purchase price, which are subject to further refinement and adjustment,
including appraisals and other analyses, with appropriate recognition given to
the effects of current interest rates and deferred income taxes. Management does
not expect that the final allocations of the purchase price for the acquisition
will differ materially from the preliminary allocations.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations are not
intended to represent and are not indicative of the results of operations of
Enterprises and Holdings had the transactions or events assumed therein occurred
on the dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. Additionally, the Unaudited Pro
Forma Condensed Consolidated Statements of Operations do not reflect potential
cost savings and revenue enhancements that management believes may be realized
following the acquisition. No assurances can be given as to the amounts of cost
savings or revenue enhancements, if any, that may be realized.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations are
based on available information and certain assumptions and adjustments as
described in the notes thereto, which management of Enterprises believes is
reasonable under the circumstances. The Unaudited Pro Forma Condensed
Consolidated Statements of Operations should be read in conjunction with "The
Transactions," "Risk Factors," "Capitalization," "Selected Historical Financial
Data of R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc." "Selected Historical
Combined Financial Data of The B. Manischewitz Company, LLC," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
Holdings and Enterprises consolidated financial statements and unaudited
condensed consolidated financial statements, and notes thereto, and
Manischewitz's combined financial statements and unaudited condensed combined
financial statements, and notes thereto, included elsewhere herein.
-30-
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
R.A.B. HOLDINGS, INC.
AND R.A.B. ENTERPRISES, INC.
Fiscal Year Ended March 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical(a) Enterprises Holdings
-------------------------- Pro Forma Enterprises Pro Forma Holdings
Enterprises Manischewitz Adjustments Pro Forma Adjustments Pro Forma
----------- ------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................. $ 470,201 $ 54,374 $ $ 524,575 $ $ 524,575
Costs and expenses:
Cost of sales ..................... 360,162 33,288 239 (b) 393,689 393,689
Other costs and expenses .......... 102,656 10,283 1,267 (b) 114,206 8 (e) 114,214
--------- --------- --------- --------- --------- ---------
Total costs and expenses .......... 462,818 43,571 1,506 507,895 8 507,903
Operating income ..................... 7,383 10,803 (1,506) 16,680 (8) 16,672
Interest expense, net ................ 5,079 4,239 7,454 (c) 16,772 5,399 (f) 22,171
--------- --------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes ........... 2,304 6,564 (8,960) (92) (5,407) (5,499)
Provision (benefit) for income
taxes ................................ 1,122 (664)(d) 458 (1,892)(g) (1,434)
--------- --------- --------- --------- --------- ---------
Net income (loss) .................... $ 1,182 $ 6,564 $ (8,296) $ (550) $ (3,515) $ (4,065)
========= ========= ========= ========= ========= =========
<CAPTION>
Six Months Ended September 30, 1998
(Dollars in Thousands)
Historical(a) Enterprises Holdings
-------------------------- Pro Forma Enterprises Pro Forma Holdings
Enterprises Manischewitz Adjustments Pro Forma Adjustments Pro Forma
----------- ------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................. $ 234,455 $ 2,167 $ $ 236,622 $ $ 236,622
Costs and expenses:
Cost of sales ..................... 179,248 1,169 19(b) 180,436 180,436
Other costs and expenses .......... 56,115 706 120(b) 56,941 56,941
--------- --------- --------- --------- --------- ---------
Total costs and expenses .......... 235,363 1,875 139 237,377 237,377
Operating income (loss) .............. (908) 292 (139) (755) (755)
Interest expense, net ................ 6,905 323 622(c) 7,850 2,662(f) 10,512
--------- --------- --------- --------- --------- ---------
Loss before provision (benefit)
for income taxes ................... (7,813) (31) (761) (8,605) (2,662) (11,267)
Provision (benefit) for income
taxes .............................. (2,786) 445(d) (2,341) 1,892(g) (449)
--------- --------- --------- --------- --------- ---------
Net loss ............................. $ (5,027) $ (31) $ (1,206) $ (6,264) $ (4,554) $ (10,818)
========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations.
-31-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
R.A.B. HOLDINGS, INC.
AND R.A.B. ENTERPRISES, INC.
R.A.B. Holdings, Inc. Pro Forma Presentation
(a) The historical amounts represent (i) with respect to the fiscal year ended
March 31, 1998, those of Enterprises for the fiscal year ended March 31,
1998 and Manischewitz for the twelve month period ended March 31, 1998; and
(ii) with respect to the six month period ended September 30, 1998, those
of Enterprises for the six month period ended September 30, 1998 and
Manischewitz for the one month period ended April 30, 1998.
Enterprises Pro Forma Adjustments
(b) Adjustments, which aggregate $1.506 million for the fiscal year ended March
31, 1998 and $139,000 for the six month period ended September 30, 1998,
represent the following:
(i) the incremental increase in intangible asset amortization as a result
of the Manischewitz acquisition. The excess of cost over the fair
value of assets acquired ($97.2 million) is amortized on a
straight-line basis over 40 years as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
--------------------- -------------------
<S> <C> <C>
Amortization of excess of cost over fair value of assets acquired
relating to the Manischewitz acquisition $2,432 $203
Less: Historical Manischewitz intangible amortization (928) (81)
----------------- --------------
$1,504 $122
================= ==============
</TABLE>
(ii) the incremental increase in depreciation of plant and equipment, based
upon the preliminary appraised fair value of assets acquired,
determined as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
--------------------- -------------------
<S> <C> <C>
Depreciation of property and equipment based upon the
preliminary appraised fair value of assets acquired $1,195 $100
Less: Historical Manischewitz depreciation of property and
equipment (793) (66)
----------------- --------------
$402 $34
================= ==============
</TABLE>
(iii) the elimination of management fees of $400,000 for the fiscal year
ended March 31, 1998 and $17,000 for the six month period ended
September 30, 1998 paid to a related party. A management fee is no
longer permitted under the Credit Agreement.
-32-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
R.A.B. HOLDINGS, INC.
AND R.A.B. ENTERPRISES, INC.
(c) Adjustment represents (i) interest expense associated with the Enterprises
Notes and the related amortization of deferred financing costs; (ii)
amortization of new deferred financing costs related to the amendment of
the Credit Agreement; (iii) the reduction in interest associated with the
repayment of a portion of the outstanding borrowings under the Credit
Agreement; (iv) the elimination of interest on Manischewitz long-term debt
repaid at closing; and (v) the elimination of Manischewitz historical
deferred financing costs, determined as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
----------------- ------------------
<S> <C> <C>
Interest expense relating to the sale of Enterprises Notes
($120 million), at a rate of 101/2% per annum $ 12,600 $ 1,050
Amortization of deferred financing costs ($4.3 million)
relating to the sale of Enterprises Notes over
seven years 621 52
Amortization of deferred financing costs ($227,000)
related to the amendment of the Credit
Agreement over forty-seven months 58 5
Less: Interest on repayment of a portion of the
outstanding borrowings under the Credit
Agreement ($22 million) at an effective interest
rate of approximately 9.5% (2,049) (171)
Less: Historical interest on Manischewitz long-term debt
repaid at closing (3,343) (279)
Less: Historical amortization of deferred financing costs
on Manischewitz long-term debt repaid at closing (433) (35)
-------- --------
Net adjustment $ 7,454 $ 622
======== ========
</TABLE>
(d) Adjustment represents the provision (benefit) for income taxes, determined
as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
----------------- ------------------
<S> <C> <C>
Provision (benefit) for income taxes on Manischewitz
operations, which was previously the obligation
of its shareholders and partners $ 2,596 $ (12)
(Benefit) for income taxes relating to adjustments in notes
(b) and (c) above, as applicable (3,260) (159)
Less: Valuation allowance -- 616
------- -------
Provision (benefit) for income taxes $ (664) $ 445
======= =======
</TABLE>
-33-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
R.A.B. HOLDINGS, INC.
AND R.A.B. ENTERPRISES, INC.
As a result of the acquisition by Enterprises of the partnership interests
in Manischewitz, Enterprises will receive a step-up in tax basis for
Federal income tax purposes. Accordingly, the excess of cost over the fair
value of assets acquired related to the acquisition of Manischewitz will be
deductible for Federal income tax purposes. The final amount of the step-up
will be determined when the applicable Federal income tax return is filed.
For purposes of this computation, based upon preliminary information, it
has been assumed that approximately 60% of the excess of cost over the fair
value of assets acquired resulting from the Manischewitz acquisition is
attributable to the acquisition of the partnership interests and will
therefore be tax deductible.
Additionally, the income tax benefit for the six month period ended
September 30, 1998 is limited to the amount of the net deferred income tax
liability due to the establishment of a valuation allowance since as a
result of the cumulative additional interest expense, it has not been
determined that it is more likely than not that deferred tax benefits will
be realized.
Holdings Pro Forma Adjustments
(e) Adjustment represents the historical results of operations of Holdings.
(f) Adjustment represents interest expense associated with the Holdings Notes
at a rate of 13% per annum, the related amortization of deferred financing
costs and interest income earned on the Government Securities which
comprise the interest escrow account, determined as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
--------------------- ---------------------
<S> <C> <C>
Interest expense relating to the sale of Holdings Notes
($48 million), at a rate of 13% per annum $6,240 $3,120
Amortization of deferred financing costs ($1.6 million) relating
to the sale of Holdings Notes over ten years 163 82
Less: Interest income earned on the Government Securities
which comprise the Interest Escrow Account (1,004) (540)
--------------------- ---------------------
$5,399 $2,662
===================== =====================
</TABLE>
(g) Adjustment represents the U.S. federal income tax benefit related to the
net interest expense in (f) above. For purposes of this computation, it has
been assumed that Holdings will not receive a state tax benefit for this
net interest expense since Holdings does not have income from operations
which could offset the net interest expense.
-34-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
R.A.B. HOLDINGS, INC.
AND R.A.B. ENTERPRISES, INC.
Additionally, the income tax benefit for the six month period ended
September 30, 1998 is limited to the amount of the net deferred income tax
liability due to the establishment of a valuation allowance since as a
result of the cumulative additional net interest expense, it has not been
determined that it is more likely than not that deferred tax benefits will
be realized. This adjustment was determined as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
--------------------- ---------------------
<S> <C> <C>
Benefit for income taxes on Holdings net interest expense $(1,892) $ (932)
Less: Valuation allowance -- 2,824
--------------------- ---------------------
Provision (benefit) for income taxes $(1,892) $1,892
===================== =====================
</TABLE>
The Pro Forma Adjustments do not reflect the following:
(i) Estimated cost savings of $593,000 for the fiscal year ended March 31,
1998 associated with the implementation of a new comprehensive
employee benefit program at Millbrook effective January 1, 1998; and
(ii) Estimated cost savings of $269,000 for the fiscal year ended March 31,
1998 and $26,000 for the six month period ended September 30, 1998
principally resulting from compensation and benefits provided to
former employees of Manischewitz and one-time consulting costs.
-35-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
R.A.B. HOLDINGS, INC.
The following table sets forth selected historical consolidated financial data
of Holdings as of March 31, 1998 and September 30, 1998 and 1997, and for the
fiscal year ended March 31, 1998 and the six month periods ended September 30,
1997 and 1998, and historical financial data of the Predecessor as of March 31,
1994, 1995, 1996 and 1997 and for each of the four years in the period ended
March 31, 1997. The historical consolidated financial data as of March 31, 1998,
and for the fiscal year ended March 31, 1998 have been derived from Holdings
audited consolidated financial statements, included elsewhere herein. The
historical consolidated financial data for the six month periods ended September
30, 1997 and 1998 have been derived from Holdings unaudited condensed
consolidated financial statements, included elsewhere herein, which in the
opinion of management include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the information. The Predecessor
financial data for each of the two years in the period ended March 31, 1997 have
been derived from the Predecessor's audited financial statements, included
elsewhere herein. The unaudited historical condensed consolidated financial
statements for the six month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
following information is qualified by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", Holdings consolidated financial statements and
unaudited condensed consolidated financial statements, and notes thereto, and
the Predecessor financial statements, and notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
Holdings(b)
Predecessor(a) ----------------------------------
-------------- Fiscal Six Months Ended
Fiscal Year Ended March 31, Year Ended September 30,
--------------------------------------------- March 31, ----------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ..................................... $ 728,375 $ 648,149 $ 563,099 $ 476,175 $ 470,201 $ 222,772 $ 234,455
Gross profit ................................. 167,275 162,927 132,701 111,413 110,039 52,284 55,207
Operating expenses ........................... 149,837 139,528 119,090 104,038 102,664 49,988 56,115
Operating income (loss) ...................... 17,438 23,399 13,611 7,375 7,375 2,296 (908)
Interest expense, net ........................ 3,434 2,806 4,708 3,843 5,079 2,586 9,197
Non-operating income, other .................. 239 19 1,600 69
Provision (benefit) for income
taxes ...................................... 5,696 8,327 4,334 1,660 1,122 1 (2,829)
Net income (loss) ............................ 8,547 12,285 6,169 1,941 1,174 (291) (7,276)
Other Financial Data:
Ratio of earnings to fixed
charges(c) ................................. 1.35x
Balance Sheet Data:
Working capital .............................. $ 66,608 $ 41,092 $ 46,540 $ 36,535 $ 30,003 $ 39,339 $ 41,518
Property, plant and equipment, net ........... 42,221 17,294 16,313 15,017 23,395 24,273 39,659
Total assets ................................. 190,245 132,147 113,026 102,731 108,772 126,346 270,166
Total debt ................................... -- -- -- -- 38,110 49,159 183,878
</TABLE>
- ----------
(a) The Predecessor was acquired on March 31, 1997. Financial information with
regard to the Predecessor is based on historical results and, accordingly,
does not reflect purchase accounting adjustments or interest associated
with debt incurred to finance the acquisition. The Predecessor was a wholly
owned subsidiary of McKesson Corporation. As a wholly-owned subsidiary of
McKesson Corporation, the Predecessor was provided certain corporate and
general and administrative services, including, among other things,
treasury, certain financial reporting, data processing and legal services.
Accordingly, the operations of the Predecessor include an allocation of
expenses for such services. Additionally, because McKesson Corporation
managed cash and financing requirements centrally, interest expense and
borrowing requirements were based on the then existing capital structure.
The financial position and operations
-36-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
R.A.B. HOLDINGS, INC.
Footnote (a) continued
of the Predecessor may differ from results that may have been achieved had
the Predecessor operated as an independent entity.
(b) Holdings, which was formed in 1996, did not have any income or expenses
prior to the fiscal year beginning April 1, 1997.
(c) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and fixed charges and
"fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and that portion of rental expense that management
believes to be representative of interest. The deficiency in earnings to
fixed charges was $10.105 million and $290,000 for the six month periods
ended September 30, 1998 and 1997, respectively.
-37-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
R.A.B. ENTERPRISES, INC.
The following table sets forth selected historical consolidated financial data
of Enterprises as of March 31, 1998 and September 30, 1998 and 1997, and for the
fiscal year ended March 31, 1998 and the six month periods ended September 30,
1997 and 1998, and historical financial data of the Predecessor as of March 31,
1994, 1995, 1996 and 1997 and for each of the four years in the period ended
March 31, 1997. The historical consolidated financial data as of March 31, 1998,
and for the fiscal year ended March 31, 1998 have been derived from Enterprises
audited consolidated financial statements, included elsewhere herein. The
historical consolidated financial data for the six month periods ended September
30, 1997 and 1998 have been derived from Enterprises unaudited condensed
consolidated financial statements, included elsewhere herein, which in the
opinion of management include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the information. The Predecessor
financial data for each of the two years in the period ended March 31, 1997 have
been derived from the Predecessor's audited financial statements, included
elsewhere herein. The unaudited historical condensed consolidated financial
statements for the six month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
following information is qualified by reference to, and should be read in
conjunction with, 'Management's Discussion and Analysis of Financial Condition
and Results of Operations, Enterprises consolidated financial statements and
unaudited condensed consolidated financial statements, and notes thereto, and
the Predecessor financial statements, and notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
Enterprises
Predecessor(a) ----------------------------------
-------------- Fiscal Six Months Ended
Fiscal Year Ended March 31, Year Ended September 30,
--------------------------------------------- March 31, ----------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ..................................... $ 728,375 $ 648,149 $ 563,099 $ 476,175 $ 470,201 $ 222,772 $ 234,455
Gross profit ................................. 167,275 162,927 132,701 111,413 110,039 52,284 55,207
Operating expenses ........................... 149,837 139,528 119,090 104,038 102,656 49,984 56,115
Operating income (loss) ...................... 17,438 23,399 13,611 7,375 7,383 2,300 (908)
Interest expense, net ........................ 3,434 2,806 4,708 3,843 5,079 2,586 6,905
Non-operating income, other .................. 239 19 1,600 69
Provision (benefit) for income
taxes ...................................... 5,696 8,327 4,334 1,660 1,122 1 (2,786)
Net income (loss) ............................ 8,547 12,285 6,169 1,941 1,182 (287) (5,027)
Other Financial Data:
Ratio of earnings to fixed
charges(b) .................................
Balance Sheet Data: .......................... 1.35x
Working capital .............................. $ 66,608 $ 41,092 $ 46,540 $ 36,535 $ 30,108 $ 39,441 $ 38,511
Property, plant and equipment, net ........... 42,221 17,294 16,313 15,017 23,395 24,273 39,659
Total assets ................................. 190,245 132,147 113,026 102,731 108,875 126,353 251,289
Total debt ................................... -- -- -- -- 38,110 49,159 135,878
</TABLE>
- ----------
(a) The Predecessor was acquired on March 31, 1997. Financial information with
regard to the Predecessor is based on historical results and, accordingly,
does not reflect purchase accounting adjustments or interest associated
with debt incurred to finance the acquisition. The Predecessor was a wholly
owned subsidiary of McKesson Corporation. As a wholly-owned subsidiary of
McKesson Corporation, the Predecessor was provided certain corporate and
general and administrative services, including, among other things,
treasury, certain financial reporting, data processing and legal services.
Accordingly, the operations of the Predecessor include an allocation of
expenses for such services. Additionally, because McKesson Corporation
managed cash and financing requirements centrally, interest expense and
borrowing requirements were based on the then existing capital structure.
The financial position and operations
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SELECTED HISTORICAL FINANCIAL DATA
R.A.B. ENTERPRISES, INC.
Footnote (a) continued
of the Predecessor may differ from results that may have been achieved had
the Predecessor operated as an independent entity.
(b) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and fixed charges and
"fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and that portion of rental expense that management
believes to be representative of interest. The deficiency in earnings to
fixed charges was $7.813 million and $286,000 for the six month periods
ended September 30, 1998 and 1997, respectively.
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SELECTED HISTORICAL COMBINED FINANCIAL DATA
THE B. MANISCHEWITZ COMPANY, LLC
The following table sets forth selected historical combined financial data of
Manischewitz as of July 31, 1993, 1994, 1995, 1996 and 1997 and for each of the
five years in the period ended July 31, 1997, and as of April 30, 1998 and 1997
and for the nine month periods ended April 30, 1997 and 1998. The historical
combined financial data as of July 31, 1996 and 1997 and for each of the three
years in the period ended July 31, 1997 have been derived from Manischewitz's
audited combined financial statements, included elsewhere herein. The historical
combined financial data as of April 30, 1998 and for the nine month periods
ended April 30, 1997 and 1998, have been derived from unaudited condensed
combined financial statements of Manischewitz, included elsewhere herein, which
in the opinion of management include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the information. The
historical combined financial data for the nine month period ended April 30,
1998 are not necessarily indicative of results that may be expected for the full
fiscal year. The following information is qualified by reference to, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Manischewitz's combined financial
statements and unaudited condensed combined financial statements, and notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
July 31, April 30,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total Revenues(a) .................................... $ 41,199 $ 45,588 $ 49,581 $ 52,399 $ 54,787 $ 46,387 $ 44,481
Gross Profit ......................................... 15,522 16,575 18,382 19,331 21,229 17,937 17,039
Operating expenses ................................... 11,680 11,537 11,034 11,120 11,422 8,492 7,658
Operating income ..................................... 3,872 5,038 7,348 8,211 9,807 9,445 9,381
Interest expense, net ................................ 2,080 2,328 2,946 3,705 4,486 3,388 3,090
Provision (benefit) for income taxes(b) .............. 1,162 1,468 2,135 (145)
Net income(b)(c) ..................................... 630 662 2,267 1,932 5,321 6,057 6,291
Balance Sheet Data:
Working capital ...................................... $ 3,349 $ 11,126 $ 13,717 $ 11,351 $ 12,028 $ 14,852 $ 13,299
Property, plant and equipment, net ................... 9,813 12,590 12,306 12,647 12,202 12,120 11,823
Total assets ......................................... 49,284 56,705 59,472 59,337 59,563 70,914 64,766
Total debt ........................................... 24,562 29,000 29,000 44,000 40,759 41,975 40,414
</TABLE>
(a) In June 1997, Manischewitz sold its Chicago distribution operation. This
operation had revenues of $4.083 million for the nine month period ended
April 30, 1997.
(b) Effective May 31, 1996, The B. Manischewitz Company was reorganized as a
limited liability company. Accordingly, deferred income tax attributes of
$2.42 million at May 31, 1996 flowed through the provision (benefit) for
income taxes. Subsequent to May 31, 1996, income taxes, if any, are the
obligation of the shareholders and partners of Manischewitz. Pro forma
income tax expense and pro forma net income (loss) as if Manischewitz had
been a taxable entity is $1.952 million and $(165,000) for the fiscal year
ended July 31, 1996; $2.415 million and $2.906 million for the fiscal year
ended July 31, 1997; $2.749 million and $3.308 million for the nine months
ended April 30, 1997, and; $2.735 million and $3.556 million for the nine
months ended April 30, 1998.
(c) Fiscal 1994 and 1996 net income includes an extraordinary charge for the
early extinguishment of debt ($482,000 and $1.965 million, respectively)
and charges for the cumulative effects of changes in accounting principles
relating to income taxes in 1994 ($98,000) and post retirement benefits in
1996 ($754,000).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
R.A.B. HOLDINGS, INC.
Overview
Holdings was formed in 1996 to build a fully integrated specialty food
business by acquiring food manufacturers with strong brand names and integrating
their products with a strong distribution network. On March 31, 1997, Holdings
acquired Millbrook, which is one of the nation's largest value-added full
service independent distributors of specialty foods, health and beauty care
products and general merchandise. On May 1, 1998, Enterprises, a wholly-owned
subsidiary of Holdings, acquired Manischewitz. The results of operations of
Manischewitz are included in the consolidated results of operations since its
date of acquisition. Prior to its acquisition of Millbrook from McKesson
Corporation, Holdings had no operations. Enterprises, which was formed in 1998
to acquire Manischewitz, had no operations prior to that acquisition.
Predecessor Results of Operations
From 1984 to 1986, McKesson acquired three distribution companies,
including the Harrison, Arkansas based operation, Mass Merchandisers, Inc.
("MMI") and the Leicester, Massachusetts based operation, Millbrook
Distributors, Inc. MMI and Millbrook Distributors, Inc. are predecessor
operations of Millbrook. During McKesson's period of ownership, these companies,
which were operated as autonomous subsidiaries until 1994 to 1995, comprised a
small segment of McKesson's revenues and were considered non-health care
businesses.
As a wholly owned subsidiary of McKesson, Millbrook was provided certain
corporate and general and administrative services including, treasury, certain
financial reporting, data processing and legal services. Accordingly, the
historical operations of Millbrook include an allocation of expenses for such
services. Additionally, because McKesson managed cash and financing requirements
centrally, interest expense and borrowing requirements were based on the then
existing capital structure. Millbrook's financial position and results of
operations may differ from results that may have been achieved had Millbrook
operated as an independent entity. Furthermore, the historical operations of
Millbrook do not reflect purchase accounting adjustments or interest associated
with debt incurred to finance the acquisition of Millbrook by Holdings.
As a result of the circumstances described above, the results of
Millbrook's operations subsequent to its acquisition by Holdings are not
comparable to those of Millbrook prior to its acquisition.
General
Holdings was founded in 1996 to build a fully integrated specialty food
business by acquiring food manufacturers with strong brand names and integrating
their products with a strong distribution network. Holdings' operating
subsidiaries are Millbrook and Manischewitz.
Millbrook
Millbrook, is a full service independent distributor of specialty
foods, health and beauty care products and general merchandise to
supermarkets and mass merchandisers. Millbrook also carries a line of
its own private label brands as well as store brands and other special
need items for specific customers. Millbrook Retail Solutions(sm), one
of Millbrook's divisions, provides a variety of merchandising
services, without associated
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<PAGE>
product sales, to manufacturers, distributors and retailers across
various product categories in all trade channels.
Manischewitz
Manischewitz is a manufacturer of processed Kosher food products
including matzos, noodles, crackers, cake mixes, cookies, soups and
processed fish products. Manischewitz markets its products under the
brand names Manischewitz, Horowitz Margareten and Goodman's.
Operating costs and expenses consist of cost of sales, distribution and
warehousing and selling, general and administrative expenses. Cost of sales
includes the cost of products manufactured and purchased by Manischewitz,
including raw materials, products purchased under co-packing arrangements and
manufacturing payroll and related employee benefits costs, and the cost of
products distributed by Millbrook. Distribution and warehousing expenses include
payroll and related employee benefit costs of Millbrook's distribution operation
and transportation costs. Selling, general and administrative expenses include
payroll and related employee benefit costs of Holdings various sales
organizations and other general and administrative functions.
You should read the following discussion in conjunction with the audited
consolidated financial statements and unaudited condensed consolidated financial
statements of Holdings and Enterprises and the accompanying notes.
Six month period ended September 30, 1998 compared to the six month period ended
September 30, 1997
Revenues. Revenues for the six month period ended September 30, 1998
increased $11.7 million or 5.2% to $234.5 million as compared to $222.8 million
for the six month period ended September 30, 1997. This increase resulted from
Manischewitz sales of $11.0 and a $0.7 million (0.3%) increase in Millbrook's
sales for the six month period. Millbrook's increase resulted from growth in the
revenues from third-party merchandising services ($1.5 million), net of customer
losses, which were partially offset by the addition of new customers and growth
of existing customers in our three primary business segments ($0.8 million).
Consolidation of our customer base and heightened competitive pressures within
the health and beauty care and general merchandise segments of our business
continues to result in customer turnover. While Millbrook anticipates that this
customer turnover will continue, management does not believe it will have a
material impact on operating income. Manischewitz revenues decreased $1.8
million or 14.1% to $11.0 million since its acquisition on May 1, 1998 as
compared to $12.8 million for the comparable pre-acquisition period. This
decrease is comprised of sales of $ 0.7 million related to Manischewitz's
Chicago division which was sold in June 1997 and a slower sales rate during the
first ninety days of Enterprises' ownership caused by distributor uncertainty
resulting from the acquisition ($1.1 million). Due to Enterprises' ownership of
Millbrook, distributors were initially very cautious about continuing to place
product orders due to their concerns that we were intending to terminate their
right to distribute Manischewitz products. Following meetings with a number of
distributors, revenues for the two months ended September 30, 1998 have been in
line with the comparable pre-acquisition period.
Gross Profit. Gross profit for the six month period ended September 30,
1998 was $55.2 million, as compared to $52.3 million for the six month period
ended September 30, 1997, an increase of 5.6%. As a percentage of revenues, the
gross profit margin was 23.5% for each of the six month periods ended September
30, 1998 and 1997. The increase in gross profit dollars corresponds to the
increase in revenues and the comparable gross profit margin resulted from growth
in Millbrook's third-party service merchandising business (0.3%) and the
contribution of the gross profit margin on Manischewitz's sales since its
acquisition (0.6%), offset by Millbrook's shift in sales mix from higher margin
general merchandise to lower margin health and beauty care products (-0.9%).
Operating Expenses. Distribution and warehousing expenses for the six month
period ended September 30, 1998 were $18.5 million, as compared to $18.1 million
for the six month period ended September 30, 1997. Selling, general
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and administrative expenses for the six month period ended September 30, 1998
were $36.6 million, as compared to $31.9 million for the six month period ended
September 30, 1997. The $4.7 million increase consists of $3.0 million from
Manischewitz's operations since its acquisition and $1.7 million (5.3%) from
Millbrook's operations. The increase at Millbrook primarily relates to increased
payroll and related costs associated with the growth in the third-party service
merchandising business and increased selling expenses associated with the
acquisition of new customers, including the proposal and product conversion
process, which are expensed as incurred.
Amortization of excess of cost over fair value of net assets acquired was
$1.0 million for the six month period ended September 30, 1998 as a result of
the Manischewitz acquisition. There was no such amortization for the comparable
pre-acquisition period.
Interest Expense. Interest expense for the six month period ended September
30, 1998 was $9.2 million (consisting of $2.3 million for Holdings and $6.9
million for Enterprises), as compared to $2.6 million for Holdings and
Enterprises for the six month period ended September 30, 1997. The increased
interest expense is attributable to the $168 million of Senior Notes which were
sold in May 1998 to fund the acquisition of Manischewitz, resulting in higher
average debt outstanding at higher average interest rates.
Taxes. The benefit for income taxes for the six month period ended
September 30, 1998 was $2.8 million for Holdings and Enterprises. This benefit
principally relates to the results of operations. However, the Holdings' income
tax benefit for the six month period ended September 30, 1998 was limited due to
the establishment of a valuation allowance ($0.9 million), since as a result of
the cumulative additional net interest expense, management was unable to
conclude that deferred tax benefits would be realized. For the six months ended
September 30, 1997, the income tax provision was $1,000 for Holdings and
Enterprises.
Net Income (Loss). As a result of the foregoing, the net loss for the six
month period ended September 30, 1998 was ($7.3) million for Holdings and ($5.0)
million for Enterprises as compared to a net loss of ($0.3) million for Holdings
and Enterprises for the six month period ended September 30, 1997.
Fiscal year ended March 31, 1998 compared to the fiscal year ended March 31,
1997 (Predecessor)
Revenues. Revenues for the fiscal year ended March 31, 1998 decreased $6.0
million or $1.2% to $470.2 million, as compared to $476.2 million for the fiscal
year ended March 31, 1997. The decrease resulted from certain customer losses.
These losses were offset partially by the addition of new customers.
Gross Profit. Gross profit for the fiscal year ended March 31, 1998 was
$110.0 million, as compared to $111.4 million for the fiscal year ended March
31, 1997, a decrease of 1.2%. As a percentage of revenues, the gross profit
margin was 23.4% for the years ended March 31, 1998 and 1997. The gross profit
margin was consistent with the prior year as the decline in general merchandise
gross profit dollars was offset by increased specialty food gross profit
dollars.
Operating Expenses. Distribution and warehousing expenses for the fiscal
year ended March 31, 1998 were $37.3 million, as compared to $38.2 million for
the fiscal year ended March 31, 1997, a decrease of 2.2%. Selling expenses for
the fiscal year ended March 31, 1998 were $43.8 million, as compared to $45.3
million for the fiscal year ended March 31, 1997, a decrease of 3.3%. General
and administrative expenses for the fiscal year ended March 31, 1998 were $21.6
million. These decreases principally resulted from operating efficiencies
realized subsequent to the Millbrook acquisition.
General and administrative expenses for the fiscal year ended March 31,
1997 include the allocation of expenses from Millbrook's former parent, McKesson
Corporation. These expenses include, among other things, the cost of
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providing treasury, certain financial reporting, data processing and legal
services. The cost of these services is comprised of (i) the number of hours
incurred at the applicable pay rate; (ii) data processing time utilized at the
applicable rate; and (iii) out-of-pocket expenses, related to the services
provided. In the opinion of management, this methodology provides a reasonable
basis for such allocation.
Interest Expense. An interest expense of $5.1 million, for the fiscal year
ended March 31, 1998, principally relates to amounts borrowed under the Credit
Agreement for Millbrook's operating needs and for Holdings to finance the
acquisition of Millbrook. The average interest rate on debt outstanding during
the fiscal year ended March 31, 1998 was 9.6%. For more information, you should
read the "Financial Condition, Liquidity and Capital Resources" section.
General, Administrative and Interest Expense. As a result of the
acquisition of Millbrook by Holdings, general and administrative expenses and
interest expense for the fiscal year ended March 31, 1998 are not comparable to
such expenses incurred for the fiscal year ended March 31, 1997. See
"Predecessor Results of Operations."
Taxes. The provision for income taxes was $1.1 million for the fiscal year
ended March 31, 1998, representing an effective rate of 48.8%. The effective
income tax rate was significantly higher than the Federal statutory rate due to
state income taxes and the impact of other items, principally the disallowance
of meals and entertainment expenses in relation to pre-tax income.
Net Income. As a result of the revenues, expenses, and other items
described above, Holdings and Enterprises had net income of $1.2 million for the
fiscal year ended March 31, 1998.
Predecessor Millbrook Distribution Services Inc.
Fiscal year ended March 31, 1997 compared to the fiscal year ended March 31,
1996
Revenues. Revenues for the fiscal year ended March 31, 1997 decreased $86.9
million, or 15.4% to $476.2 million, as compared to $563.1 million for the
fiscal year ended March 31, 1996. The decrease resulted from the decline in the
customer base.
Gross Profit. Gross profit for the fiscal year ended March 31, 1997 was
$111.4 million, as compared to $132.7 million for the fiscal year ended March
31, 1996, a decrease of 16.0%. As a percentage of revenues, the gross profit
margin was 23.4% for the fiscal year ended March 31, 1997, which is comparable
to the 23.6% for the fiscal year ended March 31, 1996.
Operating Expenses. Operating expenses (consisting of distribution and
warehousing and selling, general and administrative expenses) for the fiscal
year ended March 31, 1997 decreased $15.1 million, or 12.6% to $104.0 million,
as compared to $119.1 million for the fiscal year ended March 31, 1996. As a
percentage of sales, operating expenses increased to 21.8% for the fiscal year
ended March 31, 1997, as compared to 21.1% for the fiscal year ended March 31,
1996. The decline in operating expenses is related directly to a reduction in
account management personnel and the decrease in other expenses associated with
lost sales. Further, operating expenses, as a percentage of sales, increased as
these cost reductions were not sufficient to offset lost sales.
Interest Expense. Interest expense for the fiscal year ended March 31, 1997
decreased $.9 million, or 18.4% to $3.8 million, as compared to $4.7 million for
the fiscal year ended March 31, 1996. Interest expense represented an allocation
from McKesson relating to Millbrook's operations.
Taxes. Millbrook was included in the consolidated federal income tax return
of McKesson. The provision for income taxes has been computed as if Millbrook
filed its own federal income tax return, without regard to its tax
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sharing arrangement with McKesson. The provision for income taxes for the fiscal
year ended March 31, 1997 decreased $2.6 million or 61.7% to $1.7 million, as
compared to $4.3 million for the fiscal year ended March 31, 1996, principally
relating to the results of operations.
Net Income. As a result of the revenues, expenses, and other items
described above, Millbrook's net income for the fiscal year ended March 31, 1997
decreased $4.3 million or 68.5% to $1.9 million, as compared to $6.2 million for
the fiscal year ended March 31, 1996.
Financial Condition, Liquidity and Capital Resources
The acquisition of Millbrook was financed by the initial capitalization of
Holdings with approximately $10.1 million, consisting of series A preferred
stock and common stock, and with $61.8 million of borrowings under the Credit
Agreement. The Credit Agreement provided for revolving credit loans, pursuant to
a borrowing base calculation, of up to $90.2 million and an amortizing term loan
of $9.8 million. The acquisition of Manischewitz was financed by the sale of
$168.0 million of the outstanding notes. The proceeds of the outstanding notes
were used to (1) pay the purchase price of approximately $126.2 million, (2)
reduce outstanding borrowings by approximately $18.8 million under the revolving
credit portion of Millbrook's Credit Agreement, (3) fund an initial escrow
account with approximately $17.0 million to pay interest on the outstanding
notes of Holdings for the first six scheduled interest payment dates for the
benefit of the holders thereof and (4) pay fees and expenses of approximately
$6.0 million relating to the sale of the outstanding notes. At September 30,
1998, there was approximately $15.9 million outstanding under the Credit
Agreement, consisting of $7.1 million of revolving credit loans and an
amortizing term loan of $8.8 million. Substantially all of Millbrook's assets
and the accounts receivable and inventory of Manischewitz are pledged to provide
collateral under the terms of the Credit Agreement. The decrease in borrowings
under the Credit Agreement from $61.8 million as of March 31, 1997 to $15.9
million as of September 30, 1998, resulted from the utilization of cash flow
from operating activities ($27.1 million) and the utilization of a portion of
the proceeds of the Notes ($18.8 million) to repay borrowings.
At September 30, 1998, Millbrook and Manischewitz had approximately $4.1
million of cash and $49.5 million of available borrowing capacity (based upon
the borrowing base calculation) under the Credit Agreement. Under the terms of
the Credit Agreement, Enterprises is restricted from making distributions to
Holdings to pay dividends, including dividends related to Holdings' series A
preferred stock. At September 30, 1998, cumulative unpaid dividends on Holdings'
series A preferred stock were approximately $1.5 million. For more information,
you should read the "Description of Credit Agreement" section.
Operations for the six months ended September 30, 1998, excluding non-cash
charges for depreciation, amortization and deferred income taxes, utilized cash
of $4.7 million for Holdings and $2.6 million for Enterprises as compared to
providing cash of $1.3 million for each of Holdings and Enterprises for the six
months ended September 30, 1997. During the six months ended September 30, 1998
and 1997, other changes in assets and liabilities resulting from operating
activities provided cash of $11.4 million for Holdings and $9.2 million for
Enterprises and $11.2 million for Holdings and $11.9 million for Enterprises,
respectively, resulting in net cash provided by operating activities of $6.6
million for Holdings and Enterprises and $12.5 million for Holdings and $13.2
million for Enterprises, respectively. Investing activities, which principally
consisted of the acquisition of Manischewitz in the 1998 period and the
acquisitions of property and equipment, resulted in a use of cash of $127.9
million and $0.4 million, respectively, for the six month periods ended
September 30, 1998 and 1997. During the six month period ended September 30,
1998, financing activities, which principally consisted of the sale of $168.0
million of senior notes, offset by debt issuance costs of $6.0 million, the
funding of a $17.0 million interest escrow account and the repayment of
borrowings under the Credit Agreement of $22.2 million in 1998, provided cash of
$122.8 million. During the six month period ended September 30, 1997, financing
activities used cash of $12.6 million for repayment of borrowings under the
Credit Agreement.
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Operations for the fiscal year ended March 31, 1998, excluding non-cash
charges for depreciation and amortization and deferred income taxes, provided
cash of $5.5 million. During the fiscal year ended March 31, 1998, other changes
in assets and liabilities resulting from operating activities provided cash of
$20.4 million for Holdings and $21.1 million for Enterprises, resulting in net
cash provided by operating activities of $25.9 million for Holdings and $26.6
million for Enterprises. Investing activities, which principally consisted of
acquisitions of property, plant and equipment, resulted in a use of cash of $2.2
million for the fiscal year ended March 31, 1998. During the fiscal year ended
March 31, 1998, financing activities used cash of $23.7 million, principally
consisting of the repayment of borrowings under the Credit Agreement.
At September 30, 1998, working capital for Holdings and Enterprises was
$41.5 million and $38.5 million, respectively.
Forward Looking Liquidity and Capital Resources
Concurrent with the acquisition of Manischewitz, the Credit Agreement was
amended to provide, among other things, for: (i) Manischewitz and Millbrook to
be co-borrowers under the Credit Agreement; (ii) certain assets of Manischewitz
were pledged to provide collateral under the Credit Agreement, including
accounts receivable, inventory and intellectual property; and (iii) the
inclusion of Manischewitz's accounts receivable and inventory in determining the
borrowing base.
Holdings and Enterprises anticipate that capital expenditures during its
fiscal year ending March 31, 1999 will approximate $2.5 to $3.0 million. It is
anticipated that such capital commitment amount will be financed through working
capital, operating leases and cash flow from operations.
Interest payments on the notes and under the Credit Agreement represent
significant obligations of Holdings, Enterprises and their subsidiaries. The
primary source of liquidity of Holdings and Enterprises will be cash flows from
operations of Millbrook and Manischewitz and borrowings under the Credit
Agreement. Holdings and Enterprises believe that, based on current and
anticipated financial performance, cash flows from operations, borrowings under
the Credit Agreement and dividends and other distributions available from their
respective subsidiaries will be adequate to meet anticipated requirements for
capital expenditures, working capital and scheduled interest payments on the
notes. However, the capital requirements of Holdings and Enterprises may change.
Each of Holdings and Enterprises believes that it has sufficient borrowing
capacity and access to debt markets to pursue acquisition opportunities and fund
extraordinary working capital requirements, if necessary. At September 30, 1998,
Holdings and Enterprises had total outstanding indebtedness of $183.9 million
and $135.9 million, respectively. The ability of Holdings and Enterprises to
satisfy capital requirements, to borrow under the Credit Agreement and to repay
or refinance the notes will depend on future financial performance of Holdings
and Enterprises, which in turn will be subject to general economic conditions
and to financial, business and other factors, including factors beyond Holdings'
control. For more information you should read the "Risk Factors--Substantial
Leverage; Ability to Service Debt" section.
Year 2000 Project
We utilize computer technologies throughout our business to effectively
carry out day-to-day operations. Computer technologies include both information
technology in the form of hardware and software, as well as embedded technology
in our facilities and equipment. Similar to most companies, as the year 2000
approaches we must determine if our systems are capable of properly recognizing
and processing date sensitive information. We are using a multi-phased
concurrent approach to address the year 2000 project, which include the
awareness, assessment, remediation, validation and implementation phases. We
have completed the awareness and assessment phases of the project and are
significantly involved in the remediation phase. We are actively correcting and
replacing those systems which are not year 2000 ready to ensure our ability to
continue to meet the internal needs of our organization and the needs of our
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suppliers and customers. We currently intend to substantially complete the
remediation, validation and implementation phases of the year 2000 project
before June 30, 1999. This process includes the testing of critical systems to
ensure that year 2000 readiness has been accomplished. We currently believe we
will be able to modify, replace or mitigate the affected systems in time to
avoid any material detrimental impact on operations. If we determine that we may
be unable to remediate and properly test affected systems on a timely basis, we
intend to develop appropriate contingency plans for any such mission-critical
systems at the time the determination is made. While we are unaware presently of
any significant exposure and we believe that our systems will be remediated
properly on a timely basis, we cannot assure that all year 2000 remediation
processes will be completed and properly tested before the year 2000, or that
contingency plans will sufficiently mitigate the risk of a year 2000 readiness
problem. An interruption of our ability to conduct business due to a year 2000
readiness problem could have a material adverse effect.
We estimate that the aggregate costs of the year 2000 project will be
approximately $1.25 million, including costs already incurred of $390,000
through September 30, 1998. The anticipated impact and costs of the project, as
well as the date on which we expect to complete the project, are based on
management's best estimates using information currently available and numerous
assumptions about future events. However, there can be no guarantee that these
estimates will be achieved and actual results may differ materially from those
plans. Based upon our current estimates and information currently available, we
do not anticipate that the costs associated with this project will have a
material adverse effect on our consolidated financial position, results of
operations or cash flows in future periods.
We have contacted our significant suppliers, customers, and critical
business partners to determine the extent to which we may be vulnerable if these
third parties fail to remediate properly their own year 2000 issues. As the year
2000 approaches we have taken steps to monitor the progress made by these third
parties and intend to test critical system interfaces. We will develop
appropriate contingency plans if a significant exposure is identified relative
to dependencies on third parties systems. While we are not aware presently of
any such significant exposure, there can be no guarantee that the systems of
third parties will be converted in a timely manner. Since we rely on certain
other companies, a failure of these other companies to properly convert its
systems could have a material adverse effect on us.
Effects of Inflation and Other Matters
For the six month period ended September 30, 1998 and the fiscal year ended
March 31, 1998, Holdings and Enterprises' cost of product remained relatively
stable. To the extent possible, Holdings and Enterprises' objective is to offset
the impact of inflation through productivity enhancements, cost reductions and
price increases.
Holdings is not involved in any significant environmental matters.
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure
about Segments of an Enterprise and Related Information" was issued in June 1997
and is effective for financial statements for periods beginning after December
15, 1997. This statement establishes standards for the manner in which operating
segments of public reporting entities are presented in interim and annual
financial statements. Holdings and Enterprises believe its current reporting
systems will enable it to comply with the requirements of SFAS No. 131.
SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued in February, 1998 and is effective for
periods beginning after December 15, 1997. The Company will adopt SFAS No. 132,
effective for its 1998 fiscal year-end.
The aforementioned recently issued accounting pronouncements establish
standards for disclosures only and therefore will have no impact our financial
position or results of operations.
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SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
was issued in June, 1998 and is effective for fiscal years beginning after June
15, 1999. SFAS No. 133 requires the recognition of all derivatives in the
consolidated balance sheet as either assets or liabilities measured at fair
value. We will adopt SFAS No. 133, effective for our 2000 fiscal year-end. We
have not yet determined the impact SFAS No. 133 will have on our financial
position or results of operations when such statement is adopted.
THE B. MANISCHEWITZ COMPANY, LLC
Overview
In June 1997, Manischewitz sold its Chicago distribution operation. This
operation had net revenues of $6.7 million, $6.8 million, $6.8 million and $4.1
million for the fiscal years ended July 31, 1997, 1996 and 1995 and for the nine
month period ended April 30, 1997, respectively.
Effective May 31, 1996, The B. Manischewitz Company was reorganized as a
limited liability company. Accordingly, deferred income tax attributes at May
31, 1996 flowed through the provision (benefit) for income taxes. Subsequent to
May 31, 1996, income taxes, if any, are the obligation of the shareholders and
partners of Manischewitz. Therefore, period to period comparisons of the
provision for income taxes are not meaningful.
General
Manischewitz's operating costs and expenses consist of cost of sales and
selling, general and administrative expenses. Cost of sales includes the cost of
products manufactured and purchased by Manischewitz, including raw materials,
co-packing arrangements and manufacturing payroll and related employee benefit
costs. Selling, general and administrative expenses include payroll and related
employee benefit costs of the Manischewitz sales organization, and other general
and administrative functions.
Manischewitz's revenues and net income are affected by a seasonal bias
toward the first quarter of the calendar year due to increased revenues during
the Passover holiday. During the twelve month period ended September 30, 1998,
approximately 54% of Manischewitz's revenues occurred in the first quarter of
the calendar year. As a result of this seasonality, Manischewitz's working
capital requirements have historically increased throughout the year, peaking in
March and April, when Manischewitz's utilization of the revolving credit portion
of its credit agreement is at its highest level.
The following discussion should be read in conjunction with the audited
combined financial statements and the unaudited condensed combined financial
statements of Manischewitz and the accompanying notes.
Nine month period ended April 30, 1998 compared to the nine month period ended
April 30, 1997
Revenues. Total revenues for the nine month period ended April 30, 1998
decreased $1.9 million or 4.1% to $44.5 million, as compared to $46.4 million
for the nine month period ended April 30, 1997. The decrease in revenues was due
to the sale of the Chicago distribution operation in June of 1997, partially
offset by increased sales of matzo, processed fish and noodles.
Gross Profit. Gross profit for the nine month period ended April 30, 1998
was $17.0 million, as compared to $17.9 million for the nine month period ended
April 30, 1997, a decrease of 5.0%. As a percentage of total revenues, the gross
profit margin decreased to 38.3% for the nine month period ended April 30, 1998,
as compared to 38.7% for the nine month period ended April 30, 1997. These
decreases principally resulted from an unfavorable shift in revenue mix to lower
margin products, partially offset by selected price increases in matzo and
matzo-related products.
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Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased $0.8 million to $7.7 million for the nine
month period ended April 30, 1998, as compared to $8.5 million for the nine
month period ended April 30, 1997. As a percentage of total revenues, selling,
general and administrative expenses decreased to 17.2% for the nine month period
ended April 30, 1998, as compared to 18.3% for the nine month period ended April
30, 1997. These decreases principally resulted from the sale of the Chicago
distribution operation.
Interest Expense. Interest expense for the nine month period ended April
30, 1998 decreased $0.3 million to $3.1 million, as compared to $3.4 million for
the nine month period ended April 30, 1997. This decrease resulted from
reductions in the average outstanding balances under the revolving credit
agreement and outstanding term loans.
Net Income. As a result of the revenues, expenses, and other items
described above, net income for the nine month period ended April 30, 1998 was
$6.3 million, as compared to $6.1 million for the nine month period ended April
30, 1997.
Fiscal year ended July 31, 1997 Compared to the fiscal year ended July 31, 1996
Revenues. Total revenues for the fiscal year ended July 31, 1997 increased
$2.4 million, or 4.6% to $54.8 million, as compared to $52.4 million for the
fiscal year ended July 31, 1996. The increase in revenues resulted from
increased sales of matzo, processed fish, noodles and crackers.
Gross Profit. Gross profit for the fiscal year ended July 31, 1997 was
$21.2 million, as compared to $19.3 million for the fiscal year ended July 31,
1996, an increase of $1.9 million. As a percentage of total revenues, the gross
profit margin increased to 38.7% for the fiscal year ended July 31, 1997, as
compared to 36.9% for the fiscal year ended July 31, 1996. This improvement was
due to selected price increases and the implementation of a consistent and more
limited Passover product return policy.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.3 million to $11.4 million for the fiscal
year ended July 31, 1997, as compared to $11.1 million for the fiscal year ended
July 31, 1996. As a percentage of total revenues, selling, general and
administrative expenses decreased to 20.8% for the fiscal year ended July 31,
1997, as compared to 21.2% for the fiscal year ended July 31, 1996. This
improvement resulted from increased sales leverage and lower marketing expenses,
partially offset by higher trade promotions.
Interest Expense. Interest expense for the fiscal year ended July 31, 1997
increased $0.8 million to $4.5 million, as compared to $3.7 million for the
fiscal year ended July 31, 1996. This increase was due to an increase in
outstanding debt which resulted from the recapitalization of Manischewitz in
July 1996.
Net Income. As a result of the foregoing, income before provision (benefit)
for income taxes, extraordinary item and cumulative effect of a change in
accounting principle for the fiscal year ended July 31, 1997 was $5.3 million,
as compared to $4.5 million for the fiscal year ended July 31, 1996.
Extraordinary Loss on Early Debt Extinguishment. Net income for the fiscal
year ended July 31, 1996 includes an extraordinary item for the early
extinguishment of debt ($2.0 million) relating to the recapitalization referred
to above and the cumulative effect of a change in accounting principle relating
to post retirement benefits ($0.8 million).
Fiscal year ended July 31, 1996 Compared to the fiscal year ended July 31, 1995
Revenues. Total revenues for the fiscal year ended July 31, 1996 increased
$2.8 million or 5.7% to $52.4 million, as compared to $49.6 million for the
fiscal year ended July 31, 1995. The increase in revenues resulted from
increased sales of matzo, processed fish, noodles and crackers.
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Gross Profit. Gross profit for the fiscal year ended July 31, 1996 was
$19.3 million, as compared to $18.4 million for the fiscal year ended July 31,
1995, an increase of $0.9 million. As a percentage of total revenues, the gross
profit margin remained relatively unchanged at 36.9% for the fiscal year ended
July 31, 1996, as compared to 37.1% for the fiscal year ended July 31, 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased $0.1 million to $11.1 million for the fiscal
year ended July 31, 1996, as compared to $11.0 million for the fiscal year ended
July 31, 1995. As a percentage of total revenues, selling, general and
administrative expenses decreased to 21.2% for the fiscal year ended July 31,
1996, as compared to 22.3% for the fiscal year ended July 31, 1995. This
improvement resulted from increased sales leverage.
Interest Expense. Interest expense for the fiscal year ended July 31, 1996
increased $0.8 million to $3.7 million, as compared to $2.9 million for the
fiscal year ended July 31, 1995. This increase was primarily due to higher
average outstanding borrowings.
Net Income. As a result of the foregoing, income before provision (benefit)
for income taxes, extraordinary item and cumulative effect of a change in
accounting principle for the fiscal year ended July 31, 1996 was $4.5 million,
as compared to $4.4 million for the fiscal year ended July 31, 1995.
Extraordinary Loss on Early Debt Extinguishment. Net income for the fiscal
year ended July 31, 1996 includes an extraordinary item for the early
extinguishment of debt ($2.0 million) relating to the recapitalization referred
to above and the cumulative effect of a change in accounting principle relating
to post retirement benefits ($0.8 million).
Financial Condition, Liquidity and Capital Resources
Operations for the fiscal years ended July 31, 1997 and 1996 and the nine
month period ended April 30, 1998 before changes in assets and liabilities
provided cash of $8.0 million, $4.5 million and $8.1 million, respectively.
During the fiscal years ended July 31, 1997 and 1996 and the nine month period
ended April 30, 1998, other changes in assets and liabilities resulting from
operating activities, used cash of $1.5 million, $5.0 million and $5.3 million,
respectively, resulting in net cash provided by (used in) operating activities
of $6.5 million, ($0.5) million and $2.8 million, respectively.
Investing activities provided (used) cash of $0.7 million and ($1.1)
million for the fiscal years ended July 31, 1997 and 1996, respectively. The
investing activities were principally related to the net proceeds from a
distributorship agreement during the fiscal year ended July 31, 1997, the
purchase of equipment during the fiscal year ended July 31, 1996. No cash from
investing activities was generated during the nine month period ended April 30,
1998.
Financing activities used cash of $5.8 million, $2.4 million and $3.9
million for the fiscal years ended July 31, 1997 and 1996 and the nine month
period ended April 30, 1998, respectively. The financing activities were
principally related to: (1) revolving credit and term loan borrowings and
repayments; and (2) distributions to partners.
Effects of Inflation
For the nine month period ended April 30, 1998 and the fiscal year ended
July 31, 1997, raw material costs, principally flour, were slightly lower than
the comparable periods of the prior year. During these periods, packaging
materials were relatively stable while labor costs rose slightly. To the extent
possible, Manischewitz's objective is to offset the impact of inflation through
productivity enhancements, cost reductions and price increases.
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BUSINESS
Overview
Holdings has a growing specialty food business and a strong distribution
network. We believe that Millbrook is one of the U.S.'s largest independent
distributors of specialty foods, health and beauty care products and general
merchandise. We also believe that Manischewitz is one of the U.S.'s largest
manufacturers of branded Kosher food products.
The Industry
According to Progressive Grocer, a grocery industry periodical, and
Packaged Facts, a consumer products market research company, U.S. sales of
specialty foods were estimated to be $38.9 billion in 1997, resulting in a
compound annual growth rate of 7.0% from 1992 to 1997, compared with 2.7% for
the overall U.S. grocery industry during the same period. The specialty food
segment consists of ethnic, international, health conscious, diet, vegetarian,
natural and gourmet foods that are generally considered higher quality than
those foods more widely available in the mass market. Within the specialty food
segment, Kosher foods are characterized by a stable and loyal customer base of
Jewish consumers. According to Integrated Marketing Communications, Inc., a
Kosher food marketing consulting company, this stable base, coupled with
increasing sales of Kosher foods to non-Jewish consumers, has contributed to
sales of Kosher foods increasing from $2.0 billion in 1992 to $3.3 billion in
1997, representing a compound annual growth rate of 10.2%.
Business Initiatives
Although we believe that the combination of Millbrook and Manischewitz will
provide us with an opportunity to increase sales, revenues and profitability, we
have not yet achieved our goals. Although we cannot assure that any of the
following initiatives will be successful, or if successful, whether they will
contribute significantly to our revenues and profits, we currently plan to:
o Market Manischewitz Products. To take advantage of what we believe to be
the consumer's perception of the qualities associated with Kosher products, we
intend to implement several initiatives to increase sales of Manischewitz
products, including:
o increase spending on advertising, marketing and promotion of
existing products and new product offerings;
o selectively use customer advertising, trade promotions and
allowances to stimulate sales; and
o use Millbrook's existing distribution network and retailer
relationships to sell certain of Manischewitz's products with
broad consumer appeal (e.g., cookies, crackers, noodles and
soups) in the non-Kosher aisles of retailers.
o Pursue Strategic Acquisitions. We actively evaluate acquisition
candidates in the specialty food and distribution businesses. We do not
currently have a binding agreement with respect to any acquisition. We believe
that Millbrook's distribution network provides it with opportunities to
capitalize on the acquisition of additional specialty food companies.
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These initiatives will require additional costs, including marketing and
advertising costs, costs of personnel, fees and expenses related to research and
professional services necessary in connection with possible acquisitions. In
addition, the time and energy devoted to implementing any of these initiatives
by senior executives may have an adverse effect on maintaining and increasing
the profitability of our existing businesses. In light of the narrow gross
profit and operating profit margins associated with the distribution industry,
these additional costs could have a material adverse effect on our business.
Competitive Strengths
We believe that the following attributes establish us as a recognizable
name in the specialty food industry:
o Large Distributor of Specialty Foods. We believe that Millbrook is among
the largest specialty food distributors in the U.S. We believe that Manischewitz
is among the largest producers of processed Kosher food products in the U.S. We
attempt to differentiate ourselves from other specialty food distributors
through our ability to: (1) piece pick (deliver in individual units versus full
cases), which provides retailers with a wider variety of products with improved
space utilization and reduced inventory investment, (2) offer health and beauty
care products and general merchandise and (3) provide in-store merchandising
services. Additionally, through the Millbrook Retail Solutions division, we
provide a variety of other services, including schematic development, space
management, new store installations, remodeling of existing stores, order
writing, stocking, new item placement and development and management of
promotions.
o Recognizable Brand Name. Founded over 100 years ago, we believe
Manischewitz is a recognizable brand name in the Kosher products segment of the
U.S. specialty food industry. As a result of the family-oriented tradition of
Manischewitz, we believe that consumers associate the Manischewitz name with
high-quality ingredients and foods prepared in accordance with strict standards.
We believe the market position and brand name recognition of Manischewitz will
help our position within the specialty food industry. Management believes that
recognition of the Manischewitz brand name is approximately 100% among Jewish
households and 80% among non-Jewish households. As a result of its brand name
and loyal customer base, Manischewitz's historical financial performance has
been stable, with revenue increases in each of its last five fiscal years.
o Extensive Distribution Network. The distribution industry is
characterized by large start-up costs required to establish a distribution
network, obtain client relationships and satisfy inventory requirements. These
initial outlays, coupled with the ongoing costs of changing technology and
business trends, are significant barriers to entry for potential market
participants. The ability to compete in the industry is driven primarily by
economies of scale. Management believes that Millbrook's extensive distribution
network provides a means for the growth of its specialty food business.
o Broad Product Offering. We believe the broad product offering of
Millbrook is necessary to compete within the specialty food industry as
retailers prefer distributors with comprehensive product offerings. Manischewitz
provides a broad range of Kosher branded products, which management believes
will increase sales and help Millbrook's relationship with retailers.
o Relationships with Suppliers and Retailers. We have a base of over 1,500
supplier relationships and extensive relationships with a number of leading
retailers. Millbrook's top ten customers, which collectively represented
approximately 50% of its revenues during the fiscal year ended March 31, 1998,
have been customers for an average of 16 years. We believe that Millbrook has a
reputation for comprehensive product selection, service and
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broad geographic coverage which has enabled it to establish its long-term
relationships with many of the largest supermarket chains and mass merchandisers
in the U.S.
Competitive Weaknesses
In order to implement many of our initiatives and capitalize on what we
believe are competitive strengths of Millbrook and Manischewitz, additional
capital will be required which may not be available to us. Because of our
significant debt level and the narrow profit margins in the distribution
industry, we may not have the cash flows necessary to fund new projects. See
"Risk Factors -- Risks Associated with Significant Level of Debt Financing". Our
competitors may have more cash available to pursue similar initiatives,
including increasing the breadth of their product lines or catering to the
retail markets. Further, outside the Kosher section of supermarkets,
Manischewitz products compete against larger, better known, and better financed
companies. See "Risk Factors -- Strong Competition in the Distribution
Industry".
BUSINESS OF MILLBROOK
The Industry
Distributors provide valuable services to both manufacturers of consumer
products and retailers. Manufacturers benefit from distributors' broad retail
coverage, efficient order processing and inventory management. Distributors
provide retailers access to broad product lines, the ability to place small
quantity orders and inventory management. Large distributors with broad
geographic coverage and an extensive offering of items generally have a
competitive advantage.
Due to consolidation over the past several years, the number of
manufacturers and retailers has decreased. Additionally, retailers have
increasingly focused on reducing supply chain costs and improving margins. As a
result, we believe that manufacturers and retailers are increasingly dependent
on distributors to provide a range of in-store retailing and merchandising
functions previously performed by retail and/or manufacturer personnel.
Distributors increasingly are participating in all stages of marketing for the
products distributed, including category management, promotions, schematic
design and display of products. To efficiently provide such services,
technological innovation has become an essential element in the distribution
industry. For smaller distributors, the costs of the required investments in
technology can be prohibitive.
Millbrook is one of only a few distributors that focuses specifically on
the distribution of specialty foods, health and beauty care products and general
merchandise. According to Packaged Facts and Progressive Grocer Annual Reports,
the specialty food segment accounted for an estimated $38.9 billion, or 8.9% of
U.S. grocery sales in 1997. Specialty foods typically generate higher margins
for retailers than those realized on other products sold in supermarkets. As a
result, supermarkets are expected to continue adding new specialty food items to
their product offerings and aggressively promoting such items to capture these
higher margins.
Retailers are employing a number of marketing techniques to increase the
sales of high margin specialty food items. Stores are using kiosks and free
standing displays to attractively present the product to the consumer. In
addition, retailers are beginning to segregate specialty food into specific
categories, such as ethnic foods, cookies and sauces. By utilizing a
"store-within-a-store" approach for specialty food, the products receive prime
shelf space within the store. Merchandising expertise is a key selection
criteria for determining the retailers' choice of a specialty food distributor.
Because of its merchandising expertise and advanced technology in merchandising
services Millbrook is positioned to help its retailers capture the advantages of
this growing product category.
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The health and beauty care segment includes baby care, cosmetics,
deodorants, first-aid, hair care, over-the-counter medications, toiletries and
oral hygiene and skin care products. The general merchandise segment covers a
wide variety of non-food products including housewares, pet supplies,
stationery, baby needs, photo and cleaning supplies. Competition in both the
health and beauty care and general merchandise categories has been intense due
to the growth of mass merchandisers that have captured market share by offering
larger assortments at "everyday low pricing." Despite losing market share,
supermarkets have maintained a stable base of customers and are expected to
continue to be a key outlet for health and beauty care products and general
merchandise by expanding product variety and offering consumers one-stop
shopping.
Products Distributed
Through its comprehensive product offering, Millbrook can distribute a wide
variety of products to its customers.
o Specialty Foods. For the fiscal year ended March 31, 1998, specialty food
sales were approximately $123.2 million and represented 26.2% of total revenues.
Millbrook's specialty food segment consists of more than 8,000 items of ethnic
and gourmet foods and more than 2,500 items of natural foods and supplements.
Millbrook offers ethnic foods such as Kosher, Asian, Italian, Irish, Indian,
Mexican, Greek and German products, and gourmet foods such as teas, coffees,
spices, baking ingredients, condiments, candies, crackers, cookies, jams and
jellies. Millbrook's natural food products and supplements include items such as
grains, cereals, snacks, beverages, energy bars, baking ingredients, pasta and
sauces.
Millbrook views its specialty food segment as an opportunity for future
growth. Due to the higher margins associated with specialty foods, supermarkets
are expected to continue adding new specialty food items to their product
offerings. To accommodate its retail customers' desire for a broader offering of
specialty foods, Millbrook carries a wide variety of specialty food products.
Management believes that Millbrook's product breadth, together with its
merchandising expertise and advanced technology in merchandising services, will
continue to enable its retail customers to capture the advantages of this
growing product category.
o Health and Beauty Care. The health and beauty care segment has
traditionally been Millbrook's largest segment in terms of sales. For the fiscal
year ended March 31, 1998, health and beauty care sales were approximately
$240.3 million and represented 51.1% of total revenues. Millbrook currently
carries approximately 13,500 health and beauty care items, including a full line
of national brands and private labels. Millbrook's private label health and
beauty care products are offered under its ValuStar(R) brand, which represents
less than 5% of total revenues.
Health and beauty care product offerings have grown due to new product
introductions and the growth in over-the-counter medications. This creates the
need for retailers to maximize variety in minimal shelf space. In recent years
supermarkets, Millbrook's primary customer base, have lost market share in
health and beauty care products to mass merchandisers and drug stores. In
response to this industry shift, Millbrook's strategy has been to expand its
customer base to include companies such as Ames, Super Kmart and Bradlees.
However, supermarkets have begun to recapture lost market share by increasing
the shelf space allocated to health and beauty care items and expanding the
variety of those items carried. Management believes that Millbrook's
capabilities and extensive product selection make it qualified to serve both the
growing mass merchandiser demand and meet the current expanding needs of the
supermarket retailers for health and beauty care items.
o General Merchandise. Millbrook currently carries approximately 11,000
general merchandise items. For the fiscal year ended March 31, 1998, general
merchandise accounted for approximately $106.7 million and represented 22.7% of
total revenues. Although the traditional supermarket cannot afford to devote as
much space to the
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general merchandise category as compared to the mass merchandisers, supermarkets
have the advantage of more frequent customer traffic. This fact ensures that
supermarkets will remain a key outlet for general merchandise. In addition,
targeting certain departments such as pet, bath and stationery as destination
categories adds to the importance of general merchandise in supermarkets.
Retail Services
Millbrook traditionally has supplemented its product distribution with full
supporting services such as schematic development, space management, new store
installations, remodeling of existing stores, order writing, stocking, new item
placement and development and management of promotions.
Over time, gross profit margins for these services have eroded principally
as a result of the retail phenomenon of "everyday low pricing." As a result,
Millbrook has begun to "unbundle" each of the elements of the full-service
program and use activity-based costing to charge the customer for each
supporting service on a stand-alone basis. In addition, Millbrook has begun to
offer these services without product distribution and to other retail channels.
This fundamental change in the packaging of the services Millbrook offers to its
customers resulted in the formation of Millbrook Retail Solutions as a separate
group to focus solely on providing merchandising services.
By using a predominantly part-time, hourly workforce, management believes
Millbrook Retail Solutions has cost advantages over manufacturers and retailers.
Manufacturers and retailers are beginning to realize that the frequency of
in-store merchandising is growing along with the associated costs. Consequently,
outsourcing these functions to a lower cost and more efficient alternative such
as Millbrook Retail Solutions is attractive. Management believes Millbrook
Retail Solutions' experienced personnel, customer base and technology combined
with Millbrook's established infrastructure position Millbrook to compete
effectively in the growing third-party service industry. In particular,
management believes that Millbrook's advanced technology in planogramming and
its category management capabilities enable it to provide service offerings that
are not readily available from the competition.
Customers
Millbrook's top ten customers, which collectively represented approximately
50% of its revenues during the fiscal year ended March 31, 1998, have been
customers for an average of 16 years. For the fiscal year ended March 31, 1998,
supermarkets represented 89% of revenues and mass merchandisers represented 11%
of revenues. From 1995 to 1998, revenues from mass merchandisers increased from
less than 1% to approximately 11%. While Millbrook enjoys long-term
relationships with most of its customers, consistent with industry practice,
substantially all of Millbrook's customer agreements are on a month-to-month
basis. Millbrook has supply agreements with certain of its significant
customers. None of these supply agreements are for a period of greater than
three years.
Suppliers
Millbrook purchases products from the leading suppliers in each of its
business segments. For the fiscal year ended March 31, 1998, the five largest
suppliers in each of Millbrook's three principal business categories were (1)
for specialty foods, World Finer Foods, BestFoods, T.J. Lipton, R.C. Bigelow and
Motts USA, (2) for health and beauty care products, Procter & Gamble, Johnson &
Johnson, Gillette, Warner-Lambert and American Home Products and (3) for general
merchandise, Rubbermaid, Inc., Hartz Mountain Corp., Mead, Eveready Battery
Company and Eastman Kodak Company. The five largest suppliers for specialty
foods represented 18% of total purchases. The five largest suppliers for health
and beauty care products represented 5% of total purchases. The five largest
suppliers for general merchandise represented 6% of total purchases.
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Competition
o Specialty Foods. The competition in the specialty foods segment is
fragmented among over 200 distributors, most of which are small and
geographically limited. Supermarkets are constantly demanding increased
specialty food product offerings to entice new consumers into their stores while
retaining existing clientele. This requires distributors to continually monitor
consumer and manufacturer trends with active implementation of category
management programs.
Millbrook is able to compete effectively in the specialty foods segment
based on its breadth of products and its logistics capabilities. Its "piece
pick" capability gives retailers Millbrook's product variety without the
inventory investment in slow-moving, high margin specialty food products. Unlike
most other specialty food distributors, Millbrook offers a single source of
supply for specialty foods, health and beauty care products and general
merchandise. This generates transportation and distribution efficiencies for
Millbrook. Millbrook's principal competitors in this segment are Haddon House,
Hagemeyer and Gourmet Awards.
o Health and Beauty Care. Supermarkets historically have placed health and
beauty care products wherever shelf space was available. As supermarkets do not
have the available shelf space to compete with the breadth of health and beauty
care items carried by mass merchandisers, they have become reliant on delivery
and inventory techniques that maximize shelf space and product variety.
Management is of the opinion that Millbrook's "piece pick" capability and
breadth of health and beauty care product assortment allows its supermarket
customers to effectively compete with mass merchandisers in this product
category. Millbrook's principal competitors in this segment are SuperValu,
Fleming and Associated Wholesale Grocers.
o General Merchandise. Supermarkets are refocusing their efforts to carry
general merchandise specifically matched to their customer profiles and
rethinking the manner in which they allocate shelf space to general merchandise.
Management believes product competition in selection and promotion at the retail
level favors distributors such as Millbrook. Millbrook's buying power results in
a large assortment of general merchandise that is continually tailored to meet
its customers and the consumers' specifications. Through Millbrook's "piece
pick" capability, this assortment is available to the retailers without the
required inventory investment and space allocation. Millbrook's principal
competitors in this segment are SuperValu, Fleming and Associated Wholesale
Grocers.
o Retail Services. The retail services industry is competitive and is
predominantly comprised of a large number of small organizations that are either
retailer, channel or region specific. It is the opinion of management that there
are approximately 120 retail service companies competing with Millbrook Retail
Solutions. Management believes that its principal competitors in the retail
service segment include PIA Merchandising, PIMMS, Powerforce and Spar. The
principal competitive factors within the industry include (1) breadth and
quality of client services, (2) price, (3) the ability to execute specific
client priorities rapidly and consistently over a wide geographical region and
(4) technological compatibility. Millbrook Retail Solutions' combination of
breadth and quality of services currently available is unique in this industry
given its retail-oriented technology base, extensive experience at the store
level and Millbrook's logistics capabilities. See "Risk Factors -- Strong
Competition in the Distribution Industry."
Management Information Systems and Technology
Millbrook uses a sophisticated management information system which provides
its customers with efficient and cost-effective order management and value-added
marketing and merchandising services. Management believes this gives Millbrook a
competitive advantage over smaller, less technologically sophisticated
distributors. Millbrook's order management services enable it to (1) permit
customers to utilize Millbrook's integrated inventory management system
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for forecasting, distribution requirements planning and purchasing; (2) capture
customer orders at retail locations, which are electronically transmitted to
Millbrook's operations data center; and (3) quickly fill orders and pick, pack
and ship those orders within 24 hours.
Millbrook's merchandising services provide: (1) computerized space and
shelf management programs for inventory control; (2) customer research analysis
for better purchasing decisions; (3) a variety of reporting menus to facilitate
analysis of a particular marketing program's effectiveness; and (4) computerized
merchandising systems that are able to integrate with customers' existing
systems. In addition, the system's "piece pick" capability gives Millbrook's
customers a large assortment of merchandise without the required inventory
investment and space allocation. See "Risk Factors - Management Information
Systems" and "Risk Factors -- Ability to Process Information in the Year 2000."
Facilities
Millbrook's corporate headquarters are located in Leicester, Massachusetts,
where management and administrative functions are performed. Millbrook currently
uses five distribution centers:
<TABLE>
<CAPTION>
Approximate Lease
Square Expiration
Property Location Own or Lease Footage Date
- -------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
National Support Center/Distribution Center............ Harrison, AR Own 1,200,000 --
Corporate Headquarters/Distribution Center............. Leicester, MA Lease 340,000 11/3/06
Distribution Center.................................... Worcester, MA Lease 220,000 8/31/02
Distribution Center.................................... Ozark, AL Own 210,000 --
Distribution Center.................................... Greenville, NC Lease 110,000 3/31/99
</TABLE>
In addition, Millbrook uses 139 transfer depots located in 33 states.
Millbrook owns or leases its fleet of 110 tractors, 250 trailers and 325
vans.
Employees
As of September 30, 1998, Millbrook had a total of 1,900 full-time
employees, 250 part-time employees and the ability to draw upon 1,000 part-time
service merchandisers nationwide. Millbrook believes that its relations with its
employees are generally good.
Litigation
Millbrook is subject to litigation in the ordinary course of its business.
Millbrook is not a party to any lawsuit or proceeding which, in the opinion of
management, is likely to have a material adverse effect on Millbrook.
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<PAGE>
BUSINESS OF MANISCHEWITZ
The Industry
According to Progressive Grocer, the U.S. grocery industry has been
characterized by relatively stable growth based on modest price and population
increases, with total sales of approximately $436.0 billion in 1997 reflecting a
compound annual growth rate of 2.7% for the five years ended 1997. According to
Integrated Marketing Communications, Inc., Kosher foods are one of the fastest
growing categories of the specialty food segment and are characterized by a
stable base of loyal consumers represented primarily by the Jewish population.
According to Integrated Marketing Communications, Inc. and Packaged Facts, since
1992 sales of Kosher foods have increased significantly among non-Jewish
consumers due to heightened awareness of the quality of ingredients, rabbinical
supervision and processing techniques used in manufacturing Kosher foods,
together with growing interest in healthier foods.
Kosher foods are manufactured in accordance with Jewish dietary laws which
require strict adherence to quality and cleanliness standards. Achieving such
standards requires specialized knowledge and the approval of a designated Kosher
certification agency. Due to the production methods used, Kosher products
generally are considered to contain higher quality and healthier ingredients and
to have less preservatives. According to Integrated Marketing Communications,
Inc., approximately 40% of the overall Kosher category is Kosher for Passover
products, which are prepared under more stringent guidelines than other Kosher
products.
According to Integrated Marketing Communications, Inc., recently several
national brand food manufacturers have modified products to be Kosher certified
with the intent of broadening their appeal and increasing sales. While such
products have contributed to the growth of the number of Kosher products
available, they generally are not sold as Kosher or Kosher for Passover.
Manischewitz believes that it is one of the leading manufacturers of Kosher for
Passover products.
Products
Manischewitz's core business consists of traditional products sold
primarily to Jewish consumers. Manischewitz is a manufacturer of products
normally consumed during certain Jewish holidays, primarily Passover (which
occurs during the spring) and Rosh Hashanah (which occurs during the fall).
Manischewitz believes that, among the Jewish population, approximately 100%
recognize the Manischewitz brand name and 90% have tried one or more
Manischewitz products. Manischewitz believes that, among the non-Jewish
population, approximately 80% are familiar with the Manischewitz brand name and
over 50% have tried one or more Manischewitz products.
Manischewitz has built its brand awareness and consumer base by offering a
broader assortment of products that can be consumed throughout the year, as well
as continued to expand its product offerings to accommodate changing tastes and
the popularity of various food items. Manischewitz's new product offerings
include macaroons with "ice cream" flavors, rice pilafs, various soup mixes and
snack items. Many of the new product offerings are intended to appeal to the
mainstream population to expand the customer base for Manischewitz's product
line.
Manischewitz also licenses its name to other entities for use in the
manufacture, distribution and sale of certain Kosher products including wine,
bread, seltzer water and confectionery products. In fiscal 1997, licensing
represented approximately 1% of total revenues.
o Baked Products. Baked products include daily matzo, Passover matzo
(produced at more exacting standards dictated by religious tenets for Passover)
and crackers. All of these products are baked at Manischewitz's Jersey City, New
Jersey facilities. Matzo products in this segment are sold under the
Manischewitz, Horowitz
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<PAGE>
Margareten and Goodman's brand names. Matzo sales generated approximately 27% of
Manischewitz's total revenues in fiscal 1997. Manischewitz has a license
agreement with Goodman's to use its name on matzo products and matzo-related
products through 2003. In fiscal 1997, matzo products and matzo-related products
sold under the Goodman's name represented approximately 2% of total revenues.
o Manufactured Products. Manufactured products consist of a variety of
fish, soups, borscht and other processed foods. The principal product in this
segment is gefilte fish, a blended combination of whitefish, pike and carp
manufactured at Manischewitz's Vineland, New Jersey facility. Gefilte fish
constitutes the second largest product line for Manischewitz and accounted for
approximately 13% of its total revenues in fiscal 1997.
o Co-Packed Products. Manischewitz markets a number of co-packed products,
including cookies, confectionery products, noodles, pasta and dry mixes under
the Manischewitz, Horowitz Margareten and Goodman's brand names. Manischewitz
also markets a variety of dry soup mixes which are manufactured by outside
entities. Manischewitz expects to continue to employ co-packers as a capital
efficient means of bringing its new products to market.
Marketing and Product Development
In fiscal 1997, spending on marketing and trade promotion represented
approximately 7% of total revenues. This is an increase over previous years.
However, as a percentage of revenue, management believes that marketing and
trade promotion expenses have historically remained substantially below other
food manufacturers. Marketing has been restricted to its core market and,
accordingly, spending has been limited and is generally equal to approximately
2% of revenues. As part of its business strategy, management intends to
significantly increase spending on advertising, marketing and promotion of
Manischewitz's existing products and new product offerings.
During the last few years, the Manischewitz product line has been expanded
to strengthen and broaden its popular appeal. Packaging has been updated to
better communicate good taste and high quality and enhance visibility on store
shelves. Manischewitz has introduced no-fat and low-fat items to reinforce the
positive health aspects of its products. Where appropriate, recipes have been
improved and new flavors introduced. In addition, Manischewitz has introduced
new products targeted at both Jewish and non-Jewish consumers and has begun to
capitalize on the positive Manischewitz brand image among consumers. In fiscal
1997, new products introduced since 1993 generated approximately 17% of
Manischewitz's total revenues.
Distribution
Manischewitz principally sells its products to independent distributors
operating throughout the U.S. and Canada. Two of its independent distributors
represented approximately 31% of total revenues in fiscal 1997. Among its
customer base, supermarkets represented approximately 90% of Manischewitz's
fiscal 1997 total revenues and other customers represented approximately 10%.
Management believes that Manischewitz's five largest supermarket customers are
American Stores, Ralph's, ShopRite, Pathmark and A&P. In addition, Manischewitz
has developed a marketing arrangement with Wal-Mart to carry Manischewitz's
products in its supercenters and general merchandise stores.
Management estimates that its products are sold in a majority of the
supermarkets throughout the U.S. Due to their importance to Jewish consumers
Manischewitz products are "must carry" items for many supermarkets in the U.S.
Management intends to seek to obtain shelf space sections from supermarkets
other than in the Kosher aisle. The ability to display Manischewitz's products
in the non-Kosher supermarket aisles for products such as cookies, crackers,
noodles and sauces will enhance awareness of Manischewitz products, particularly
among the non-Jewish consumer.
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<PAGE>
To support these efforts, management intends to increase promotional and
advertising expenditures to enhance product presence and increase sales.
Competition
Manischewitz competes within a small group of branded Kosher manufacturers
in which it has increased its market shares over many years. In the matzo
category, all of the domestic producers have been in the industry for over 80
years. Manischewitz's brand names, the complexities of complying with Kosher
manufacturing requirements and the relatively modest size of the market have all
contributed to the stability of the competitive environment faced by
Manischewitz. Unlike most food manufacturers, Manischewitz presently does not
face competition in its core products from any private label products because of
the unique knowledge and processes involved in manufacturing Kosher food. This
lack of private label competition gives Manischewitz flexibility with respect to
pricing its core products. Management's business strategy includes promoting and
marketing Manischewitz products in the non-Kosher aisles of supermarkets.
However, outside the Kosher aisle, Manischewitz products will compete with the
products of a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies. Many of these competitors have
multiple product lines as well as substantially greater financial and other
resources available to them.
Manischewitz's major competitor in the production and distribution of matzo
is Streit's, a family-owned regional marketer limited primarily to the New York
area.
Within the gefilte fish market, Manischewitz competes with Rokeach and its
related brands, including Mothers, Old Vienna and Mrs. Adlers.
Management believes that Manischewitz's loyal customer base and name
recognition make the brand less vulnerable to competition with respect to its
core products. See "Risk Factors - Strong Competition in the Distribution
Industry."
Raw Materials
Manischewitz utilizes a variety of basic raw materials in the manufacture
of its matzo and matzo-related products, principally flour. Manischewitz also
utilizes significant quantities of various fish in the manufacture of its
gefilte fish. Supplies of these ingredients are readily available from a number
of sources and are purchased based on price.
Trademarks
Manischewitz owns a number of registered trademarks in the U.S., Canada,
Europe, Israel, South Africa and South America. The registered trademarks in the
U.S. include Manischewitz(R), Horowitz Margareten(R),Onion Tams(R), Passover
Pantry(R), Tam Tam(R), Vege-Matzo(R), Wheat Tams(R), Design Star of David(R) and
Star of David & Lion Design(R). Manischewitz has granted exclusive licenses in
connection with the manufacture and sale of wine, vinegar and certain flavored
juice products, seltzer, Kosher packaged rye and pumpernickel breads and rolls
and pickle products. Such licenses are limited in scope to certain territories
and entitle Manischewitz to royalties based on the net sales or revenues of the
licensed products sold. Management is not aware of any facts that would have a
material adverse impact on the continued use of any of its trademarks and trade
names.
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<PAGE>
Facilities
Manischewitz's corporate headquarters are located in Jersey City, New
Jersey, where management and administrative functions are performed.
Manischewitz occupies the following properties, all of which are used in
connection with its food business:
<TABLE>
<CAPTION>
Approximate Lease
Square Expiration
Property Location Own or Lease Footage Date
- -------- --------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Bakery................................................. Jersey City, NJ Own 86,000 --
Manufacturing facility................................. Vineland, NJ Own 67,700 --
Warehouse.............................................. Jersey City, NJ Lease 43,500 8/31/00
Office................................................. Jersey City, NJ Lease 9,600 8/31/00
</TABLE>
The Jersey City, New Jersey bakery operates on a two-shift basis (each
shift consists of eight hours) during three months of the year and a three-shift
basis for seven months of the year. The plant, which has computerized production
equipment, is shut down for the month of July for maintenance and in August to
prepare the plant to meet the Kosher requirements for Passover.
The Vineland, New Jersey manufacturing and warehousing facility is located
on a five-acre site. It has the capacity to produce 11,000 pounds of processed
food per shift. The facility operates on a single shift basis throughout the
year, with its primary maintenance period in April.
Employees
As of September 30, 1998, Manischewitz had a total of 220 full-time
employees and 30 part-time employees. Manischewitz believes its relations with
its employees are generally good.
Litigation
Manischewitz is subject to litigation in the ordinary course of its
business. Manischewitz is not a party to any lawsuit or proceeding which, in the
opinion of management, is likely to have a material adverse effect on
Manischewitz.
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<PAGE>
MANAGEMENT
Directors and Executive Officers of Holdings and Enterprises
The directors and executive officers of Holdings and Enterprises, and where
indicated, the senior executive officer of each of Manischewitz and Millbrook is
as set forth in the table below:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard A. Bernstein*.............................. 52 Chairman, President, Chief Executive Officer and
Director
Lewis J. Korman*................................... 53 Vice Chairman and Director
Steven M. Grossman*................................ 37 Executive Vice President, Chief Financial
Officer, Treasurer and Director
James A. Cohen, Esq.*.............................. 53 Senior Vice President - Legal Affairs and
Secretary and Director of Enterprises
Ira A. Gomberg*.................................... 55 Senior Vice President
Hal B. Weiss*...................................... 41 Assistant Treasurer
Richard H. Hochman................................. 53 Director of Holdings
Jenny Morgenthau................................... 55 Director of Holdings
Michael A. Pietrangelo............................. 52 Director of Holdings
* Titles of these individuals are the same for Holdings and Enterprises
unless otherwise specified.
Senior executive officer of Millbrook:
Robert A. Sigel............................... 45 President and Chief Executive Officer of Millbrook
Distribution Services Inc.
Senior executive officer of Manischewitz:
Dennis M. Newnham............................ 53 President and Chief Executive Officer of The B.
Manischewitz Company, LLC
</TABLE>
Richard A. Bernstein has served as Chairman, President and Chief Executive
Officer of Holdings and Enterprises and as a director of Enterprises since its
inception in March, 1998 and of Holdings since its inception in December, 1996.
In addition to his positions with Holdings and Enterprises, Mr. Bernstein is a
member of the Board of Directors and Chairman of Millbrook. Mr. Bernstein is
Chairman and Manager of RABCO Luxury Holdings, LLC, a New York limited liability
company, a diversified holding entity for luxury products, which has the
exclusive right, through its subsidiary, Breguet, LLC to distribute Breguet(R)
watches and time pieces in the United States, Canada, Mexico, Central and South
America, and throughout the Caribbean. Mr. Bernstein is also President of P&E
Properties, Inc., a private commercial real estate ownership/management company
of which Mr. Bernstein is the sole shareholder. Mr. Bernstein was the Chairman
and Chief Executive Officer and a director of Western Publishing Group, Inc.
from 1984 to May 1996. Mr. Bernstein also served as Chairman of the Board and
Chief Executive Officer of RABCO Health Services, Inc. and General Medical
Corporation, a medical and surgical supply distribution company, from April 1987
through August 1993, and Chairman and Chief Executive Officer of Harris
Wholesale Company, a pharmaceutical and health and beauty care distribution
company, from 1989 through May 1992. Mr. Bernstein devotes substantial time to
other business and charitable activities.
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<PAGE>
Lewis J. Korman has been Vice Chairman of Holdings and Enterprises since
their inception and is a director of Holdings and Enterprises. Mr. Korman is
also an advisor to a company engaged in the marketing and distribution of
products designed to enhance wellness and beauty. He also serves as a consultant
to companies engaged in financial transactions in the motion picture industry.
Mr. Korman also is involved in the structuring of entrepreneurial transactions
in the entertainment industry. Prior to joining Holdings in January 1997, Mr.
Korman was President and Chief Operating Officer of Savoy Pictures
Entertainment, Inc. from its founding in 1992 until its merger with Silver King
Communications, Inc. in December 1996. Prior thereto, Mr. Korman was Senior Vice
President and Chief Operating Officer of Columbia Pictures Entertainment, Inc.
(and Chairman of its Motion Picture Group) until its sale to Sony Corporation at
the end of 1989.
Steven M. Grossman has been Executive Vice President, Chief Financial
Officer and Treasurer and a director of Holdings and Enterprises since their
inception. In addition to his positions with Enterprises and Holdings, Mr.
Grossman is Executive Vice President--Finance and Administration of Millbrook
and the Executive Vice President, Chief Financial Officer and Treasurer of
Manischewitz. Mr. Grossman is also Executive Vice President and Chief Financial
Officer of RABCO and Breguet and Chief Financial Officer of P&E Properties. Mr.
Grossman was Executive Vice President and Chief Financial Officer of Western
Publishing Group, Inc. from June 1994 to May 1996 and Vice President--Financial
Planning of Western Publishing Group, Inc. from July 1992 to June 1994 and of
RABCO Health Services, Inc. from July 1992 to August 1993.
James A. Cohen, Esq. has been Senior Vice President--Legal Affairs and
Secretary of Holdings and Enterprises since their inception and is a director of
Enterprises. In addition to his positions with Enterprises and Holdings, Mr.
Cohen is the Senior Vice President--General Counsel of Millbrook and
Manischewitz. Mr. Cohen is also Senior Vice President--Legal Affairs of RABCO
and Breguet and a senior executive of P&E Properties. Mr. Cohen was Senior Vice
President--Legal Affairs and Secretary of Western Publishing Group, Inc. from
1984 to May 1996 and Senior Vice President-- Legal Affairs and Secretary of
RABCO Health Services, Inc. from April 1987 through August 1993.
Ira A. Gomberg has been Senior Vice President of Enterprises and Holdings
since their inception. In addition to his position with Enterprises and
Holdings, Mr. Gomberg is a Senior Vice President of Millbrook and Manischewitz.
Mr. Gomberg is also Senior Vice President of RABCO and Breguet and a senior
executive of P&E Properties. Mr. Gomberg was Vice President of Western
Publishing Group, Inc. from 1986 to May 1996 and Executive Vice President of
RABCO Health Services, Inc. from April 1987 through August 1993.
Hal B. Weiss has been Assistant Treasurer of Enterprises and Holdings since
their inception. In addition to his position with Enterprises and Holdings, Mr.
Weiss is a Vice President and Assistant Treasurer of Millbrook and Manischewitz.
Mr. Weiss is also the Assistant Treasurer of RABCO and Breguet and Controller of
P&E Properties. Mr. Weiss served as Assistant Treasurer of Western Publishing
Group, Inc. from 1990 through May 1996 and Assistant Treasurer of RABCO Health
Services, Inc. from April 1987 through August 1993.
Richard H. Hochman is Chairman of Regent Capital Management Corp., a
private investment company, making equity and mezzanine investments in
companies, and has served in that capacity since April 1995. From 1990 through
April 1995, he was a Managing Director of the Corporate Finance Department of
PaineWebber Incorporated and served as a member of its Debt and Equity
Commitment Committees. Prior
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<PAGE>
to joining PaineWebber, Mr. Hochman served as a Managing Director of Drexel
Burnham Lambert, Inc. from 1984 through 1990. Mr. Hochman also serves on the
Board of Directors of Cablevision Systems Corp. and Lite-Flite, Ltd.
Jenny Morgenthau has been Chief Executive Officer of The Fresh Air Fund,
one of New York's preeminent charitable corporations, for more than the past
five years. Prior to joining The Fresh Air Fund, Ms. Morgenthau worked for New
York City's Special Services for Children, the Department of City Planning and
the New York State Urban Development Corporation. Ms. Morgenthau serves on the
board of directors of a number of charitable and cultural organizations.
Michael Pietrangelo is a partner in the Memphis, Tennessee law firm of
Pietrangelo Cook PLC, which he joined in February 1998. Previously, Mr.
Pietrangelo was President of Johnson Products Co., a subsidiary of IVAX
Corporation that manufactured and sold cosmetic and health and beauty care
products, principally intended for the African-American consumer. Mr.
Pietrangelo also has held a number of executive positions in the consumer
products industry at Schering-Plough Corporation, including President of the
Personal Care Products Group, and has served as President and Chief Operating
Officer of Western Publishing Group, Inc. and President and Chief Executive
Officer of Cleo, Inc., a subsidiary of Gibson Greetings, Inc.
Robert A. Sigel has been President, Chief Executive Officer and director of
Millbrook since it was acquired by Holdings from McKesson in March 1997. Mr.
Sigel has been associated with Millbrook's business since 1977, having served as
Vice President, Sales and Merchandising, Executive Vice President, President and
Chief Executive Officer of Millbrook Distributors, Inc. and President and Chief
Executive Officer of the service merchandising division of McKesson, which
became the current Millbrook. From 1995 through March 1997 Mr. Sigel also served
as a Corporate Vice President of McKesson and on McKesson's Management Board.
Dennis M. Newnham has agreed to serve as President and Chief Executive
Officer of Manischewitz commencing in January 1999. Mr. Newnham is the President
and Chief Executive Officer of Tsumura International, a manufacturer of personal
care and fragrance products and has served in such capacities from March 1996
through the present date. In 1995 Mr. Newnham served as Chairman, President and
Chief Executive Officer of Adirondack Beverages, Inc., one of the largest
independent soft drink bottlers in the Northeast. From April 1983 through March
1994, Mr. Newnham served as Chairman, President and Chief Executive Officer of
Lea & Perrins, Inc., a specialty foods company. Mr. Newnham also serves as a
member of the Board of Directors of United Water Resources and NutraMax
Products, Inc.
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<PAGE>
COMPENSATION FOR EXECUTIVE OFFICERS
The following table sets forth the compensation earned or paid, including
deferred compensation of the Chief Executive Officer and the most highly
compensated executive officers of Holdings, Enterprises, Manischewitz and
Millbrook for services rendered for the fiscal year indicated.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Other Annual
Compensation Options/SARs
Name and Principal Position Year Salary ($) Bonus($) ($) (#)
- ---------------------------------------------- ---- ------------ ---------- ---------- ------------
Holdings and Enterprises
<S> <C> <C> <C> <C> <C>
Richard A. Bernstein ......................... 1998 $ --(1) $ -- $ -- --
Chairman, President and Chief
Executive Officer
Steven M. Grossman ........................... 1998 $ 178,750(2) $ -- $ 9,200 --
Executive Vice President,
Chief Financial Officer and
Treasurer
James A. Cohen ............................... 1998 $ 120,000(2) $ -- $ 8,400 --
Senior Vice President - Legal
Affairs and Secretary
Millbrook
Robert A. Sigel .............................. 1998 $ 355,623 $82,330(3) $ 8,228 --
Chief Executive Officer 1997 $ 218,654 $ 4,099 $ 55,401(4)(5) --
and President of Millbrook 1996 $ 211,000 $ -- $ 49,500(4)(5) --
Manischewitz
Richard A. Bernstein ......................... 1998 $ --(1) $ -- $ -- --
Chairman, President, Chief
Executive Officer and Manager
</TABLE>
(1) Neither Holdings, Enterprises, Manischewitz or Millbrook pays Mr. Bernstein
a salary. Enterprises reimburses P&E Properties for personal services,
including executive services rendered by certain of its executive officers.
The services provided are based upon the number of hours incurred at the
applicable pay rate for each executive officer. Mr. Bernstein does not
receive a salary from P&E Properties. See "Certain Transactions -- Related
Party Transactions."
(2) Neither Holdings nor Enterprises pays Messrs. Grossman or Cohen a salary.
Enterprises reimburses P&E Properties for personal services, including
executive services rendered by certain of its executive officers. Messrs.
Grossman and Cohen receive a salary from P&E Properties for executive
services rendered to Holdings and Enterprises. See "Certain Transactions --
Related Party Transactions."
(3) During the fiscal year ended March 31, 1998, Mr. Sigel was paid a bonus of
$82,330 which was earned during the fiscal year ended March 31, 1997.
(4) Other Annual Compensation includes long-term deferred compensation of
$45,901 in 1997 and $40,000 in 1996.
(5) Other Annual Compensation excludes any amounts paid to Mr. Sigel, in his
capacity as a Corporate Vice President of McKesson Corporation.
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<PAGE>
CERTAIN TRANSACTIONS
Voting Agreement
Mr. Bernstein is a party to a voting agreement with each of the holders of
the series A preferred stock and common stock of Holdings. Under the voting
agreement these stockholders agreed to vote all of their shares of series A
preferred stock and common stock as Mr. Bernstein directs or, if no direction is
given, in a manner consistent with the manner in which Mr. Bernstein votes his
shares of series A preferred stock and common stock. The voting agreement also
provides that the stockholders shall execute any written consent of holders of
series A preferred stock or common stock as Mr. Bernstein directs or, if no
direction is given, in a manner which is consistent with the vote or written
consent of Mr. Bernstein on the matter. The stockholders shall not execute any
other consent of holders of series A preferred stock or common stock.
In the event that a stockholder fails to comply with the voting provisions
above, Mr. Bernstein holds a proxy to vote the stockholder's shares or execute a
written consent in any manner as he may determine in his sole and absolute
discretion. Under the voting agreement, Mr. Bernstein shall not be liable to any
stockholder or anyone claiming under such stockholder as a result of any vote or
the exercise of any proxy by Mr. Bernstein. This is true even if that vote or
exercise of proxy adversely affects, or results in the decrease in the value of,
such stockholder's shares.
The voting agreement shall terminate on the earliest of (1) the date a
stockholder (and such stockholder's heirs, personal representatives, donees and
trustees of any trusts in which such stockholder has an interest, during the
stockholder's life or upon his death) ceases to own any of the shares of
Holdings; (2) the date on which the common stock of Holdings is listed or
admitted to trade on any national securities exchange or is quoted on the
National Association of Securities Dealers Automated Quotation system or similar
means; and (3) 10 years from the date of the voting agreement. The voting
agreement is binding on the stockholder's successors, heirs, personal
representatives, donees and trustees of any trust in which the stockholder has
an interest, during the stockholder's life or upon his death. Mr. Bernstein and
his successor(s) including his heirs, personal representatives and the trustees
of any trust in which he has an interest, during his life or created upon his
death, shall receive the benefits of the voting agreement. Therefore, the
stockholder shall vote his or her shares and execute written consents as Mr.
Bernstein's successor(s) may designate.
Related Party Transactions
At the time of the acquisition of Millbrook by Holdings and the acquisition
of Manischewitz by Enterprises, Millbrook and Manischewitz entered into separate
arrangements with P&E Properties, Inc.,an entity of which Mr. Bernstein is the
sole shareholder. In this agreement, Millbrook agreed to pay a quarterly
management fee of $100,000 and Millbrook and Manischewitz agreed to reimburse
P&E Properties for reasonable services and out-of-pocket and other expenses
incurred on Millbrook's and Manischewitz's behalf. These services include among
other things, treasury, cash management, certain financial reporting, legal,
labor and lease negotiation and employee benefits administration. For the six
month period ended September 30, 1998, P&E Properties was reimbursed $400,000
for reasonable services provided to Millbrook. For the fiscal year ended March
31, 1998, P&E Properties was reimbursed $800,000 for reasonable services
provided to Millbrook. Enterprises reimburses P&E Properties for personal
services, including executive services, rendered by certain of its executive
officers. Mr. Bernstein does not receive a salary from P&E Properties. Messrs.
Grossman and Cohen receive a salary from P&E Properties for executive services
rendered to Holdings, Enterprises, Millbrook and Manischewitz. The reasonable
services provided are based upon (i) the number of hours incurred at the
applicable pay rate; and (ii) out-of-pocket expenses, related to the services
provided. In the opinion of management, this methodology provides a reasonable
basis for such
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<PAGE>
allocation. In addition, each of Holdings, Enterprises, Millbrook and
Manischewitz believe that the terms of the arrangement with P&E Properties was
no less favorable than could have been obtained from unaffiliated third parties
on an arm's length basis.
Shareholders Agreements
Each employee of Millbrook or Manischewitz who owns shares of the common
stock of Holdings is a party to a shareholders agreement with Holdings. These
agreements prohibit transfer of such shares other than to a member of the
employee shareholder's immediate family or a trustee of a trust for the benefit
of the employee shareholder or his immediate family. In the event of termination
of the employee shareholder's employment Holdings has the option or obligation
to purchase all the employee shareholder's shares at prices not greater than the
fair market value.
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<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table contains, as of November 30, 1998, certain information
regarding the beneficial ownership of the common stock and preferred stock of
Holdings (1) by each person who is known by Holdings to own beneficially more
than 5% of the outstanding shares of common stock or preferred stock of
Holdings, (2) by each of the directors and executive officers of Holdings and
(3) by all directors and executive officers of Holdings as a group. We believe
that the beneficial owners of the securities listed below, based on information
furnished by such owners, have investment and voting power with respect to all
the shares of common stock and preferred stock of Holdings shown as being
beneficially owned by them subject to the voting agreement described above under
"Certain Transactions--Voting Agreement." Holdings owns 200 shares of the common
stock of Enterprises, which represents all of the issued and outstanding capital
stock of Enterprises.
<TABLE>
<CAPTION>
Number of Number of
Shares of Percentage Shares of Series
Common of Total A Preferred
Stock of Shares of Stock of
Holdings Common Holdings
Name and Address of Beneficially Stock of Beneficially
Beneficial Owners (a) Owned Holdings Owned
- --------------------- ------------ ---------- ---------------
<S> <C> <C> <C>
Richard A. Bernstein .................................. 42,500 41.3% 10,000
Robert A. Sigel ....................................... 6,600 6.4 200
James A. Cohen, Esq ................................... 3,610 3.5 120
Steven M. Grossman .................................... 3,490 3.4 80
Lewis J. Korman ....................................... 3,450 3.4 400
Ira A. Gomberg ........................................ 2,850 2.8 200
Hal B. Weiss .......................................... 1,460 1.4 120
Richard H. Hochman .................................... 1,200 1.2 400
Michael A. Pietrangelo ................................ 360 .3 120
Jenny Morgenthau ...................................... 300 .3 100
All directors and executive officers as a group 65,820 64.0% 11,740
(10 persons)...........................................
</TABLE>
(a) The address for Messrs. Bernstein, Cohen, Grossman, Korman, Gomberg and
Weiss is 444 Madison Avenue, Suite 601, New York, New York 10022. The
address for Robert A. Sigel is c/o Millbrook Distribution Services Inc.,
Route 56, 88 Huntoon Memorial Highway, Leicester, Massachusetts 01524. The
address for Mr. Hochman is Regent Capital Management Corp., 505 Park
Avenue, 17th Floor, New York, New York 10022. The address for Mr.
Pietrangelo is Pietrangelo Cook PLC, Suite 190, International Plaza, 6410
Poplar, Memphis, Tennessee 38119 and the address for Ms. Morgenthau is c/o
The Fresh Air Fund, 1040 Avenue of the Americas, New York, New York 10018.
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THE EXCHANGE OFFERS
Purpose and Effect
On May 1, 1998, Holdings and Enterprises sold notes to Chase Securities,
Inc. In connection with the sale of notes, we entered into exchange and
registration rights agreements with Chase. These agreements require that we file
a registration statement under the Securities Act of 1933 offering to exchange
the new notes for the notes sold on May 1, 1998. We are offering to you the
opportunity to exchange your notes for the same principal amount of new notes.
The new notes will be registered and issued without a restrictive legend. This
means that, unlike the old notes that you currently hold, which contain
restrictions on their transfer, the new notes may be reoffered and resold by you
to any potential buyer freely without further registration under the Securities
Act of 1933. This is beneficial to you since, in order to sell the notes you
currently hold, you must find an available exemption from the registration
requirements of the Securities Act of 1933.
The registration rights agreements further provide that we must use our
best efforts to cause the registration statement to be declared effective on or
before December 27, 1998, or we will owe liquidated damages, or a fixed sum of
money, to the current note holders. Except as discussed below, upon the
completion of the exchange offers we will have no further obligations to
register your notes.
We want to advise you that copies of each registration rights agreement has
been filed as an exhibit to the registration statement and you are strongly
encouraged to read the entire text of the applicable registration rights
agreement. We expressly qualify all of our discussions of the registration
rights agreements by the terms of the agreements themselves.
We need representations from you before you can participate in an exchange
offer
In order to participate in an exchange offer, we require that you represent
to us that:
o the new notes you acquire in an exchange offer are being obtained in
the ordinary course of your business;
o neither you nor any such other person is engaging in or intends to
engage in a distribution of the new notes;
o neither you nor any such other person has an arrangement or
understanding with any person to participate in the distribution of
the new notes;
o neither you nor any such other person is our "affiliate," as defined
under Rule 405 of the Securities Act of 1933; and
o if you or such other person is a broker-dealer, you will receive new
notes for your own account, which new notes were acquired as a result
of market-making activities or other trading activities, and you will
be required to acknowledge that you will deliver a prospectus in
connection with any resale of such new notes.
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You may be entitled to shelf registration rights
In accordance with the registration rights agreements, we are also required
to file a "shelf" registration statement for a continuous offering in accordance
with Rule 415 of the Securities Act of 1933 to register your notes if:
o we are not permitted to effect an exchange offer because of any change
in law or applicable interpretations of the staff of the Commission;
o an exchange offer is not consummated within 270 days following the May
1, 1998 offering;
o you request for us to do so following the exchange offer;
o any applicable law or interpretations do not permit you to participate
in an exchange offer;
o you do not receive freely transferrable notes in exchange for your
notes; or
o we so elect.
In the event that we are obligated to file a "shelf" registration statement, we
will be required to keep such shelf registration statement effective for up to
two years. Other than as described above, no holder will have the right to
participate in the shelf registration or require that we register your notes in
accordance with the Securities Act of 1933.
If you participate in an exchange offer, you should be able to freely sell
or transfer your new notes
We believe that the new notes issued to you in these exchange offers may be
offered for resale, sold and otherwise transferred by you, without compliance
with the registration and prospectus delivery provisions of the Securities Act
of 1933, only if you make the representations that we discuss above.
Our belief is based upon existing interpretations by the Commission's staff
contained in several "no-action" letters to third-parties unrelated to us. If
you tender your notes in an exchange offer for the purpose of participating in a
distribution of new notes you cannot rely on this interpretation by the
Commission's staff and you must comply with the registration and prospectus
delivery requirements of the Securities Act of 1933 in connection with a
secondary resale transaction. Each broker-dealer that receives new notes for its
own account in exchange for its notes, whether the notes were acquired by that
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 new notes.
You may suffer adverse consequences if you fail to exchange your notes
Following the completion of the exchange offers, except as set forth above
and in the registration rights agreements we refer to, you will not have any
further registration rights and your notes will continue to
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be subject to certain restrictions on transfer. Accordingly, if you do not
participate in an exchange offer, your ability to sell your notes could be
adversely affected.
Terms of the Exchange Offers
We will accept any validly tendered notes which are not withdrawn prior to
5:00 p.m., New York City time, on the expiration date. We will issue $1,000
principal amount of new notes in exchange for each $1,000 principal amount of
your notes. Holders may tender some or all of their notes in an exchange offer.
The form and terms of the new notes will be substantially the same as the
form and terms of your notes except that (1) interest on the new notes will
accrue from the last interest payment date on which interest was paid on your
note, or, if no interest was paid, from the date of the original issuance of
your note, and (2) the new notes have been registered under the Securities Act
of 1933 and will not bear a legend restricting their transfer. The new notes
will be issued under, and entitled to the benefits of, the same indenture
governing your notes.
This prospectus, together with the letter of transmittal you received with
this prospectus, is being sent to you and to others believed to have beneficial
interests in the notes. You do not have any appraisal or dissenters' rights
under the General Corporation Law of the State of Delaware or the indentures
governing your notes as a result of the exchange offers. We intend to conduct
the exchange offers in accordance with the applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations of the Commission.
We will have accepted your validly tendered notes when we have given oral
or written notice to the exchange agent. The exchange agent will act as agent
for the tendering holders for the purpose of receiving the new notes from us. If
any tendered notes are not accepted for exchange because of an invalid tender,
the occurrence of certain other events, or otherwise, certificates sent to the
exchange agent will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the expiration date.
You will not be required to pay brokerage commissions, fees, or transfer
taxes in the exchange of your notes. We will pay all charges and expenses other
than any applicable taxes you may incur in connection with the exchange offers.
Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on , 1998,
unless it is extended. In any event, each exchange offer will be held open for
at least thirty days. In order to extend an exchange offer, we will issue a
notice by press release or other public announcement prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date.
We reserve the right, in our sole discretion:
o to delay accepting your notes;
o to extend either of the exchange offers;
o to terminate an exchange offer, if any of the conditions shall not
have been satisfied, by giving oral or written notice of such delay,
extension or termination to the exchange agent; or
o to amend the terms of an exchange offer in any manner.
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Procedures for tendering your notes
Only you may tender your notes in an exchange offer. Except as stated below
under "The Exchange Offers -- Book Entry Transfer," to tender in an exchange
offer, prior to the expiration date, you must:
1. complete, sign and date the enclosed letter of transmittal, or a copy
of it;
2. have the signature on the letter of transmittal guaranteed if required
by the letter of transmittal; and
3. mail or otherwise deliver the letter of transmittal or copy to the
exchange agent.
In addition, either:
1. certificates for your notes must be received by the exchange agent
along with the letter of transmittal; or
2. a timely confirmation of a book-entry transfer of your notes, if that
procedure is available, into the account of the exchange agent at the
Depository Trust Company (the "DTC") (the "Book-Entry Transfer
Facility") under the procedure for book-entry transfer described
below, must be received by such exchange agent prior to the expiration
date; or
3. you must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, a letter of transmittal and other required documents
must be received by the exchange agent at its address set forth under "The
Exchange Offers -- Exchange Agent" prior to the expiration date.
If do not withdraw your tender before the expiration date, it will
constitute an agreement between you and us in accordance with the terms and
conditions in this prospectus and in the letter of transmittal.
The method of delivery of your notes, a letter of transmittal, and all
other required documents to the exchange agent is at your election and risk.
Instead of delivery by mail, it is recommended that you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. No letter of
transmittal or notes should be sent to us. You may request your respective
brokers, dealers, commercial banks, trust companies, or nominees to effect these
transactions on your behalf.
Procedure if the notes are not registered in your name
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 the registered
holder to tender on the beneficial owner's behalf. If the beneficial owner
wishes to tender on the owner's own behalf, the owner must, prior to completing
and executing a letter of transmittal and delivering the owner's notes, either
make appropriate arrangements to register ownership of the notes in the
beneficial owner's name or obtain a properly completed bond power or other
proper endorsement from the registered holder. We strongly urge you to act
immediately since the transfer of registered ownership may take considerable
time.
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Signature requirements and signature guarantees
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an "Eligible Guarantor Institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each, an "Eligible Institution") unless notes
tendered pursuant thereto are tendered (1) by a registered holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the letter of transmittal or (2) for the account of an
Eligible Institution. If signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, the guarantee must be by an Eligible
Institution.
If a letter of transmittal or any notes or bond powers are signed by
trustee, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with such letter of transmittal
unless waived by us.
Conditions to the Exchange Offers
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered notes will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all notes not properly tendered or
any notes the acceptance of which would be unlawful in the opinion of our
counsel. We also reserve the right to waive any defects, irregularities, or
conditions of tender as to particular notes. Our interpretation of the terms and
conditions of an exchange offer (including the instructions in a letter of
transmittal) will be final and binding on all parties. Any defects or
irregularities in connection with tenders of notes must be cured within such
time as we shall determine, unless waived by us. Although we intend to notify
holders of defects or irregularities with respect to tenders of notes, we (or
the exchange agent, or any other person) shall not 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.
In addition, we reserve the right in our sole discretion to purchase or
make offers for any notes that remain outstanding after the expiration date or
to terminate the exchange offer and, to the extent permitted by applicable law,
purchase notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of an exchange offer.
These conditions are for our sole benefit and may be asserted by us at any
time or for any reason or may be waived by us in whole or in part at any time in
our sole discretion. The failure by us to exercise any of our rights shall not
be a waiver of our rights.
In addition, we will not accept for exchange any notes tendered, and no new
notes will be issued in exchange for any notes, if at such time any stop order
shall be threatened or in effect with respect to the registration statement or
the qualification of the indenture relating to the new notes under the Trust
Indenture Act of 1939, as amended (the "TIA"). We are required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
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In all cases, issuance of new notes for tendered notes that are accepted
for exchange in an exchange offer will be made only after timely receipt by the
exchange agent of certificates for notes or a timely Book-Entry Confirmation of
such notes into the exchange agent's account at the Book-Entry Transfer
Facility, a properly completed and duly executed letter of transmittal (or, with
respect to the DTC and its participants, electronic instructions in which the
tendering holder acknowledges its receipt of and agreement to be bound by the
letter of transmittal for such exchange offer) and all other required documents.
If any tendered notes are not accepted for any valid reason or if notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged notes will be returned without expense to the
tendering Holder thereof (or, in the case of notes tendered by book-entry
transfer into the exchange agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the exchange offers for such notes.
Book-Entry Transfer
The exchange agent will make requests to establish accounts with respect to
the notes at the Book-Entry Transfer Facility for purposes of the exchange
offers within two business days after the date of this prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of notes being tendered by causing the Book-Entry
Transfer Facility to transfer such notes into the exchange agent's account at
the Book-Entry Transfer Facility in accordance with the appropriate procedures
for transfer. However, although delivery of notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, a letter of transmittal
or copy thereof, with any required signature guarantees and any other required
documents, must, except as set forth in the following paragraph, be transmitted
to and received by the exchange agent at its address set forth under "The
Exchange Offers --Exchange Agents" on or prior to the expiration date or the
guaranteed delivery below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept an exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system instead of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender notes through ATOP, the electronic instructions
sent to DTC and transmitted by DTC to the exchange agent must contain the
participant's acknowledgment of its receipt of and agreement to be bound by the
letter of transmittal for such notes.
Guaranteed Delivery Procedures
If a registered holder of notes desires to tender such notes and the notes
are not immediately available, or time will not permit such holder's note or
other required documents to reach the exchange agent before the expiration date,
or the procedure for book-entry transfer cannot be completed on a timely basis,
a tender may be effected if:
o the tender is made through an Eligible Institution;
o prior to the expiration date, the exchange agent received from such
Eligible Institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by us (by telegram,
telex, facsimile transmission, mail or hand delivery). The Notice of
Guaranteed Delivery shall state the name and address of the holder of
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such notes and the amount of notes tendered, that the tender is being
made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically
tendered notes, in proper form for transfer, or a Book-Entry
Confirmation and any other documents required by the applicable letter
of transmittal will be deposited by the Eligible Institution with the
exchange agent; and
o the certificates for all physically tendered notes, in proper form for
transfer, or a Book-Entry Confirmation and all other documents
required by the applicable letter of transmittal are received by the
exchange agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
You may withdraw your tender of notes at any time prior to 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal of a tender notes to be effective, a written or, for a DTC
participant, electronic ATOP transmission notice of withdrawal must be received
by the exchange agent at its address set forth in this prospectus prior to 5:00
p.m., New York City time, on the expiration date.
Any such notice of withdrawal must:
o specify the name of the person who deposited the notes to be withdrawn
(the "Depositor");
o identify the notes to be withdrawn (including the certificate number
or numbers and principal amount of such notes);
o 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 of such notes
register the transfer of such notes into the name of the person
withdrawing the tender; and
o specify the name in which any such notes are to be registered, if
different from that of the holder who tendered such notes.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by us and our determination shall be
final and binding on all parties. Any notes withdrawn will be considered not to
have been validly tendered for exchange for purposes of the exchange offer. Any
notes which have been tendered for exchange but which are not exchanged for any
reason 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 relating to such notes. Properly withdrawn notes may be
retendered by following one of the procedures under "The Exchange Offers --
Procedures for Tendering" at any time on or prior to the expiration date.
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Exchange Agent
All executed letters of transmittal should be directed to the exchange
agent. We have appointed The Chase Manhattan Bank as the exchange agent for each
of the exchange offers. Under an agreement between PNC Bank, National
Association and Chase Manhattan Trust Company, PNC's corporate trust and escrow
business was purchased by Chase. Effective December 1, 1998, The Chase Manhattan
Bank became the trustee under the indentures. Questions, requests for assistance
and requests for additional copies of the prospectus or a letter of transmittal
should be directed to the exchange agent addressed as follows:
The Chase Manhattan Bank
Global Trust Department
379 Thornall Street, 12th floor
Edison, New Jersey 08837
Attn: Julie Salovitch-Miller, Vice President
Phone: 732-603-2837
Fax: 732-603-2818
Fees and Expenses
We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offers. The principal solicitation is being made by
mail. However, additional solicitations may be made in person or by telephone by
our officers and employees.
The estimated cash expenses to be incurred in connection with the exchange
offers will be paid by us and are estimated in the aggregate to be $425,000,
which includes fees and expenses of the trustees for the notes, accounting,
legal, printing, and related fees and expenses.
Transfer Taxes
If you tender notes for exchange you will not be obligated to pay any
transfer taxes except that if you instruct us to register new notes in the name
of, or request that your notes not tendered or not accepted in an exchange offer
be returned to, a person other than the registered tendering holder, you will be
responsible for the payment of any applicable transfer tax.
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DESCRIPTION OF THE NEW NOTES OF ENTERPRISES
You can find the definitions of capitalized terms used in this description
under the subheading "Certain Definitions." Words that are not capitalized have
their ordinary meaning. In this description, "notes" means the outstanding notes
of Enterprises and the new notes Enterprises will issue to you in the exchange
offer. References to a "holder" or "holders" mean you, or all holders of the
notes.
Enterprises will issue its new notes under an indenture, dated as of May 1,
1998, among itself, Millbrook, Manischewitz and The Chase Manhattan Bank, as
successor trustee to PNC Bank, National Association. The terms of the new notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of notes. We have filed a copy of the indenture as an exhibit to the
registration statement which includes this prospectus.
Principal, Maturity and Interest
The new notes are unsecured senior obligations of Enterprises. Enterprises
will issue new notes with a maximum aggregate principal amount of $120.0
million. Enterprises will issue new notes in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples of $1,000. The new
notes will mature on May 1, 2005.
Interest on the new notes will accrue at the rate of 10-1/2% per year and
will be payable twice a year in cash on May 1 and November 1, commencing on May
1, 1999. Enterprises will make each interest payment to the holders of record of
the new notes at the close of business on April 15 and October 15 of each year.
Interest on the new 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.
Methods of Receiving Payments
The trustee maintains a corporate trust operations office in Dallas, Texas.
Enterprises will pay principal, premium and interest payments on the new notes
from its New York offices. At the option of Enterprises, principal, premium and
interest payments on the new notes may be paid by Enterprises at the trustee's
corporate trust operations office or by check mailed to the holder's registered
address.
Paying Agent and Registrar
The trustee initially will act as paying agent and registrar for the new
notes. Enterprises may change the paying agent or registrar without prior notice
to the holders.
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Transfer and Exchange
A holder may transfer or exchange the new notes in accordance with the
indenture. Any of your notes that you do not exchange in the exchange offer,
together with the new notes issued in connection with the exchange offer, will
be treated as a single class of securities under the indenture.
Optional Redemption
On or after May 1, 2002, Enterprises may redeem all or a part of the notes
upon not less than 30 days nor more than 60 days' notice, at the redemption
prices (expressed as percentages of the principal amount) set forth below plus
unpaid interest, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on May 1 of the years indicated below.
Year Percentage
---- ----------
2002 ............................................... 105.250%
2003 ............................................... 102.625%
2004 and thereafter ................................ 100.000%
Optional Redemption upon Public Equity Offerings
On or after May 1, 2001, Enterprises may use the Net Cash Proceeds of one
or more Public Equity Offerings of Enterprises or Holdings to redeem up to 35%
of the originally issued aggregate principal amount of the notes. The redemption
price is 110.500% of the principal amount of the notes plus accrued and unpaid
interest, if any, to the date of redemption.
In order to effect this redemption:
(1) the redemption must occur within 120 days after the closing of any
Public Equity Offering;
(2) in the case of a Public Equity Offering by Holdings, Holdings shall
contribute the proceeds to Enterprises as common equity capital in an
amount sufficient to effect such redemption; and
(3) at least 65% of the principal amount of notes originally issued must
remain outstanding immediately after any such redemption.
Selection and Notice of Redemption
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) if the notes are not listed, by lot, or by such method that as the
trustee deems fair and appropriate; or
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(3) if the notes are being partly redeemed with the proceeds of a Public
Equity Offering, the trustee shall select the new notes to be redeemed
on an equal basis with each other as practicable, unless such method
is otherwise prohibited.
No notes of $1,000 or less shall be partly redeemed. 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 notes to be redeemed at its registered
address.
Partial Redemption
If any new note is to be redeemed in part only, the notice of redemption
shall state the portion of the principal amount to be redeemed. A note in a
principal amount equal to the unredeemed portion will be issued in the name of
the holder upon cancellation of the original note. On and after the redemption
date, interest will cease to accrue on the redeemed notes.
Guarantees
Each Guarantor will fully and unconditionally, and jointly and severally,
on a senior basis, guarantee Enterprises' obligations under the notes. Each
guarantee will be subordinated to the prior payment in full of all existing and
future secured Indebtedness of that Guarantor to the extent of the value of the
assets securing such Indebtedness. The obligations of each Guarantor will be
limited to the maximum amount necessary to prevent that guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law. See "Risk Factors--Fraudulent Conveyance Considerations for the New Notes
and Guarantees."
A Guarantor may consolidate with, merge into or sell its assets to
Enterprises or another Guarantor that is a Wholly Owned Restricted Subsidiary of
that Guarantor, without limitation, or with other Persons upon the terms and
conditions in the indenture. See "--Certain Covenants--Merger, Consolidation and
Sale of Assets."
If Enterprises sells all of the capital stock of a Guarantor and the sale
complies with the provisions in "--Certain Covenants--Limitation on Asset
Sales," that Guarantor will be released from its guarantee.
Repurchase at the Option of Holders - Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require Enterprises to repurchase all or a part of that holder's notes pursuant
to the Change of Control offer described in the following paragraph. In the
Change of Control offer, Enterprises will offer a Change of Control payment
equal to 101% of the aggregate principal amount of the notes plus accrued and
unpaid interest to the date of purchase.
Within 30 days following the date of the Change of Control, Enterprises
will mail a notice to each holder describing the terms of the Change of Control
offer. This notice will state the purchase date, which shall be a business day
no earlier than 30 days nor later than 60 days from the date notice is mailed,
unless otherwise required by applicable law.
If a Change of Control offer is made, Enterprises cannot assure that it
will have sufficient funds to pay the purchase price for all the notes that
might be delivered by holders seeking to accept the Change of Control offer. If
Enterprises is required to purchase outstanding notes pursuant to a Change of
Control offer,
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Enterprises expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations. However it
cannot assure that it would be able to obtain such financing. Neither the board
of directors of Enterprises nor the trustee may waive the covenant relating to a
holder's right to redemption upon a Change of Control.
The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of the assets of
Enterprises. Although there is a limited body of case law interpreting the
phrase "all or substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly, it may be unclear whether a Change
of Control has occurred and whether the notes are subject to a Change of Control
offer. Enterprises will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934 and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the notes as a result of a Change of Control.
Takeovers and Leveraged Transactions
Restrictive covenants in the indenture may make it more difficult or
discourage a takeover of Enterprises. To complete such transactions, redemption
or repurchase of the notes may be required. Enterprises cannot assure that it or
the acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Moreover, although restrictions in the indenture with
respect to transactions with Affiliates may make a leveraged buyout of
Enterprises or any of its subsidiaries by the management of Enterprises more
difficult, the indenture may not afford the holders of notes protection from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
Cross-Default Provisions
The Credit Agreement provides that certain Change of Control events with
respect to Enterprises constitute a default under that agreement. Any Permitted
Refinancings of the Credit Agreement to which Enterprises becomes a party may
contain similar restrictions and provisions. If a Change of Control occurs at a
time when Enterprises is prohibited from purchasing notes, Enterprises could
seek the consent of its lenders to the purchase of notes or could attempt to
repay the borrowings that contain such prohibition. If Enterprises does not
obtain such a consent or repay such borrowings, Enterprises will remain
prohibited from purchasing its notes. In such case, Enterprises' failure to
purchase tendered notes of Enterprises would constitute an Event of Default
under the indenture which would, in turn, constitute a default under the Credit
Agreement.
Certain Covenants
Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Capital Stock
Other than Indebtedness that is permitted under the indenture, Enterprises
will not, and will not permit any of its Restricted Subsidiaries to incur any
Indebtedness. In addition, Enterprises will not issue any Disqualified Capital
Stock and will not permit its Restricted Subsidiaries to issue any preferred
stock, except preferred stock of a Restricted Subsidiary issued to and held by
Enterprises or a Wholly Owned Restricted Subsidiary of Enterprises.
However, so long as no Default or Event of Default has occurred and is
continuing or would be caused thereby, Enterprises and the Guarantors may incur
Indebtedness (including Acquired Indebtedness)
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and Enterprises may issue Disqualified Capital Stock of Enterprises, if
Enterprises' Consolidated Fixed Charge Coverage Ratio is greater than 2.0 to
1.0, determined on a pro forma basis (including a pro forma application of the
net proceeds from the Indebtedness or Disqualified Capital Stock).
Enterprises or any Guarantor will not incur any Indebtedness that is
subordinated to any other Indebtedness of Enterprises or of that Guarantor,
unless that Indebtedness is also made expressly subordinated to the notes or the
guarantee of that Guarantor, to the same extent and in the same manner as it is
subordinated to the other Indebtedness.
Limitation on Restricted Payments
Enterprises will not, and will not permit any Restricted Subsidiary to:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of
Enterprises) on or in respect of shares of the capital stock of
Enterprises,
(b) redeem any capital stock of Enterprises or Holdings or any warrants,
rights or options to purchase or acquire shares of any class of such
capital stock, or
(c) make any Investment (other than Permitted Investments) (each of the
actions named in clauses (a), (b), and (c) are referred to as a
"restricted payment"),
if, at the time of a restricted payment or immediately after giving effect
thereto,
(1) a Default has occurred and is continuing,
(2) Enterprises is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Capital Stock" covenant, or
(3) the aggregate amount of restricted payments (including such proposed
restricted payment) made after the Issue Date (the amount spent for
such purposes, if not in cash, being the fair market value of such
property as determined reasonably and in good faith by the board of
directors of Enterprises) shall exceed the sum of:
(a) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income is a loss, minus 100% of such loss) of
Enterprises earned after the Issue Date and on or before the date
the restricted payment occurs (the "Reference Date") (treating
such period as a single accounting period); plus
(b) 100% of the aggregate Net Cash Proceeds received by Enterprises
from any Person (other than a Restricted Subsidiary of
Enterprises) from the issuance and sale after the Issue Date and
on or prior to the Reference Date of Qualified Capital Stock of
Enterprises (other than Qualified Capital Stock, the proceeds of
which are to be used to redeem notes of Enterprises pursuant to
the provisions described under "Redemption--Optional Redemption
Upon Public Equity Offerings"); plus
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(c) 100% of the Net Cash Proceeds received by Enterprises from any
Person (other than a Restricted Subsidiary of Enterprises) from
the issuance after the Issue Date of Indebtedness convertible or
exchangeable into Qualified Capital Stock of Enterprises that has
actually been converted or exchanged, together with the aggregate
Net Cash Proceeds received by Enterprises (other than from a
Restricted Subsidiary of Enterprises) at the time of such
conversion or exchange; plus
(d) without duplication of any amounts included in clause (3)(c)
above, 100% of the aggregate Net Cash Proceeds of any equity
contribution received by Enterprises from a holder of
Enterprises' capital stock; plus
(e) the amount equal to the net reduction in Investments (other than
Permitted Investments) made by Enterprises or any of its
Restricted Subsidiaries in any Person resulting from, and without
duplication,
(i) repurchases or redemptions of such Investments by such
Person, proceeds realized upon the sale of such Investment
to an unaffiliated purchaser and repayments of loans or
advances or other transfers of assets by such Person to
Enterprises or any Restricted Subsidiary of Enterprises, or
(ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed, in the case of
any Restricted Subsidiary, the amount of Investments
previously made by Enterprises or any Restricted Subsidiary
in that Unrestricted Subsidiary, which amount was included
in the calculation of restricted payments; provided,
however, that no amount shall be included under this clause
(e) to the extent it is already included in Consolidated Net
Income.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of a dividend if the dividend would have been permitted on
the date of declaration;
(2) so long as no Default has occurred and is continuing,
(i) the acquisition of any shares of capital stock of Enterprises or
Holdings solely in exchange for shares of Qualified Capital Stock
of Enterprises or Holdings, or
(ii) the making of any restricted payment from the net proceeds of a
substantially concurrent sale for cash (other than to a
Subsidiary of Enterprises) of shares of Qualified Capital Stock
of Enterprises;
(3) so long as no Default has occurred and is continuing, repurchases by
Enterprises of common stock of Holdings from employees of Enterprises
or any of its subsidiaries or their authorized representatives (other
than Permitted Holders) upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed 5%
of
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the cumulative Consolidated Net Income of Enterprises earned
subsequent to the Issue Date and on or before the date a repurchase
occurs;
(4) any repurchase of equity interests deemed to occur upon the exercise
of stock options if such equity interest represents a portion of the
exercise price of an option;
(5) payments or other distributions to Holdings solely to enable Holdings
to pay audit, accounting, legal, Commission filing fees and similar
expenses actually incurred, to pay franchise or other similar taxes
when due and to pay other corporate overhead expenses of Holdings
actually incurred, only if such expenses and taxes arise as a result
of Holdings' Investment in Enterprises, and only if the aggregate
amount of such payments does not exceed $1.0 million in any fiscal
year;
(6) payments to Holdings to fund taxes due from Holdings for any given
taxable year in an amount equal to Enterprises' "separate return
liability," as if Enterprises were the parent of a consolidated group
(for purposes of this clause (6), "separate return liability" for a
given taxable year means the hypothetical United States tax liability
of Enterprises determined as if Enterprises had filed its own United
States federal tax return for such taxable year);
(7) the payment to Holdings of:
(i) any dividend or other distribution in an aggregate amount not to
exceed $600,000 in any fiscal year to permit Holdings to pay
management fees to P&E Properties or any of its Affiliates, and
(ii) any dividend or other distribution to reimburse P&E Properties or
any of its Affiliates for reasonable services and out-of-pocket
and other costs and expenses actually incurred in connection with
such services; and
(8) so long as no Default has occurred and is continuing, the payment to
Holdings of any dividend or other distribution to permit Holdings to
pay cash interest when due on the notes of Holdings on and after the
fifth anniversary of the Issue Date.
In determining the aggregate amount of restricted payments made after the
Issue Date amounts spent under clauses (1), (2)(ii), (3), (4), (7)(i) and (8)
above will be included in the calculation and amounts spent under clause (2)(i),
(5), (6) and (7)(ii) above will not be included in the calculation.
The amount of any non-cash restricted payment will be the fair market
value, on the date such restricted payment is made, of the assets or securities
proposed to be transferred or issued by Enterprises or such Restricted
Subsidiary under the restricted payment. The fair market value of any non-cash
restricted payment will be determined by the board of directors of Enterprises
whose resolution will be delivered to the trustee. The determination will be
based on an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if the fair market value exceeds
$1.5 million. Not later than 60 days after the end of any fiscal quarter (100
days in the case of the last fiscal quarter of the fiscal year) during which any
restricted payment is made, Enterprises will deliver to the trustee an officers'
certificate stating that all restricted payments made during such fiscal quarter
were permitted and explaining the basis upon which the calculations required by
this covenant were computed, together with a copy of any opinion or appraisal
required by the indenture.
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Limitation on Asset Sales
Enterprises will not, and will not permit any of its Restricted
Subsidiaries to consummate an Asset Sale unless:
(1) Enterprises or the Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets sold,
(2) at least 80% of the consideration received by Enterprises or the
Restricted Subsidiary from such Asset Sale shall be in the form of:
(a) cash or Cash Equivalents,
(b) Replacement Assets, or
(c) any combination of Cash Equivalents or Replacement Assets and is
received at the time of such disposition; and
(3) upon the consummation of an Asset Sale, Enterprises will apply, or
cause the Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt either:
(a) to prepay any Indebtedness incurred pursuant to clause (ii) or
clause (xii) of the explanation of "Permitted Indebtedness"
(other than subordinated Indebtedness) and effect a permanent
reduction thereunder,
(b) to make an investment in Replacement Assets, or
(c) a combination of prepayment and investment permitted by clauses
(3)(a) and (3)(b).
Any Net Cash Proceeds from Asset Sales that are not applied or invested as
provided above will constitute excess Net Cash Proceeds. When the aggregate
amount of excess Net Cash Proceeds exceeds $5.0 million, Enterprises will make a
Net Cash Proceeds offer to all holders of notes and all holders of other
Indebtedness that is equal in right of payment with the notes and contains
provisions similar to those set forth in the indenture, to purchase the maximum
principal amount of notes and such other Indebtedness equal to 100% of the
principal amount of the notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase, an amount not greater than 100% of the
principal amount of such other Indebtedness. However, if at any time any
non-cash consideration received by Enterprises or any Restricted Subsidiary in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then it will be considered an Asset Sale and the Net Cash
Proceeds shall be applied in accordance with this covenant. Pending the final
application of such excess Net Cash Proceeds, Enterprises may temporarily cause
the Guarantors to reduce Indebtedness under the Revolving Credit Facility or
invest such Net Cash Proceeds in Cash Equivalents.
For purposes of clause (2)(a) above, the term "cash" includes the amount of
any Indebtedness for borrowed money or any Capitalized Lease Obligations:
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(A) that is assumed by the transferee of any assets or property which
constitutes the Asset Sale, or
(B) with respect to the sale or disposition of all of the capital stock of
a Restricted Subsidiary, that remains the liability of such Restricted
Subsidiary subsequent to such sale or other disposition, in each case
provided that there is no further recourse to Enterprises or any of
its Restricted Subsidiaries with respect to such Indebtedness.
If there is a transfer of substantially all of the property and assets of
Enterprises and its Restricted Subsidiaries as an entirety to a Person in a
transaction permitted under "--Merger, Consolidation and Sale of Assets," the
successor corporation will be considered to have sold the properties and assets
of Enterprises and its Restricted Subsidiaries not so transferred for purposes
of this covenant, and must comply with the provisions of this covenant as if the
sale were an Asset Sale. In addition, the fair market value of such properties
and assets of Enterprises or its Restricted Subsidiaries deemed to be sold will
be considered to be Net Cash Proceeds for purposes of this covenant.
The Net Cash Proceeds offer will comply with the procedures set forth in
the indenture, except where applicable securities laws and regulations require
otherwise.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries
Enterprises will not, and will not permit any of its Restricted
Subsidiaries, to create or otherwise cause or permit to exist any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions in connection with its
capital stock;
(b) make loans or advances or pay any Indebtedness or other obligation
owed to Enterprises or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to Enterprises or any other
Restricted Subsidiary, except for such encumbrances or restrictions
existing because of:
(1) applicable law;
(2) the indentures;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person or the properties
or assets of the Person so acquired;
(5) agreements existing on the Issue Date, including the Credit
Agreement, to the extent and in the manner such agreements are in
effect on the Issue Date;
(6) an agreement governing Indebtedness incurred to refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4) or (5)
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above; so long as the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less
favorable, taken as a whole, to Enterprises in any material
respect as determined by the board of directors of Enterprises in
their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in
agreements referred to in clause (2), (4), (5) or (7),
restrictions imposed by any agreement to sell, or otherwise
dispose of, assets pending the closing of such sale.
Limitation on Liens
Enterprises will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon any property or assets of
Enterprises or any of its Restricted Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless:
(a) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the notes, the notes are
secured by a Lien on such property, assets or proceeds that is senior
in priority to such Liens, and
(b) in all other cases, the notes are equally and ratably secured, except
for:
(1) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(2) Indebtedness incurred pursuant to clause (ii) of the definition
of "Permitted Indebtedness";
(3) Liens securing the notes and the guarantees;
(4) Liens of Enterprises or a Wholly Owned Restricted Subsidiary on
assets of any Restricted Subsidiary;
(5) Liens securing Refinancing Indebtedness which is incurred to
refinance any Indebtedness which has been secured by a Lien
permitted under the indenture and which has been incurred in
accordance with the provisions of the indenture; so long as such
Liens:
(x) are no less favorable, taken as a whole, to the holders and
are not more favorable to the lienholders with respect to
such Liens than the Liens in respect of the Indebtedness
being refinanced, and
(y) do not extend to or cover any property or assets of
Enterprises or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced; and
(6) Permitted Liens.
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Merger, Consolidation and Sale of Assets
Enterprises may not consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of Enterprises' assets (determined on a
consolidated basis for Enterprises and its Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless:
(a) either:
(1) Enterprises is the surviving or continuing corporation; or
(2) the Person (if other than Enterprises) formed by such
consolidation or into which Enterprises is merged or the
Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of
Enterprises and of Enterprises' Restricted Subsidiaries
substantially as an entirety (the "surviving entity"):
(x) is a corporation organized and validly existing under
the laws of the United States or any state or the
District of Columbia, and
(y) will expressly assume, by supplemental indenture (in
form and substance satisfactory to the trustee),
executed and delivered to the trustee, the due and
punctual payment of the principal of, and premium, if
any, and interest on all of the notes of Enterprises
and the performance of every covenant of the notes of
Enterprises and the indenture on the part of
Enterprises to be performed or observed;
(b) immediately after giving effect to such transaction and the
assumption contemplated by clause (a)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in
respect of such transaction), Enterprises or such surviving
entity is to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "--Limitation
on Incurrence of Indebtedness and Issuance of Disqualified
Capital Stock" covenant;
(c) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (a)(2)(y)
above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred and any Lien granted in connection with or in respect
of the transaction), no Default or Event of Default has occurred
or is continuing; and
(d) Enterprises or the surviving entity will have delivered to the
trustee an officers' certificate and an opinion of counsel, each
stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with the
applicable provisions of the indenture and that all conditions
precedent in the indenture relating to such transaction have been
satisfied.
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For purposes of the above, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Enterprises the capital stock of which constitutes all or
substantially all of the properties and assets of Enterprises, are considered to
be the transfer of all or substantially all of the properties and assets of
Enterprises.
The indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of Enterprises
as described above, in which Enterprises is not the continuing corporation, the
successor Person formed by such consolidation or into which Enterprises is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right, power and privilege of,
Enterprises under the indenture and the notes with the same effect as if such
surviving entity had been named as such.
Each Guarantor (other than any Guarantor whose guarantee is to be released
in accordance with the terms of the guarantee and indenture in connection with
any transaction complying with the provisions of "-- Limitation on Asset Sales")
will not, and Enterprises will not cause or permit any Guarantor to, consolidate
with or merge with or into any Person other than Enterprises or any other
Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger (if
other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any state or the
District of Columbia;
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default has occurred and is continuing; and
(4) immediately after giving effect to such transaction and the use of any
net proceeds therefrom on a pro forma basis, Enterprises could satisfy
the provisions of clause (b) of the first paragraph of this covenant.
Any merger or consolidation of a Guarantor with and into Enterprises
(with Enterprises being the surviving entity) or another Guarantor
that is a Wholly Owned Restricted Subsidiary need to comply with only
clause (d) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates
(1) Enterprises will not, and will not permit any of its Restricted
Subsidiaries to, enter into or permit to exist any transactions
(including, without limitation, the purchase, sale, lease or exchange
of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each, an "Affiliate Transaction"),
other than:
(a) Affiliate Transactions permitted under paragraph (2) below, and
(b) Affiliate Transactions on terms that are no less favorable, taken
as a whole, than those that might reasonably have been obtained
in a comparable transaction at such time on an arm's-length basis
from a Person that is not an Affiliate of Enterprises or
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such Restricted Subsidiary. All Affiliate Transactions involving
aggregate payments or other property with a fair market value in
excess of $500,000 must be approved by the board of directors of
Enterprises or such Restricted Subsidiary, such approval to be
evidenced by a board resolution stating that such board of
directors has determined that such transaction complies with the
provisions above. If Enterprises or any Restricted Subsidiary
enters into an Affiliate Transaction that involves an aggregate
fair market value of more than $1,500,000, Enterprises or such
Restricted Subsidiary shall, prior to the consummation thereof,
obtain a favorable opinion as to the fairness of such transaction
or series of related transactions to Enterprises or the relevant
Restricted Subsidiary, from a financial point of view, from an
independent financial advisor and file the same with the trustee.
(2) The restrictions set forth in clause (1) above do not apply to:
(a) reasonable fees and compensation paid to and indemnity provided
on behalf of, officers, directors, employees or consultants of
Enterprises or any Restricted Subsidiary in the ordinary course
as determined in good faith by Enterprises' board of directors;
(b) transactions exclusively between Enterprises and any of its
Wholly Owned Restricted Subsidiaries or exclusively between such
Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the indenture;
(c) any written agreement as in effect as of the Issue Date,
including amendment, or any transaction contemplated by that
agreement (including any amendments, so long as any such
amendment is not more disadvantageous to the holders in any
material respect than the agreement as in effect on the Issue
Date);
(d) loans or advances to employees of Enterprises or any Restricted
Subsidiary (other than Permitted Holders) in the ordinary course
and in an aggregate amount not exceeding $250,000 at any one time
outstanding;
(e) payments:
(i) to P&E Properties or any of its Affiliates in an aggregate
amount not to exceed $600,000 in any fiscal year to pay
management fees, and
(ii) to reimburse P&E Properties or any of its Affiliates for
reasonable services and out-of-pocket costs and other
expenses actually incurred in connection with such services;
and
(f) payments permitted by the "Limitation on Restricted Payments"
covenant.
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Additional Subsidiary Guarantees
If Enterprises or any of its Restricted Subsidiaries transfers or causes to
be transferred, any property to any Restricted Subsidiary that is not a
Guarantor, or if Enterprises or any of its Restricted Subsidiaries organizes,
acquires or otherwise invests in another Restricted Subsidiary, then such
transferee or acquired or other Restricted Subsidiary shall:
(1) execute and deliver to the trustee a supplemental indenture in form
reasonably satisfactory to the trustee pursuant to which such
Restricted Subsidiary will unconditionally guarantee all of
Enterprises' obligations under the notes and the indenture on the
terms set forth in the indenture, and
(2) deliver to the trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the
indenture.
Subsidiaries
Enterprises may not have any subsidiaries except Wholly Owned Restricted
Subsidiaries and Unrestricted Subsidiaries.
Designation of Unrestricted Subsidiaries
After the Issue Date, Enterprises may designate any Subsidiary as an
Unrestricted Subsidiary if:
(1) that designation would not cause a Default under the indenture; and
(2) Enterprises would be permitted to make an Investment (other than a
Permitted Investment) at the time of such designation (assuming the
effectiveness of such designation) pursuant to the "Limitation on
Restricted Payments" covenant in an amount equal to the fair market
value of Enterprises' proportionate interest in the net worth of such
Subsidiary on such date calculated in accordance with GAAP.
Enterprises or any Restricted Subsidiary shall not provide credit support
for or guarantee any indebtedness of any Unrestricted Subsidiary. Enterprises
may pledge equity interests or Indebtedness of any Unrestricted Subsidiary on a
nonrecourse basis, or be liable for any Indebtedness of any Unrestricted
Subsidiary, or be liable for any Indebtedness providing for a default upon the
default under the Indebtedness of any Unrestricted Subsidiary. Enterprises shall
not be liable for any nonrecourse guarantee given solely to support its pledge
of the capital stock of any Unrestricted Subsidiary.
Conduct of Business
Enterprises and its Restricted Subsidiaries will not engage in any
businesses other than its "Permitted Business" of food manufacturing and
processing, food distribution and other businesses similar thereto or reasonably
related thereto, including without limitation, providing merchandising services.
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Reports to Holders
Within 15 days after filing with the Commission, Enterprises will deliver
to the trustee copies of the quarterly and annual reports and the information,
documents and other reports, if any, which Enterprises is required to file with
the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Notwithstanding that Enterprises may not be subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Enterprises will file with the Commission, to the extent permitted, and provide
the trustee and holders with such annual reports and such information, documents
and other reports specified in Sections 13 and 15(d) of the Securities Exchange
Act of 1934. Enterprises will also comply with the other provisions of Section
314(a) of the Trust Indenture Act of 1939.
In addition, for so long as any notes remain outstanding, Enterprises 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 of 1933, and, to any beneficial holder of
notes of Enterprises, if not obtainable from the Commission, information of the
type that would be filed with the Commission pursuant to the foregoing
provisions, upon the request of any such holder.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder, of Enterprises, the
Guarantors or any of their respective Affiliates will be liable for any
obligations of Enterprises under the notes or the indenture or for any claim
based on, or in respect of, or by reason of, such obligations or their creation.
Each holder of notes, by accepting a note, waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes.
Events of Default
Each of the following is an Event of Default:
(1) Default for 30 days in the payment when due of interest on the notes;
(2) Default in the payment when due of principal on any notes, at
maturity, upon redemption or otherwise (including the failure to make
a payment to purchase notes tendered pursuant to a Change of Control
offer or a Net Cash Proceeds offer described above);
(3) a Default for 30 days following receipt of written notice from the
trustee or the holders of at least 25% of the outstanding principal
amount of notes, in the observance or performance of any other
covenant or agreement contained in the indenture (except in the case
of a Default with respect to the "Merger, Consolidation and Sale of
Assets" covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(4) a Default or Defaults under the terms of one or more instruments
evidencing or securing Indebtedness of Enterprises or any Significant
Subsidiaries having an outstanding principal amount of $2,000,000 or
more individually or in the aggregate that has resulted in the
acceleration of the payment of such Indebtedness or failure by
Enterprises or any Significant Subsidiary to pay principal when due at
the stated maturity of the Indebtedness and the
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Default or Defaults has continued after any applicable grace period
and has not been cured or waived;
(5) one or more judgments in an aggregate amount in excess of $2,000,000
has been rendered against Enterprises or any of its Restricted
Subsidiaries and the judgments remain undischarged, unpaid or unstayed
for a period of 60 days after becoming final and non-appealable;
(6) certain events of bankruptcy affecting Enterprises or any of its
Significant Subsidiaries; or
(7) any of the guarantees ceases to be in full force and effect or any of
the guarantees is declared to be null and void and unenforceable or
any of the guarantees is found to be invalid or any of the Guarantors
denies its liability under its guarantee (other than by reason of
release of a Guarantor in accordance with the terms of the indenture).
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to Enterprises) occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of outstanding notes may declare
the principal of and accrued interest on all notes to be due and payable by
notice in writing to Enterprises and the trustee specifying the respective Event
of Default and that it is an "acceleration notice," and the principal and
accrued interest will become immediately due and payable. If an Event of Default
specified in clause (6) above with respect to Enterprises occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding notes of will become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holder.
The indenture provides that, at any time after a declaration of
acceleration with respect to the notes, the holders of a majority in principal
amount of the notes may rescind and cancel such declaration and its
consequences:
(1) if the rescission would not conflict with any outstanding judgment or
judicial decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because
of the acceleration,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has
been paid,
(4) if Enterprises has paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances,
and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default,
the trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or
waived. No such rescission shall affect any subsequent Default or
impair any consequent right.
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The holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a Default in the payment of the principal of or interest on any notes.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture and under the Trust Indenture Act of 1939. Subject to
the provisions of the indenture relating to the duties of the trustee, the
trustee is under no obligation to exercise any of its rights or powers under the
indenture at the request, order or direction of any of the holders, unless such
holders have offered to the trustee reasonable indemnity. Subject to all
provisions of the indenture and applicable law, the holders of a majority in
aggregate principal amount of the then outstanding notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee.
Under the indenture, Enterprises is required to provide an officers'
certificate to the trustee promptly upon any such officer obtaining knowledge of
the occurrence of any Default or Event of Default (provided that such officers
must provide such certification at least annually whether or not they know of
any Default or Event of Default) that has occurred and, if applicable, describe
such Default or Event of Default and the status thereof.
Legal Defeasance and Covenant Defeasance
Enterprises may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding notes of Enterprises ("Legal Defeasance"). Such Legal Defeasance
means that Enterprises will be considered to have paid and discharged the entire
Indebtedness represented by the outstanding notes, except for:
(1) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when such payments are
due,
(2) Enterprises' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payments,
(3) the rights, powers, trust, duties and immunities of the trustee and
Enterprises' obligations in connection therewith, and
(4) the Legal Defeasance provisions of the indenture.
In addition, Enterprises may, at its option and at any time, elect to have
its obligations 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 notes of Enterprises. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Enterprises must irrevocably deposit with the trustee, in trust, for
the benefit of the holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on its notes on the stated date for payment thereof
or on the applicable redemption date;
(2) in the case of Legal Defeasance, Enterprises shall have delivered to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that:
(A) Enterprises has 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 confirms that,
the holders 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;
(3) in the case of Covenant Defeasance, Enterprises shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders 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;
(4) no Default or Event of Default has occurred and is continuing on the
date of 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;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a Default under the indenture or
any other material agreement or instrument to which Enterprises or any
of its Significant Subsidiaries is a party or by which Enterprises or
any of its Significant Subsidiaries is bound;
(6) Enterprises must deliver to the trustee an officers' certificate
stating that the deposit was not made by Enterprises with the intent
of preferring the holders over any other creditors of Enterprises or
with the intent of defeating, hindering, delaying or defrauding any
other creditors of Enterprises or others; and
(7) Enterprises shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with. Notwithstanding
the foregoing, the opinion of counsel required by clause (2) above
with respect to a Legal Defeasance need not be delivered if all notes
of Enterprises not therefore delivered to the trustee for
cancellation:
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(A) have become due and payable,
(B) will become due and payable on the maturity date within one year,
or
(C) are to be called for redemption within one year under
arrangements satisfactory to the trustee for the giving of notice
of redemption by the trustee in the name, and at the expense, of
Enterprises.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding notes
when:
(1) either:
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid
and notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by Enterprises and
thereafter repaid to Enterprises or discharged from such trust)
have been delivered to the trustee for cancellation, or
(b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable and Enterprises has
irrevocably deposited or caused to be deposited with the trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the
trustee for cancellation, for principal of, premium, if any, and
interest on the notes to the date of deposit together with
irrevocable instructions from Enterprises directing the trustee
to apply such funds to the payment thereof at maturity or
redemption;
(2) Enterprises has paid all other sums payable under the indenture by
Enterprises; and
(3) Enterprises has delivered to the trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the
indenture relating to the satisfaction and discharge of the indenture
have been complied with.
Amendment and Modification of the Indenture
Without the consent of each holder affected, an amendment may not (with
respect to any notes held by a non-consenting holder):
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any notes;
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(3) reduce the principal of or change the fixed maturity of any notes, or
change the date on which any notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor;
(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the indenture protecting the right of
each holder to receive payment of principal of and interest on the
notes on or after the due date thereof or to bring suit to enforce
such payment, or permitting holders of a majority in principal amount
of the notes to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
Enterprises to make and consummate a Change of Control offer in the
event of a Change of Control or make and consummate a net proceeds
offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto;
(7) subordinate the notes or any guarantee to any other obligation of
Enterprises or such Guarantor; or
(8) release any Guarantor from any of its obligations under its guarantee
or the indenture, other than in accordance with the terms of the
indenture.
Governing Law
The indenture, the notes and the guarantees will be governed by the laws of
the State of New York, but without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
The Trustee
Except during the continuance of an Event of Default, the trustee will
perform only such duties as are specifically set forth in the indenture. During
the existence of an Event of Default, the trustee will exercise such rights and
powers vested in it by the indenture, and use the same degree of care and skill
in its exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act of 1939 contain
certain limitations on the rights of the trustee, should it become a creditor of
Enterprises, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the Trust Indenture Act of 1939, the trustee will be permitted to
engage in other transactions; provided that if the trustee acquires any
conflicting interest as described in the Trust Indenture Act of 1939, it must
eliminate such conflict within 30 days, obtain permission within 30 days from
the Commission to continue as trustee, or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Please refer to the indenture for the full definition of all such
terms.
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"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with Enterprises or any of its Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Affiliate" of any specified Person means any other Person who, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means:
(a) an Investment by Enterprises or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted
Subsidiary or any Restricted Subsidiary, or shall be merged with or
into Enterprises or any Restricted Subsidiary, or
(b) the acquisition by Enterprises or any Restricted Subsidiary of the
assets of any Person (other than a Restricted Subsidiary) which
constitute all or substantially all of the assets of such Person or
comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer by Enterprises or any of its
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than Enterprises or a Restricted Subsidiary of:
(a) any capital stock of any Restricted Subsidiary; or
(b) any other property or assets of Enterprises or any Restricted
Subsidiary other than in the ordinary course of business; provided,
however, that Asset Sales shall not include:
(i) the sale or disposition of inventory in the ordinary course of
business,
(ii) the sale or other disposition of obsolete, worn out, damaged or
otherwise unsuitable or unnecessary equipment or other obsolete
assets,
(iii) the exchange of assets for other non-cash assets that are:
(a) useful in the Permitted Business, and
(b) have a fair market value at least equal to the fair market
value of the assets being exchanged (as determined by the
board of directors in good faith),
(iv) the sale or other disposition of Cash Equivalents,
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(v) the grant of any license of intellectual property rights in the
ordinary course of business,
(vi) any transaction or series of related transactions in any fiscal
year for which Enterprises or its Restricted Subsidiaries
receive aggregate consideration of less than $1.0 million, and
(vii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of Enterprises as
permitted under "Merger, Consolidation and Sale of Assets."
"Borrowing Base Amount" means, as of the date of determination, an amount
equal to the sum, without duplication, of:
(i) 80% of the book value of the accounts receivable, and
(ii) 55% of the book value of the inventories of Enterprises and its
Restricted Subsidiaries, taken as a whole, as set forth in the most
recent monthly consolidated financial statements of Enterprises
prepared and determined in accordance with GAAP.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency
thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition
thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having
one of the two highest ratings obtainable from either Standard &
Poor's Corporation or any successor thereto ("S&P") or Moody's
Investors Service, Inc. or any successor thereto;
(iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of
at least A-1 (or the equivalent successor rating) from S&P or at
least P-1 (or the equivalent successor rating) from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign
bank having at the date of acquisition thereof combined capital and
surplus of not less than $250,000,000;
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(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in
clause (iv) above; and
(vi) Investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the following
events:
(i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of Enterprises to any Person or group of related persons for
purposes of Section 13(d) of the Securities Exchange Act of 1934 (a
"group"), together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of the indenture) other
than to Holdings or a wholly owned Subsidiary of Holdings (or any
successor thereto) or any Permitted Holder;
(ii) the approval by the holders of capital stock of Enterprises of any
plan or proposal for the liquidation or dissolution of Enterprises
(whether or not otherwise in compliance with the provisions of the
indenture);
(iii) any Person or group (other than the Permitted Holders) shall become
the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of
Enterprises; or
(iv) the replacement of a majority of the board of directors of
Enterprises over a two-year period from the directors who constituted
the board of directors of Enterprises at the beginning of such
period, and such replacement shall not have been approved by a vote
of at least a majority of the board of directors of Enterprises then
still in office who either were members of such board of directors at
the beginning of such period or whose election as a member of such
board of directors was previously so approved.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of:
(i) Consolidated Net Income, and
(ii) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business),
(B) Consolidated Interest Expense, and
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(C) Consolidated Non-Cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters ending on or prior to the date of the transaction giving rise to
the need to calculate the Consolidated Fixed Charge Coverage Ratio to
Consolidated Fixed Charges of such Person for the four quarter period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to:
(i) the incurrence or the repayment, repurchase, defeasance or other
discharge of any Indebtedness of such Person or any of its
Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence
or repayment of Indebtedness in the ordinary course of business
for working capital purposes pursuant to working capital
facilities, occurring during the four quarter period or at any
time subsequent to the last day of the four quarter period and on
or prior to the transaction date, as if such incurrence or the
repayment, repurchase, defeasance or other discharge, as the case
may be (and the application of the proceeds thereof), occurred on
the first day of the four quarter period, and
(ii) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make
such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including or excluding, as applicable, any
Consolidated EBITDA (including any pro forma expense and cost
reductions) whether positive or negative attributable to the
assets which are the subject of the Asset Acquisition or Asset
Sale during the four quarter period) occurring during the four
quarter period or at any time subsequent to the last day of the
four quarter period and on or prior to the transaction date, as
if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the four quarter
period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person,
the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Restricted
Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the transaction date and which will
continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the transaction
date; and
(2) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum
resulting
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after giving effect to the operation of such agreements. For
purposes of this definition, whenever pro forma effect is to
be given to an Asset Acquisition, the amount of Consolidated
Net Income relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness incurred
in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or
accounting officer of Enterprises.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(i) Consolidated Interest Expense, plus
(ii) the product of:
(x) the amount of all dividend payments on any series of preferred
stock of such Person or its Subsidiaries (other than dividends
paid in Qualified Capital Stock) paid or accrued during such
period times, and
(y) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(i) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without
limitation,
(a) any amortization of debt discount and amortization or
write-off of deferred financing costs,
(b) the net costs under Interest Swap Obligations, and
(c) the interest portion of any deferred payment obligation; and
(ii) the interest component of Capitalized Lease Obligations paid or
accrued by such Person and its Restricted Subsidiaries during
such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) after-tax gains from Asset Sales or abandonments or reserves
relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring
gains,
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(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated
with the referent Person or any Restricted Subsidiary of the
referent Person,
(d) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends
or similar distributions by that Restricted Subsidiary of that
income is restricted by a contract or operation of law,
(e) the net income of any Person, other than a Restricted Subsidiary
of the referent Person, except, for purposes of the covenant
described under "Certain Covenants--Limitation on Restricted
Payments," to the extent of cash dividends or distributions paid
to the referent Person or to a Wholly Owned Restricted Subsidiary
of the referent Person by such Person,
(f) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue
Date, and
(g) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during
such period whether or not such operations were classified as
discontinued).
"Consolidated Non-Cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Amended and Restated Credit Agreement dated as
of May 1, 1998, by and among Millbrook, Manischewitz, Chase, as agent, and
NationsBank, as co-agent, and the lenders party thereto in their capacities as
lenders thereunder, together with the related agreements entered into in
connection therewith (including, without limitation, any guarantee agreements
and security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder (provided that such increase in
borrowings is permitted by the "Limitation on Incurrence of Additional
Indebtedness and Issuance of Disqualified Capital Stock" covenant above) or
adding Restricted Subsidiaries of Enterprises as additional borrowers or
Guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, co-agent, lender or group of lenders.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means that portion of any capital stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the notes.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, which are in effect as of the Issue
Date.
"Guarantor" means:
(i) each of Enterprises' Restricted Subsidiaries existing on the
Issue Date, and
(ii) each of Enterprises' Subsidiaries that in the future executes a
supplemental indenture in which such domestic Subsidiary agrees
to be bound by the terms of the indenture as a Guarantor;
provided that any Person constituting a Guarantor as described
above shall cease to constitute a Guarantor when its respective
guarantee is released in accordance with the terms of the
indenture.
"Indebtedness" means with respect to any Person, without duplication:
(i) the principal amount of all Indebtedness of such Person for
borrowed money,
(ii) the principal amount of all Indebtedness of such Person evidenced
by bonds, debentures, notes of Enterprises or other similar
instruments,
(iii) all Capitalized Lease Obligations of such Person,
(iv) all Indebtedness of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and
all obligations under any title retention agreement (but
excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue
by 90 days or more or are being contested in good faith),
(v) reimbursement obligations of such Person on any letter of credit,
banker's acceptance or similar credit transaction,
(vi) guarantees and other similar contingent obligations in respect of
Indebtedness or obligations referred to in clauses (i) through
(v) above and clause (viii) below,
(vii) all obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any Lien on any
property or asset of such Person, the amount of such obligation
being deemed to be the lesser of the fair market value of such
property or asset or the amount of the obligation so secured, and
(viii) all obligations of such Person under Currency Agreements and
Interest Swap Obligations.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of
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interest on the same notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any capital stock,
bonds, notes of Enterprises, debentures or other securities or evidences of
Indebtedness issued by, any other Person. "Investment" excludes extensions of
trade credit and advances to customers by Enterprises and its Restricted
Subsidiaries in accordance with normal trade practices of Enterprises or such
Restricted Subsidiary. For the purposes of the "Limitation on Restricted
Payments" covenant,
(i) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary
is designated a Restricted Subsidiary and
(ii) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by Enterprises
or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided that no
such payment of dividends or distributions or receipt of any such
other amounts shall reduce the amount of any Investment if such
payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income. If Enterprises or any
Restricted Subsidiary sells or otherwise disposes of any common stock
of any direct or indirect Restricted Subsidiary such that, after
giving effect to any such sale or disposition, Enterprises no longer
owns, directly or indirectly, greater than 50% of the outstanding
common stock of such Restricted Subsidiary, Enterprises 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 common stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind.
"Net Cash Proceeds" means, with respect to any Asset Sale, the aggregate
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) and cash and Cash Equivalents received upon the disposition of
non-cash consideration received in any Asset Sale received by Enterprises or any
of its Restricted Subsidiaries from such Asset Sale net of:
(a) reasonable out-of-pocket expenses and fees incurred in connection with
such Asset Sale,
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements,
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(c) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale, and
(d) appropriate amounts to be provided by Enterprises or any Restricted
Subsidiary as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by
Enterprises or any Restricted Subsidiary after such Asset Sale.
"Obligations" means, with respect to any Indebtedness, all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any such
Indebtedness.
"Permitted Holders" means:
(i) Mr. Richard A. Bernstein,
(ii) trusts for the benefit of Mr. Bernstein and/or members of his
immediate family, and
(iii) in the event of the incompetence or death of Mr. Bernstein, his
estate, executor, administrator or other personal representative.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the notes of Enterprises, the guarantees and the
notes of Holdings; and Permitted Refinancings thereof;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate
principal amount, at any time outstanding, not to exceed the greater
of:
(x) $55 million, and
(y) the Borrowing Base Amount, in each case, less mandatory,
permanent repayments (excluding amounts refinanced as permitted
under the definition of Credit Agreement) actually made in
respect of any Indebtedness thereunder (which are accompanied by
a permanent reduction in commitment in the case of the Revolving
Credit Facility);
(iii) Permitted Refinancings of:
(x) other Indebtedness of Enterprises or any Restricted Subsidiary to
the extent outstanding on the Issue Date reduced by the amount of
any scheduled amortization payments or mandatory prepayments when
actually paid or permanent reductions thereon, and
(y) Indebtedness incurred under the Consolidated Fixed Charge
Coverage Ratio test of the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Disqualified Capital
Stock" covenant;
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(iv) Interest Swap Obligations of Enterprises covering Indebtedness of
Enterprises or any Restricted Subsidiary and Interest Swap
Obligations of any Restricted Subsidiary covering Indebtedness of
such Restricted Subsidiary; provided, however, that such Interest
Swap Obligations are entered into to protect Enterprises and its
Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the indenture to the
extent the notional principal amount of such interest swap
obligation does not exceed the principal amount of the
Indebtedness to which such interest swap obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such
Currency Agreements are designed to protect Enterprises or any
Restricted Subsidiary against fluctuations in currency values and
do not increase the Indebtedness of Enterprises and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary to
Enterprises or to a Wholly Owned Restricted Subsidiary for so
long as such Indebtedness is held by Enterprises or a Wholly
Owned Restricted Subsidiary, in each case subject to no Lien
being held by a Person other than Enterprises or a Wholly Owned
Restricted Subsidiary; provided that if as of any date any Person
other than Enterprises or a Wholly Owned Restricted Subsidiary
owns or holds any such Indebtedness or holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the
issuer of such Indebtedness;
(vii) Indebtedness of Enterprises to a Wholly Owned Restricted
Subsidiary for so long as such Indebtedness is held by a Wholly
Owned Restricted Subsidiary, in each case subject to no Lien;
provided that:
(a) any Indebtedness of Enterprises to any Wholly Owned
Restricted Subsidiary is unsecured and subordinated,
pursuant to a written agreement, to Enterprises' obligations
under the indenture and the notes of Enterprises, and
(b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not
constituting Indebtedness permitted by this clause (vii);
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within
two business days of incurrence;
(ix) Indebtedness of Enterprises or any Restricted Subsidiary:
(a) represented by letters of credit for the account of
Enterprises or such Restricted Subsidiary in order to
provide security for workers' compensation claims, payment
obligations in connection with self-insurance or similar
requirements in the ordinary course of business and
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(b) in respect of performance, surety or appeal bonds incurred
in the ordinary course of business;
(x) Indebtedness of Enterprises or any Restricted Subsidiary (other
than for borrowed money) pursuant to agreements providing for
indemnification, purchase price adjustments and similar
obligations that is incurred in the ordinary course of business
or in connection with the sale of a business, assets or a
Subsidiary;
(xi) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of Enterprises and its Restricted
Subsidiaries incurred in the ordinary course of business not to
exceed $2.0 million at any one time outstanding; and
(xii) additional Indebtedness of Enterprises or any Restricted
Subsidiary in an amount not to exceed $25.0 million at any one
time outstanding; provided that such amount is incurred on or
before the nine month anniversary of the Issue Date; and provided
further that, on or prior to the nine month anniversary of the
Issue Date, such amount is used to consummate the acquisition of
one or more Permitted Businesses that becomes, upon the closing
of such acquisition, a Restricted Subsidiary of Enterprises.
"Permitted Investments" means:
(i) Investments by Enterprises or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a
Restricted Subsidiary or that will merge or consolidate into
Enterprises or a Restricted Subsidiary;
(ii) Investments in Enterprises by any Restricted Subsidiary; provided
that any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to Enterprises'
obligations under the notes of Enterprises and the indenture;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of Enterprises and
its Restricted Subsidiaries (other than to Permitted Holders) in
the ordinary course of business for bona fide business purposes
not in excess of $250,000 at any one time outstanding;
(v) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of Enterprises' or its Restricted
Subsidiaries' businesses and otherwise in compliance with the
indenture;
(vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade
creditors or customers;
(vii) Investments made by Enterprises or its Restricted Subsidiaries as
a result of consideration received in connection with an Asset
Sale made in compliance with the "Limitation on Asset Sales"
covenant; and
(viii) Investments existing on the Issue Date.
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"Permitted Liens" means:
(a) Liens securing Acquired Indebtedness; provided, however, that such
Liens were in existence prior to the contemplation of such
acquisition, merger or consolidation and do not secure any property or
assets of Enterprises or any Restricted Subsidiary of Enterprises
other than the property or assets subject to the Liens prior to such
acquisition, merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanic's
Liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 30 days
past due or which are being contested in good faith and by appropriate
proceedings;
(c) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith;
provided, however, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made
therefor;
(d) easements, reservation of rights of way, licenses of intellectual
property in the ordinary course and other similar restrictions on the
use of properties or assets, or minor imperfections of title that in
the aggregate are not material in amount and do not in any case
materially detract from the properties subject thereto or interfere
with the ordinary conduct of the business of Enterprises and its
Restricted Subsidiaries;
(e) Liens resulting from the deposit of cash or notes of Enterprises in
connection with contracts, tenders or expropriation proceedings, or to
secure workers' compensation, surety or appeal bonds, costs of
litigation when required by law and public and statutory obligations
or obligations under franchise arrangements entered into in the
ordinary course of business;
(f) Liens securing Indebtedness incurred pursuant to clause (xii) of the
definition of "Permitted Indebtedness" in an aggregate amount not to
exceed $15 million at any one time outstanding; and
(g) Liens securing Indebtedness consisting of Capitalized Lease
Obligations or industrial revenue bonds, in each case incurred solely
for the purpose of financing all or any part of the purchase price or
cost of construction or installation of assets used in the business of
Enterprises or its Restricted Subsidiaries, or repairs, additions or
improvements to such assets; provided, however, that:
(1) such Liens secure Indebtedness in an amount not in excess of the
original purchase price or the original cost of any such assets
or repairs, additions or improvements thereto (plus an amount
equal to the reasonable fees and expenses, including attorneys
fees and expenses, incurred in connection with the incurrence of
such Indebtedness),
(2) such Liens do not extend to any other assets of Enterprises or
its Restricted Subsidiaries (and, in the case of repairs,
additions or improvements to any such assets, such Lien extends
only to the assets repaired, added to or improved),
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(3) the Incurrence of such Indebtedness is permitted under the
indenture, and
(4) such Liens attach within 60 days of such purchase, construction,
installation, repair, addition or improvement.
"Permitted Refinancing" means, with respect to any Indebtedness of any
Person, any refinancing of such Indebtedness; provided, however, that:
(i) such refinancing shall not result in an increase in the aggregate
principal amount of Indebtedness of such Person as of the date of
such proposed refinancing (plus the amount of any premium required to
be paid under the terms of the instrument governing such Indebtedness
and plus the amount of reasonable expenses incurred by Enterprises in
connection with such refinancing),
(ii) such Indebtedness shall not have a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the
Indebtedness being refinanced or a final maturity earlier than the
final maturity of the Indebtedness being refinanced,
(iii) if the Indebtedness being refinanced is Indebtedness of Enterprises,
then such refinancing Indebtedness shall be Indebtedness solely of
Enterprises; and
(iv) if the Indebtedness being refinanced is subordinate or junior to the
notes of Enterprises, then such refinancing Indebtedness shall be
subordinate to the notes of Enterprises at least to the same extent
and in the same manner as the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock pursuant to a registration statement filed with the Commission in
accordance with the Securities Act of 1933 generating gross cash proceeds of at
least $50.0 million.
"Purchase Money Indebtedness" means Indebtedness of Enterprises and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property, equipment or other
assets; provided, however:
(A) the Indebtedness shall not exceed the cost of such property, equipment
or assets and shall not be secured by any property, equipment or
assets of Enterprises or any Restricted Subsidiary other than the
property, equipment and assets so acquired or constructed and
(B) the Lien securing such Indebtedness shall be created within 180 days
of such acquisition or construction or, in the case of a refinancing
of any Purchase Money Indebtedness, within 180 days of such
refinancing.
"Qualified Capital Stock" means any capital stock that is not Disqualified
Capital Stock.
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"Replacement Assets" means:
(i) properties and assets that replace the properties and assets that were
the subject of such Asset Sale or in properties and assets that will
be used in a Permitted Business or
(ii) all of the capital stock of a Person whose assets are of the type
described in clause (i), provided that such Person becomes a
Restricted Subsidiary of Enterprises.
"Restricted Subsidiary" means any Subsidiary of Enterprises which at the
time of determination is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means one or more revolving credit facilities
under the Credit Agreement.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Enterprises or a Restricted Subsidiary of any property, whether owned
by Enterprises or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by Enterprises or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "Significant
Subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act
of 1933.
"Subsidiary," with respect to any Person, means:
(i) any corporation of which the outstanding capital stock having at least
a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by such Person or
(ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"Term Loan Facility" means one or more term loan facilities under the
Credit Agreement.
"Unrestricted Subsidiary" of any Person means:
(i) any Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the
board of directors of such Person in the manner provided below, and
(ii) any Subsidiary of an Unrestricted Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(a) the then outstanding aggregate principal amount of such Indebtedness
into
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(b) the sum of the total of the products obtained by multiplying:
(i) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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DESCRIPTION OF THE NEW NOTES OF HOLDINGS
You can find the definitions of capitalized terms used in this description
under the subheading "Certain Definitions." Words that are not capitalized have
their ordinary meaning. In this description, "notes" means the outstanding notes
of Holdings and the new notes Holdings will issue to you in the exchange offer.
References to a "holder" or "holders" mean you, or all holders of the notes.
Holdings will issue its new notes under an indenture, dated as of May 1,
1998, among itself and The Chase Manhattan Bank, as successor trustee to PNC
Bank, National Association. The terms of the new notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of notes. We have filed a copy of the indenture as an exhibit to the
registration statement which includes this prospectus.
Principal, Maturity and Interest
The new notes are unsecured senior obligations of Holdings. Holdings will
issue new notes with a maximum aggregate principal amount of $48.0 million.
Holdings will issue new notes in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The new notes will
mature on May 1, 2008.
Interest on the new notes will accrue at the rate of 13% per year and will
be payable twice a year in cash on May 1 and November 1, commencing on May 1,
1999. Holdings will make each interest payment to the holders of record of the
new notes at the close of business on April 15 and October 15 of each year.
Interest on the new 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.
Holdings placed $17.0 million of the net proceeds from the original sale of
the notes in an escrow account for the benefit of the note holders. This amount
has been decreased by the amount of interest paid on those notes on November 1,
1998. The remainder of the funds in the escrow account shall be used to pay
interest on both those outstanding notes and the new notes you will receive in
the exchange, for the next five scheduled interest payments.
Methods of Receiving Payments
The trustee maintains a corporate trust operations office in Dallas, Texas.
Holdings will pay principal, premium and interest payments on the new notes from
its New York offices. At the option of Holdings, principal, premium and interest
payments on the new notes may be paid by Holdings at the trustee's corporate
trust operations office or by check mailed to the holder's registered address.
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Paying Agent and Registrar
The trustee initially will act as paying agent and registrar for the new
notes. Holdings may change the paying agent or registrar without prior notice to
the holders.
Transfer and Exchange
A holder may transfer or exchange the new notes in accordance with the
indenture. Any of your notes that you do not exchange in the exchange offer,
together with the new notes issued in connection with the exchange offer, will
be treated as a single class of securities under the indenture.
Optional Redemption
On or after May 1, 2003, Holdings may redeem all or a part of the notes
upon not less than 30 days nor more than 60 days' notice, at the redemption
prices (expressed as percentages of the principal amount) set forth below plus
unpaid interest, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on May 1 of the years indicated below.
Year Percentage
2003 ............................ 106.500%
2004 ............................ 104.333%
2005 ............................ 102.167%
2006 and thereafter ............. 100.000%
Selection and Notice of Redemption
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) if the notes are not listed, by lot, or by such method that as the
trustee deems fair and appropriate; or
(3) if the notes are being partly redeemed with the proceeds of a Public
Equity Offering, the trustee shall select the new notes to be redeemed
on an equal basis with each other as practicable, unless such method
is otherwise prohibited.
No notes of $1,000 or less shall be partly redeemed. 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 notes to be redeemed at its registered
address.
Partial Redemption
If any new note is to be redeemed in part only, the notice of redemption
shall state the portion of the principal amount to be redeemed. A note in a
principal amount equal to the unredeemed portion will be
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issued in the name of the holder upon cancellation of the original note. On and
after the redemption date, interest will cease to accrue on the redeemed notes.
Repurchase at the Option of Holders - Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require Holdings to repurchase all or a part of that holder's notes pursuant to
the Change of Control offer described in the following paragraph. In the Change
of Control offer, Holdings will offer a Change of Control payment equal to 101%
of the aggregate principal amount of the notes plus accrued and unpaid interest
to the date of purchase.
Within 30 days following the date of the Change of Control, Holdings will
mail a notice to each holder describing the terms of the Change of Control
offer. This notice will state the purchase date, which shall be a business day
no earlier than 30 days nor later than 60 days from the date notice is mailed,
unless otherwise required by applicable law.
If a Change of Control offer is made, Holdings cannot assure that it will
have sufficient funds to pay the purchase price for all the notes that might be
delivered by holders seeking to accept the Change of Control offer. If Holdings
is required to purchase outstanding notes pursuant to a Change of Control offer,
Holdings expects that it would seek third party financing to the extent it does
not have available funds to meet its purchase obligations. However, it cannot
assure that it would be able to obtain such financing. Neither the board of
directors of Holdings nor the trustee may waive the covenant relating to a
holder's right to redemption upon a Change of Control.
The definition of Change of Control includes a phrase relating to the
sale, lease, exchange or other transfer of "all or substantially all" of the
assets of Holdings. Although there is a limited body of case law interpreting
the phrase "all or substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, it may be unclear
whether a Change of Control has occurred and whether the notes are subject to a
Change of Control offer. Holdings will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934 and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
Change of Control.
Takeovers and Leveraged Transactions
Restrictive covenants in the indenture may make it more difficult or
discourage a takeover of Holdings. To complete such transactions, redemption or
repurchase of the notes may be required. Holdings cannot assure that it or the
acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Moreover, although restrictions in the indenture with
respect to transactions with Affiliates may make a leveraged buyout of Holdings
or any of its subsidiaries by the management of Holdings more difficult, the
indenture may not afford the holders of notes protection from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction.
Cross-Default Provisions
The Credit Agreement provides that certain Change of Control events with
respect to Holdings constitute a Default under that agreement. Any Permitted
Refinancings of the Credit Agreement to which Holdings becomes a party may
contain similar restrictions and provisions. If a Change of Control occurs at a
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time when Holdings is prohibited from purchasing notes, Holdings could seek the
consent of its lenders to the purchase of notes or could attempt to repay the
borrowings that contain such prohibition. If Holdings does not obtain such a
consent or repay such borrowings, Holdings will remain prohibited from
purchasing its notes. In such case, Holdings' failure to purchase tendered notes
of Holdings would constitute an Event of Default under the indenture which
would, in turn, constitute a default under the Credit Agreement.
Certain Covenants
Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Capital Stock
Other than Indebtedness that is permitted under the indenture, Holdings
will not, and will not permit any of its Restricted Subsidiaries to incur any
Indebtedness. In addition, Holdings will not issue any Disqualified Capital
Stock and will not permit its Restricted Subsidiaries to issue any preferred
stock, except preferred stock of a Restricted Subsidiary issued to and held by
Holdings or a Wholly Owned Restricted Subsidiary of Holdings.
However, so long as no Default or Event of Default has occurred and is
continuing or would be caused thereby, Holdings may incur Indebtedness
(including Acquired Indebtedness) and Holdings may issue Disqualified Capital
Stock of Holdings, if Holdings' Consolidated Fixed Charge Coverage Ratio is
greater than 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds from the Indebtedness or Disqualified Capital
Stock).
Holdings will not incur any Indebtedness that is subordinated to any of its
other Indebtedness, unless that Indebtedness is also made expressly subordinated
to the notes, to the same extent and in the same manner as it is subordinated to
the other Indebtedness.
Limitation on Restricted Payments
Holdings will not, and will not permit any Restricted Subsidiary to:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of
Holdings) on or in respect of shares of the capital stock of Holdings,
(b) redeem any capital stock of Holdings or Holdings or any warrants,
rights or options to purchase or acquire shares of any class of such
capital stock, or
(c) make any Investment (other than Permitted Investments) (each of the
actions named in clauses (a), (b), and (c) are referred to as a
"restricted payment"),
if, at the time of a restricted payment or immediately after giving effect
thereto,
(1) a Default has occurred and is continuing,
(2) Holdings is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Capital Stock" covenant, or
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(3) the aggregate amount of restricted payments (including such proposed
restricted payment) made after the Issue Date (the amount spent for
such purposes, if not in cash, being the fair market value of such
property as determined reasonably and in good faith by the board of
directors of Holdings) shall exceed the sum of:
(a) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income is a loss, minus 100% of such loss) of
Holdings earned after the Issue Date and on or before the date
the restricted payment occurs (the "Reference Date") (treating
such period as a single accounting period); plus
(b) 100% of the aggregate Net Cash Proceeds received by Holdings from
any Person (other than a Restricted Subsidiary of Holdings) from
the issuance and sale after the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of Holdings (other than
Qualified Capital Stock, the proceeds of which are to be used to
redeem notes of Holdings pursuant to the provisions described
under "Redemption--Optional Redemption Upon Public Equity
Offerings"); plus
(c) 100% of the Net Cash Proceeds received by Holdings from any
Person (other than a Restricted Subsidiary of Holdings) from the
issuance after the Issue Date of Indebtedness convertible or
exchangeable into Qualified Capital Stock of Holdings that has
actually been converted or exchanged, together with the aggregate
Net Cash Proceeds received by Holdings (other than from a
Restricted Subsidiary of Holdings) at the time of such conversion
or exchange; plus
(d) without duplication of any amounts included in clause (3)(c)
above, 100% of the aggregate Net Cash Proceeds of any equity
contribution received by Holdings from a holder of Holdings'
capital stock; plus
(e) the amount equal to the net reduction in Investments (other than
Permitted Investments) made by Holdings or any of its Restricted
Subsidiaries in any Person resulting from, and without
duplication,
(i) repurchases or redemptions of such Investments by such
Person, proceeds realized upon the sale of such Investment
to an unaffiliated purchaser and repayments of loans or
advances or other transfers of assets by such Person to
Holdings or any Restricted Subsidiary of Holdings, or
(ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed, in the case of
any Restricted Subsidiary, the amount of Investments
previously made by Holdings or any Restricted Subsidiary in
that Unrestricted Subsidiary, which amount was included in
the calculation of restricted payments; provided, however,
that no amount shall be included under this clause (e) to
the extent it is already included in Consolidated Net
Income.
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Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of a dividend if the dividend would have been permitted on
the date of declaration;
(2) so long as no Default has occurred and is continuing,
(i) the acquisition of any shares of capital stock of Holdings or
Holdings solely in exchange for shares of Qualified Capital Stock
of Holdings or Holdings, or
(ii) the making of any restricted payment from the net proceeds of a
substantially concurrent sale for cash (other than to a
Subsidiary of Holdings) of shares of Qualified Capital Stock of
Holdings;
(3) so long as no Default has occurred and is continuing, repurchases by
Holdings of common stock of Holdings from employees of Holdings or any
of its subsidiaries or their authorized representatives (other than
Permitted Holders) upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed 5%
of the cumulative Consolidated Net Income of Holdings earned
subsequent to the Issue Date and on or before the date a repurchase
occurs; and
(4) any repurchase of equity interests deemed to occur upon the exercise
of stock options if such equity interest represents a portion of the
exercise price of an option;
In determining the aggregate amount of restricted payments made after the
Issue Date amounts spent under clauses (1), (2)(ii), (3) and (4) above will be
included in the calculation and amounts spent under clause (2)(i) above will not
be included in the calculation.
The amount of any non-cash restricted payment will be the fair market
value, on the date such restricted payment is made, of the assets or securities
proposed to be transferred or issued by Holdings or such Restricted Subsidiary
under the restricted payment. The fair market value of any non-cash restricted
payment will be determined by the board of directors of Holdings whose
resolution will be delivered to the trustee. The determination will be based on
an opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if the fair market value exceeds $1.5 million. Not
later than 60 days after the end of any fiscal quarter (100 days in the case of
the last fiscal quarter of the fiscal year) during which any restricted payment
is made, Holdings will deliver to the trustee an officers' certificate stating
that all restricted payments made during such fiscal quarter were permitted and
explaining the basis upon which the calculations required by this covenant were
computed, together with a copy of any opinion or appraisal required by the
indenture.
Limitation on Asset Sales
Holdings will not, and will not permit any of its Restricted Subsidiaries
to consummate an Asset Sale unless:
(1) Holdings or the Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets sold,
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(2) at least 80% of the consideration received by Holdings or the
Restricted Subsidiary from such Asset Sale shall be in the form of:
(a) cash or Cash Equivalents,
(b) Replacement Assets, or
(c) any combination of Cash Equivalents or Replacement Assets and is
received at the time of such disposition; and
(3) upon the consummation of an Asset Sale, Holdings will apply, or cause
the Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 270 days of receipt either:
(a) to prepay any Indebtedness incurred pursuant to clause (ii) or
clause (xii) of the explanation of "Permitted Indebtedness"
(other than subordinated Indebtedness), or any Indebtedness for
borrowed money of any Restricted Subsidiary, and effect a
permanent reduction thereunder,
(b) to make an investment in Replacement Assets, or
(c) a combination of prepayment and investment permitted by clauses
(3)(a) and (3)(b).
Any Net Cash Proceeds from Asset Sales that are not applied or invested as
provided above will constitute excess Net Cash Proceeds. When the aggregate
amount of excess Net Cash Proceeds exceeds $5.0 million, Holdings will make a
Net Cash Proceeds offer to all holders of notes and all holders of other
Indebtedness that is equal in right of payment with the notes and contains
provisions similar to those set forth in the indenture, to purchase the maximum
principal amount of notes and such other Indebtedness equal to 100% of the
principal amount of the notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase, an amount not greater than 100% of the
principal amount of such other Indebtedness. However, if at any time any
non-cash consideration received by Holdings or any Restricted Subsidiary in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then it will be considered an Asset Sale and the Net Cash
Proceeds shall be applied in accordance with this covenant. Pending the final
application of such excess Net Cash Proceeds, Holdings, through Enterprises, may
temporarily cause the guarantors of the Enterprises Notes to reduce Indebtedness
under the Revolving Credit Facility or invest such Net Cash Proceeds in Cash
Equivalents.
For purposes of clause (2)(a) above, the term "cash" includes the amount of
any Indebtedness for borrowed money or any Capitalized Lease Obligations:
(A) that is assumed by the transferee of any assets or property which
constitutes the Asset Sale, or
(B) with respect to the sale or disposition of all of the capital stock of
a Restricted Subsidiary, that remains the liability of such Restricted
Subsidiary subsequent to such sale or other disposition, in each case
provided that there is no further recourse to Holdings or any of its
Restricted Subsidiaries with respect to such Indebtedness.
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If there is a transfer of substantially all of the property and assets of
Holdings and its Restricted Subsidiaries as an entirety to a Person in a
transaction permitted under "--Merger, Consolidation and Sale of Assets," the
successor corporation will be considered to have sold the properties and assets
of Holdings and its Restricted Subsidiaries not so transferred for purposes of
this covenant, and must comply with the provisions of this covenant as if the
sale were an Asset Sale. In addition, the fair market value of such properties
and assets of Holdings or its Restricted Subsidiaries deemed to be sold will be
considered to be Net Cash Proceeds for purposes of this covenant.
The Net Cash Proceeds offer will comply with the procedures set forth in
the indenture, except where applicable securities laws and regulations require
otherwise.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries
Holdings will not, and will not permit any of its Restricted Subsidiaries,
to create or otherwise cause or permit to exist any encumbrance or restriction
on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions in connection with its
capital stock;
(b) make loans or advances or pay any Indebtedness or other obligation
owed to Holdings or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to Holdings or any other
Restricted Subsidiary, except for such encumbrances or restrictions
existing because of:
(1) applicable law;
(2) the indentures;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person or the properties
or assets of the Person so acquired;
(5) agreements existing on the Issue Date, including the Credit
Agreement, to the extent and in the manner such agreements are in
effect on the Issue Date;
(6) an agreement governing Indebtedness incurred to refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4) or (5) above; so long as the
provisions relating to such encumbrance or restriction contained
in any such Indebtedness are no less favorable, taken as a whole,
to Holdings in any material respect as determined by the board of
directors of Holdings in their reasonable and good faith judgment
than the provisions relating to such encumbrance or restriction
contained in agreements referred to in clause (2), (4), (5) or
(7), restrictions imposed by any agreement to sell, or otherwise
dispose of, assets pending the closing of such sale.
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Limitation on Liens
Holdings will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon any property or assets of
Holdings or any of its Restricted Subsidiaries whether owned on the Issue Date
or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless:
(a) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the notes, the notes are
secured by a Lien on such property, assets or proceeds that is senior
in priority to such Liens, and
(b) in all other cases, the notes are equally and ratably secured, except
for:
(1) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(2) Indebtedness incurred pursuant to clause (ii) of the definition
of "Permitted Indebtedness";
(3) Liens securing the notes, the Enterprises Notes and the
Guarantees;
(4) Liens of Holdings or a Wholly Owned Restricted Subsidiary on
assets of any Restricted Subsidiary;
(5) Liens securing Refinancing Indebtedness which is incurred to
refinance any Indebtedness which has been secured by a Lien
permitted under the indentures and which has been incurred in
accordance with the provisions of the indentures; so long as such
Liens:
(x) are no less favorable, taken as a whole, to the holders and
are not more favorable to the lienholders with respect to
such Liens than the Liens in respect of the Indebtedness
being refinanced, and
(y) do not extend to or cover any property or assets of Holdings
or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced; and
(6) Permitted Liens.
Merger, Consolidation and Sale of Assets
Holdings may not consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of Holdings' assets (determined on a
consolidated basis for Holdings and its Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless:
(a) either:
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(1) Holdings is the surviving or continuing corporation; or
(2) the Person (if other than Holdings) formed by such consolidation
or into which Holdings is merged or the Person which acquires by
sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of Holdings and of
Holdings' Restricted Subsidiaries substantially as an entirety
(the "surviving entity"):
(x) is a corporation organized and validly existing under the
laws of the United States or any state or the District of
Columbia, and
(y) will expressly assume, by supplemental indenture (in form
and substance satisfactory to the trustee), executed and
delivered to the trustee, the due and punctual payment of
the principal of, and premium, if any, and interest on all
of the notes of Holdings and the performance of every
covenant of the notes of Holdings and the indenture on the
part of Holdings to be performed or observed;
(b) immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction),
Holdings or such surviving entity is to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant
to the "--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Capital Stock" covenant;
(c) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (a)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any
Lien granted in connection with or in respect of the transaction), no
Default or Event of Default has occurred or is continuing; and
(d) Holdings or the surviving entity will have delivered to the trustee an
officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental
indenture, comply with the applicable provisions of the indenture and
that all conditions precedent in the indenture relating to such
transaction have been satisfied.
For purposes of the above, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Holdings the capital stock of which constitutes all or
substantially all of the properties and assets of Holdings, are considered to be
the transfer of all or substantially all of the properties and assets of
Holdings.
The indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of Holdings as
described above, in which Holdings is not the continuing corporation, the
successor Person formed by such consolidation or into which Holdings is merged
or to which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every
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right, power and privilege of, Holdings under the indenture and the notes with
the same effect as if such surviving entity had been named as such.
Limitations on Transactions with Affiliates
(1) Holdings will not, and will not permit any of its Restricted
Subsidiaries to, enter into or permit to exist any transactions
(including, without limitation, the purchase, sale, lease or exchange
of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each, an "Affiliate Transaction"),
other than:
(a) Affiliate Transactions permitted under paragraph (2) below, and
(b) Affiliate Transactions on terms that are no less favorable, taken
as a whole, than those that might reasonably have been obtained
in a comparable transaction at such time on an arm's-length basis
from a Person that is not an Affiliate of Holdings or such
Restricted Subsidiary. All Affiliate Transactions involving
aggregate payments or other property with a fair market value in
excess of $500,000 must be approved by the board of directors of
Holdings or such Restricted Subsidiary, such approval to be
evidenced by a board resolution stating that such board of
directors has determined that such transaction complies with the
provisions above. If Holdings or any Restricted Subsidiary enters
into an Affiliate Transaction that involves an aggregate fair
market value of more than $1,500,000, Holdings or such Restricted
Subsidiary shall, prior to the consummation thereof, obtain a
favorable opinion as to the fairness of such transaction or
series of related transactions to Holdings or the relevant
Restricted Subsidiary, from a financial point of view, from an
independent financial advisor and file the same with the trustee.
(2) The restrictions set forth in clause (1) above do not apply to:
(a) reasonable fees and compensation paid to and indemnity provided
on behalf of, officers, directors, employees or consultants of
Holdings or any Restricted Subsidiary in the ordinary course as
determined in good faith by Holdings' board of directors;
(b) transactions exclusively between Holdings and any of its Wholly
Owned Restricted Subsidiaries or exclusively between such Wholly
Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the indenture;
(c) any written agreement as in effect as of the Issue Date,
including amendment, or any transaction contemplated by that
agreement (including any amendments, so long as any such
amendment is not more disadvantageous to the holders in any
material respect than the agreement as in effect on the Issue
Date);
(d) loans or advances to employees of Holdings or any Restricted
Subsidiary (other than Permitted Holders) in the ordinary course
and in an aggregate amount not exceeding $250,000 at any one time
outstanding;
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(e) payments:
(i) to P&E Properties or any of its Affiliates in an aggregate
amount not to exceed $600,000 in any fiscal year to pay
management fees, and
(ii) to reimburse P&E Properties or any of its Affiliates for
reasonable services and out-of-pocket costs and other
expenses actually incurred in connection with such services;
and
(f) payments permitted by the "Limitation on Restricted Payments"
covenant.
Subsidiaries
Holdings may not have any subsidiaries except Wholly Owned Restricted
Subsidiaries and Unrestricted Subsidiaries.
Designation of Unrestricted Subsidiaries
After the Issue Date, Holdings may designate any Subsidiary as an
Unrestricted Subsidiary if:
(1) that designation would not cause a Default under the indenture; and
(2) Holdings would be permitted to make an Investment (other than a
Permitted Investment) at the time of such designation (assuming the
effectiveness of such designation) pursuant to the "Limitation on
Restricted Payments" covenant in an amount equal to the fair market
value of Holdings' proportionate interest in the net worth of such
Subsidiary on such date calculated in accordance with GAAP.
Holdings or any Restricted Subsidiary shall not provide credit support for
or guarantee any indebtedness of any Unrestricted Subsidiary. Holdings may
pledge equity interests or Indebtedness of any Unrestricted Subsidiary on a
nonrecourse basis, or be liable for any Indebtedness of any Unrestricted
Subsidiary, or be liable for any Indebtedness providing for a default upon the
default under the Indebtedness of any Unrestricted Subsidiary. Holdings shall
not be liable for any nonrecourse guarantee given solely to support its pledge
of the capital stock of any Unrestricted Subsidiary.
Conduct of Business
Holdings and its Restricted Subsidiaries will not engage in any businesses
other than its "Permitted Business" of food manufacturing and processing, food
distribution and other businesses similar thereto or reasonably related thereto,
including without limitation, providing merchandising services.
Reports to Holders
Within 15 days after filing with the Commission, Holdings will deliver to
the trustee copies of the quarterly and annual reports and the information,
documents and other reports, if any, which Holdings is required to file with the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
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Notwithstanding that Holdings may not be subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Holdings will file with the Commission, to the extent permitted, and provide the
trustee and holders with such annual reports and such information, documents and
other reports specified in Sections 13 and 15(d) of the Securities Exchange Act
of 1934. Holdings will also comply with the other provisions of Section 314(a)
of the Trust Indenture Act of 1939.
In addition, for so long as any notes remain outstanding, Holdings 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 of 1933, and, to any beneficial holder of
notes of Holdings, if not obtainable from the Commission, information of the
type that would be filed with the Commission pursuant to the foregoing
provisions, upon the request of any such holder.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder, of Holdings or its
Affiliates will be liable for any obligations of Holdings under the notes or the
indenture or for any claim based on, or in respect of, or by reason of, such
obligations or their creation. Each holder of notes, by accepting a note, waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes.
Events of Default
Each of the following is an Event of Default:
(1) Default for 30 days in the payment when due of interest on the notes;
(2) Default in the payment when due of principal on any notes, at
maturity, upon redemption or otherwise (including the failure to make
a payment to purchase notes tendered pursuant to a Change of Control
offer or a Net Cash Proceeds offer described above);
(3) a Default for 30 days following receipt of written notice from the
trustee or the holders of at least 25% of the outstanding principal
amount of notes, in the observance or performance of any other
covenant or agreement contained in the indenture (except in the case
of a Default with respect to the "Merger, Consolidation and Sale of
Assets" covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(4) a Default or Defaults under the terms of one or more instruments
evidencing or securing Indebtedness of Holdings or any of its
Restricted Subsidiaries having an outstanding principal amount of
$2,000,000 or more individually or in the aggregate that has resulted
in the acceleration of the payment of such Indebtedness or failure by
Holdings or any Restricted Subsidiary to pay principal when due at the
stated maturity of the Indebtedness and the Default or Defaults has
continued after any applicable grace period and has not been cured or
waived;
(5) one or more judgments in an aggregate amount in excess of $2,000,000
has been rendered against Holdings or any of its Restricted
Subsidiaries and the judgments remain undischarged, unpaid or unstayed
for a period of 60 days after becoming final and non-appealable;
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(6) certain events of bankruptcy affecting Holdings or any of its
Restricted Subsidiaries; or
(7) the Holdings Escrow Agreement ceases to be in full force and effect or
is declared by a court of competent jurisdiction to be null and void,
or Holdings shall deny in writing or fail to perform any of its
obligations under the Holdings Escrow Agreement, which failure shall
continue for a period of 30 days after Holdings receives written
notice of such failure from the escrow agent.
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to Holdings) occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of outstanding notes may declare the
principal of and accrued interest on all notes to be due and payable by notice
in writing to Holdings and the trustee specifying the respective Event of
Default and that it is an "acceleration notice," and the principal and accrued
interest will become immediately due and payable. If an Event of Default
specified in clause (6) above with respect to Holdings occurs and is continuing,
then all unpaid principal of, and premium, if any, and accrued and unpaid
interest on all of the outstanding notes of will become and be immediately due
and payable without any declaration or other act on the part of the trustee or
any holder.
The indenture provides that, at any time after a declaration of
acceleration with respect to the notes, the holders of a majority in principal
amount of the notes may rescind and cancel such declaration and its
consequences:
(1) if the rescission would not conflict with any outstanding judgment or
judicial decree,
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because
of the acceleration,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has
been paid,
(4) if Holdings has paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances,
and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default,
the trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or
waived. No such rescission shall affect any subsequent Default or
impair any consequent right.
The holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a Default in the payment of the principal of or interest on any notes.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture and under the Trust Indenture Act of 1939. Subject to
the provisions of the indenture relating to the duties of the trustee, the
trustee is under no obligation to exercise any of its rights or powers under the
indenture at the request, order or direction of any of the holders, unless such
holders have offered to the trustee reasonable indemnity. Subject to all
provisions of the indenture and applicable law, the holders of a majority in
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aggregate principal amount of the then outstanding notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee.
Under the indenture, Holdings is required to provide an officers'
certificate to the trustee promptly upon any such officer obtaining knowledge of
the occurrence of any Default or Event of Default (provided that such officers
must provide such certification at least annually whether or not they know of
any Default or Event of Default) that has occurred and, if applicable, describe
such Default or Event of Default and the status thereof.
Legal Defeasance and Covenant Defeasance
Holdings may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding notes of Holdings ("Legal
Defeasance"). Such Legal Defeasance means that Holdings will be considered to
have paid and discharged the entire Indebtedness represented by the outstanding
notes, except for:
(1) the rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when such payments are
due,
(2) Holdings' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payments,
(3) the rights, powers, trust, duties and immunities of the trustee and
Holdings' obligations in connection therewith, and
(4) the Legal Defeasance provisions of the indenture.
In addition, Holdings may, at its option and at any time, elect to have its
obligations 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 notes of Holdings. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Holdings must irrevocably deposit with the trustee, in trust, for the
benefit of the holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on its notes on the stated date for payment thereof
or on the applicable redemption date;
(2) in the case of Legal Defeasance, Holdings shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that:
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(A) Holdings has 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 confirms that,
the holders 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;
(3) in the case of Covenant Defeasance, Holdings shall have delivered to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders 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;
(4) no Default or Event of Default has occurred and is continuing on the
date of 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;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a Default under the indenture or
any other material agreement or instrument to which Holdings or any of
its Restricted Subsidiaries is a party or by which Holdings or any of
its Restricted Subsidiaries is bound;
(6) Holdings must deliver to the trustee an officers' certificate stating
that the deposit was not made by Holdings with the intent of
preferring the holders over any other creditors of Holdings or with
the intent of defeating, hindering, delaying or defrauding any other
creditors of Holdings or others; and
(7) Holdings shall have delivered to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with. Notwithstanding the foregoing, the
opinion of counsel required by clause (2) above with respect to a
Legal Defeasance need not be delivered if all notes of Holdings not
therefore delivered to the trustee for cancellation:
(A) have become due and payable,
(B) will become due and payable on the maturity date within one year,
or
(C) are to be called for redemption within one year under
arrangements satisfactory to the trustee for the giving of notice
of redemption by the trustee in the name, and at the expense, of
Holdings.
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Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding notes
when:
(1) either:
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid
and notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by Holdings and
thereafter repaid to Holdings or discharged from such trust) have
been delivered to the trustee for cancellation, or
(b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable and Holdings has
irrevocably deposited or caused to be deposited with the trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the
trustee for cancellation, for principal of, premium, if any, and
interest on the notes to the date of deposit together with
irrevocable instructions from Holdings directing the trustee to
apply such funds to the payment thereof at maturity or
redemption;
(2) Holdings has paid all other sums payable under the indenture by
Holdings; and
(3) Holdings has delivered to the trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the
indenture relating to the satisfaction and discharge of the indenture
have been complied with.
Amendment and Modification of the Indenture
Without the consent of each holder affected, an amendment may not (with
respect to any notes held by a non-consenting holder):
(1) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any notes;
(3) reduce the principal of or change the fixed maturity of any notes, or
change the date on which any notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor;
(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the indenture protecting the right of
each holder to receive payment of principal of and interest on the
notes on or after the due date thereof or to bring suit to enforce
such payment, or permitting holders of a majority in principal amount
of the notes to waive Defaults or Events of Default;
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(6) amend, change or modify in any material respect the obligation of
Holdings to make and consummate a Change of Control offer in the event
of a Change of Control or make and consummate a net proceeds offer
with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto; or
(7) subordinate the notes to any other obligation of Holdings.
Governing Law
The indenture and the notes will be governed by the laws of the State of
New York, but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
Except during the continuance of an Event of Default, the trustee will
perform only such duties as are specifically set forth in the indenture. During
the existence of an Event of Default, the trustee will exercise such rights and
powers vested in it by the indenture, and use the same degree of care and skill
in its exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act of 1939 contain
certain limitations on the rights of the trustee, should it become a creditor of
Holdings, to obtain payments of claims in certain cases or to realize on certain
property received in respect of any such claim as security or otherwise. Subject
to the Trust Indenture Act of 1939, the trustee will be permitted to engage in
other transactions; provided that if the trustee acquires any conflicting
interest as described in the Trust Indenture Act of 1939, it must eliminate such
conflict within 30 days, obtain permission within 30 days from the Commission to
continue as trustee, or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Please refer to the indenture for the full definition of all such
terms.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with Holdings or any of its Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Affiliate" of any specified Person means any other Person who, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
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"Asset Acquisition" means:
(a) an Investment by Holdings or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted
Subsidiary or any Restricted Subsidiary, or shall be merged with or
into Holdings or any Restricted Subsidiary, or
(b) the acquisition by Holdings or any Restricted Subsidiary of the assets
of any Person (other than a Restricted Subsidiary) which constitute
all or substantially all of the assets of such Person or comprises any
division or line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer by Holdings or any of its Restricted
Subsidiaries (including any Sale and Leaseback Transaction) to any Person other
than Holdings or a Restricted Subsidiary of:
(a) any capital stock of any Restricted Subsidiary; or
(b) any other property or assets of Holdings or any Restricted Subsidiary
other than in the ordinary course of business; provided, however, that
Asset Sales shall not include:
(i) the sale or disposition of inventory in the ordinary course of
business,
(ii) the sale or other disposition of obsolete, worn out, damaged or
otherwise unsuitable or unnecessary equipment or other obsolete
assets,
(iii) the exchange of assets for other non-cash assets that are:
(a) useful in the Permitted Business, and
(b) have a fair market value at least equal to the fair market
value of the assets being exchanged (as determined by the
board of directors in good faith),
(iv) the sale or other disposition of Cash Equivalents,
(v) the grant of any license of intellectual property rights in the
ordinary course of business,
(vi) any transaction or series of related transactions in any fiscal
year for which Holdings or its Restricted Subsidiaries receive
aggregate consideration of less than $1.0 million, and
(vii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of Holdings as permitted
under "Merger, Consolidation and Sale of Assets."
"Borrowing Base Amount" means, as of the date of determination, an amount
equal to the sum, without duplication, of:
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(i) 80% of the book value of the accounts receivable, and
(ii) 55% of the book value of the inventories of Holdings and its
Restricted Subsidiaries, taken as a whole, as set forth in the most
recent monthly consolidated financial statements of Holdings prepared
and determined in accordance with GAAP.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(i) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either Standard & Poor's
Corporation or any successor thereto ("S&P") or Moody's Investors
Service, Inc. or any successor thereto;
(iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of
at least A-1 (or the equivalent successor rating) from S&P or at least
P-1 (or the equivalent successor rating) from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in
clause (iv) above; and
(vi) Investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the following
events:
(i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of Holdings to any Person or group of related persons for
purposes of Section 13(d) of the Securities Exchange Act of 1934 (a
"group"), together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of the indenture) other
than to the Permitted Holders;
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(ii) the approval by the holders of capital stock of Holdings of any plan
or proposal for the liquidation or dissolution of Holdings (whether
or not otherwise in compliance with the provisions of the indenture);
(iii) any Person or group (other than the Permitted Holders) shall become
the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of
Holdings; or
(iv) the replacement of a majority of the board of directors of Holdings
over a two-year period from the directors who constituted the board
of directors of Holdings at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a
majority of the board of directors of Holdings then still in office
who either were members of such board of directors at the beginning
of such period or whose election as a member of such board of
directors was previously so approved.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of:
(i) Consolidated Net Income, and
(ii) to the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business),
(B) Consolidated Interest Expense, and
(C) Consolidated Non-Cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters ending on or prior to the date of the transaction giving rise to
the need to calculate the Consolidated Fixed Charge Coverage Ratio to
Consolidated Fixed Charges of such Person for the four quarter period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to:
(i) the incurrence or the repayment, repurchase, defeasance or other
discharge of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise
to the need to make such calculation and any incurrence or repayment
of other Indebtedness (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working
capital facilities, occurring during the four quarter period or at any
time subsequent to the last day of the four quarter period and on or
prior to
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the transaction date, as if such incurrence or the repayment,
repurchase, defeasance or other discharge, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the
four quarter period, and
(ii) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation
as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result
of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including or excluding, as
applicable, any Consolidated EBITDA (including any pro forma expense
and cost reductions) whether positive or negative attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale
during the four quarter period) occurring during the four quarter
period or at any time subsequent to the last day of the four quarter
period and on or prior to the transaction date, as if such Asset Sale
or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first
day of the four quarter period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness
of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining
the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the transaction date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest on such Indebtedness
in effect on the transaction date; and
(2) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations,
shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements. For purposes
of this definition, whenever pro forma effect is to be given to
an Asset Acquisition, the amount of Consolidated Net Income
relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness incurred in connection
therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of
Holdings.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(i) Consolidated Interest Expense, plus
(ii) the product of:
(x) the amount of all dividend payments on any series of preferred
stock of such Person or its Subsidiaries (other than dividends
paid in Qualified Capital Stock) paid or accrued during such
period times, and
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(y) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(i) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including without limitation,
(a) any amortization of debt discount and amortization or write-off
of deferred financing costs,
(b) the net costs under Interest Swap Obligations, and
(c) the interest portion of any deferred payment obligation; and
(ii) the interest component of Capitalized Lease Obligations paid or
accrued by such Person and its Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) after-tax gains from Asset Sales or abandonments or reserves relating
thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains,
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with
the referent Person or any Restricted Subsidiary of the referent
Person,
(d) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is
restricted by a contract or operation of law,
(e) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except, for purposes of the covenant described
under "Certain Covenants--Limitation on Restricted Payments," to the
extent of cash dividends or distributions paid to the referent Person
or to a Wholly Owned Restricted Subsidiary of the referent Person by
such Person,
(f) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated
Net Income accrued at any time following the Issue Date, and
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(g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether
or not such operations were classified as discontinued).
"Consolidated Non-Cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Amended and Restated Credit Agreement dated as
of May 1, 1998, by and among Millbrook, Manischewitz, Chase, as agent, and
NationsBank, as co-agent, and the lenders party thereto in their capacities as
lenders thereunder, together with the related agreements entered into in
connection therewith (including, without limitation, any guarantee agreements
and security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder (provided that such increase in
borrowings is permitted by the "Limitation on Incurrence of Additional
Indebtedness and Issuance of Disqualified Capital Stock" covenant above) or
adding Restricted Subsidiaries of Holdings as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
co-agent, lender or group of lenders.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means that portion of any capital stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the notes.
"Enterprises Notes" means the 10-1/2% Senior Notes due 2005 of R.A.B.
Enterprises, Inc.
"Enterprises Notes Indenture" means the indenture dated May 1, 1998,
between R.A.B. Enterprises, Inc., the guarantors named therein and the trustee.
"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, which are in effect as of the Issue
Date.
"Guarantees" means the guarantees of the Enterprises Notes by Millbrook and
Manischewitz in accordance with the Enterprises Notes Indenture.
"Holdings Escrow Agreement" means the escrow agreement dated as of May 1,
1998 among Holdings, The Chase Manhattan Bank, as successor to PNC Bank,
National Association, as escrow agent and
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collateral agent, and The Chase Manhattan Bank, as successor to PNC Bank,
National Association, as trustee under the Holdings indenture.
"Indebtedness" means with respect to any Person, without duplication:
(i) the principal amount of all Indebtedness of such Person for borrowed
money,
(ii) the principal amount of all Indebtedness of such Person evidenced by
bonds, debentures, notes of Holdings or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person,
(iv) all Indebtedness of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are
being contested in good faith),
(v) reimbursement obligations of such Person on any letter of credit,
banker's acceptance or similar credit transaction,
(vi) guarantees and other similar contingent obligations in respect of
Indebtedness or obligations referred to in clauses (i) through (v)
above and clause (viii) below,
(vii) all obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any Lien on any property
or asset of such Person, the amount of such obligation being deemed to
be the lesser of the fair market value of such property or asset or
the amount of the obligation so secured, and
(viii) all obligations of such Person under Currency Agreements and
Interest Swap Obligations.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any capital stock,
bonds, notes of Holdings, debentures or other securities or evidences of
Indebtedness issued by, any other Person. "Investment" excludes extensions of
trade credit and advances to customers by Holdings and its Restricted
Subsidiaries in accordance with normal trade practices of Holdings or such
Restricted Subsidiary. For the purposes of the "Limitation on Restricted
Payments" covenant,
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(i) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary
is designated a Restricted Subsidiary and
(ii) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by Holdings or
any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any
other amounts received in respect of such Investment; provided that no
such payment of dividends or distributions or receipt of any such
other amounts shall reduce the amount of any Investment if such
payment of dividends or distributions or receipt of any such amounts
would be included in Consolidated Net Income. If Holdings or any
Restricted Subsidiary sells or otherwise disposes of any common stock
of any direct or indirect Restricted Subsidiary such that, after
giving effect to any such sale or disposition, Holdings no longer
owns, directly or indirectly, greater than 50% of the outstanding
common stock of such Restricted Subsidiary, Holdings 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 common stock of such Restricted
Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind.
"Net Cash Proceeds" means, with respect to any Asset Sale, the aggregate
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) and cash and Cash Equivalents received upon the disposition of
non-cash consideration received in any Asset Sale received by Holdings or any of
its Restricted Subsidiaries from such Asset Sale net of:
(a) reasonable out-of-pocket expenses and fees incurred in connection with
such Asset Sale,
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements,
(c) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale, and
(d) appropriate amounts to be provided by Holdings or any Restricted
Subsidiary as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by Holdings
or any Restricted Subsidiary after such Asset Sale.
"Obligations" means, with respect to any Indebtedness, all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any such
Indebtedness.
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"Permitted Holders" means:
(i) Mr. Richard A. Bernstein,
(ii) trusts for the benefit of Mr. Bernstein and/or members of his
immediate family, and
(iii) in the event of the incompetence or death of Mr. Bernstein, his
estate, executor, administrator or other personal representative.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the notes of Holdings, Enterprises, the Guarantees
and the Enterprises Notes, and Permitted Refinancings thereof;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate
principal amount, at any time outstanding, not to exceed the greater
of:
(x) $55 million, and
(y) the Borrowing Base Amount, in each case, less mandatory,
permanent repayments (excluding amounts refinanced as permitted
under the definition of Credit Agreement) actually made in
respect of any Indebtedness thereunder (which are accompanied by
a permanent reduction in commitment in the case of the Revolving
Credit Facility);
(iii) Permitted Refinancings of:
(x) other Indebtedness of Holdings or any Restricted Subsidiary to
the extent outstanding on the Issue Date reduced by the amount of
any scheduled amortization payments or mandatory prepayments when
actually paid or permanent reductions thereon, and
(y) Indebtedness incurred under the Consolidated Fixed Charge
Coverage Ratio test of the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Disqualified Capital
Stock" covenant;
(iv) Interest Swap Obligations of Holdings covering Indebtedness of
Holdings or any Restricted Subsidiary and Interest Swap Obligations of
any Restricted Subsidiary covering Indebtedness of such Restricted
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect Holdings and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance
with the indenture to the extent the notional principal amount of such
interest swap obligation does not exceed the principal amount of the
Indebtedness to which such interest swap obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency
Agreements are designed to protect Holdings or any Restricted
Subsidiary against fluctuations in currency values and do not increase
the Indebtedness of Holdings and its Restricted Subsidiaries
outstanding other than as a result of
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fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary to Holdings or to
a Wholly Owned Restricted Subsidiary for so long as such Indebtedness
is held by Holdings or a Wholly Owned Restricted Subsidiary, in each
case subject to no Lien being held by a Person other than Holdings or
a Wholly Owned Restricted Subsidiary; provided that if as of any date
any Person other than Holdings or a Wholly Owned Restricted Subsidiary
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vii) Indebtedness of Holdings to a Wholly Owned Restricted Subsidiary for
so long as such Indebtedness is held by a Wholly Owned Restricted
Subsidiary, in each case subject to no Lien; provided that:
(a) any Indebtedness of Holdings to any Wholly Owned Restricted
Subsidiary is unsecured and subordinated, pursuant to a written
agreement, to Holdings' obligations under the indenture and the
notes of Holdings, and
(b) if as of any date any Person other than a Wholly Owned Restricted
Subsidiary owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting
Indebtedness permitted by this clause (vii);
(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of Holdings or any Restricted Subsidiary:
(a) represented by letters of credit for the account of Holdings or
such Restricted Subsidiary in order to provide security for
workers' compensation claims, payment obligations in connection
with self-insurance or similar requirements in the ordinary
course of business and
(b) in respect of performance, surety or appeal bonds incurred in the
ordinary course of business;
(x) Indebtedness of Holdings or any Restricted Subsidiary (other than for
borrowed money) pursuant to agreements providing for indemnification,
purchase price adjustments and similar obligations that is incurred in
the ordinary course of business or in connection with the sale of a
business, assets or a Subsidiary;
(xi) Indebtedness represented by Capitalized Lease Obligations and Purchase
Money Indebtedness of Holdings and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $2.0 million
at any one time outstanding; and
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(xii) additional Indebtedness of Holdings or any Restricted Subsidiary in
an amount not to exceed $25.0 million at any one time outstanding;
provided that such amount is incurred on or before the nine month
anniversary of the Issue Date; and provided further that, on or prior
to the nine month anniversary of the Issue Date, such amount is used
to consummate the acquisition of one or more Permitted Businesses that
becomes, upon the closing of such acquisition, a Restricted Subsidiary
of Holdings or any Restricted Subsidiary.
"Permitted Investments" means:
(i) Investments by Holdings or any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into Holdings or a
Restricted Subsidiary;
(ii) Investments in Holdings by any Restricted Subsidiary; provided that
any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to Holdings'
obligations under the notes of Holdings and the indenture;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of Holdings and its
Restricted Subsidiaries (other than to Permitted Holders) in the
ordinary course of business for bona fide business purposes not in
excess of $250,000 at any one time outstanding;
(v) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of Holdings' or its Restricted Subsidiaries'
businesses and otherwise in compliance with the indenture;
(vi) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(vii) Investments made by Holdings or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made
in compliance with the "Limitation on Asset Sales" covenant; and
(viii) Investments existing on the Issue Date.
"Permitted Liens" means:
(a) Liens securing Acquired Indebtedness; provided, however, that such
Liens were in existence prior to the contemplation of such
acquisition, merger or consolidation and do not secure any property or
assets of Holdings or any Restricted Subsidiary of Holdings other than
the property or assets subject to the Liens prior to such acquisition,
merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanic's
Liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 30 days
past due or which are being contested in good faith and by appropriate
proceedings;
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(c) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith;
provided, however, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made
therefor;
(d) easements, reservation of rights of way, licenses of intellectual
property in the ordinary course and other similar restrictions on the
use of properties or assets, or minor imperfections of title that in
the aggregate are not material in amount and do not in any case
materially detract from the properties subject thereto or interfere
with the ordinary conduct of the business of Holdings and its
Restricted Subsidiaries;
(e) Liens resulting from the deposit of cash or notes of Holdings in
connection with contracts, tenders or expropriation proceedings, or to
secure workers' compensation, surety or appeal bonds, costs of
litigation when required by law and public and statutory obligations
or obligations under franchise arrangements entered into in the
ordinary course of business;
(f) Liens securing Indebtedness incurred pursuant to clause (xii) of the
definition of "Permitted Indebtedness" in an aggregate amount not to
exceed $15 million at any one time outstanding; and
(g) Liens securing Indebtedness consisting of Capitalized Lease
Obligations or industrial revenue bonds, in each case incurred solely
for the purpose of financing all or any part of the purchase price or
cost of construction or installation of assets used in the business of
Holdings or its Restricted Subsidiaries, or repairs, additions or
improvements to such assets; provided, however, that:
(1) such Liens secure Indebtedness in an amount not in excess of the
original purchase price or the original cost of any such assets
or repairs, additions or improvements thereto (plus an amount
equal to the reasonable fees and expenses, including attorneys
fees and expenses, incurred in connection with the incurrence of
such Indebtedness),
(2) such Liens do not extend to any other assets of Holdings or its
Restricted Subsidiaries (and, in the case of repairs, additions
or improvements to any such assets, such Lien extends only to the
assets repaired, added to or improved),
(3) the Incurrence of such Indebtedness is permitted under the
indenture, and
(4) such Liens attach within 60 days of such purchase, construction,
installation, repair, addition or improvement.
"Permitted Refinancing" means, with respect to any Indebtedness of any
Person, any refinancing of such Indebtedness; provided, however, that:
(i) such refinancing shall not result in an increase in the aggregate
principal amount of Indebtedness of such Person as of the date of such
proposed refinancing (plus the amount of any premium required to be
paid under the terms of the instrument governing such
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Indebtedness and plus the amount of reasonable expenses incurred by
Holdings in connection with such refinancing),
(ii) such Indebtedness shall not have a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the
Indebtedness being refinanced or a final maturity earlier than the
final maturity of the Indebtedness being refinanced,
(iii) if the Indebtedness being refinanced is Indebtedness of Holdings,
then such refinancing Indebtedness shall be Indebtedness solely of
Holdings; and
(iv) if the Indebtedness being refinanced is subordinate or junior to the
notes of Holdings, then such refinancing Indebtedness shall be
subordinate to the notes of Holdings at least to the same extent and
in the same manner as the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock pursuant to a registration statement filed with the Commission in
accordance with the Securities Act of 1933 generating gross cash proceeds of at
least $50.0 million.
"Purchase Money Indebtedness" means Indebtedness of Holdings and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property, equipment or other
assets; provided, however:
(A) the Indebtedness shall not exceed the cost of such property, equipment
or assets and shall not be secured by any property, equipment or
assets of Holdings or any Restricted Subsidiary other than the
property, equipment and assets so acquired or constructed and
(B) the Lien securing such Indebtedness shall be created within 180 days
of such acquisition or construction or, in the case of a refinancing
of any Purchase Money Indebtedness, within 180 days of such
refinancing.
"Qualified Capital Stock" means any capital stock that is not Disqualified
Capital Stock.
"Replacement Assets" means:
(i) properties and assets that replace the properties and assets that were
the subject of such Asset Sale or in properties and assets that will
be used in a Permitted Business or
(ii) all of the capital stock of a Person whose assets are of the type
described in clause (i), provided that such Person becomes a
Restricted Subsidiary of Holdings.
"Restricted Subsidiary" means any Subsidiary of Holdings which at the time
of determination is not an Unrestricted Subsidiary.
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"Revolving Credit Facility" means one or more revolving credit facilities
under the Credit Agreement.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Holdings or a Restricted Subsidiary of any property, whether owned by
Holdings or any Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by Holdings or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Subsidiary," with respect to any Person, means:
(i) any corporation of which the outstanding capital stock having at least
a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by such Person or
(ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"Term Loan Facility" means one or more term loan facilities under the
Credit Agreement.
"Unrestricted Subsidiary" of any Person means:
(i) any Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the
board of directors of such Person in the manner provided below, and
(ii) any Subsidiary of an Unrestricted Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(a) the then outstanding aggregate principal amount of such Indebtedness
into
(b) the sum of the total of the products obtained by multiplying:
(i) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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DESCRIPTION OF CREDIT AGREEMENT
Millbrook and Manischewitz have entered into the Credit Agreement with
certain lenders under which the lenders have extended revolving credit loans of
up to $90.2 million and an amortizing term loan of $9.31 million. The following
is a summary description of the principal terms of the Credit Agreement
currently in effect and is qualified in all respects by reference to the
definitive Credit Agreement and the other loan documents. We strongly urge you
to review the complete text of the Credit Agreement for a complete understanding
of its terms.
At September 30, 1998, $15.9 million was outstanding under the Credit
Agreement, consisting of revolving credit borrowings of $7.1 million and an
amortizing term loan of $8.8 million, and approximately $49.5 million of
additional borrowing capacity was available under the Credit Agreement.
Security. The obligations of Millbrook and Manischewitz under the Credit
Agreement are secured by (1) substantially all the assets of Millbrook and (2)
the accounts receivable, inventory and intellectual property of Manischewitz.
The obligations of Millbrook and Manischewitz under the Credit Agreement are
also secured by a non-recourse pledge by Enterprises of all the capital stock of
Millbrook.
Interest; Maturity. Interest on the revolving credit loans and the term
loan under the Credit Agreement accrues interest on amounts outstanding at an
annual rate, at the borrower's option, equal to either (1) the Adjusted London
Interbank Offered Rate or (2) an Alternate Base Rate, in each case, plus an
interest margin based on Millbrook's and Manischewitz's combined borrowing base
availability. The revolving credit portion of the Credit Agreement matures on
March 31, 2002 and the term loan portion of the Credit Agreement is due and
payable on March 31, 2003.
Interest Rate Protection. Millbrook is a party to a three-year interest
rate protection agreement with Bank of Montreal that effectively cap rates on a
notional principal amount of $50 million of borrowings at 7- 5/8% for London
Interbank Offered Rate loans.
Restrictive Covenants. The Credit Agreement contains a number of
covenants that, among other things, restrict the ability of Millbrook,
Manischewitz and their respective subsidiaries to: (1) dispose of assets, (2)
incur additional indebtedness, (3) prepay other indebtedness or amend certain
other debt instruments, (4) pay dividends, (5) create liens on assets, (6) enter
into sale and leaseback transactions, (7) make investments, loans or advances,
(8) make acquisitions, (9) engage in mergers or consolidations, (10) materially
change the business conducted by Millbrook, Manischewitz or their respective
subsidiaries, (11) engage in certain transactions with affiliates and (12)
conduct certain corporate activities.
Financial Covenants. Millbrook and Manischewitz will be required to meet
certain financial covenants, including, without limitation: (1) debt service
coverage ratios, (2) leverage ratios and (3) annual capital expenditure
limitations.
Events of Default. The Credit Agreement contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-defaults and cross-acceleration to certain other debt,
certain events of bankruptcy and insolvency, ERISA, judgment defaults, actual or
asserted invalidity of any security interest and certain change of control (as
defined in the Credit Agreement) provisions.
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BOOK - ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the new notes initially will be
represented by one or more permanent global certificates in definitive, duly
registered form. The global notes will be deposited on their date of issue with,
or on behalf of, DTC and registered in the name of a nominee of DTC.
The Global Notes. We expect that under the procedures established by DTC
(1) upon the issuance of the global notes DTC or its custodian will credit on
its internal system the principal amount of new notes of the individual
beneficial interests represented by such global notes to the respective accounts
of persons who have accounts with such depositary and (2) ownership of
beneficial interest in the global notes will be shown on, and the transfer of
such ownership will be effective only through, records maintained by DTC or its
nominee (with respect to interest of participants) and the records of
participants (with respect to interest of persons other than participants).
Ownership of beneficial interests in the global notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
new notes, DTC or such nominee will be considered the sole owner or holder of
the new notes represented by such global notes for all purposes under the
indentures. No beneficial owner of an interest in the global notes will be able
to transfer that interest except in accordance with DTC's procedures.
Payments of the principal of, premium (if any) and interest on, the global
notes will be made to DTC or its nominee as the registered owner thereof.
Enterprises, Holdings, the trustees or any paying agent will not have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest on the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
beneficial interests in the principal amount of the global notes as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global notes held through such
participants will be governed by standing instructions and customary practice,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
certificated new note for any reason, including to sell new notes to persons in
states which require physical delivery of the new notes, or to pledge such
securities, such holder must transfer its interest in a global note, in
accordance with the normal procedures of DTC.
DTC has advised us that it will take any action permitted to be taken by a
holder of new notes (including the presentation of new notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the global notes are credited and only in respect
of such portion of the aggregate principal amount of new notes as to which such
participant or participants has or have given such direction.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning
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of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their obligations under the rules and procedures governing their
operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for the global notes and a successor depositary is not appointed
by us within 90 days, certificated notes will be issued in exchange for the
global notes.
PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties in similar transactions, we believe
that new notes issued in an exchange offer in exchange for old notes may be
offered for resale, resold and otherwise transferred by holders (other than any
such holder which is our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933) without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933. However, this applies only if
new notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such new notes. We refer you to the "Morgan Stanley & Co. Inc." SEC No-Action
Letter (available June 5, 1991), "Exxon Capital Holdings Corporation" SEC
No-Action Letter (available May 13, 1988) and "Shearman & Sterling" SEC
No-Action Letter (available July 2, 1993) for support of this belief.
Each broker-dealer that receives new notes for its own account in an
exchange offer must acknowledge that it will deliver a prospectus with any
resale of such new notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
new notes received in exchange for old notes where such old notes were acquired
as a result of market-making activities or other trading activities. We have
agreed that, for a period of 180 days after the expiration date, we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until _______ 1999, all
dealers effecting transactions in the new notes may be required to deliver this
prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers or any other persons. new notes received by broker-dealers for
their own account in an 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 new 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 purchasers or to or through brokers or dealers who may receive
compensation in the form
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of commissions or concessions from any such broker-dealer or the purchasers of
any such new notes. Any broker-dealer that resells new notes that were received
by it for its own account and any broker or dealer that participates in a such
new notes may be deemed to be an underwriter within the Securities Act, and any
profit on any such resale of new notes, commissions or concessions received by
any such persons may be underwriting compensation under the Securities Act of
1933. The letter of transmittal states that by acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act of 1933, a broker-dealer will not be admitting that it is an
underwriter within the meaning of the Securities Act of 1933.
We have agreed to pay all expenses incident to the exchange offers,
including the expenses of one counsel for the holders of the outstanding notes,
other than commissions or concessions of any broker-dealers. We have agreed to
indemnify holders of the notes (including any broker-dealers) against certain
liabilities, including certain liabilities under the Securities Act of 1933.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes federal income tax consequences of the
exchange of the outstanding notes under existing federal income tax law, which
consequences may change, and affect you adversely. This summary does not discuss
all aspects of federal income taxation which may be relevant to a particular
investor in light of his or her personal investment circumstances or to certain
types of investors subject to special treatment under the federal income tax
laws (for example, financial institutions, insurance companies, tax-exempt
organizations, broker-dealers, and foreign taxpayers). This summary does not
discuss any aspects of other federal taxes or state, local, or foreign tax law
and assumes that investors hold and will continue to hold their outstanding
notes as capital assets (generally, property held for investment) under the
Internal Revenue Code of 1986, as amended. Each holder is advised to consult its
tax advisors as to the specific tax consequences of exchanging their outstanding
notes, including the application and effect of federal, state, local and foreign
income and other tax laws.
An exchange of an outstanding note for a new note should not be treated as
an event in which gain or loss, if any, is realized for federal income tax
purposes, because the terms of the new notes do not differ materially in kind or
extent from the terms of the outstanding notes. As a result, the holder should
not recognize any gain or loss for federal income tax purposes if he or she
participates in an exchange offer, and the new note received in an exchange
offer should be treated as a continuation of the outstanding note surrendered in
an exchange offer. The holder should have the same basis and holding period in
its new note as it had in the outstanding note.
LEGAL MATTERS
Certain legal matters with respect to the validity of the new notes being
offered hereby will be passed upon for us by Parker Chapin Flattau & Klimpl,
LLP, New York, New York. Martin Eric Weisberg, Esq., a partner of Parker Chapin
Flattau & Klimpl, LLP, owns shares of common stock and series A preferred stock
of Holdings.
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EXPERTS
The consolidated financial statements of Holdings and Enterprises, each
as of March 31, 1997 and 1998 and for the fiscal year ended March 31, 1998
included in this prospectus and the related financial statement schedules
included elsewhere in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The statements of operations of Millbrook Distribution Services Inc.
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The combined financial statements of MANO Holdings Corporation and KBMC
Acquisition Company, L.P. as of July 31, 1997 and 1996 and for each of the three
years in the period ended July 31, 1997 included in this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF R.A.B. HOLDINGS, INC.
AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-3
Consolidated Balance Sheets as of March 31, 1998 and 1997.................................................. F-4
Consolidated Statement of Operations for the fiscal year ended March 31, 1998.............................. F-5
Consolidated Statements of Stockholders' Equity for the period from May 6, 1996 (date of inception) to
March 31, 1997 and for the fiscal year ended March 31, 1998............................................ F-6
Consolidated Statement of Cash Flows for the fiscal year ended March 31, 1998.............................. F-7
Notes to Consolidated Financial Statements................................................................. F-8
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets as of September 30, 1998 and March 31, 1998.......................... F-17
Condensed Consolidated Statements of Operations for the six month periods ended September 30, 1998
and 1997............................................................................................... F-18
Condensed Consolidated Statement of Stockholders' Equity for the six month period ended
September 30, 1998..................................................................................... F-19
Condensed Consolidated Statements of Cash Flows for the six month periods ended September 30, 1998
and 1997............................................................................................... F-20
Notes to Condensed Consolidated Financial Statements....................................................... F-21
CONSOLIDATED FINANCIAL STATEMENTS OF R.A.B. ENTERPRISES, INC.
AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-23
Consolidated Balance Sheets as of March 31, 1998 and 1997.................................................. F-24
Consolidated Statement of Operations for the fiscal year ended March 31, 1998.............................. F-25
Consolidated Statement of Stockholder's Equity for the fiscal year ended March 31, 1998.................... F-26
Consolidated Statement of Cash Flows for the fiscal year ended March 31, 1998.............................. F-27
Notes to Consolidated Financial Statements................................................................. F-28
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OF R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets as of September 30, 1998 and March 31, 1998.......................... F-37
Condensed Consolidated Statements of Operations for the six month periods ended
September 30, 1998 and 1997............................................................................ F-38
Condensed Consolidated Statements of Stockholder's Equity for the six month period ended
September 30, 1998..................................................................................... F-39
Condensed Consolidated Statements of Cash Flows for the six month periods ended
September 30, 1998 and 1997............................................................................ F-40
Notes to Condensed Consolidated Financial Statements....................................................... F-41
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
Page
----
<S> <C>
COMBINED FINANCIAL STATEMENTS OF MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
Report of Independent Public Accountants................................................................... F-43
Combined Balance Sheets as of July 31, 1997 and 1996....................................................... F-44
Combined Statements of Operations for the years ended July 31, 1997, 1996 and 1995......................... F-45
Combined Statements of Changes in Equity for the years ended July 31, 1997, 1996 and 1995.................. F-46
Combined Statements of Cash Flows for the years ended July 31, 1997, 1996 and 1995......................... F-47
Notes to Combined Financial Statements..................................................................... F-48
UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS OF MANO HOLDINGS
CORPORATION AND KBMC ACQUISITION COMPANY, L.P.
Condensed Combined Balance Sheets as of April 30, 1998 and July 31, 1997................................... F-60
Condensed Combined Statements of Operations for the nine month periods ended
April 30, 1998 and 1997................................................................................ F-61
Condensed Combined Statement of Changes in Equity for the nine month period
ended April 30, 1998................................................................................... F-62
Condensed Combined Statements of Cash Flows for the nine month periods
ended April 30, 1998 and 1997.......................................................................... F-63
Notes to Condensed Combined Financial Statements........................................................... F-64
FINANCIAL STATEMENTS OF MILLBROOK DISTRIBUTION SERVICES INC.
Independent Auditors' Report............................................................................... F-66
Statements of Operations for the fiscal years ended March 31, 1997 and 1996................................ F-67
Notes to Statements of Operations.......................................................................... F-68
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
R.A.B. Holdings, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of R.A.B. Holdings,
Inc. and subsidiaries as of March 31, 1998 and March 31, 1997, and the related
consolidated statements of operations and cash flows for the fiscal year ended
March 31, 1998 and the consolidated statements of stockholders' equity for the
period from May 6, 1996 (date of inception) to March 31, 1997 and for the fiscal
year ended March 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of R.A.B. Holdings, Inc. and
subsidiaries as of March 31, 1998 and March 31, 1997, and the results of their
operations and their cash flows for the fiscal year ended March 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
July 10, 1998
New York, New York
F-3
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and 1997
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,623 $ 2,637
Accounts receivable 27,942 29,892
Inventories 41,814 52,271
Other current assets 5,707 9,480
-------- --------
Total current assets 78,086 94,280
Other assets 7,291 6,784
Property, plant and equipment, net 23,395 25,235
-------- --------
$108,772 $126,299
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 815 $ 490
Accounts payable 31,035 29,083
Other current liabilities 16,233 12,504
-------- --------
Total current liabilities 48,083 42,077
Noncurrent liabilities:
Long-term debt 37,295 61,310
Deferred compensation 7,801 7,668
Deferred income taxes 982 1,536
Other liabilities 3,434 3,704
-------- --------
Total noncurrent liabilities 49,512 74,218
Commitments and contingencies
Stockholders' equity:
Preferred stock, $500 par value, 100,000 shares authorized,
20,000 shares of Series A issued and outstanding 9,906 9,906
Common stock, $.01 par value, 100,000 shares authorized,
100,000 and 99,000 shares issued 1 1
Additional paid-in capital 98 97
Retained earnings 1,174 --
-------- --------
11,179 10,004
Less cost of common stock in treasury-1,600 shares 2 --
-------- --------
Total stockholders' equity 11,177 10,004
-------- --------
$108,772 $126,299
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended March 31, 1998
(In thousands)
Revenues $470,201
Costs and expenses:
Cost of sales 360,162
Selling 43,766
Distribution and warehousing 37,339
General and administrative 21,559
--------
Total costs and expenses 462,826
--------
Operating income 7,375
Interest expense, net 5,079
--------
Income before provision for income taxes 2,296
Provision for income taxes 1,122
--------
Net income $ 1,174
========
See notes to consolidated financial statements.
F-5
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except for share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
------------------ ------------------ Paid-In Retained -----------------
Shares Amount Shares Amount Capital Earnings Shares Amount
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 6, 1996 -- $ -- -- $ -- $ -- $ -- -- $ --
Issuance of stock 20,000 9,906 99,000 1 97
------- ------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1997 20,000 9,906 99,000 1 97 -- -- --
Issuance of common stock 1,000 1
Repurchase of common stock 1,600 2
Net income 1,174
------- ------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1998 20,000 $ 9,906 100,000 $ 1 $ 98 $ 1,174 1,600 $ 2
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended March 31, 1998
(In thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,174
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,471
Gain on disposition of equipment (20)
Deferred income taxes (106)
Changes in assets and liabilities:
Accounts receivable 1,950
Inventories 10,457
Other current assets 3,773
Accounts payable 1,952
Other current liabilities 3,729
Other assets and liabilities (1,477)
--------
Net cash provided by operating activities 25,903
--------
Cash flows from investing activities:
Acquisitions of equipment (2,309)
Proceeds from disposition of equipment 83
--------
Net cash used in investing activities (2,226)
--------
Cash flows from financing activities:
Repayments under Credit Agreement (23,690)
Proceeds from issuance of common stock 1
Purchase of treasury stock (2)
--------
Net cash used in financing activities (23,691)
--------
Net decrease in cash (14)
Cash, beginning of year 2,637
--------
Cash, end of year $ 2,623
========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,054
Income taxes $ 1,392
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements
include the accounts of R.A.B. Holdings, Inc. and its wholly-owned
subsidiaries, Millbrook Distribution Services Inc. ("Millbrook") and R.A.B.
Enterprises, Inc. ("Enterprises"), Millbrook's parent (collectively, the
"Company"). Millbrook is one of the nation's largest independent
value-added distributors of health and beauty care, general merchandise and
specialty and natural food products. All significant intercompany
transactions and balances are eliminated in consolidation.
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, the 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 these estimates.
Concentration of Credit Risk - Trade accounts receivable potentially
subject the Company to credit risk. The Company extends credit to its
customers, principally in the U.S. supermarket industry, based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company's allowance for doubtful
accounts is based upon the expected collectability of its trade accounts
receivable.
Fiscal Year - The Company's fiscal year ends on March 31.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method. At March 31,
1998, the replacement cost of inventories valued using the LIFO method
exceeded the net carrying amount of such inventories by approximately
$255,000.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. For financial reporting purposes, depreciation is
provided on the straight-line method over the following estimated useful
lives:
Buildings and improvements................... 5-35 years
Machinery and equipment...................... 2-15 years
Rolling stock................................ 3- 8 years
F-8
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary Of Significant Accounting Policies (Continued)
Expenditures which significantly increase value or extend useful lives
are capitalized, while ordinary maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets replaced,
retired or disposed of are removed from the accounts and any related gains
or losses are reflected in operations.
Long-Lived Assets - The Company reviews its long-lived assets and
certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. Such changes in circumstances may include, among other
factors, a significant change in technology that may render an asset
obsolete or noncompetitive or a significant change in the extent or manner
in which an asset is used. The assessment for potential impairment is based
upon the Company's ability to recover the unamortized balance of its
long-lived assets from expected future cash flows on an undiscounted basis
(without interest charges). If such expected future cash flows are less
than the carrying amount of the asset, an impairment loss would be
recorded.
Revenue Recognition - Revenue is recognized when products are shipped
or services are provided to customers. Provisions are recorded for returns
and allowances and bad debts.
Income Taxes - Deferred income taxes result primarily from temporary
differences between financial and tax reporting and acquisition basis
differences.
Accounting Pronouncements - Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued in June 1997 and is effective for
financial statements for periods beginning after December 15, 1997. This
statement establishes standards for the manner in which operating segments
of public reporting entities are presented in interim and annual financial
statements. The Company believes its current reporting systems will enable
it to comply with the requirements of SFAS No. 131.
SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued in February 1998 and is effective for
periods beginning after December 15, 1997. The Company will adopt SFAS No.
132 effective for its 1998 fiscal year end.
The aforementioned recently issued accounting pronouncements establish
standards for disclosures only and therefore will have no impact on the
Company's financial position or results of operations.
F-9
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary Of Significant Accounting Policies (Continued)
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the consolidated balance sheet as either assets or
liabilities measured at fair value. The Company will adopt SFAS No. 133
effective for its 2000 fiscal year end. The Company has not yet determined
the impact SFAS No. 133 will have on its financial position or results of
operations when such statement is adopted.
2. Formation And Acquisition
On May 6, 1996, R.A.B. Holdings, Inc., a Delaware corporation, was
formed. On March 31, 1997, R.A.B. Holdings, Inc. acquired Millbrook for a
purchase price of approximately $67 million, including transaction costs,
through the sale of stock (see Note 7) and borrowings under the Company's
Credit Agreement. The acquisition was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities
of Millbrook based upon their estimated fair values at the date of
acquisition. The fair values of assets acquired (approximately $129
million) and liabilities assumed (approximately $53 million) were based
upon third party appraisals and other valuation analyses. The fair value of
the net assets acquired exceeded the purchase price by approximately $9
million. The resulting negative goodwill reduced the fair value assigned to
Millbrook's property, plant and equipment.
R.A.B. Holdings, Inc. had no operations prior to April 1, 1997. During
the period from May 6, 1996 (date of inception) to March 31, 1997, the
Company sold stock ($10 million) (see Note 7) and borrowed $62 million
under its Credit Agreement (see Note 6) to acquire Millbrook ($70 million,
which was subsequently adjusted pursuant to the purchase agreement) and pay
its related acquisition and financing costs ($2 million).
3. Accounts Receivable
Accounts receivable consisted of the following:
March 31, March 31,
1998 1997
-------- ---------
(In thousands)
Accounts receivable $ 30,383 $ 32,143
Allowance for doubtful accounts (2,441) (2,251)
-------- --------
$ 27,942 $ 29,892
======== ========
F-10
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Property, Plant & Equipment
Property, plant and equipment consisted of the following:
March 31, March 31,
1998 1997
------- -------
(In thousands)
Land ........................................... $ 1,561 $ 1,561
Buildings and improvements ..................... 9,393 9,371
Machinery and equipment ........................ 12,902 10,884
Rolling stock .................................. 3,398 3,419
Work in progress ............................... 201 --
------- -------
27,455 25,235
Less accumulated depreciation and amortization.. 4,060 --
------- -------
$23,395 $25,235
======= =======
5. Other Current Liabilities
Other current liabilities consisted of the following:
March 31, March 31,
1998 1997
------- -------
(In thousands)
Accrued compensation and fringe benefits.... $ 7,417 $ 4,569
Deferred income taxes ...................... 795 347
Accrued liabilities ........................ 8,021 7,588
------- -------
$16,233 $12,504
======= =======
6. Long-term Debt
Long-term debt consisted of the following:
Range of March 31, March 31,
Interest 1998 1997
----------- ------- ---------
(In thousands)
Revolving bank line of credit 7.86 - 9.00% $28,800 $52,000
Term loan ................... 8.11 - 9.25 9,310 9,800
------- -------
38,110 61,800
Less current maturities ..... 815 490
------- -------
$37,295 $61,310
======= =======
F-11
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-term Debt (Continued)
On March 31, 1997, Millbrook entered into an agreement, as amended,
with a group of commercial lending institutions providing for a credit
facility in the aggregate amount of $100 million consisting of revolving
credit loans up to $90.2 million and an amortizing term loan of $9.8
million (the "Credit Agreement"). Borrowings under this long-term facility,
which principally expires March 31, 2002, are supported by specified assets
in accordance with a borrowing base formula, as defined in the Credit
Agreement (see Note 12). Substantially all of the Company's assets and
Millbrook's stock are pledged under the terms of the Credit Agreement.
Additionally, the Credit Agreement requires the maintenance of a minimum
level of cash flow, as defined and imposes restrictions on investments,
capital expenditures, cash dividends, management fees and advances to the
parent and other indebtedness. At March 31, 1998, substantially all of the
assets of the Company's subsidiaries are unavailable for dividends. At
March 31, 1998, Millbrook had available, under the Credit Agreement, unused
borrowing capacity of approximately $24 million, net of outstanding letters
of credit of approximately $885,000.
Borrowings under the Credit Agreement bear interest at either the
London interbank offered ("LIBO") rate plus a margin or the bank's
alternate base rate plus a margin (up to 2.50%). The margin rate, which
ranged from 2.25% to 2.50% at March 31, 1998, is based upon availability
pursuant to the borrowing base calculation. At March 31, 1998, borrowings
under the LIBO and alternate base rate options were $36,310,000 and
$1,800,000, respectively. In addition, on May 1, 1997, Millbrook entered
into a three-year interest rate protection agreement that effectively caps
rates on a notional principal amount up to $50 million of borrowings at a
LIBO rate of 7 5/8%, as required by the Credit Agreement to manage the
Company's interest rate exposure to market fluctuations. The Company (i)
does not engage in derivative activity for trading or speculative purposes;
(ii) periodically evaluates the financial position of the counterparty; and
(iii) does not expect non-performance by the counterparty. At March 31,
1998, Millbrook's outstanding debt under the Credit Agreement and the
interest rate protection agreement approximate fair value. The recognition
of the fair value of the interest rate protection agreement is not required
since it its accounted for as a hedge.
Future maturities of the term loan at March 31, 1998 were as follows
(in thousands):
1999 ................................. $ 815
2000 ................................. 1,305
2001 ................................. 1,960
2002 ................................. 1,960
2003 ................................. 3,270
------
$9,310
======
F-12
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Stockholders' Equity
In conjunction with its acquisition of Millbrook in 1997, the Company
sold 20,000 shares of Series A Preferred Stock at $500 per share and
100,000 shares of Common Stock at $1.00 per share.
The holders of the Series A Preferred Stock are entitled to cumulative
preferential cash dividends of $50 per year (10%), per share. At March 31,
1998, the amount of accumulated unpaid dividends on the Series A Preferred
Stock was $50.00 per share. Unless all accumulated and unpaid dividends on
the Series A Preferred Stock are paid, no dividends shall be declared or
paid on the Company's Common Stock. The Preferred Stock is subject to an
optional redemption by the Company at any time, in whole or in part, at the
redemption price per share of $500 plus an amount equal to all accumulated
and unpaid dividends.
8. Commitments And Contingencies
Leases
The Company leases certain facilities, machinery and vehicles under
various non-cancelable operating lease agreements. The Company is required
to pay property taxes, insurance and normal maintenance costs for certain
of its facilities. Future minimum lease payments required under such leases
in effect at March 31, 1998 were as follows (in thousands):
1999 .................................. $ 2,671
2000 .................................. 2,310
2001 .................................. 2,084
2002 .................................. 1,977
2003 .................................. 1,621
Thereafter ............................ 4,216
-------
$14,879
=======
Total rent expense for all operating leases was $4.3 million for the
fiscal year ended March 31, 1998.
Contingencies
The Company is subject to pending claims and legal proceedings in the
normal course of its business. While it is not feasible to predict or
determine the outcome of these claims and proceedings, it is the opinion of
management that their outcome, to the extent not provided for through
insurance or otherwise, will not have a materially adverse effect on the
Company's financial position or results of future operations.
F-13
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes
The provision for income taxes for the fiscal year ended March 31,
1998 consisted of the following (in thousands):
Currently payable:
Federal ............................. $ 1,075
State ............................... 153
-------
1,228
-------
Deferred:
Federal ............................. (93)
State ............................... (13)
-------
(106)
-------
$ 1,122
=======
A reconciliation of the statutory United States Federal income tax
rate to the Company's effective income tax rate for the fiscal year ended
March 31, 1998 follows:
Statutory rate ........................................ 35.0%
State income taxes, net of Federal benefit ............ 4.6
Other, principally meals and entertainment disallowance 9.2
----
48.8%
====
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities were as
follows:
March 31, March 31,
1998 1997
------- -------
(In thousands)
Deferred Tax Assets:
Accounts receivable, principally due to
allowance for doubtful accounts ............... $ 993 $ 1,086
Deferred compensation ........................... 3,279 3,005
Liability accruals .............................. 3,771 4,787
Other, net ...................................... 359 417
Deferred Tax Liabilities:
Inventories, principally due to acquisition basis
differences and financial statement allowances (5,612) (6,210)
Property, plant & equipment, principally
due to basis differences ...................... (4,567) (4,968)
------- -------
Net deferred tax liabilities ....................... $(1,777) $(1,883)
======= =======
F-14
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Employee Benefit Plans
Retirement and Savings Plan
The Company has a retirement and savings plan ("401(k) Plan") covering
substantially all of its employees. The 401(k) Plan provides for matching
contributions by the Company which amounted to approximately $1.2 million
for the fiscal year ended March 31, 1998. In addition, the Company may make
annual discretionary contributions to employee accounts based, in part, on
the Company's financial performance. For the fiscal year ended March 31,
1998, the Company's discretionary contributions were approximately $1.1
million.
Deferred Compensation
In 1984, a predecessor of Millbrook implemented a deferred
compensation arrangement in the form of a non-qualified defined benefit
plan and a supplemental retirement plan which permitted former officers and
certain management employees, at the time, to defer portions of their
compensation and to earn specified maximum benefits upon retirement. The
future benefit obligations, which are fixed in accordance with the plan,
have been recorded at a discount rate of 8%. These plans do not allow new
participants.
In an effort to provide for the benefits associated with these plans,
the Company purchased whole-life insurance contracts on the plan
participants. The value of these policies is included in other assets. At
March 31, 1998, future payment obligations under the deferred compensation
arrangement were $395,000, $395,000, $395,000, $390,000 and $390,000 in
fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003, respectively.
11. Related Party Transactions
Concurrent with Millbrook's acquisition by R.A.B. Holdings, Inc.,
Millbrook entered into an arrangement with an entity owned by its majority
shareholder whereby the Company agreed (i) to pay a quarterly management
fee of $100,000; and (ii) to reimburse the entity for reasonable services
provided and out-of-pocket and other expenses incurred on its behalf. These
services include, among other things, treasury, cash management, certain
financial reporting, legal, labor and lease negotiation and employee
benefits administration. For the fiscal year ended March 31, 1998,
Millbrook paid management fees of $400,000 to this entity and $800,000 for
reasonable services provided to the Company pursuant to the aforementioned
arrangement. The reasonable services provided are based upon (i) the number
of hours incurred at the applicable pay rate; and (ii) out-of-pocket
expenses, related to the services provided. In the opinion of management,
this
F-15
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Related Party Transactions (Continued)
methodology provides a reasonable basis for such allocation. In addition,
the Company believes that the terms of the arrangement with this entity
were no less favorable than could have been obtained from unaffiliated
third parties on an arm's length basis.
12. Subsequent Event (Unaudited)
Effective March 3, 1998, Enterprises, a wholly-owned subsidiary of
R.A.B. Holdings, Inc., formed on January 26, 1998, entered into a purchase
agreement with MANO Holdings I, LLC, KBMC Acquisition Company, L.P., MANO
Holdings Corporation ("MANO") and the stockholders of MANO to acquire all
of the outstanding membership interests of The B. Manischewitz Company, LLC
("Manischewitz"). As of and for the fiscal year ended July 31, 1997,
Manischewitz had total assets, revenues and operating income of
approximately $59.6 million, $54.8 million and $9.8 million, respectively.
On May 1, 1998, Enterprises acquired all of the outstanding interests of
Manischewitz for approximately $124 million less outstanding long-term debt
and certain other specified deductions, through the issuance of $120
million Senior Notes due 2005 bearing interest at 10 1/2% ("10 1/2% Senior
Notes") and the Company's issuance of $48 million Senior Notes due 2008
bearing interest at 13% ("13% Senior Notes") (collectively "Senior Notes").
The 13% Senior Notes will pay interest for the first three years,
semiannually from an escrow account which was established upon their
issuance ("Interest Escrow Account"). Concurrent with the acquisition, the
Company contributed all of the capital stock of Millbrook to Enterprises.
The gross proceeds of $168 million from the issuance of the Senior
Notes were used to: (i) pay the purchase price for Manischewitz of $124
million, (ii) reduce outstanding borrowings by approximately $22 million
under the revolving credit portion of Millbrook's Credit Agreement, (iii)
fund the Interest Escrow Account with approximately $17 million and (iv)
pay fees and expenses relating to the acquisition of Manischewitz and
offering of the Senior Notes.
Also concurrent with the acquisition, the Credit Agreement was amended
to provide for, among other things, Millbrook and Manischewitz to be
co-borrowers under the Credit Agreement and certain assets of Manischewitz
to be included in determining borrowing capacity resulting in future
additional availability under the credit facility.
F-16
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,099 $ 2,623
Accounts receivable 34,567 27,942
Inventories 55,060 41,814
Restricted investments 5,703 --
Other current assets 8,763 5,707
--------- ---------
Total current assets 108,192 78,086
Noncurrent assets:
Restricted investments 11,685 --
Other assets 14,352 7,291
--------- ---------
Total noncurrent assets 26,037 7,291
Property, plant and equipment, net 39,659 23,395
Excess of cost over fair value of net assets acquired, net 96,278 --
--------- ---------
Total assets $ 270,166 $ 108,772
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,046 $ 815
Accounts payable 38,888 31,035
Other current liabilities 26,740 16,233
--------- ---------
Total current liabilities 66,674 48,083
--------- ---------
Noncurrent liabilities:
Long-term debt 182,832 37,295
Deferred compensation 7,875 7,801
Other liabilities 8,885 4,416
--------- ---------
Total noncurrent liabilities 199,592 49,512
Stockholders' equity:
Preferred stock, $500 par value, 100,000 shares authorized,
20,000 shares of Series A issued and outstanding 9,906 9,906
Common stock, $.01 par value, 100,000 shares
authorized and issued 1 1
Additional paid-in capital 98 98
Retained earnings (deficit) (6,102) 1,174
--------- ---------
3,903 11,179
Less common stock in treasury - 2,600 and 1,600 shares 3 2
--------- ---------
Total stockholders' equity 3,900 11,177
--------- ---------
Total liabilities and stockholders' equity $ 270,166 $ 108,772
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-17
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
September 30, September 30,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Revenues $ 234,455 $ 222,772
Costs and expenses:
Cost of sales 179,248 170,488
Selling 24,796 21,315
Distribution and warehousing 18,504 18,092
General and administrative 11,801 10,581
Amortization of excess of cost over fair value
of net assets acquired 1,014 --
--------- ---------
Total costs and expenses 235,363 220,476
--------- ---------
Operating (loss) income (908) 2,296
Interest expense, net 9,197 2,586
--------- ---------
Loss before (benefit) provision for income taxes (10,105) (290)
(Benefit) provision for income taxes (2,829) 1
--------- ---------
Net loss $ (7,276) $ (291)
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-18
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands except for share data)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Treasury Stock
------------------- ------------------ Paid-In Earnings -----------------
Shares Amount Shares Amount Capital (deficit) Shares Amount
------ ------ ------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1998 20,000 $ 9,906 100,000 $ 1 $ 98 $ 1,174 1,600 $ 2
Repurchase of common stock 1,000 1
Net loss (7,276)
------- ------- ------- ------- ------- ------- ------- -------
Balance at September 30, 1998 20,000 $ 9,906 100,000 $ 1 $ 98 $(6,102) 2,600 $ 3
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
September 30, September 30,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,276) $ (291)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,290 1,566
Amortization of excess of cost over fair value
of net assets acquired 1,014 --
Deferred income taxes (1,777) --
Changes in assets and liabilities:
Accounts receivable 9,961 (730)
Inventories (6,749) (4,418)
Accounts payable 5,353 11,602
Other assets and liabilities 2,804 4,763
--------- ---------
Net cash provided by operating activities 6,620 12,492
--------- ---------
Cash flows from investing activities:
Purchase of The B. Manischewitz Company, LLC,
net of cash acquired (126,155) --
Acquisitions of plant and equipment (1,790) (415)
--------- ---------
Net cash used in investing activities (127,945) (415)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 168,000 --
Payment of debt issuance costs (5,975) --
Funding of Interest Escrow Account (16,991) --
Repayments under Credit Agreement (22,232) (12,641)
Purchase of treasury stock (1) (2)
--------- ---------
Net cash provided by (used in) financing activities 122,801 (12,643)
--------- ---------
Net increase (decrease) in cash 1,476 (566)
Cash, beginning of period 2,623 2,637
--------- ---------
Cash, end of period $ 4,099 $ 2,071
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 844 $ 1,315
Income taxes $ 749 $ 700
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation
The consolidated financial statements include the accounts of R.A.B. Holdings,
Inc. and its wholly-owned subsidiary, R.A.B. Enterprises, Inc. and its
wholly-owned subsidiaries ("Enterprises") (collectively, the "Company"). The
Company is a holding company with no substantial assets or operations other than
its investment in Enterprises.
These financial statements should be read in conjunction with the Company's
summary of significant accounting policies included in its consolidated
financial statements as of March 31, 1998 and 1997, included elsewhere herein.
Effective March 3, 1998, Enterprises entered into a purchase agreement with MANO
Holdings I, LLC, KBMC Acquisition Company, L.P., MANO Holdings Corporation
("MANO") and the stockholders of MANO to acquire all of the outstanding
membership interests of The B. Manischewitz Company, LLC ("Manischewitz"). On
May 1, 1998, Enterprises acquired all of the outstanding interests of
Manischewitz for approximately $126.2 million through the issuance of $120
million Senior Notes due 2005 bearing interest at 10 1/2% ("10 1/2% Senior
Notes") and the Company's issuance of $48 million Senior Notes due 2008 bearing
interest at 13% ("13% Senior Notes"). The 10 1/2% Senior Notes are fully and
unconditionally guaranteed on a joint and several basis by Millbrook
Distribution Services Inc. and Manischewitz. The 13% Senior Notes will pay
interest for the first three years, semi-annually from a $17 million interest
escrow account which was established upon their issuance. The interest escrow
account consists of treasury securities which are classified on the condensed
consolidated balance sheets as Restricted investments. At maturity, these
restricted investments may only be used to pay the semi-annual interest on the
13% Senior Notes.
The acquisition of Manischewitz was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities of
Manischewitz based upon their estimated fair values at the date of acquisition,
which are subject to adjustment. The fair values of assets acquired and
liabilities assumed were based upon preliminary third party appraisals and other
valuation analyses. The excess of cost over the fair value of net assets
acquired represents goodwill which is being amortized on a straight-line basis
over its estimated useful life of forty years. The statements of operations
include the operating results of Manischewitz since its date of acquisition. The
pro forma combined historical results, as if the Manischewitz business had been
acquired at the beginning of each of the periods presented are as follows:
Six Months Ended
-------------------------------------
September 30, September 30,
1998 1997
------------- -------------
Revenues $ 236,622 $238,986
Net loss $ (10,818) $ (6,589)
F-21
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation (continued)
All significant intercompany transactions and balances are eliminated in
consolidation. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full fiscal year.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1998, and the results of operations and
cash flows for the periods ended September 30, 1998 and 1997.
NOTE B - Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
last-in, first-out ("LIFO") method. Inventories at September 30, 1998 consisted
of the following (in thousands):
Raw materials $ 1,860
Finished goods 53,200
-------
$55,060
=======
NOTE C - Related Party Transactions
For the six month periods ended September 30, 1998 and 1997, the Company paid
$600,000 in each period to an affiliated entity for management fees, reasonable
services provided and expenses incurred on its behalf.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
R.A.B. Enterprises, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of R.A.B.
Enterprises, Inc. (a wholly-owned subsidiary of R.A.B. Holdings, Inc.) and
subsidiary as of March 31, 1998 and March 31, 1997, and the related consolidated
statements of operations, stockholder's equity and cash flows for the fiscal
year ended March 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of R.A.B. Enterprises, Inc. and
subsidiary as of March 31, 1998 and March 31, 1997, and the results of their
operations and their cash flows for the fiscal year ended March 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
July 10, 1998
New York, New York
F-23
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and 1997
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,623 $ 1,903
Accounts receivable 27,942 29,892
Inventories 41,814 52,271
Other current assets 5,810 9,248
-------- --------
Total current assets 78,189 93,314
Other assets 7,291 6,784
Property, plant and equipment, net 23,395 25,235
-------- --------
$108,875 $125,333
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 815 $ 490
Accounts payable 31,035 29,083
Other current liabilities 16,231 11,442
-------- --------
Total current liabilities 48,081 41,015
Noncurrent liabilities:
Long-term debt 37,295 61,310
Deferred compensation 7,801 7,668
Deferred income taxes 982 1,536
Other liabilities 3,434 3,704
-------- --------
Total noncurrent liabilities 49,512 74,218
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value, 200 shares,
authorized and issued -- --
Additional paid-in capital 10,100 10,100
Retained earnings 1,182 --
-------- --------
Total stockholder's equity 11,282 10,100
-------- --------
$108,875 $125,333
======== ========
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended March 31, 1998
(In thousands)
Revenues $470,201
Costs and expenses:
Cost of sales 360,162
Selling 43,766
Distribution and warehousing 37,339
General and administrative 21,551
--------
Total costs and expenses 462,818
--------
Operating income 7,383
Interest expense, net 5,079
--------
Income before provision for income taxes 2,304
Provision for income taxes 1,122
--------
Net income $ 1,182
========
See notes to consolidated financial statements.
F-25
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(In thousands except for share data)
Common Stock Additional
------------------ Paid-In Retained
Shares Amount Capital Earnings
------ ------ ------- --------
Balance at April 1, 1997 200 $ -- $10,100 $ --
Net income 1,182
------- ------ ------- -------
Balance at March 31, 1998 200 $ -- $10,100 $ 1,182
======= ====== ======= =======
See notes to consolidated financial statements.
F-26
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended March 31, 1998
(In thousands)
Cash flows from operating activities:
Net income $ 1,182
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,471
Gain on disposition of equipment (20)
Deferred income taxes (106)
Changes in assets and liabilities:
Accounts receivable 1,950
Inventories 10,457
Other current assets 3,438
Accounts payable 1,952
Other current liabilities 4,789
Other assets and liabilities (1,477)
--------
Net cash provided by operating activities 26,636
--------
Cash flows from investing activities:
Acquisitions of equipment (2,309)
Proceeds from disposition of equipment 83
--------
Net cash used in investing activities (2,226)
--------
Cash flows from financing activities:
Repayments under Credit Agreement (23,690)
--------
Net cash used in financing activities (23,690)
--------
Net increase in cash 720
Cash, beginning of year 1,903
--------
Cash, end of year $ 2,623
========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,054
Income taxes $ 1,392
See notes to consolidated financial statements.
F-27
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation - R.A.B.
Enterprises, Inc. (the "Company") is a wholly-owned subsidiary of R.A.B.
Holdings, Inc. ("Holdings"). On January 26, 1998, Holdings formed the
Company and on May 1, 1998 contributed to the Company its wholly-owned
subsidiary Millbrook Distribution Services Inc. ("Millbrook"), which
contribution has been accounted for as an "as if" pooling of interests.
Millbrook is one of the nation's largest independent value-added
distributors of health and beauty care, general merchandise and specialty
and natural food products. All significant intercompany transactions and
balances are eliminated in consolidation.
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, the 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 these estimates.
Concentration of Credit Risk - Trade accounts receivable potentially
subject the Company to credit risk. The Company extends credit to its
customers, principally in the U.S. supermarket industry, based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company's allowance for doubtful
accounts is based upon the expected collectability of its trade accounts
receivable.
Fiscal Year - The Company's fiscal year ends on March 31.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method. At March 31,
1998, the replacement cost of inventories valued using the LIFO method
exceeded the net carrying amount of such inventories by approximately
$255,000.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. For financial reporting purposes, depreciation is
provided on the straight-line method over the following estimated useful
lives:
Buildings and improvements.............................. 5-35 years
Machinery and equipment................................. 2-15 years
Rolling stock........................................... 3- 8 years
F-28
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary Of Significant Accounting Policies (Continued)
Expenditures which significantly increase value or extend useful lives
are capitalized, while ordinary maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets replaced,
retired or disposed of are removed from the accounts and any related gains
or losses are reflected in operations.
Long-Lived Assets - The Company reviews its long-lived assets and
certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. Such changes in circumstances may include, among other
factors, a significant change in technology that may render an asset
obsolete or noncompetitive or a significant change in the extent or manner
in which an asset is used. The assessment for potential impairment is based
upon the Company's ability to recover the unamortized balance of its
long-lived assets from expected future cash flows on an undiscounted basis
(without interest charges). If such expected future cash flows are less
than the carrying amount of the asset, an impairment loss would be
recorded.
Revenue Recognition - Revenue is recognized when products are shipped
or services are provided to customers. Provisions are recorded for returns
and allowances and bad debts.
Income Taxes - The Company is included in the consolidated Federal
income tax return of Holdings and its annual Federal income tax liability
is determined as if the Company had filed a separate consolidated Federal
income tax return. Deferred income taxes result primarily from temporary
differences between financial and tax reporting and acquisition basis
differences.
Accounting Pronouncements - Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued in June 1997 and is effective for
financial statements for periods beginning after December 15, 1997. This
statement establishes standards for the manner in which operating segments
of public reporting entities are presented in interim and annual financial
statements. The Company believes its current reporting systems will enable
it to comply with the requirements of SFAS No. 131.
SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued in February 1998 and is effective for
periods beginning after December 15, 1997. The Company will adopt SFAS No.
132 effective for its 1998 fiscal year end.
F-29
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Summary Of Significant Accounting Policies (Continued)
The aforementioned recently issued accounting pronouncements establish
standards for disclosures only and therefore will have no impact on the
Company's financial position or results of operations.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the consolidated balance sheet as either assets or
liabilities measured at fair value. The Company will adopt SFAS No. 133
effective for its 2000 fiscal year end. The Company has not yet determined
the impact SFAS No. 133 will have on its financial position or results of
operations when such statement is adopted.
2. Formation And Acquisition
On March 31, 1997, Holdings acquired Millbrook for a purchase price of
approximately $67 million, including transaction costs, through the sale of
stock and borrowings under Millbrook's Credit Agreement. The acquisition
was accounted for as a purchase and, accordingly, the purchase price was
allocated to the assets and liabilities of Millbrook based upon their
estimated fair values at the date of acquisition. The fair values of assets
acquired (approximately $129 million) and liabilities assumed
(approximately $53 million) were based upon third party appraisals and
other valuation analyses. The fair value of the net assets acquired
exceeded the purchase price by approximately $9 million. The resulting
negative goodwill reduced the fair value assigned to Millbrook's property,
plant and equipment.
3. Accounts Receivable
Accounts receivable consisted of the following:
March 31, March 31,
1998 1997
-------- --------
(In thousands)
Accounts receivable $ 30,383 $ 32,143
Allowance for doubtful accounts (2,441) (2,251)
-------- --------
$ 27,942 $ 29,892
======== ========
F-30
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Property, Plant & Equipment
Property, plant and equipment consisted of the following:
March 31, March 31,
1998 1997
------- -------
(In thousands)
Land ......................................... $ 1,561 $ 1,561
Buildings and improvements ................... 9,393 9,371
Machinery and equipment ...................... 12,902 10,884
Rolling stock ................................ 3,398 3,419
Work in progress ............................. 201 --
------- -------
27,455 25,235
Less accumulated depreciation and amortization 4,060 --
------- -------
$23,395 $25,235
======= =======
5. Other Current Liabilities
Other current liabilities consisted of the following:
March 31, March 31,
1998 1997
------- -------
(In thousands)
Accrued compensation and fringe benefits.... $ 7,417 $ 4,569
Deferred income taxes ...................... 795 347
Accrued liabilities ........................ 8,019 6,526
------- -------
$16,231 $11,442
======= =======
6. Long-term Debt
Long-term debt consisted of the following:
Range of March 31, March 31,
Interest 1998 1997
---------- ------- --------
(In thousands)
Revolving bank line of credit 7.86- 9.00% $28,800 $52,000
Term loan ................... 8.11- 9.25 9,310 9,800
------- -------
38,110 61,800
Less current maturities ..... 815 490
------- -------
$37,295 $61,310
======= =======
F-31
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Long-term Debt (Continued)
On March 31, 1997, Millbrook entered into an agreement, as amended,
with a group of commercial lending institutions providing for a credit
facility in the aggregate amount of $100 million consisting of revolving
credit loans up to $90.2 million and an amortizing term loan of $9.8
million (the "Credit Agreement"). Borrowings under this long-term facility,
which principally expires March 31, 2002, are supported by specified assets
in accordance with a borrowing base formula, as defined in the Credit
Agreement (see Note 11). Substantially all of the Company's assets and
Millbrook's stock are pledged under the terms of the Credit Agreement.
Additionally, the Credit Agreement requires the maintenance of a minimum
level of cash flow, as defined and imposes restrictions on investments,
capital expenditures, cash dividends, management fees and advances to the
parent and other indebtedness. At March 31, 1998, substantially all of the
assets of the Company's subsidiary are unavailable for dividends. At March
31, 1998, Millbrook had available, under the Credit Agreement, unused
borrowing capacity of approximately $24 million, net of outstanding letters
of credit of approximately $885,000.
Borrowings under the Credit Agreement bear interest at either the
London interbank offered ("LIBO") rate plus a margin or the bank's
alternate base rate plus a margin (up to 2.50%). The margin rate, which
ranged from 2.25% to 2.50% at March 31, 1998, is based upon availability
pursuant to the borrowing base calculation. At March 31, 1998, borrowings
under the LIBO and alternate base rate options were $36,310,000 and
$1,800,000, respectively. In addition, on May 1, 1997, Millbrook entered
into a three-year interest rate protection agreement that effectively caps
rates on a notional principal amount up to $50 million of borrowings at a
LIBO rate of 7 5/8% as required by the Credit Agreement to manage the
Company's interest rate exposure to market fluctuations. The Company (i)
does not engage in derivative activity for trading or speculative purposes;
(ii) periodically evaluates the financial position of the counterparty; and
(iii) does not expect non-performance by the counterparty. At March 31,
1998, Millbrook's outstanding debt under the Credit Agreement and the
interest rate protection agreement approximate fair value. The recognition
of the fair value of the interest rate protection agreement is not required
since it is accounted for as a hedge.
Future maturities of the term loan at March 31, 1998 were as follows
(in thousands):
1999 ................................. $ 815
2000 ................................. 1,305
2001 ................................. 1,960
2002 ................................. 1,960
2003 ................................. 3,270
------
$9,310
======
F-32
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Commitments And Contingencies
Leases
The Company leases certain facilities, machinery and vehicles under
various non-cancelable operating lease agreements. The Company is required
to pay property taxes, insurance and normal maintenance costs for certain
of its facilities. Future minimum lease payments required under such leases
in effect at March 31, 1998 were as follows (in thousands):
1999 .................................. $ 2,671
2000 .................................. 2,310
2001 .................................. 2,084
2002 .................................. 1,977
2003 .................................. 1,621
Thereafter ............................ 4,216
-------
$14,879
=======
Total rent expense for all operating leases was $4.3 million for the
fiscal year ended March 31, 1998.
Contingencies
The Company is subject to pending claims and legal proceedings in the
normal course of its business. While it is not feasible to predict or
determine the outcome of these claims and proceedings, it is the opinion of
management that their outcome, to the extent not provided for through
insurance or otherwise, will not have a materially adverse effect on the
Company's financial position or results of future operations.
8. Income Taxes
The provision for income taxes for the fiscal year ended March 31,
1998 consisted of the following (in thousands):
Currently payable:
Federal ............................. $ 1,075
State ............................... 153
-------
1,228
Deferred:
Federal ............................. (93)
State ............................... (13)
-------
(106)
-------
$ 1,122
=======
F-33
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Income Taxes (Continued)
A reconciliation of the statutory United States Federal income tax
rate to the Company's effective income tax rate for the fiscal year ended
March 31, 1998 follows:
Statutory rate ............................................... 35.0%
State income taxes, net of Federal benefit ................... 4.6
Other, principally meals and entertainment disallowance ...... 9.1
----
48.7%
====
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities were as
follows:
March 31, March 31,
1998 1997
------- -------
(In thousands)
Deferred Tax Assets:
Accounts receivable, principally due to
allowance for doubtful accounts ............... $ 993 $ 1,086
Deferred compensation ........................... 3,279 3,005
Liability accruals .............................. 3,771 4,787
Other, net ...................................... 359 417
Deferred Tax Liabilities:
Inventories, principally due to acquisition basis
differences and financial statement allowances (5,612) (6,210)
Property, plant and equipment, principally
due to basis differences ...................... (4,567) (4,968)
------- -------
Net deferred tax liabilities ....................... $(1,777) $(1,883)
======= =======
9. Employee Benefit Plans
Retirement and Savings Plan
The Company has a retirement and savings plan ("401(k) Plan") covering
substantially all of its employees. The 401(k) Plan provides for matching
contributions by the Company which amounted to approximately $1.2 million
for the fiscal year ended March 31, 1998. In addition, the Company may make
annual discretionary contributions to employee accounts based, in part, on
the Company's financial performance. For the fiscal year ended March 31,
1998, the Company's discretionary contributions were approximately $1.1
million.
F-34
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Employee Benefit Plans (Continued)
Deferred Compensation
In 1984, a predecessor of Millbrook implemented a deferred
compensation arrangement in the form of a non-qualified defined benefit
plan and a supplemental retirement plan which permitted former officers and
certain management employees, at the time, to defer portions of their
compensation and to earn specified maximum benefits upon retirement. The
future benefit obligations, which are fixed in accordance with the plan,
have been recorded at a discount rate of 8%. These plans do not allow new
participants.
In an effort to provide for the benefits associated with these plans,
the Company purchased whole-life insurance contracts on the plan
participants. The value of these policies is included in other assets. At
March 31, 1998, future payment obligations under the deferred compensation
arrangement were $395,000, $395,000, $395,000, $390,000 and $390,000 in
fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003, respectively.
10. Related Party Transactions
Concurrent with Millbrook's acquisition by Holdings, Millbrook entered
into an arrangement with an entity owned by its majority shareholder
whereby the Company agreed (i) to pay a quarterly management fee of
$100,000; and (ii) to reimburse the entity for reasonable services provided
and out-of-pocket and other expenses incurred on its behalf. These services
include, among other things, treasury, cash management, certain financial
reporting, legal, labor and lease negotiation and employee benefits
administration. For the fiscal year ended March 31, 1998, Millbrook paid
management fees of $400,000 to this entity and $800,000 for reasonable
services provided to the Company pursuant to the aforementioned
arrangement. The reasonable services provided are based upon (i) the number
of hours incurred at the applicable pay rate; and (ii) out-of-pocket
expenses, related to the services provided. In the opinion of management,
this methodology provides a reasonable basis for such allocation. In
addition, the Company believes that the terms of the arrangement with this
entity were no less favorable than could have been obtained from
unaffiliated third parties on an arm's length basis.
11. Subsequent Event (Unaudited)
Effective March 3, 1998, the Company entered into a purchase agreement
with MANO Holdings I, LLC, KBMC Acquisition Company, L.P., MANO Holdings
Corporation ("MANO") and the stockholders of MANO to acquire all of the
outstanding membership interests of The B. Manischewitz Company, LLC
("Manischewitz"). As of and for the fiscal year ended July 31, 1997,
Manischewitz had total assets, revenues and operating income of
approximately $59.6 million, $54.8 million and $9.8 million,
F-35
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
11. Subsequent Event (Unaudited) (Continued)
respectively. On May 1, 1998, the Company acquired all of the outstanding
interests of Manischewitz for approximately $124 million less outstanding
long-term debt and certain other specified deductions through the issuance
of $120 million Senior Notes due 2005 bearing interest at 10 1/2% ("10 1/2%
Senior Notes"). The 10 1/2% Senior Notes are jointly and severally
guaranteed on an unsecured basis by Millbrook and Manischewitz.
Additionally, on May 1, 1998 Holdings issued $48 million Senior Notes
due 2008 bearing interest at 13% ("13% Senior Notes") (collectively,
"Senior Notes") and contributed the net proceeds, after expenses and
amounts deposited in an interest escrow account, to the Company.
The gross proceeds of $168 million from the issuance of the Senior
Notes were used to: (i) pay the purchase price for Manischewitz of $124
million, (ii) reduce outstanding borrowings by approximately $22 million
under the revolving credit portion of Millbrook's Credit Agreement, (iii)
fund the interest escrow account with approximately $17 million, and (iv)
pay fees and expenses relating to the acquisition of Manischewitz and
offering of the Senior Notes.
Also concurrent with the acquisition, the Credit Agreement was amended
to provide for, among other things, Millbrook and Manischewitz to be
co-borrowers under the Credit Agreement and certain assets of Manischewitz
to be included in determining the borrowing base resulting in future
additional availability under the credit facility.
F-36
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share data)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 4,099 $ 2,623
Accounts receivable 34,567 27,942
Inventories 55,060 41,814
Other current assets 8,845 5,810
--------- ---------
Total current assets 102,571 78,189
Other assets 12,781 7,291
Property, plant and equipment, net 39,659 23,395
Excess of cost over fair value of net assets acquired, net 96,278 --
--------- ---------
Total assets $ 251,289 $ 108,875
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,046 $ 815
Accounts payable 38,888 31,035
Other current liabilities 24,126 16,231
--------- ---------
Total current liabilities 64,060 48,081
--------- ---------
Noncurrent liabilities:
Long-term debt 134,832 37,295
Deferred compensation 7,875 7,801
Other liabilities 8,885 4,416
--------- ---------
Total noncurrent liabilities 151,592 49,512
Stockholder's equity:
Common stock, $1.00 par value, 200 shares
authorized and issued -- --
Additional paid-in capital 39,482 10,100
Retained earnings (deficit) (3,845) 1,182
--------- ---------
Total stockholder's equity 35,637 11,282
--------- ---------
Total liabilities and stockholder's equity $ 251,289 $ 108,875
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-37
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
September 30, September 30,
1998 1997
------------- -------------
(Unaudited)
Revenues $ 234,455 $ 222,772
Costs and expenses:
Cost of sales 179,248 170,488
Selling 24,796 21,315
Distribution and warehousing 18,504 18,092
General and administrative 11,801 10,577
Amortization of excess of cost over fair value
of net assets acquired 1,014 --
--------- ---------
Total costs and expenses 235,363 220,472
--------- ---------
Operating (loss) income (908) 2,300
Interest expense, net 6,905 2,586
--------- ---------
Loss before (benefit) provision for income taxes (7,813) (286)
(Benefit) provision for income taxes (2,786) 1
--------- ---------
Net loss $ (5,027) $ (287)
========= =========
See notes to condensed consolidated financial statements.
F-38
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(In thousands except for share data)
(Unaudited)
Common Stock Additional Retained
----------------- Paid-In Earnings
Shares Amount Capital (deficit)
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Balance at April 1, 1998 200 $ -- $10,100 $ 1,182
Additional equity investment from parent 29,382
Net loss (5,027)
------- ------ ------- -------
Balance at September 30, 1998 200 $ -- $39,482 $(3,845)
======= ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-39
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
September 30, September 30,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,027) $ (287)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,165 1,566
Amortization of excess of cost over fair value
of net assets acquired 1,014 --
Deferred income taxes (1,734) --
Changes in assets and liabilities:
Accounts receivable 9,961 (730)
Inventories (6,749) (4,418)
Accounts payable 5,353 11,602
Other assets and liabilities 636 5,491
--------- ---------
Net cash provided by operating activities 6,619 13,224
--------- ---------
Cash flows from investing activities:
Purchase of The B. Manischewitz Company, LLC,
net of cash acquired (126,155) --
Acquisitions of plant and equipment (1,790) (415)
--------- ---------
Net cash used in investing activities (127,945) (415)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 120,000 --
Payment of debt issuance costs (4,348) --
Repayments under Credit Agreement (22,232) (12,641)
Additional equity investment from Parent 29,382 --
--------- ---------
Net cash provided by (used in) financing activities 122,802 (12,641)
--------- ---------
Net increase in cash 1,476 168
Cash, beginning of period 2,623 1,903
--------- ---------
Cash, end of period $ 4,099 $ 2,071
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 844 $ 1,315
Income taxes $ 747 $ 700
</TABLE>
See notes to condensed consolidated financial statements.
F-40
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation
R.A.B. Enterprises, Inc. (the "Company") is a wholly-owned subsidiary of R.A.B.
Holdings, Inc. ("Holdings"). On January 26, 1998, Holdings formed the Company
and on May 1, 1998 contributed to the Company its wholly-owned subsidiary
Millbrook Distribution Services Inc. ("Millbrook"), which contribution has been
accounted for as an "as if" pooling of interests.
These financial statements should be read in conjunction with the Company's
summary of significant accounting policies included in its consolidated
financial statements as of March 31, 1998 and 1997, included elsewhere herein.
Effective March 3, 1998, the Company entered into a purchase agreement with Mano
Holdings I, LLC, KBMC Acquisition Company, L.P., MANO Holdings Corporation
("MANO") and the stockholders of MANO to acquire all of the outstanding
membership interests of The B. Manischewitz Company, LLC ("Manischewitz"). On
May 1, 1998, the Company acquired all of the outstanding interests of
Manischewitz for approximately $126.2 million through the issuance of $120
million Senior Notes due 2005 bearing interest at 10 1/2% ("10 1/2% Senior
Notes"). The 10 1/2% Senior Notes are fully and unconditionally guaranteed on a
joint and several basis by Millbrook and Manischewitz. Concurrently, on May 1,
1998, Holdings issued $48 million Senior Notes due 2008 bearing interest at 13%,
funded a $17 million interest escrow account and contributed the remaining net
proceeds to the Company.
The Company is a holding company with no substantial assets or operations other
than its investments in Millbrook and Manischewitz. Accordingly, separate
financial statements of Millbrook and Manischewitz, which are the Company's only
subsidiaries, are not presented.
The acquisition of Manischewitz was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities of
Manischewitz based upon their estimated fair values at the date of acquisition,
which are subject to adjustment. The fair values of assets acquired and
liabilities assumed were based upon preliminary third party appraisals and other
valuation analyses. The excess of cost over the fair value of net assets
acquired represents goodwill which is being amortized on a straight-line basis
over its estimated useful life of forty years. The statements of operations
include the operating results of Manischewitz since its date of acquisition. The
pro forma combined historical results, as if the Manischewitz business had been
acquired at the beginning of each of the periods presented are as follows:
Six Months Ended
-------------------------------------
September 30, September 30,
1998 1997
------------- -------------
Revenues $ 236,622 $238,986
Net loss $ (6,264) $ (4,036)
F-41
<PAGE>
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation (continued)
All significant intercompany transactions and balances are eliminated in
consolidation. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full fiscal year.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1998, and the results of operations and
cash flows for the periods ended September 30, 1998 and 1997.
NOTE B - Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
last-in, first-out ("LIFO") method. Inventories at September 30, 1998 consisted
of the following (in thousands):
Raw materials $ 1,860
Finished goods 53,200
-------
$55,060
=======
NOTE C - Related Party Transactions
For the six month periods ended September 30, 1998 and 1997, the Company paid
$600,000 in each period to an affiliated entity for management fees, reasonable
services provided and expenses incurred on its behalf.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Mano Holdings Corporation and the
Partners of KBMC Acquisition Company, L.P.:
We have audited the accompanying combined balance sheets of Mano Holdings
Corporation (a Delaware Corporation) and KBMC Acquisition Company, L.P. (a
Delaware limited partnership) as of July 31, 1997 and 1996, and the related
combined statements of operations, changes in equity and cash flows for each of
the three years in the period ended July 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Mano Holdings
Corporation and KBMC Acquisition Company, L.P. as of July 31, 1997 and 1996, and
the combined results of their operations and their cash flows for each of the
three years in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 8 to the financial statements, effective August 1, 1995,
the Company changed its method of accounting for postretirement benefits other
than pensions.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 24, 1997
F-43
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
COMBINED BALANCE SHEETS -- JULY 31, 1997 AND 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,115 $ 1,811
Accounts receivable, net of allowance for doubtful accounts of $700
and $250, respectively 6,381 5,085
Inventories 9,217 10,018
Prepaid expenses and other current assets 898 706
-------- --------
Total current assets 19,611 17,620
PROPERTY, PLANT AND EQUIPMENT, net 12,202 12,647
INTANGIBLE ASSETS, net 27,611 28,926
OTHER ASSETS 139 144
-------- --------
Total assets $ 59,563 $ 59,337
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,157 $ 2,700
Accounts payable 2,424 1,930
Accrued liabilities 2,002 1,639
-------- --------
Total current liabilities 7,583 6,269
LONG-TERM DEBT 37,602 41,300
LONG-TERM LIABILITIES 4,434 4,318
-------- --------
Total liabilities 49,619 51,887
-------- --------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Partners' equity 15,000 15,000
Common stock, $.01 par value per share, 5,457 shares outstanding -- --
Accumulated deficit (5,056) (7,550)
-------- --------
9,944 7,450
-------- --------
Total liabilities and equity $ 59,563 $ 59,337
======== ========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-44
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES $ 54,383 $ 52,003 $ 49,194
ROYALTIES 404 396 387
-------- -------- --------
Total revenues 54,787 52,399 49,581
COST OF SALES 33,558 33,068 31,199
-------- -------- --------
Gross profit 21,229 19,331 18,382
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES,
including amortization of intangible assets of $1,434, $1,112
and $1,175, respectively 11,422 11,120 11,034
-------- -------- --------
Operating income 9,807 8,211 7,348
INTEREST EXPENSE (4,486) (3,705) (2,946)
-------- -------- --------
Income before income taxes (benefit),
extraordinary item and cumulative effect of
change in accounting principle 5,321 4,506 4,402
PROVISION (BENEFIT) FOR INCOME TAXES -- (145) 2,135
-------- -------- --------
Income before extraordinary item and
cumulative effect of change in accounting
principle 5,321 4,651 2,267
EXTRAORDINARY ITEM, net of related income tax benefit of
$1,310 -- (1,965) --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, net of related income tax benefit of $502 -- (754) --
-------- -------- --------
Net income $ 5,321 $ 1,932 $ 2,267
======== ======== ========
PRO FORMA INFORMATION:
Income tax provision $ 2,415 $ 1,952
======== ========
Net income (loss) $ 2,906 ($ 165)
======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-45
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JULY 31, 1997, 1996 AND 1995
(dollars in thousands, except share/unit data)
<TABLE>
<CAPTION>
Retained
Common Stock/ Earnings
Shares/ Partners' (Accumulated
Units Equity Deficit) Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1994 19,863 $ 17,000 ($ 119) $ 16,881
Net income -- -- 2,267 2,267
-------- -------- -------- --------
BALANCE AT JULY 31, 1995 19,863 17,000 2,148 19,148
Net income -- -- 1,932 1,932
Repurchase of common stock (14,406) (17,000) (11,630) (28,630)
Capital contribution -- 15,000 -- 15,000
-------- -------- -------- --------
BALANCE AT JULY 31, 1996 5,457 15,000 (7,550) 7,450
Net income -- -- 5,321 5,321
Repurchase of units -- -- (82) (82)
Distributions to
members/partners -- -- (2,510) (2,510)
Adjustment of unfunded
pension liability -- -- (235) (235)
-------- -------- ------- --------
BALANCE AT JULY 31, 1997 5,457 $ 15,000 ($5,056) $ 9,944
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-46
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,321 $ 1,932 $ 2,267
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Extraordinary item -- 1,965 --
Cumulative effect of change in accounting principle -- 754 --
Depreciation and amortization 2,664 2,236 2,097
Benefit for deferred income taxes -- (2,420) (63)
Changes in assets and liabilities-
Accounts receivable (1,746) (1,374) 522
Inventories 251 (859) (1,439)
Prepaid expenses and other (187) (192) (269)
Intangible assets (800) (1,231) (1,541)
Accounts payable and accrued liabilities 857 (1,541) 717
Long-term liabilities 116 264 (154)
-------- -------- --------
Net cash provided by (used in) operating activities 6,476 (466) 2,137
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (339) (1,064) (516)
Net proceeds from Distributorship Agreement 1,000 -- --
-------- -------- --------
Net cash provided by (used in) investing activities 661 (1,064) (516)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepayment penalty on termination of debt $ -- ($ 1,300) $ --
Deferred financing costs -- (2,509) --
Distributions to members/partners (2,510) (28,630) --
Capital contribution and (repurchase) of shares/units (82) 15,000 --
Proceeds from revolver borrowings 10,700 -- --
Repayments of revolver borrowings (10,700) -- --
Repayment of company notes -- (29,000) --
Term loan (repayments) borrowings (3,241) 44,000 --
-------- -------- --------
Net cash used in financing activities (5,833) (2,439) --
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,304 (3,969) 1,621
CASH AND CASH EQUIVALENTS, beginning of year 1,811 5,780 4,159
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 3,115 $ 1,811 $ 5,780
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 4,131 $ 2,997 $ 2,624
Taxes $ -- $ 1,534 $ 2,338
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-47
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except share/unit amounts)
(1) FORMATION AND BUSINESS OPERATIONS:
Formation-
Effective May 31, 1996, The B. Manischewitz Company, LLC (the "Company")
was reorganized and recapitalized. As a result, the Company (i) commenced
operations as a limited liability company, the effect of which is that
income taxes, if any, are the obligation of its shareholders and partners;
(ii) entered into a new credit agreement with financial institutions (see
Note 7) and repaid its existing outstanding debt; (iii) received a capital
contribution of $15,000, principally from its existing owners; and (iv)
repurchased outstanding common stock from certain minority shareholders for
$28,630. These transactions did not result in a change of control;
accordingly, for financial reporting purposes, the assets and liabilities
of the Company have been reflected on a historical cost basis. The Company
is 99% owned by Mano Holdings I, LLC and 1% owned by Mano Holdings II, LLC
(which is 100% owned by Mano Holdings I, LLC). Mano Holdings I, LLC is 62%
owned by KBMC Acquisition Company, L.P. (KBMC), which was formed on April
25, 1996 as a limited partnership, and 38% owned by Mano Holdings
Corporation (MANO).
Prior to its commencement of operations as a limited liability company, the
Company, which was organized as a C corporation, was wholly-owned by Mano.
The combined financial statements included herein reflect the operations of
the Company as a C corporation through May 31, 1996 and a limited liability
company subsequent to that date.
Business Operations-
The Company manufactures and distributes ethnic and other foods including,
among others, matzos, cakes, cookies, soups, noodles and processed fish
products. The Company also licenses its name to third parties for which it
receives royalties.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
Principles of Combination-
The accompanying combined financial statements include the accounts of KBMC
and MANO and their combined wholly-owned subsidiary, the Company. Both KBMC
and MANO are holding companies whose sole asset is its respective
investment in the Company.
Through May 31, 1996, the financial statements include the consolidated
accounts of The B. Manischewitz Company and its subsidiaries. As of May 31,
1996, the subsidiaries of The B. Manischewitz Company were effectively
merged into the Company.
All significant intercompany accounts and transactions have been
eliminated.
F-48
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued):
Concentrations of Credit Risk-
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash and cash
equivalents and trade accounts receivable.
The Company's products are sold to approximately 50 independent
distributors, two of which represented approximately 31% and 25% of total
revenues for the years ended July 31, 1997 and 1996, respectively, and one
of which represented approximately 12% of total revenues for the year ended
July 31, 1995.
Inventories-
Substantially all inventories are accounted for using the lower of the
last-in, first-out (LIFO) cost method or market.
Property, Plant and Equipment-
Property, plant and equipment is stated at cost and is depreciated using
the straight-line method for financial reporting purposes and both
straight-line and accelerated methods for income tax purposes. The
estimated useful lives used in computing depreciation and amortization for
financial reporting purposes are: buildings 20 years, machinery and
equipment 10 years, furniture and fixtures 10 years.
Long-Lived Assets-
The Company reviews its long-lived assets and certain related intangibles
for impairment whenever changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The assessment for
potential impairment is based upon the Company's ability to recover the
unamortized balance of its long-lived assets from expected future cash
flows on an undiscounted basis.
Intangible Assets-
Intangible assets are being amortized over the following periods: package
design costs 4 years and other intangibles 40 years. Deferred financing
costs are amortized using the interest method over the life of the
applicable loans.
F-49
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued):
Revenue Recognition-
Revenue is recognized when products are shipped to customers. Provisions
are recorded for returns and allowances and bad debts.
Royalty Income-
The Company enters into licensing agreements under which it receives
royalty payments. Royalty payments due under licensing agreements are
recognized as income either based upon shipment reports from manufacturers,
where available, or estimated shipments by such manufacturers.
Income Taxes-
MANO, a C corporation through July 31, 1996 recognized all of the tax
attributes of its 100% owned investment in MANO Holdings I, LLC through May
31, 1996 and approximately 40% from June 1, 1996 to July 31, 1996. As MANO
Holdings I, LLC's only investment is its ownership in the Company, the
accompanying combined financial statements therefore represent the tax
attributes of the Company. Effective August 1, 1996, MANO elected to be
taxed as an S Corporation for Federal income tax purposes. KBMC is
organized as a limited partnership. Accordingly, no provision has been made
for Federal or state income taxes purposes in the accompanying combined
financial statements since August 1, 1996.
As the Company was organized as a C corporation until May 31, 1996, income
taxes were provided for these periods based upon the taxes currently
payable by the Company. On May 31, 1996, the Company was reorganized as a
limited liability company. As a result of this reorganization, future tax
effects attributable to net income as well as temporary differences between
the bases of assets and liabilities for financial reporting purposes and
income tax purposes will be included in the income tax returns of the
Company's owners. Accordingly, no deferred income tax assets or liabilities
are reflected on the July 31, 1996 and 1997 balance sheets of the Company.
Deferred income tax assets or liabilities recognized through May 31, 1996
of $2,420, have been reversed through the income tax benefit as of May 31,
1996.
Cash Equivalents-
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
F-50
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued):
Use of Estimates-
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses during the reporting period and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
(3) INVENTORIES:
Inventories consists of the following at July 31-
1997 1996
------- -------
Raw materials $ 2,126 $ 2,042
Finished goods 7,091 7,976
------- -------
$ 9,217 $10,018
======= =======
Had the first-in, first-out (FIFO) method been used, inventories would have
been approximately $260 greater than that reported under the LIFO method at
July 31, 1997. At July 31, 1996, inventories valued by the FIFO cost method
approximated inventories valued by the LIFO method.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at July 31-
1997 1996
------- -------
Land $ 897 $ 897
Buildings 4,549 4,444
Machinery and equipment 5,541 4,645
Furniture and fixtures 769 732
Assets under capital lease 6,077 6,077
Construction in progress 121 807
------- -------
17,954 17,602
Less- Accumulated depreciation and amortization 5,752 4,955
------- -------
$12,202 $12,647
======= =======
F-51
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(4) PROPERTY, PLANT AND EQUIPMENT (continued):
Certain property and equipment of the Company is leased through the Bay
Street Urban Renewal Development Corporation, an affiliate of the Company.
The lease expires on August 31, 2000, and requires the Company to pay real
estate taxes, maintenance, insurance and incidental costs as its only
obligation under this lease. The Company has the option to purchase the
property at any time during the lease term for a nominal value.
(5) INTANGIBLE ASSETS:
Intangible assets consist of the following at July 31-
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Goodwill, net of accumulated amortization of $2,582 and $2,197,
respectively $13,492 $13,877
License and trademarks, net of accumulated amortization of
$2,041 and $1,736, respectively 10,159 10,464
Deferred financing costs, net of accumulated amortization of
$516 and $70, respectively (see Note 7) 1,993 2,439
Package design costs, net of accumulated amortization of $1,697
and $953, respectively 1,579 1,725
------- -------
$27,223 $28,505
======= =======
</TABLE>
In addition, intangible assets on the accompanying combined balance sheets
include an intangible pension asset of $388 and $421 in 1997 and 1996,
respectively (see Note 8).
(6) INCOME TAXES:
Income taxes, applicable to income before extraordinary item, are comprised
of the following at July 31, 1996 and 1995-
1996 1995
------- -------
Current-
Federal $ 1,481 $ 1,675
State and local taxes 794 523
------- -------
2,275 2,198
------- -------
Deferred-
Federal (1,936) (50)
State and local taxes (484) (13)
------- -------
(2,420) (63)
------- -------
Provision (benefit) for income taxes ($ 145) $ 2,135
======= =======
F-52
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(6) INCOME TAXES (continued):
The provision (benefit) for income taxes differs from the amount computed
by applying the statutory Federal income tax rate to the income before
provision (benefit) for income taxes for the following reasons for fiscal
1996 and 1995-
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Statutory tax provision $ 2,048 $ 1,497
Increase (decrease) in taxes resulting from-
State income taxes, net of Federal income tax benefit 204 337
Amortization of intangible assets 211 299
Reversal of deferred income taxes as a result of a
change in the tax status of the Company (2,420) --
Other (188) 2
------- -------
Provision (benefit) for income taxes ($ 145) $ 2,135
======= =======
</TABLE>
(7) LONG-TERM DEBT:
On May 31, 1996, the Company (along with Mano, Mano Holdings I, LLC and
Mano Holdings II, LLC) entered into a credit agreement with several
financial institutions (the Credit Agreement). The Credit Agreement
provides for the following: (1) $14,000 term loan A, due May 31, 2002,
bearing interest at the Base Rate (defined as the higher of the Federal
Funds Rate plus 1/2% or prime), plus 1 1/2% or Libor plus 2.5%; (2) $19,000
term loan B, due May 31, 2004 bearing interest at the Base Rate plus 2.0%
or LIBOR plus 3.0%; (3) $11,000 term loan C, due May 31, 2002, bearing
interest at the Base Rate plus 1 1/2% or Libor plus 2.5%; and (4) $15,000
revolving loan commitment based on eligible accounts receivable and
inventory, as defined, including up to $3,000 of letters of credit due May
21, 2002, bearing interest at the Base Rate plus 1 1/2%, or Libor plus
2.5%. As of July 31, 1997, $5,000 is available for borrowing under this
facility based upon this formula. Additionally, there is a commitment fee
of 1/2% on certain unused balances of the revolving loan commitment, as
defined. At July 31, 1997 and 1996, there were no outstanding balances
under the revolving loan commitment.
F-53
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(7) LONG-TERM DEBT (continued):
The Credit Agreement contains restrictions, all of which the Company was in
compliance with at July 31, 1997 relating to, among others, material
adverse changes in operations or affairs, capital expenditures, the payment
of dividends and the maintenance of various financial requirements,
including, among others, interest coverage ratio, fixed charge coverage
ratio, leverage ratio and minimum EBITDA, each as defined in the Credit
Agreement.
Pursuant to entering into the Credit Agreement, the Company incurred
deferred financing costs of approximately $2,500 which are included in
intangible assets in the accompanying balance sheet. Additionally,
approximately $1,109 of deferred financing costs were written-off in fiscal
1996 pursuant to the Agreement refinancing. Furthermore, the Company
incurred a prepayment penalty upon terminating the Agreement of
approximately $2,166. These amounts, net of related income tax benefits of
$1,310, are reflected as an extraordinary item in the statements of
operations.
The Credit Agreement is secured by substantially all of the Company assets
and guaranteed by both MANO and KBMC.
Aggregate amounts of long-term debt maturing each of the five years
subsequent to July 31, 1997, and thereafter are as follows-
1998 $ 3,157
1999 3,650
2000 4,637
2001 5,623
2002 6,116
Thereafter 17,576
-------
$40,759
=======
F-54
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(8) EMPLOYEE BENEFITS:
Pension Plan-
The Company maintains a defined benefit pension plan (the Plan)
administered by a trust, which covers substantially all employees who meet
certain eligibility requirements, and provides for pension, death and
disability benefits. Contributions are made by the Company and contributing
employees. The Company's funding policy is to contribute amounts to the
Plan sufficient to meet the minimum funding requirements set forth by the
Employee Retirement Income Security Act of 1974. In fiscal 1997, 1996 and
1995, the Company funded additional amounts to the Plan. Accordingly,
contributions for the year ended July 31, 1997, 1996 and 1995 amounted to
$605, $541 and $300, respectively. Benefits for salaried employees are
based on the highest five consecutive years of compensation during the last
fifteen years of employment preceding retirement. Benefits for hourly
employees are based on various monthly amounts for each year of credited
service.
Net periodic pension expense for the years ended July 31, 1997, 1996 and
1995, and assumptions used were as follows-
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost, benefits earned during the year $ 213 $ 237 $ 214
Interest cost on projected benefit obligations 889 893 877
Actual return on assets (1,159) (502) (1,151)
Net amortization and deferral 379 (250) 419
------- ------- -------
Net periodic pension cost $ 322 $ 378 $ 359
======= ======= =======
Assumed discount rate 7.50% 8.25% 8.25%
Assumed rate of compensation increases 4.00 5.00 5.00
Expected long-term rate of return on assets 9.25 9.25 9.25
</TABLE>
F-55
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(8) EMPLOYEE BENEFITS (continued):
Presented below is a reconciliation of the funded status of the Plan to
amounts recorded on the balance sheets at July 31-
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations-
Accumulated benefit obligation, including vested benefits
of $11,332 and $10,672 in 1997 and 1996, respectively $ 11,660 $ 10,932
======== ========
Projected benefit obligation for services rendered to date ($12,264) ($11,553)
Plan assets at fair value 9,969 9,160
-------- --------
Projected benefit obligation in excess of plan assets (2,295) (2,393)
Unrecognized net loss 839 622
Prior service cost not yet recognized in net periodic pension cost 388 421
Adjustment required to recognize minimum liability (623) (421)
-------- --------
Net pension liability ($ 1,691) ($ 1,771)
======== ========
</TABLE>
At July 31, 1997 and 1996, the Company recorded an additional liability of
$623 and $421, respectively, representing the minimum liability of the
unfunded accumulated benefit obligation with an offsetting intangible asset
at July 31, 1997 and 1996 of $388 and $421, respectively, and a reduction
in equity at July 31, 1997 of $235.
Substantially all of the Plan assets are invested in unallocated insurance
contracts, U. S. Government obligations, mutual funds and marketable debt
securities.
Unit Option Plan-
Effective May 31, 1996, MANO Holdings I, LLC adopted a Unit Option Plan
(the Plan) for executives and other key employees. Under the terms of the
Plan, the purchase price of shares of units subject to each option granted
is based on the fair market value of the shares at the date of grant.
Vesting of options occurs on an annual basis and is dependent upon the
achievement of predetermined targets or the discretion of the MANO Holdings
I, LLC Board of Managers. Ultimately, all options will vest on the seventh
or ninth anniversary of the date of grant and must be exercised no later
than seven to ten years from the date of grant.
F-56
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(8) EMPLOYEE BENEFITS (continued):
At July 31, 1997 and 1996, 4,666 shares of units were authorized for
issuance and 3,217 and 2,977 shares of units, respectively, were
outstanding at amounts ranging from $800 to $1,800 per share. At July 31,
1997 and 1996, 2,627 and 2,114 of such shares of units, respectively, were
vested and are exercisable.
Effective August 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." As permitted by the statement, the Company has elected to
continue to account for stock-based compensation using the intrinsic value
method under Accounting Principles Board Opinion No. 25. Accordingly, no
compensation expense has been recognized for stock-based compensation,
since the options granted were at prices that equaled or exceeded their
estimated fair market value at the date of grant. If compensation expense
for the Company's unit options issued in 1996 had been determined based on
the fair value method of accounting, the Company's net income for the year
ended July 31, 1996 would have been reduced to the pro forma amount
indicated below-
Net income-
As reported $1,932
======
Pro forma $1,812
======
The fair value of issued unit options is estimated on the date of grant
using the minimum value method incorporating the following assumptions for
options granted in 1996: no dividend yield or volatility factor; risk free
interest rate of 7.0% and an expected life of the options of seven years.
The Company did not issue options during 1997.
Postretirement Benefits
Other Than Pensions-
The Company provides certain postretirement benefits covering non-union
salaried employees hired prior to February 1, 1991. These benefits include
health care and life insurance for eligible retirees. The Company's
obligation is funded on a pay as you go basis.
Effective August 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions." The cumulative effect as of
August 1, 1995 of adopting SFAS No. 106 was a one-time charge of $754,
after the related income tax benefit of $502.
F-57
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(dollars in thousands, except share/unit amounts)
(8) EMPLOYEE BENEFITS (continued):
The following table reconciles the Plan's funded status to the accrued
postretirement health care cost liability as of July 31-
1997 1996
------ ------
Accumulated postretirement benefit obligation-
Retiree and beneficiaries $ 622 $ 397
Eligible actives 192 445
Ineligible actives 835 479
------ ------
Total 1,649 1,321
Unrecognized net loss 228 --
Plan assets at fair value -- --
------ ------
Net postretirement benefit liability $1,421 $1,321
====== ======
Net periodic postretirement benefit cost for the years 1997 and 1996
included the following components-
1997 1996
---- ----
Service cost $ 71 $ 35
Interest cost 113 98
---- ----
Net postretirement benefit cost $184 $133
==== ====
For purposes of calculating the accumulated postretirement benefit
obligation, the following assumptions were made. The retiree medical trend
rates range from a maximum of 8.5% decreasing gradually to 5% by the year
2010. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%.
The health care cost trend rate assumption has an effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of July 31, 1997 and 1996 by $219 and
$170, respectively, and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the years
1997 and 1996 by $27 and $20, respectively.
F-58
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (concluded)
(dollars in thousands, except share/unit amounts)
(9) COMMITMENTS AND CONTINGENCIES:
Operating Leases-
The Company has noncancellable operating leases expiring from February 1998
through September 2002. Rental expense for the years ended July 31, 1997,
1996 and 1995, was approximately $195, $363 and $595, respectively. The
future minimum annual rental commitment under all operating leases is not
material.
Purchase Commitments-
The Company enters into purchase contracts with certain vendors. At July
31, 1996 and 1997, purchase commitments related to these contracts were
approximately $2,100 and $850, respectively.
(10) ACCRUED LIABILITIES:
Included in accrued liabilities at July 31, 1997 and 1996 is approximately
$448 and $355, respectively, principally related to a severance agreement
covering a former owner of the Company.
(11) DISTRIBUTORSHIP AGREEMENT:
In May 1997, the Company entered into a Distributorship Agreement whereby
it received cash, net of expenses, of $1,000 in exchange for providing
exclusive territory rights to a third-party distributor. The transaction
had no effect on the statement of operations. Concurrently, the Company and
the distributor entered into an Inventory Purchase Agreement which provides
for the purchase of goods by the distributor at "replacement cost," as
defined, and a royalty arrangement, as defined.
(12) RELATED PARTY TRANSACTION:
The Company paid a management fee of approximately $410, $104 and $0 in
1997, 1996 and 1995, respectively, to a related party.
F-59
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
CONDENSED COMBINED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
April 30, July 31,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,995 $ 3,115
Accounts receivable, net of allowance for doubtful accounts
of $324 and $700, respectively 17,361 6,381
Inventories 6,593 9,217
Prepaid expenses and other current assets 261 898
-------- --------
Total current assets 26,210 19,611
PROPERTY, PLANT AND EQUIPMENT, net 11,823 12,202
INTANGIBLE ASSETS, net 26,594 27,611
OTHER ASSETS 139 139
-------- --------
Total assets $ 64,766 $ 59,563
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,382 $ 3,157
Revolving line of credit 2,250 --
Accounts payable 2,500 2,424
Accrued liabilities 4,779 2,002
-------- --------
Total current liabilities 12,911 7,583
LONG-TERM DEBT 34,782 37,602
LONG-TERM LIABILITIES 4,380 4,434
-------- --------
Total liabilities 52,073 49,619
-------- --------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Partners' equity 15,000 15,000
Common stock, $.01 par value per share, 5,457 shares
outstanding -- --
Accumulated deficit (2,307) (5,056)
-------- --------
12,693 9,944
-------- --------
Total liabilities and equity $ 64,766 $ 59,563
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed combined
statements.
F-60
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
(dollars in thousands)
(unaudited)
1998 1997
-------- --------
NET REVENUES $ 43,816 $ 46,068
ROYALTIES 665 319
-------- --------
Total revenues 44,481 46,387
COST OF SALES 27,442 28,450
-------- --------
Gross profit 17,039 17,937
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES,
including amortization of intangible assets
of $1,094 in 1998 and $1,087 in 1997, respectively 7,658 8,492
-------- --------
Operating income 9,381 9,445
INTEREST EXPENSE (3,090) (3,388)
-------- --------
Net income $ 6,291 $ 6,057
======== ========
PRO FORMA INFORMATION:
Income tax provision $ 2,735 $ 2,749
======== ========
Net income $ 3,556 $ 3,308
======== ========
The accompanying notes are an integral part of these condensed combined
statements.
F-61
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
CONDENSED COMBINED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTH PERIOD ENDED APRIL 30, 1998
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Partners' Accumulated
Shares Equity Deficit Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1997 5,457 $ 15,000 $ (5,056) $ 9,944
Net income -- -- 6,291 6,291
Distributions to members/partners -- -- (3,542) (3,542)
-------- -------- -------- --------
BALANCE AT APRIL 30, 1998 5,457 $ 15,000 $ (2,307) $ 12,693
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed combined
statements.
F-62
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,291 $ 6,057
Adjustments to reconcile net income to net cash used
in operating activities-
Depreciation and amortization 1,941 1,999
Gain on sale of equipment (150) --
Changes in assets and liabilities-
Accounts receivable (10,980) (14,964)
Inventories 2,624 332
Prepaid expenses and other current assets 637 267
Intangible assets (396) (551)
Accounts payable and accrued liabilities 2,853 1,240
Long-term liabilities (54) 755
-------- --------
Net cash provided by (used in) operating activities 2,766 (4,865)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (297) (189)
Proceeds on sale of equipment 298 --
-------- --------
Net cash provided by (used in) investing activities 1 (189)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to members/partners (3,542) (2,268)
Proceeds from revolving line of credit 2,250 9,800
Term loan repayments (2,595) (2,025)
-------- --------
Net cash (used in) provided by financing activities (3,887) 5,507
-------- --------
(Decrease) increase in cash and cash equivalents (1,120) 453
CASH AND CASH EQUIVALENTS, beginning of period 3,115 1,811
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,995 $ 2,264
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 3,161 $ 3,156
</TABLE>
The accompanying notes are an integral part of these condensed combined
statements.
F-63
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed combined financial statements have
been prepared in accordance with generally accepted accounting principles. The
condensed combined financial statements include the accounts of MANO Holdings
Corporation ("MANO") and KBMC Acquisition company, L.P. ("KBMC") and their
combined wholly-owned subsidiary, The B. Manischewitz Company, LLC (the
"Company"). Both MANO and KBMC are holding companies whose sole asset is its
respective investment in the Company.
In June 1997, the Company sold its Chicago distribution subsidiary. The
statement of operations for the nine months ended April 30, 1997 includes
revenues of $4.1 million and operating income of $300,000 from this subsidiary.
For a summary of the Company's accounting principles and other footnote
information, reference is made to the Company's July 31, 1997 combined financial
statements. All adjustments, consisting of a normal and recurring nature,
necessary for the fair presentation of the results of operations for the interim
periods covered by this report have been included. The results of operations for
the nine month period ended April 30, 1998 is not necessarily indicative of the
operating results for the full year.
2. Inventories
Inventories consisted of the following at April 30, 1998-
Raw materials $2,175
Finished goods 4,418
------
$6,593
======
Substantially all inventories are accounted for using the lower of the
last-in, first-out ("LIFO") cost method or market. Had the first-in, first-out
(FIFO) method been used, inventories would have been approximately $241 greater
than that reported under the LIFO method at April 30, 1998.
3. Income Taxes
MANO has elected to be taxed as an S Corporation for Federal income tax
purposes. KBMC is organized as a limited liability partnership. Accordingly, no
provision has been made for Federal or state income tax purposes on the
accompanying condensed combined financial statements.
F-64
<PAGE>
MANO HOLDINGS CORPORATION
AND KBMC ACQUISITION COMPANY, L.P.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(CONCLUDED)
4. Related Party Transactions
The Company paid a management fee of $344 and $360 through the nine months
ended April 30, 1998 and 1997, respectively, to a related party.
5. Subsequent Event
Effective March 3, 1998, R.A.B. Enterprises, Inc., a wholly-owned
subsidiary of R.A.B. Holdings, Inc., entered into a purchase agreement with MANO
Holdings I, LLC, KBMC, MANO and the stockholders of MANO to acquire all of the
outstanding membership interests of the Company. On May 1, 1998, R.A.B.
Enterprises, Inc. acquired all of the outstanding interests of the Company for
approximately $124.7 million less outstanding long-term debt and certain other
specified deductions.
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
R.A.B. Holdings, Inc.
New York, New York
We have audited the accompanying statements of operations of Millbrook
Distribution Services Inc., (a then wholly-owned subsidiary of McKesson
Corporation), for the fiscal years ended March 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such statements of operations present fairly, in all material
respects, the results of operations of Millbrook Distribution Services Inc. for
the fiscal years ended March 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
April 30, 1998
New York, New York
F-66
<PAGE>
MILLBROOK DISTRIBUTION SERVICES INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997 AND 1996
(In thousands)
1997 1996
--------- ---------
Revenues $ 476,175 $ 563,099
Costs and expenses
Cost of sales 364,762 430,398
Selling 45,280 54,961
Distribution and warehousing 38,170 42,281
General and administrative 20,588 21,848
--------- ---------
Total costs and expenses 468,800 549,488
--------- ---------
Operating income 7,375 13,611
Interest expense, net 3,843 4,708
Non-operating income, other (69) (1,600)
--------- ---------
Income before provision for income taxes 3,601 10,503
Provision for income taxes 1,660 4,334
--------- ---------
Net income $ 1,941 $ 6,169
========= =========
See notes to statements of operations.
F-67
<PAGE>
MILLBROOK DISTRIBUTION SERVICES INC.
NOTES TO STATEMENTS OF OPERATIONS
1. Summary Of Significant Accounting Policies
Basis of Presentation - On March 31, 1997, R.A.B. Holdings, Inc.
acquired Millbrook Distribution Services Inc. (the "Company") from McKesson
Corporation (the "Former Parent"). The statements of operations of the
Company are based on historical results and, accordingly, do not reflect
purchase accounting adjustments or interest associated with debt incurred
to finance the acquisition. Additionally, the Company's Former Parent
managed cash and financing requirements centrally; as such the interest
expense and related intercompany borrowings were based on the then existing
capital structure. Additionally, the Former Parent provided certain
corporate and general and administrative services, including, among other
things, treasury, certain financial reporting, data processing and legal
services. Accordingly, the operations of the Company include an allocation
of expenses for such services. The allocation of expenses is comprised of
(i) the number of hours incurred at the applicable pay rate; (ii) data
processing time utilized at the applicable rate; and (iii) out-of-pocket
expenses, related to the services provided. In the opinion of management,
this methodology provides a reasonable basis for such allocation. The
results of operations of the Company may differ from results that may have
been achieved had the Company operated as an independent entity.
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, the 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 these estimates.
Fiscal Year - The Company's fiscal year ends on March 31.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method. At March 31,
1997 and 1996, the replacement cost of inventories valued using the LIFO
method exceeded the net carrying amount of such inventories by
approximately $8.0 million and $8.5 million, respectively.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. For financial reporting purposes, depreciation is
provided on the straight-line method over the following estimated useful
lives:
Buildings and improvements..................... 7-35 years
Machinery and equipment........................ 2-15 years
Rolling stock.................................. 3- 8 years
F-68
<PAGE>
MILLBROOK DISTRIBUTION SERVICES INC.
NOTES TO STATEMENTS OF OPERATIONS (CONTINUED)
1. Summary Of Significant Accounting Policies (Continued)
Expenditures which significantly increase value or extend useful lives
are capitalized, while ordinary maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets replaced,
retired or disposed of are removed from the accounts and any related gains
or losses are reflected in operations. Total depreciation expense was $ 3.0
million and $ 3.1 million for the fiscal years ended March 31, 1997 and
1996, respectively.
Long-Lived Assets - The Company reviews its long-lived assets and
certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. Such changes in circumstances may include, among other
factors, a significant change in technology that may render an asset
obsolete or noncompetitive or a significant change in the extent or manner
in which an asset is used. The assessment for potential impairment is based
upon the Company's ability to recover the unamortized balance of its
long-lived assets from expected future cash flows on an undiscounted basis
(without interest charges). If such expected future cash flows are less
than the carrying amount of the asset, an impairment loss would be
recorded.
Revenue Recognition - Revenue is recognized when products are shipped
or services are provided to customers. Provisions are recorded for returns
and allowances and bad debts.
Income Taxes - The results of operations of the Company were included
in the consolidated Federal income tax return of its Former Parent. The
provision for income taxes was determined as though the Company filed a
separate Federal income tax return without regard to any tax attributes of
other taxable years.
Business - The Company is one of the nation's largest independent
value-added distributors of health and beauty care, general merchandise and
specialty and natural food products.
2. Leases
The Company leases certain facilities, machinery and vehicles under
various non-cancelable operating lease agreements. The Company is required
to pay property taxes, insurance and normal maintenance costs for certain
of its facilities. Total rent expense for all operating leases was $5.3
million and $6.4 million for the fiscal years ended March 31, 1997 and
1996, respectively.
3. Non-Operating Income, Other
During the fiscal year ended March 31, 1997, the Company sold a
distribution center facility in Lincoln, Nebraska resulting in a gain of
approximately $1.5 million.
F-69
<PAGE>
MILLBROOK DISTRIBUTION SERVICES INC.
NOTES TO STATEMENTS OF OPERATIONS (CONCLUDED)
4. Income Taxes
The provision for income taxes for the fiscal years ended March 31,
1997 and 1996 is based on income recognized for financial statement
purposes. A reconciliation of the statutory United States Federal income
tax rate to the Company's effective income tax rate for the fiscal years
ended March 31, 1997 and 1996 follows:
1997 1996
------ -----
Statutory rate ........................................ 35.0% 35.0%
State income taxes, net of Federal benefit ............ 4.6 4.6
Other, principally meals and entertainment disallowance 6.5 1.7
---- ----
46.1% 41.3%
==== ====
5. Employee Benefit Plans
Retirement and Savings Plan - The Company's Former Parent had a
retirement and savings plan ("401(k) Plan") covering substantially all of
its employees. The 401(k) Plan provided for matching contributions by the
Company which amounted to approximately $1.4 million for each of the fiscal
years ended March 31, 1997 and 1996.
Deferred Compensation - In 1984, a predecessor of Millbrook
implemented a deferred compensation plan in the form of a non-qualified
defined benefit plan and a supplemental retirement plan which permitted
former officers and certain management employees, at the time, to defer
portions of their compensation and to earn specified maximum benefits upon
retirement. These plans do not allow new participants.
6. Related Party Transactions
As described in Note 1, the Company's Former Parent provided certain
corporate and general and administrative services to the Company which
totaled approximately $2.5 million and $2.3 million for the fiscal years
ended March 31, 1997 and 1996, respectively.
F-70
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
================================================================================
TABLE OF CONTENTS
Page
----
Where You Can Find More Information............................................3
Prospectus Summary.............................................................4
Summary Financial Data........................................................18
Risk Factors..................................................................21
The Transactions..............................................................28
Use of Proceeds...............................................................28
Capitalization................................................................29
Unaudited Pro Forma Condensed Consolidated
Statements of Operations...................................................30
Selected Historical Financial Data............................................36
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................41
Business......................................................................51
Management....................................................................62
Certain Transactions..........................................................66
Securities Ownership of Certain
Beneficial Owners..........................................................68
The Exchange Offers...........................................................69
Description of the New Notes of Enterprises...................................77
Description of the New Notes of Holdings.....................................112
Description of Credit Agreement..............................................144
Book - Entry; Delivery and Form..............................................145
Plan of Distribution.........................................................146
Federal Income Tax Consequences..............................................147
Legal Matters................................................................147
Experts......................................................................148
Index to Financial Statements................................................F-1
We have not authorized any dealer, salesperson or other person to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to sell
or to buy any of the securities in any jurisdiction where it is unlawful. The
information is this prospectus is current as of _______, 1999.
EXCHANGE OFFERS
For
R.A.B. Holdings, Inc.
$48,000,000
13% Senior Notes Due 2008
And
R.A.B. Enterprises, Inc.
$120,000,000
10-1/2% Senior Notes Due 2005
Prospectus
__________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Delaware law authorizes corporations to limit or to eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The certificate of
incorporation, as amended, of each corporate Co-Registrant limits the liability
of each corporate Co-Registrant's directors to each corporate Co-Registrant or
its stockholders to the fullest extent permitted by the Delaware law as in
effect from time to time. Specifically, directors of each corporate
Co-Registrant will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to each corporate Co-Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in the
Delaware law, or (iv) for any transaction from which the director derived an
improper personal benefit.
The certificate of incorporation, as amended, of each corporate
Co-Registrant provides that each corporate Co-Registrant shall indemnify its
officers and directors and former officers and directors to the fullest extent
permitted by the General Corporation Law of the State of Delaware (the "DECL.").
Pursuant to the provisions of section 145 of the DECL., each corporate
Co-Registrant has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding (other than an action by or in the right of each Issuer) by
reason of the fact that he is or was a director, officer, employee, or agent of
each corporate Co-Registrant, against any and all expenses, judgments, fines,
and amounts paid in actually and reasonably incurred in connection with such
action, suit, or proceeding. The power to indemnify applies only if such person
acted in good faith and in a manner he reasonably believed to be in the best
interest or not opposed to the best interest, of each corporate Co-Registrant
and with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
each corporate Co-Registrant as well, but only to the extent of defense and
settlement expenses and not to any satisfaction of a judgment or settlement of
the claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence or
misconduct unless the court, in its discretion, believes that in light of all
the circumstances indemnification should apply.
The DECL. further specifically provides that the indemnification authorized
thereby shall not be deemed exclusive of any other rights to which any such
officer or director may be entitled under any bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise.
The Co-Registrant The B. Manischewitz Company, LLC (the "LLC"), through its
Operating Agreement, is empowered by the Delaware Limited Liability Company Act
(the "Act"), to indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever.
Article II of the Operating Agreement provides as follows:
2.8 Limitation of Liability. Except as otherwise provided in the Act,
no Member of the LLC shall be obligated personally for any debt, obligation
or liability of the LLC or of any other Member solely by
II-1
<PAGE>
reason of being a Member of the LLC. Except as otherwise provided in the
Act, by law or expressly in this Agreement, no Member shall have any
fiduciary or other duty to another Member with respect to the business and
affairs of the LLC. No member shall have any responsibility to restore any
negative balance in his capital account or to contribute to or in respect
of the liabilities or obligations of the LLC except as required by the Act
or other applicable law.
Article IV of the Operating Agreement provides as follows:
4.1 Right to Indemnification. Except as limited by law and subject to
the provisions of this Article, each Member, Officer and Manager (an
"Indemnitee") shall be entitled to be indemnified and held harmless against
any and all losses, liabilities and expenses, including attorneys' fees,
arising from proceedings in which the Indemnitee may be involved, as a
party or otherwise, by reason of its being a Member or Manager of the LLC,
or by reason of its involvement in the management of the affairs of the
LLC, whether or not it continues to be such at the time any such loss,
liability or expense is paid or incurred. The rights of indemnification
provided in this Article will be in addition to any rights to which the
Indemnitee may otherwise be entitled by contract or as a matter of law and
shall extend to its successors and assigns. In particular, and without
limitation of the foregoing, the Indemnitee shall be entitled to
indemnification by the LLC against reasonable expenses (as incurred),
including attorneys' fees, incurred by the Indemnitee in connection with
the defense of any action to which the Indemnitee may be made a party to
the fullest extent permitted under the provisions of the Act or any other
applicable statute.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling each
co-registrant pursuant to the foregoing provisions, each co-registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit
No. Description of Document
--- -----------------------
2.1 Purchase Agreement dated as of March 3, 1998 among R.A.B. Food Holdings,
Inc., MANO Holdings I, LLC, KBMC Acquisition Company, L.P., MANO Holdings
Corporation and the stockholders of MANO Holdings Corporation.*
3.1 Certificate of Incorporation of R.A.B. Holdings, Inc.*
3.2 Certificate of Amendment of Incorporation of R.A.B. Holdings, Inc.*
3.3 Bylaws of R.A.B. Holdings, Inc.*
3.4 Certificate of Incorporation of R.A.B. Enterprises, Inc.*
3.5 Amendment of Certificate of Incorporation of R.A.B. Enterprises, Inc.*
3.6 Bylaws of R.A.B. Enterprises, Inc.*
II-2
<PAGE>
3.7 Certificate of Incorporation of Millbrook Distribution Services Inc.*
3.8 Bylaws of Millbrook Distribution Services Inc.*
3.9 Certificate of Formation of The B. Manischewitz Company, LLC.*
3.10 Operating Agreement of The B. Manischewitz Company, LLC.*
4.1 Indenture, dated as of May 1, 1998, among R.A.B. Holdings, Inc. and PNC
Bank, National Association, as Trustee, relating to the Holdings Notes.*
4.2 Form of Old Holdings Note (included as Exhibit A to Exhibit 4.1 hereto).
4.3 Form of New Holdings Note (included as Exhibit B to Exhibit 4.1 hereto).
4.4 Indenture, dated as of May 1, 1998, among R.A.B. Enterprises, Inc. and
PNC Bank, National Association, as Trustee, relating to the Old
Enterprises Notes.*
4.5 Form of Old Enterprises Note (included as Exhibit A to Exhibit 4.4
hereto).
4.6 Form of New Enterprises Note (included as Exhibit B to Exhibit 4.4
hereto).
4.7 Exchange and Registration Rights Agreement, dated as of May 1, 1998
between Holdings and Chase Securities Inc. relating to the Old Holdings
Notes.*
4.8 Exchange and Registration Rights Agreement, dated as of May 1, 1998 among
Enterprises, the Guarantors named therein and Chase Securities Inc.
relating to the Old Enterprises Notes.*
4.9 Purchase Agreement, dated April 28, 1998 among Holdings, Enterprises,
Millbrook and Chase Securities, Inc. *
5.1 Opinion of Parker Chapin Flattau & Klimpl, LP as to the securities issued
hereby.+
9.1 Form of Voting Agreement.**
10.1 Credit Agreement, dated as of May 1, 1998 among Millbrook, Manischewitz,
the Lenders party thereto, The Chase Manhattan Bank, as administrative
and collateral agent for the Lenders, and NationsBank, N.A., as Co-Agent
and Documentation Agent.*
10.2 Stock Purchase Agreement dated as of February 21, 1997 between R.A.B.
Holdings, Inc. and McKesson Corporation.**
12.1 Statement regarding Computation of Ratio of Earnings and Pro Forma Ratio
of Earnings to Fixed Charges.**
21.1 List of subsidiaries of the Co-Registrants.*
II-3
<PAGE>
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP (to be included as part of
the Parker Chapin Flattau & Klimpl, LLP opinion, filed as Exhibit 5.1 to
the Registration Statement).+
23.2 Consent of Deloitte & Touche LLP.**
23.3 Consent of Deloitte & Touche LLP.**
23.4 Consent of Arthur Andersen LLP.**
24.1 Powers of Attorney for R.A.B. Holdings, Inc. (included on its signature
page to the Registration Statement).*
24.2 Powers of Attorney for R.A.B. Enterprises, Inc. (included on its
signature page to the Registration Statement).*
24.3 Powers of Attorney for Millbrook Distribution Services Inc. (included on
its signature page to the Registration Statement).*
24.4 Powers of Attorney for The B. Manischewitz Company, LLC (included on its
signature page to the Registration Statement).*
25.1 Statement on Form T-1 of eligibility of trustee for new notes of
Holdings.*
25.2 Statement on Form T-1 of eligibility of trustee for new notes of
Enterprises.*
27.1 Financial Data Schedule of R.A.B. Holdings, Inc.**
27.2 Financial Data Schedule of R.A.B. Enterprises, Inc.**
99.1 Form of Letter of Transmittal for new notes of Enterprises.**
99.2 Form of Notice of Guaranteed Delivery for new notes of Enterprises.**
99.3 Form of Letter of Transmittal for new notes of Holdings.**
99.4 Form of Notice of Guaranteed Delivery for new notes of Holdings.**
- ----------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
II-4
<PAGE>
(b) Financial Statement Schedules:
The following Financial Statement Schedules are included in this
Registration Statement.
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc.
Independent Auditors' Report S-1
I - Condensed Financial Information of Registrants S-2 to S-9
II - Valuation and Qualifying Accounts S-10
MANO Holdings Corporation
and KBMC Acquisition Company, LP
Report of Independent Public Accountants S-11
II - Valuation and Qualifying Accounts S-12
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
Item 22. Undertakings
(a) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (l) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the co-registrants has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of New York, state of New York on the 29th day of December, 1998.
R.A.B. HOLDINGS, INC.
/s/ Richard A. Bernstein
------------------------------------
Richard A. Bernstein, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
/s/ Richard A. Bernstein Chairman, President, Chief Executive Officer and December 29, 1998
- ---------------------------- Director
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial Officer, December 29, 1998
- ---------------------------- Treasurer and Director
Steven M. Grossman (principal financial and accounting officer)
/s/ Lewis J. Korman* Vice Chairman and Director December 29, 1998
- ----------------------------
Lewis J. Korman
/s/ Richard H. Hochman* Director December 29, 1998
- ----------------------------
Richard H. Hochman
/s/ Michael A. Pietrangelo* Director December 29, 1998
- ----------------------------
Michael A. Pietrangelo
/s/ Jenny Morgenthau* Director December 29, 1998
- ----------------------------
Jenny Morgenthau
*By: /s/ Steven M. Grossman
-----------------------------
Name: Steven M. Grossman
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the co-registrants has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of New York, state of New York on the 29th day of December, 1998.
R.A.B. ENTERPRISES, INC.
/s/ Richard A. Bernstein
--------------------------------------
Richard A. Bernstein, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
/s/ Richard A. Bernstein Chairman, President, Chief Executive Officer and December 29, 1998
- -------------------------- Director
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial Officer, December 29, 1998
- -------------------------- Treasurer and Director
Steven M. Grossman (principal financial and accounting officer)
/s/ Lewis J. Korman* Vice Chairman and Director December 29, 1998
- --------------------------
Lewis J. Korman
/s/ James A. Cohen Senior Vice President - Legal Affairs, Secretary December 29, 1998
- -------------------------- and Director
James A. Cohen
*By: /s/ Steven M. Grossman
------------------------------
Name: Steven M. Grossman
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the co-registrants has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of New York, state of New York on the 29th day of December, 1998.
MILLBROOK DISTRIBUTION SERVICES INC.
/s/ Robert A. Sigel*
--------------------------------------
Robert A. Sigel, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
/s/ Richard A. Bernstein Chairman and Director December 29, 1998
- ------------------------- (principal executive officer)
Richard A. Bernstein
/s/ Robert A. Sigel* President, Chief Executive Officer and December 29, 1998
- ------------------------- Director
Robert A. Sigel
/s/ Steven M. Grossman Executive Vice President - Finance and December 29, 1998
- ------------------------- Administration, Treasurer and Director
Steven M. Grossman (principal financial officer)
/s/ James A. Cohen Senior Vice President - Legal Affairs, Secretary December 29, 1998
- ------------------------- and Director
James A. Cohen
*By: /s/ Steven M. Grossman
------------------------------
Name: Steven M. Grossman
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the co-registrants has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of New York, state of New York on the 29th day of December, 1998.
THE B. MANISCHEWITZ COMPANY, LLC
/s/ Richard A. Bernstein
--------------------------------------
Richard A. Bernstein, Managing Member
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<S> <C> <C>
/s/ Richard A. Bernstein Chairman, President, Chief Executive Officer December 29, 1998
- ---------------------------- and Manager
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial December 29, 1998
- ---------------------------- Officer, Treasurer and Manager
Steven M. Grossman (principal financial officer)
/s/ James A. Cohen Senior Vice President - Legal Affairs, Secretary December 29, 1998
- ---------------------------- and Manager
James A. Cohen
</TABLE>
II-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc.
New York, New York
We have audited the (i) consolidated balance sheets of R.A.B. Holdings, Inc. and
subsidiaries as of March 31, 1998 and March 31, 1997, and the related
consolidated statements of operations and cash flows for the fiscal year ended
March 31, 1998 and the consolidated statements of stockholders' equity for the
period from May 6, 1996 (date of inception) to March 31, 1997 and for the fiscal
year ended March 31, 1998, and (ii) consolidated balance sheets of R.A.B.
Enterprises, Inc. (a wholly owned subsidiary of R.A.B. Holdings, Inc.) and
subsidiary as of March 31, 1998 and March 31, 1997, and the related consolidated
statements of operations, stockholder's equity and cash flows for the fiscal
year ended March 31, 1998, and have issued our reports thereon dated July 10,
1998. Such reports are included elsewhere in this Registration Statement. Our
audits also included the financial statement schedules listed in Item 21(b).
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP
July 10, 1998
New York, New York
S-1
<PAGE>
SCHEDULE I
R.A.B. HOLDINGS, INC.-PARENT ONLY
BALANCE SHEETS
MARCH 31, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Current Assets:
Cash $ - $ 734
Other current assets 4 231
--------- ---------
Total current assets 4 965
Investment in subsidiaries 11,282 10,100
--------- ---------
$ 11,286 $ 11,065
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 109 $ 1,061
Stockholders' equity:
Preferred stock, $500 par value, 100,000 shares
authorized, 20,000 shares of Series A issued
and outstanding 9,906 9,906
Common stock, $.01 par value, 100,000 shares
authorized, 100,000 and 99,000 shares issued 1 1
Additional paid-in capital 98 97
Retained earnings 1,174 -
--------- ---------
11,179 10,004
Less cost of common stock in treasury-1,600 shares 2 -
--------- ---------
Total stockholders' equity 11,177 10,004
--------- ---------
$ 11,286 $ 11,065
========= =========
</TABLE>
See notes to parent only financial statements.
S-2
<PAGE>
SCHEDULE I
R.A.B. HOLDINGS, INC.-PARENT ONLY
STATEMENT OF OPERATIONS
For the Fiscal Year Ended March 31, 1998
(In thousands)
General and administrative expenses $ (8)
Net income from subsidiary operations 1,182
---------
Net income $ 1,174
=========
See notes to parent only financial statements.
S-3
<PAGE>
SCHEDULE I
R.A.B. HOLDINGS, INC. - PARENT ONLY
STATEMENT OF CASH FLOWS
For the Fiscal Year Ended March 31, 1998
(In thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,174
Adjustments to reconcile net income to net cash
used in operating activities: (1,182)
Equity in net income of subsidiary
Changes in assets and liabilities:
Other assets and liabilties (725)
----------
(733)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1
Purchase of treasury stock (2)
----------
Net cash used in financing activities (1)
Net decrease in cash and cash equivalents (734)
Cash, beginning of period 734
----------
Cash, end of period $ -
==========
</TABLE>
See notes to parent only financial statements.
S-4
<PAGE>
SCHEDULE I
R.A.B HOLDINGS, INC. - PARENT ONLY
NOTES TO PARENT ONLY FINANCIAL STATEMENTS
Basis of Presentation
The accompanying financial statements are presented on the basis of
recording investments in subsidiaries on the equity method of accounting.
S-5
<PAGE>
SCHEDULE I
R.A.B. ENTERPRISES, INC. - PARENT ONLY
BALANCE SHEETS
MARCH 31, 1998 AND 1997
(In thousands)
1998 1997
---- ----
ASSETS
Investments in subsidiary $ 11,282 $ 10,100
--------- ---------
$ 11,282 $ 10,100
========= =========
LIABILITIES AND STOCKHOLDHER'S EQUITY
Stockholder's equity:
Common stock, $1.00 par value, 200 shares
authorized and issued $ - $ -
Additional paid-in capital 10,100 10,100
Retained earnings 1,182 -
---------- ----------
$ 11,282 $ 10,100
========== ==========
See notes to parent only financial statements.
S-6
<PAGE>
SCHEDULE I
R.A.B. ENTERPRISES, INC. - PARENT ONLY
STATEMENT OF OPERATIONS
For the Fiscal Year Ended March 31, 1998
(In thousands)
Net income from subsidiary operation $ 1,182
---------
Net income $ 1,182
=========
See notes to parent only financial statements.
S-7
<PAGE>
SCHEDULE I
R.A.B. HOLDINGS, INC.-PARENT ONLY
STATEMENT OF CASH FLOWS
For the Fiscal Year Ended March 31, 1998
(In thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,182
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in net income of subsidiary (1,182)
---------
Net cash from operating activities -
Net decrease in cash -
Cash, beginning of period -
---------
Cash, end of period -
=========
</TABLE>
See notes to parent only financial statements.
S-8
<PAGE>
SCHEDULE I
R.A.B. ENTERPRISES, INC.-PARENT ONLY
NOTES TO PARENT ONLY FINANCIAL STATEMENTS
Basis of Presentation
R.A.B. Enterprises, Inc. (the "Company") is a wholly owned-subsidiary of
R.A.B. Holdings, Inc. ("Holdings"). On January 26, 1998, Holdings formed the
Company and on May 1, 1998 contributed to the Company its wholly-owned
subsidiary Millbrook Distribution Services Inc., which contribution has been
accounted for as an "as if" pooling of interests.
The accompanying financial statements are presented on the basis of
recording an investment in subsidiary on the equity method of accounting.
S-9
<PAGE>
R.A.B. HOLDINGS, INC.
R.A.B. ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED MARCH 31, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
Description of period expenses Accounts Deductions(1) of period
- -------------------------- ---------- ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 2,251 415 30 (255) $2,441
</TABLE>
(1) Amounts written off.
S-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MANO Holdings Corporation and
KBMC Acquisition Company, L.P.:
We have audited in accordance with generally accepted auditing standards, the
combined financial statements of MANO Holdings Corporation and KBMC Acquisition
Company, L.P. included in this Registration Statement and have issued our report
thereon dated September 24, 1997. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in Item 21 (b) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 24, 1997
S-11
<PAGE>
MANO HOLDINGS CORPORATION AND KBMC ACQUISITION COMPANY, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JULY 31, 1995, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
Description of period expenses accounts Deductions of period
- ------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended July 31, 1995
Allowance for doubtful accounts $ 325 6 - - $ 331
Fiscal year ended July 31, 1996
Allowance for doubtful accounts $ 331 (116) 35 - $ 250
Fiscal year ended July 31, 1997
Allowance for doubtful accounts $ 250 450 - - $ 700
</TABLE>
S-12
<PAGE>
EXHIBIT 9.1
VOTING AGREEMENT
R.A.B. HOLDINGS, INC.
The undersigned hereby irrevocably agrees that on any matter
submitted to the vote of the holders of common stock, par value $0.01 per
share (the "Common Stock"), of R.A.B. Holdings, Inc., a Delaware corporation
(the "Company"), the undersigned shall vote all of the undersigned's shares of
the Common Stock in such manner as Mr. Richard A. Bernstein ("Mr. Bernstein")
may direct or, if no such direction is given, in a manner consistent with the
manner that Mr. Bernstein votes his shares of Common Stock. The undersigned
shall also execute any written consent of holders of Common Stock in the
manner directed by Mr. Bernstein or, if no such direction is given, in a
manner which is consistent with the vote or written consent of Mr. Bernstein
on the matter, and the undersigned shall not execute any other consent of
holders of Common Stock.
The undersigned hereby irrevocably further agrees that on
any matter submitted to the vote of the holders of the Company's Series A
Preferred Stock, without par value (the "Preferred Stock"), the undersigned
shall vote all of the undersigned's shares of Preferred Stock as Mr. Bernstein
may direct or, if no direction is given, in a manner consistent with the
manner Mr. Bernstein votes his shares of Preferred Stock. The undersigned
shall also execute any written consent of holders of Preferred Stock as
directed by Mr. Bernstein or, if no such direction is given, in a manner which
is consistent with the vote or written consent of Mr. Bernstein on the matter,
and the undersigned shall not execute any other consent of holders of
Preferred Stock.
This Voting Agreement is intended to be an agreement between
stockholders pursuant to Section 218 of the Delaware General Corporation Law
(or any successor to that Section). In connection with any matter for which
holders of Common Stock or Preferred Stock are entitled to vote their shares
of Common Stock or Preferred Stock, as applicable, and if for any reason the
undersigned is unable or otherwise fails to vote any of the undersigned's
shares of Common Stock or Preferred Stock (collectively, the "Shares"), as the
case may be, in accordance with this Voting Agreement, or to give any written
consent with respect to any of the undersigned's Shares in accordance with
this Voting Agreement, Mr. Bernstein shall have, and the undersigned hereby
grants to Mr. Bernstein, an irrevocable proxy (which proxy is coupled with an
interest) to vote the undersigned's Shares or execute a written consent in
respect of the undersigned's Shares, as applicable, in respect of the
applicable matter in any such manner as Mr. Bernstein may determine, in his
sole and absolute discretion.
Mr. Bernstein shall not have any liability, directly or
indirectly, to the undersigned or anyone claiming through the undersigned,
arising out of any vote hereunder, or Mr. Bernstein's exercise of any proxy
pursuant to this Voting Agreement, whether or not that vote or exercise of
proxy adversely affects, or results in the diminution of the value of, the
undersigned's Shares, and the
<PAGE>
undersigned hereby irrevocably and forever releases and discharges Mr.
Bernstein from any such liability. The foregoing release is given willingly
and with a full understanding of its consequences.
This Voting Agreement shall terminate with respect to the
undersigned's Common Stock on the earliest of (a) the date the undersigned
(and the undersigned's heirs, personal representatives, donees and trustees of
any trust in which the undersigned has an interest, during the undersigned's
life or upon the undersigned's death) ceases to own any shares of Common
Stock, other than by virtue of any transfer of the undersigned's shares of
Common Stock which in any way violates, contravenes or is inconsistent with
the Subscription Agreement dated as of even date herewith between the Company
and the undersigned (the "Subscription Agreement"), this Voting Agreement or
the Securities Act of 1933, as amended (the "Securities Act"); (b) the date on
which the Company's Common Stock is listed or admitted to trade on any
national securities exchange or is quoted on NASDAQ or a similar means if
NASDAQ is no longer providing such information; and (c) the expiration of ten
(10) years from the date of this Voting Agreement.
This Voting Agreement shall terminate with respect to the
undersigned's Preferred Stock on the earliest of (a) the date the undersigned
(and the undersigned's heirs, personal representatives, donees and trustees of
any trusts in which the undersigned has an interest, during the undersigned's
life or upon the undersigned's death) ceases to own any shares of Preferred
Stock, other than by virtue of any transfer of the undersigned's shares of
Preferred Stock which in any way violates, contravenes or is inconsistent with
the Subscription Agreement, this Voting Agreement or the Securities Act; (b)
the date referred to in clause (b) the date on which the Company's Common
Stock is listed or admitted to trade on any national securities exchange or is
quoted on NASDAQ or a similar means if NASDAQ is no longer providing such
information; and (c) ten (10) years from the date of this Voting Agreement.
This Voting Agreement shall bind the undersigned's
successors, heirs, personal representatives, donees and trustees of any trust
in which the undersigned has an interest, during the undersigned's life or
upon the undersigned's death, and shall inure to the benefit of the successor
or successors to Mr. Bernstein's interest in the Company's Common Stock,
including, without limitation, Mr. Bernstein's heirs, personal representatives
and the trustees of any trust in which Mr. Bernstein has an interest, during
his life or created upon his death, and the undersigned, therefore, shall vote
the undersigned's Shares and execute written consents in respect of the
undersigned's Shares as they (or a majority in interest of them based upon
their ownership of Common Stock) may designate.
As used in this Voting Agreement, the term "personal
representatives" means the executors or the administrators of Mr. Bernstein's
estate or the undersigned's estate, as the case may be, or any legal guardian,
conservator or similar official appointed to oversee the assets of Mr.
Bernstein or the undersigned during the life of Mr. Bernstein or the
undersigned, as the case may be.
Until the termination of this Voting Agreement, no transfer
(however done) of all or any part of the undersigned's Shares shall be made by
the undersigned or any subsequent owner of
-2-
<PAGE>
all or any portion of such Shares until the transferee has executed and
delivered to Mr. Bernstein (or his successors) an original counterpart of this
Voting Agreement. Any purported transfer not made in compliance with the
immediately preceding sentence shall be ab initio null and void and of no
force and effect. The undersigned acknowledges and understands that any
certificate representing the undersigned's Shares and any substitute shares
shall contain the following legend: "The Shares represented by this
certificate are subject to the terms and provisions of a Voting Agreement (the
"Voting Agreement"), with Mr. Richard A. Bernstein, a copy of which is on file
at the principal office of the Company. Pursuant to the Voting Agreement, no
transfer of the Shares represented by this certificate may be made without the
transferee signing and delivering to Mr. Richard A. Bernstein a counterpart of
a voting agreement which is in the same form as the Voting Agreement."
Any notice or other communication under or relating to this
Voting Agreement shall be in writing and shall be considered given when
delivered in person or when mailed by certified mail, return receipt requested
(postage prepaid), to the parties at the following addresses (or at such other
address as a party may specify by notice to the other): (a) if to the
undersigned, to the undersigned at the address set forth below the
undersigned's signature to this Voting Agreement; and (b) if to Mr. Bernstein,
to him at 444 Madison Avenue, Suite 601, New York, New York 10022, with a copy
to Martin Eric Weisberg, Esq., Parker Chapin Flattau & Klimpl, LLP, 1211
Avenue of the Americas, New York, New York 10036.
Mr. Bernstein's personal representatives shall give the
undersigned prompt written notice of their appointment, and the undersigned's
personal representatives shall give Mr. Bernstein prompt written notice of their
appointment.
This Voting Agreement shall be governed by and construed in
accordance with the law of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware, without regard to its principles
of conflicts of law, and it shall be construed without regard to any
presumption or other rule requiring construction against the party causing an
agreement to be drafted. This Voting Agreement may not be amended, waived,
modified, changed or terminated (other than as provided in the fifth and sixth
paragraphs of this Voting Agreement with respect to termination), except by an
instrument in writing executed by each of the parties hereto.
--------------------------------------
Name of Investor
--------------------------------------
Signature
--------------------------------------
Additional Signature (if required)
-3-
<PAGE>
--------------------------------------
--------------------------------------
Print Name(s) of Signatory if Different
than Investor
--------------------------------------
Title (if applicable):
Address of Investor:
--------------------------------------
--------------------------------------
Date:
---------------------------------
Accepted and Agreed:
- -------------------------
Richard A. Bernstein
Date:
-4-
<PAGE>
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
R.A.B. Holdings, Inc.
and
McKesson Corporation
dated as of
February 21, 1997
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
I
DEFINITIONS
1.1 Definitions............................................................1
II
PURCHASE AND SALE OF SHARES
2.1 Sale and Transfer of Shares............................................8
2.2 Purchase Price.........................................................9
2.3 Purchase Price Adjustment..............................................9
III
THE CLOSING
3.1 Closing...............................................................12
3.2 Adjournment of Closing................................................13
IV
REPRESENTATIONS AND WARRANTIES OF SELLER
4.1 Organization..........................................................13
4.2 Capitalization........................................................13
4.3 Authorization; Validity of Agreement..................................14
4.4 No Violations; Consents and Approvals.................................14
4.5 Financial Statements..................................................15
4.6 Absence of Certain Changes............................................16
4.7 No Undisclosed Liabilities............................................16
4.8 Litigation; Compliance with Law.......................................16
4.9 Employee Benefit Plans; ERISA.........................................16
4.10 Real Property.........................................................18
4.11 Intellectual Property.................................................19
4.12 Computer Software.....................................................19
4.13 Material Contracts....................................................20
4.14 Taxes.................................................................21
4.15 Affiliated Party Transactions.........................................23
4.16 Environmental Matters.................................................23
4.17 No Brokers............................................................24
4.18 Receivables, Inventory and Payables...................................25
4.19 Letters of Credit.....................................................25
4.20 Entire Business.......................................................25
4.21 Unclaimed Funds.......................................................25
4.22 Pending Transactions..................................................25
4.23 Insurance.............................................................26
Page i
<PAGE>
V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Organization..........................................................26
5.2 Authorization; Validity of Agreement..................................27
5.3 No Violations; Consents and Approvals.................................27
5.4 Sufficient Funds......................................................28
5.5 Litigation; Compliance with Law.......................................28
5.6 No Brokers............................................................28
5.7 Investigation by Purchaser............................................28
5.8 Prior Seller Representations; No Personal Liability...................29
5.9 Investment Intent.....................................................29
VI
COVENANTS
6.1 Conduct of the Business by the Company Pending the Closing............30
6.2 Access to Information.................................................32
6.3 Best Efforts..........................................................32
6.4 Consents..............................................................33
6.5 HSR Filings...........................................................33
6.6 Public Announcements..................................................34
6.7 Employee Agreements...................................................34
6.8 Employee Benefits.....................................................34
6.9 Notification of Certain Matters.......................................36
6.10 Tax Matters...........................................................37
6.11 Transfer of Intellectual Property.....................................44
6.12 Transitional Services Agreement.......................................44
6.13 Seller Confidentiality and Non-Solicitation Covenants.................44
6.14 Risk of Loss..........................................................45
6.15 Assignment of McKesson Rights.........................................46
6.16 Real Estate Matters...................................................46
6.17 Performance of McKesson Obligations...................................46
6.18 Insurance Matters.....................................................46
6.19 Further Assurances....................................................47
VII
CONDITIONS
7.1 Conditions to Seller's Obligations....................................48
7.2 Conditions to Purchaser's Obligations.................................49
VIII
DOCUMENTS TO BE DELIVERED AT THE CLOSING
8.1 Documents to be Delivered by Seller...................................50
8.2 Documents to be Delivered by Purchaser................................51
Page ii
<PAGE>
IX
TERMINATION
9.1 Termination...........................................................51
9.2 Effect of Termination.................................................52
X
INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by
Knowledge or Waivers................................................52
10.2 Indemnification by Seller.............................................53
10.3 Indemnification by Purchaser..........................................54
10.4 Time Limitations......................................................55
10.5 Limitations on Amount; Environmental Damages..........................56
10.6 Procedure for Indemnification--Third Party Claims.....................60
10.7 Procedure for Indemnification--Other Claims...........................61
10.8 Limitations on Application to Taxes...................................61
XI
MISCELLANEOUS
11.1 Fees and Expenses.....................................................61
11.2 Amendments............................................................62
11.3 Notices...............................................................62
11.4 Interpretation........................................................63
11.5 Headings; Schedules...................................................63
11.6 Counterparts..........................................................63
11.7 Entire Agreement......................................................63
11.8 Severability..........................................................63
11.9 Governing Law.........................................................63
11.10 Assignment............................................................63
11.11 Specific Performance; Submission to Jurisdiction......................64
Page iii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
February 21, 1997, by and between R.A.B. Holdings, Inc., a Delaware
corporation ("Purchaser"), and McKesson Corporation, a Delaware corporation
("Seller").
RECITALS:
WHEREAS, Seller owns all of the issued and outstanding
capital stock of Millbrook Distribution Services Inc., an Indiana corporation
(the "Company"); and
WHEREAS, the Company is engaged in the business of
distributing specialty foods, health and beauty aids, over-the-counter
pharmaceuticals and general merchandise in the United States; and
WHEREAS, Purchaser desires to purchase from Seller all of
the issued and outstanding capital stock of the Company (the "Shares") upon
and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties hereto agree as follows:
I
DEFINITIONS
1.1 Definitions.
Term Defined in Section
- ---- ------------------
Adjusted November Balance Sheet 2.3(a)
Affiliate Transaction 4.15
Agreement Preamble
Approvals 4.10(d)
Arbitrator 2.3(g)
Closing 3.1
Closing Date Balance Sheet 2.3(f)
Closing Date 3.1
Company Recitals
Company Employee 6.8(d)
Confidentiality Agreement 6.2(b)
Consents 6.4
Contract 4.13(a)
Damages 10.2(a)
<PAGE>
Date of Notice of Claim 10.6(c)
Dispute 2.3(g)
Dispute Notice 2.3(g)
Dispute Period 2.3(g)
Election 6.10(a)
Employment Agreements 6.7
Environmental Claim Notice 10.5(c)
Environmental Damages 10.5(c)
ERISA Affiliate 4.9(a)
Estimated Closing Date Balance Sheet 2.3(c)
Estimated Price Decrease 2.3(d)
Estimated Price Increase 2.3(d)
Estimated Purchase Price 2.2(b)
Final Purchase Price Decrease 2.3(f)
Final Purchase Price Increase 2.3(f)
Financial Statements 4.5
Fixed Amount 2.2(a)
Governmental Entity 4.4(b)
Income Tax Returns 4.14(a)(v)
Intellectual Property 4.11
Inventory Count 2.3(e)
IP Transfer Instruments 6.11
Leases 4.10(b)
Material Contracts 4.13(a)
Material Lease 4.10(b)
Material Leased Real Property 4.10(b)
McKesson Insurance Policies 4.23
Modified ADSP 6.10(b)
Net Asset Amount Exhibit 2.3(a)
Notice of Claim 10.6(a)
Notice Period 10.6(b)
Owned Real Property 4.10(a)
Plans 4.9(a)
Post-Closing Medical Expenses 6.8(e)
Purchase Price 2.2(a)
Purchase Price Adjustment 2.2(c)
Purchaser Preamble
Purchaser Indemnified Persons 10.2(a)
Purchaser's Closing Documents 8.2
Seller Preamble
Seller Disclosure Letter 4.2(b)
Seller Indemnified Persons 10.3
Seller's Closing Documents 8.1
Seller Tax Refunds 6.10(d)(ii)
Settlement Accountants 6.10(g)
Severance Agreements 6.7
Shares Recitals
Tax Audit 6.10(f)(i)
Tax Package 6.10(c)
Transfer Taxes 6.10(i)
Transitional Services Agreement 6.12
Page 2
<PAGE>
"Accounting Principles and Procedures" shall mean the
accounting principles and procedures contained in Exhibit 2.3(b) as
supplemented, where such accounting principles and procedures do not address a
particular item or method of calculation, by GAAP; provided, however, that for
all purposes of Section 2.3, in the event of any conflict between any of the
accounting principles and procedures contained in Exhibit 2.3(b) and those
required by GAAP, the accounting principles and procedures set forth in
Exhibit 2.3(b) shall prevail.
"Affiliate," with respect to any Person, shall include (i)
any other person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person and (ii) in the case of the
Seller or the Company, their respective directors and officers. For purposes
of this definition, "control," when used with respect to any Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings that
correspond to the foregoing.
"Antitrust Law" means the Sherman Act, as amended, the
Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state and foreign statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade.
"Business Day" means any day other than a Saturday, Sunday
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Material Adverse Effect" means any event, condition
or circumstance that would, or would be reasonably likely to, have a material
adverse effect on the business, assets, results of operations or financial
condition of the Company, except for any such event, condition or circumstance
that constitutes a McKesson Obligation.
"Current Site" means any Site owned, leased, used or
operated by the Company as of the date hereof.
Page 3
<PAGE>
"DOJ" means the Antitrust Division of the United States
Department of Justice.
"Environment" means all air, surface water, groundwater, or
land, including land surface or subsurface, including all fish, wildlife,
biota and all other natural resources.
"Environmental Claim" means any and all administrative or
judicial actions, suits, orders, claims, liens, notices, notices of
violations, investigations, complaints, requests for information, or
proceedings, whether criminal or civil, (collectively, "Claims") by any Person
(including, but not limited to, any Governmental Entity, Person and citizens'
group) based upon, relating to, alleging, asserting, or claiming any actual or
potential (i) violation of or liability under any Environmental Law, (ii)
violation of any Environmental Permit, or (iii) liability for investigatory
costs, cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties
arising out of, based on, resulting from, or related to the presence, Release,
or threatened Release into the Environment, of any Hazardous Substances at any
location, including, but not limited to, any off-Site location to which
Hazardous Substances or materials containing Hazardous Substances were sent
for handling, storage, treatment, or disposal.
"Environmental Law" means any and all federal, state, local,
provincial and foreign, common (including, but not limited to, negligence,
nuisance, trespass, personal injury, or property damages related to or arising
out of the presence or Release of, or exposure to, a Hazardous Substance),
civil and criminal laws, statutes, ordinances, orders, codes, rules, or
regulations, and (with respect solely to the Company) judgments, decrees or
injunctions, relating to the protection of human health and the Environment,
and/or governing the handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution, formulation, packaging,
labeling, or Release of Hazardous Substances, whether now existing or
subsequently amended or enacted, and the state analogies thereto, all as
amended or superseded from time to time.
"Environmental Permit" means any federal, state, local,
provincial, or foreign permits, licenses, approvals, consents or
authorizations required by any Governmental Entity under or in connection with
any Environmental Law and includes any and all orders, consent orders or
binding agreements issued or entered into by a Governmental Entity under any
applicable Environmental Law.
Page 4
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Former Site" means any Site that is not a Current Site,
including, but not limited to, any site owned, leased, used or operated by
Rawson Drug and Sundry Company, Inc. or any predecessor thereof.
"FTC" means the Federal Trade Commission.
"GAAP" means generally accepted accounting principles in
effect in the United States of America at the time of any determination, and
which are applied on a consistent basis during the periods involved. Any
accounting term or other term used in this Agreement with respect to an
accounting matter shall have the meaning given to that term by GAAP, unless
otherwise defined herein or the context of this Agreement otherwise requires.
"Hazardous Substance" means petroleum, petroleum
hydrocarbons or petroleum products, petroleum by-products, radioactive
materials, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls; and any other chemicals, materials, substances or
wastes which are now or hereafter regulated as "hazardous substances,"
"hazardous materials," "hazardous wastes," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"pollutants," "regulated substances," "solid wastes," or "contaminants" or
words of similar import, under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Income Tax" means any federal, state, local or foreign Tax
(a) based upon, measured by or calculated with respect to net income, profits
or receipts (including, without limitation, capital gains Taxes and minimum
Taxes) or (b) based upon, measured by or calculated with respect to multiple
bases (including, without limitation, corporate franchise taxes) if one or
more of the bases on which such Tax may be based, measured by or calculated
with respect to, is described in clause (a), in each case together with any
interest, penalties or additions to such Tax.
"Insurance Risks" means all claims, risks, losses,
liabilities or damages arising out of or relating to the business or
operations of the Company that (i) would be covered under any McKesson
Insurance Policy without regard to
Page 5
<PAGE>
any deductible, self-insurance retention or retained liability and without
regard to whether such McKesson Insurance Policy is a primary policy or an
umbrella policy or (ii) are required to be insured against under any
applicable federal, state or local law, such as by workers' compensation and
motor vehicle liability or casualty insurance, regardless of whether insured
under a McKesson Insurance Policy or self insured, in each case to the extent
the claim, risk, loss, liability or damage relates to or arises from an
occurrence prior to the Closing.
"Knowledge" of Seller, "known" to Seller, "best of
knowledge" of Seller, matters of which Seller is "aware" and language of
similar import shall mean all matters actually known or that should have been
known by any of the directors or officers of Seller or the Company, or the
in-house attorneys and senior accounting personnel of Seller and those
management employees of Seller responsible for employee benefits, insurance
matters and matters relating to Environmental Laws.
"Liens" means all mortgages, claims, charges, liens,
security interests, pledges, options, easements, rights of way, or other
encumbrances of any nature whatsoever.
"McKesson Obligations" means the following: (i) all
Environmental Claims and liabilities relating to or arising from any Former
Site, including, without limitation, any liability or obligation relating to
or arising out of the Site in Omaha, Arkansas (the "Arkwood Site") or the
Arkwood Site Consent Decree, (ii) any liability or obligation relating to or
arising out of, or any contribution required under, any McKesson Plan,
including, without limitation, all accrued benefits as of the Closing under
any of such McKesson Plans, except to the extent any such liability or
obligation is provided for on the Closing Date Balance Sheet (as such term is
hereinafter defined), (iii) any liability or obligation relating to or arising
out of unsettled intercompany transactions and/or transactions recorded in
intercompany accounts reflected on the Closing Date Balance Sheet (as such
term is hereinafter defined), (iv) any liability or obligation represented by
or in respect of outstanding drafts, checks and bankers acceptances, (v) any
liability or obligation relating to or arising out of any of the McKesson
Rights, (vi) all Insurance Risks, (vii) the Company's obligations as guarantor
of the Venturian Deferred Compensation Plan, (viii) any liability or
obligation relating to or arising out of any action, suit, proceeding or
investigation pending or threatened against the Company prior to Closing and
(ix) any and all amounts (including principal and accrued interest, if any)
owed by the Company, directly
Page 6
<PAGE>
or indirectly, to holders of any Industrial Revenue Bonds outstanding on the
date hereof relating to the Ozark, Alabama and Harrison, Arkansas facilities.
"McKesson Plans" means those employee benefit plans
maintained by Seller in which any Company employee is a participant which are
identified as such in Section 4.9(a) of the Seller Disclosure Letter.
"McKesson Rights" means all items set forth in Section 6.15
of the Seller Disclosure Letter.
"Permitted Liens" means (i) those Liens set forth in Section
4.10 of the Seller Disclosure Letter, (ii) (A) easements, rights of way and
other imperfections of title and encumbrances that, in each case, do not
materially interfere with the operation of the Company's business or the use
or value of the property subject thereto, (B) Liens for water and sewage
charges and current Taxes not yet due and payable or being contested in good
faith by appropriate proceedings which shall suspend the collection thereof,
and (C) mechanics', carriers', workers', repairers', materialmen's,
warehousemen's and other similar Liens arising or incurred in the ordinary
course of business, in each case that do not materially interfere with the
operation of the Company's business, and (iii) Liens arising or resulting from
any action taken by Purchaser.
"Person" means an individual, partnership, joint venture,
trust, corporation, limited liability company or other entity (including,
without limitation, any government or political subdivision or any agency,
department or instrumentality thereof).
"Pre-Closing Period" means any taxable period ending on or
prior to the Closing Date.
"Purchaser Material Adverse Effect" means any event,
condition or circumstance that would, or would be reasonably likely to, have a
material adverse effect on the business, results of operations or financial
condition of Purchaser and its Subsidiaries, taken as a whole.
"Purchaser Plans" means employee benefit plans, as defined
in section 3(3) of ERISA, or such nonqualified employee benefit or deferred
compensation plans, stock option bonus or incentive plans or other employee
benefit or fringe benefit programs that may be in effect generally for
employees of Purchaser or its Subsidiaries from time to time.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting,
Page 7
<PAGE>
escaping, leaching, dumping, or disposing of a Hazardous Substance into the
Environment.
"Securities Act" means the Securities Act of 1933, as amended.
"Site" means any of the real properties currently or
previously owned, leased, used or operated by the Company, any predecessors of
the Company or any entities previously owned by the Company, including all
soil, subsoil, surface waters and groundwater thereat.
"Straddle Period" means any taxable period that begins before
and ends after the Closing Date.
"Subsidiary" of a Person means any entity of which the
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person or such
Person otherwise has the right to vote or to direct the vote of such
securities or other ownership interests.
"Tax Affiliate" means any entity that is a member of an
affiliated group of corporations (within the meaning of Section 1504(a) of the
Code) filing a consolidated U.S. federal Income Tax Return, and a group of
corporations filing a consolidated or combined Tax Return for state, local or
foreign Tax purposes (each, "a Consolidated Group"), if the Company could be
held liable for the Taxes of such entity or of such Consolidated Group.
"Taxes" means any and all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, real or personal property, sales, withholding, social security,
retirement, unemployment, occupation, use, service, net worth, payroll,
franchise, license, gains, customs, transfer and recording taxes, imposed by
any taxing authority, and shall include any interest, penalties or additions
to tax.
"Tax Return" means any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
with respect to Taxes.
II
PURCHASE AND SALE OF SHARES
2.1 Sale and Transfer of Shares. Subject to the terms and
conditions set forth in this Agreement, at the
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Closing, Seller will sell, convey, assign, transfer and deliver the Shares to
Purchaser, free and clear of all Liens (other than restrictions arising under
the Securities Act or any other applicable state securities laws) and
Purchaser will purchase, acquire and accept the Shares from Seller.
2.2 Purchase Price.
(a) Subject to the terms and conditions of this
Agreement, in consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery of the Shares, Purchaser agrees to pay to Seller the
amount of $70,000,000 (the "Fixed Amount") in cash, subject to preliminary
adjustment at the Closing as provided in Section 2.3 on the basis of the
Estimated Closing Date Balance Sheet referred to in Section 2.3(c), and
subject to final adjustment after the Closing as provided in Section 2.2(c) on
the basis of the Closing Date Balance Sheet referred to in Section 2.3(f) (as
so adjusted, the "Purchase Price"). All payments pursuant to Sections 2.2 and
2.3 shall be made in immediately available funds by wire transfer to such bank
accounts as may be specified in writing by Seller or Purchaser to the other.
(b) On the Closing Date, Purchaser shall pay to
Seller an amount (the "Estimated Purchase Price") equal to the Fixed Amount,
plus (i) the Estimated Price Increase (as defined in Section 2.3(d)), if any,
or, alternatively, less (ii) the Estimated Price Decrease (as defined in
Section 2.3(d)), if any.
(c) Upon the determination of the Purchase
Price, as finally determined in accordance with Section 2.3(f) on the basis of
the Closing Date Balance Sheet, either (i) Purchaser shall pay to Seller the
amount of the Final Purchase Price Increase (as defined in Section 2.3(f)) or,
alternatively, (ii) Seller shall pay to Purchaser the amount of the Final
Purchase Price Decrease (as defined in Section 2.3(f)) (each such payment, a
"Purchase Price Adjustment").
2.3 Purchase Price Adjustment.
(a) Exhibit 2.3(a) sets forth an adjusted
balance sheet of the Company as of November 30, 1996 prepared in accordance
with and adjusted pursuant to the Accounting Principles and Procedures for
purposes of determining the "Net Asset Amount" of the Company at November 30,
1996 (the "Adjusted November Balance Sheet").
(b) Purchaser and Seller agree to accept the
Accounting Principles and Procedures for all purposes of this Section 2.3,
including, without limitation, for purposes of preparation of the Adjusted
November Balance Sheet, the
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Estimated Closing Date Balance Sheet and the Closing Date Balance Sheet.
(c) Not fewer than three Business Days before
the Closing Date, Seller shall deliver to Purchaser (i) a balance sheet (the
"Estimated Closing Date Balance Sheet") based upon the books and records of
the Company and prepared in accordance with and adjusted pursuant to the
Accounting Principles and Procedures and reflecting Seller's best estimate of
each of the items, and the amounts thereof, to be included on the Closing Date
Balance Sheet and (ii) a certificate of Seller, duly executed by an executive
officer of Seller, stating that the Estimated Closing Date Balance Sheet has
been prepared in good faith, has been prepared in accordance with and adjusted
pursuant to the Accounting Principles and Procedures, and reflects Seller's
best estimate of, and to the best Knowledge of Seller, fairly presents each of
the items, and the amounts thereof, to be included on the Closing Date Balance
Sheet.
(d) If the Net Asset Amount of the Company as
shown on the Estimated Closing Date Balance Sheet is greater than the Net
Asset Amount shown on the Adjusted November Balance Sheet, the payment of the
Fixed Amount to Seller on the Closing Date shall be increased, as a
preliminary adjustment to the Fixed Amount as provided in Section 2.2(b), by
the amount of such excess (the "Estimated Price Increase"). If the Net Asset
Amount of the Company as shown on the Estimated Closing Date Balance Sheet is
less than the Net Asset Amount as shown on the Adjusted November Balance
Sheet, the payment of the Fixed Amount to Seller on the Closing Date shall be
decreased, as a preliminary adjustment to the Fixed Amount as provided in
Section 2.2(b), by the amount of such deficiency (the "Estimated Price
Decrease").
(e) As of the close of business on the last day
of the fiscal month of the Company in which the Closing occurs, or at such
other time on such other date as near as practicable thereto as may be
mutually agreed to by the parties to avoid business disruptions, Purchaser
shall cause physical counts to be made of the inventory of the Company located
at the Company's Leicester, Massachusetts and Harrison, Arkansas facilities
(the "Inventory Count"), which shall be observed by representatives of the
accounting firm of Deloitte & Touche LLP (the costs of such physical inventory
to be shared equally by Purchaser and Seller). Seller's representatives shall
also be entitled to attend and observe the taking of the Inventory Count. Upon
completion of the Inventory Count (and any adjustment pursuant to the
immediately following sentence), Seller shall be provided with copies of the
relevant data relating to those counts for its review. The results of the
Inventory Count shall be
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adjusted to reflect the Company's inventory at the close of business on the
day immediately preceding the Closing Date using actual receipts and
shipments, and the valuation of inventory for purposes of the Closing Date
Balance Sheet shall be computed in accordance with the Accounting Principles
and Procedures and shall be based on the results of the Inventory Count as so
adjusted, plus (i) the amount shown in the Company's books and records in
accordance with the Company's perpetual inventory system at all locations
(other than the Company's Leicester, Massachusetts and Harrison, Arkansas
facilities) and (ii) "in-transit" inventory.
(f) Within forty-five (45) days following the
Closing Date, Seller shall deliver to Purchaser a special purpose balance
sheet of the Company as of 12:01 a.m. on the Closing Date prepared by Seller
with the cooperation of Purchaser (the "Closing Date Balance Sheet"). The
Closing Date Balance Sheet shall be prepared in accordance with and adjusted
by the Accounting Principles and Procedures and shall set forth the
calculation of the Net Asset Amount. In connection with the preparation of the
Closing Date Balance Sheet, each party shall provide the other and the other's
accountants and representatives full access to the Company's books, records,
facilities and employees within such party's control. If the Net Asset Amount
of the Company as reflected in the Closing Date Balance Sheet, is greater than
the Net Asset Amount as reflected in the Estimated Closing Date Balance Sheet,
the Estimated Purchase Price shall be increased, by a final adjustment to the
Estimated Purchase Price as provided in Section 2.2(c), by the amount of such
excess (the "Final Purchase Price Increase"). If the Net Asset Amount of the
Company as reflected in the Closing Date Balance Sheet is less than the Net
Asset Amount as reflected in the Estimated Closing Date Balance Sheet, the
Estimated Purchase Price shall be decreased, by a final adjustment to the
Estimated Purchase Price as provided in Section 2.2(c), by the amount of such
deficiency (the "Final Purchase Price Decrease").
(g) Purchaser shall have fifteen (15) Business
Days after receipt by it of the Closing Date Balance Sheet (the "Dispute
Period") to dispute any item, calculation or amount, or the method of
calculation of any item or amount, reflected therein (a "Dispute"). If Purchaser
does not give written notice of a Dispute (a "Dispute Notice") to Seller within
the Dispute Period, the Closing Date Balance Sheet shall be deemed to have been
accepted by Purchaser in the form in which it was delivered by Seller. In the
event that Purchaser does not agree with any item, calculation or amount, or the
method of calculation of any item or amount, reflected on the Closing Date
Balance Sheet, Purchaser shall
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give Seller a Dispute Notice within the Dispute Period, setting forth the
basis of its disagreement, and Seller and Purchaser shall, within fifteen (15)
days after receipt by Seller of such Dispute Notice, attempt to resolve such
Dispute and agree in writing upon the final Closing Date Balance Sheet. In the
event that Seller and Purchaser are unable to resolve any such Dispute within
the fifteen (15) day resolution period, then the national office of the
certified public accounting firm of Deloitte & Touche LLP or such other
national office of a certified public accounting firm or office as may be
mutually agreed upon by Seller and Purchaser (the "Arbitrator") shall be
employed as arbitrator hereunder to settle such Dispute as soon as reasonably
practicable. The parties agree that the Arbitrator shall decide only the
matters involved in the Dispute, and not any other matters, and that such
matters shall be decided in accordance with this Section 2.3. Any Arbitration
pursuant to this Section 2.3(g) shall be conducted in the national office of
Deloitte & Touche LLP or of such certified public accounting firm, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then existing and the Arbitrator's determination with respect to
any Dispute shall be final and binding on all parties and not subject to
appeal on any ground, and judgment on the arbitration award may be enforced in
any court having jurisdiction over the subject matter of the controversy.
Seller and Purchaser shall each pay one-half of the fees and expenses of the
Arbitrator for the services of the Arbitrator in the arbitration.
(h) In the event of a Purchase Price Adjustment,
an amount equal to the Purchase Price Adjustment together with interest on
such amount at a rate equal to the rate of interest announced from time to
time by Chase Manhattan Bank to be its prime or reference rate, from the
Closing Date to the payment date, shall be paid by either Purchaser to Seller,
or Seller to Purchaser, as the case may be, in immediately available funds by
wire transfer to such bank account as may be designated by Seller or
Purchaser, as the case may be. Such payment shall be made within ten (10) days
after the final determination of the Closing Date Balance Sheet.
III
THE CLOSING
3.1 Closing. The sale and transfer of the Shares by Seller
to Purchaser (the "Closing") shall take place at the offices of Parker Chapin
Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New York at
10:00 a.m.,
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local time, on March 31, 1997, or if the conditions to close set forth in
Article VII hereof have not been satisfied or waived by March 29, 1997, two
Business Days following the satisfaction and/or waiver of all conditions to
close set forth in Article VII (the "Closing Date"), unless another date or
place is agreed to in writing by the parties hereto.
3.2 Adjournment of Closing. Notwithstanding anything to
the contrary set forth in Section 3.1, the Purchaser, in its sole discretion,
shall be entitled to one reasonable postponement of the Closing based upon
such factors as Purchaser considers appropriate.
IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
4.1 Organization. Each of Seller and the Company is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. The Company has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where failure to be
so existing and in good standing or to have such power and authority would not
in the aggregate have a Company Material Adverse Effect. The Company is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure
to be so duly qualified, licensed and in good standing, to have such power and
authority or to be so qualified or licensed would not have a Company Material
Adverse Effect. Seller has heretofore delivered to Purchaser true, correct and
complete copies of the Company's Certificate of Incorporation and Bylaws, as
currently in effect.
4.2 Capitalization.
(a) The authorized capital stock of the Company
consists of 1,000 shares of Common Stock, par value $1.00 per share. The
Shares are the only shares of Common Stock issued and outstanding, and all of
the Shares are owned of record and beneficially by Seller, free and clear of
all Liens, and no shares of Common Stock are issued and held in the treasury
of the Company. All the Shares are duly authorized, validly issued, fully paid
and nonassessable.
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There are no existing (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements or
commitments of any character obligating the Company to issue, transfer or sell
any shares of capital stock, options, warrants, calls or other equity interest
of any kind whatsoever in the Company or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of the Company to repurchase, redeem or otherwise acquire any capital stock or
equity interest of the Company or (iii) voting trusts, proxies or similar
agreements to which the Company or Seller is a party with respect to the
voting of the capital stock of the Company.
(b) Except as described in Section 4.2 of the
schedule delivered by Seller to Purchaser concurrently with the execution and
delivery of this Agreement, and which is incorporated by reference herein and
which is an integral part of this Agreement (the "Seller Disclosure Letter"),
the Company does not own any outstanding shares of capital stock (or
equivalent equity interests of entities other than corporations) of any
Person.
4.3 Authorization; Validity of Agreement. Seller has the
requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Seller, and no other corporate
proceedings on the part of Seller are necessary to authorize the execution,
delivery and performance of this Agreement by Seller and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed
and delivered by Seller and, assuming due authorization, execution and
delivery of this Agreement by Purchaser, is a valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except as
such enforceability may be subject to or limited by applicable bankruptcy,
insolvency, reorganization or other similar laws, now or hereafter in effect,
affecting the enforcement of creditors' rights generally, except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of the court before which any proceeding therefor
may be brought.
4.4 No Violations; Consents and Approvals.
(a) Except as set forth in Section 4.4(a) of the
Seller Disclosure Letter, the execution, delivery and performance of this
Agreement by Seller do not, and the consummation by Seller of the transactions
contemplated
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hereby will not, (i) violate any provision of the Certificate of Incorporation
or Bylaws of Seller, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration) under,
any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, guarantee, other evidence of indebtedness, license,
contract, agreement or other instrument to which the Company, Seller or any of
its Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or otherwise subject or (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
the Company, Seller or any of its Subsidiaries or any of their properties or
assets; except in the case of clauses (ii) or (iii) for violations, breaches
or defaults which (A) would not have a Company Material Adverse Effect, (B)
would not materially impair, hinder or adversely affect the ability of Seller
to perform any of its obligations under or as contemplated by this Agreement
or to consummate the transactions contemplated hereby or (C) become applicable
as a result of the business or activities in which Purchaser is or proposes to
be engaged or as a result of any acts or omissions by, or the status of any
facts pertaining to, Purchaser.
(b) Except as set forth in Section 4.4(b) of the
Seller Disclosure Letter, no filing or registration with, notification to, or
authorization, consent or approval of, any court, legislative, executive or
regulatory authority or agency (a "Governmental Entity") or any other Person
is required in connection with the execution, delivery and performance of this
Agreement by Seller or the consummation by Seller of the transactions
contemplated hereby, except for (i) filings with the FTC and with the DOJ
pursuant to the HSR Act, and (ii) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings the
failure of which to be obtained or made would not have a Company Material
Adverse Effect, and do not materially impair, hinder or adversely affect the
ability of Seller to perform any of its obligations under or as contemplated
by this Agreement or to consummate the transactions contemplated hereby.
4.5 Financial Statements. Attached as Exhibit 4.5 are (i)
the balance sheet of the Company as of March 31, 1996 and the related income
statement and statement of cash flows of the Company for the fiscal year then
ended and (ii) the balance sheets of the Company as of September 30, 1996 and
November 30, 1996 and the related income statements of the Company for the
six- and eight-month periods then ended (collectively, the "Financial
Statements"). The Financial
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Statements have been prepared from and are in agreement with the books and
records of the Company. Except as disclosed in Exhibit 4.5, the Financial
Statements present fairly in all material respects, when considered in
relation to the consolidated financial statements of the Seller, the financial
position and results of operations and, where appropriate, cash flows, of the
Company for the periods then ended in conformity with generally accepted
accounting principles.
4.6 Absence of Certain Changes. Except as (a) disclosed in
the Financial Statements, (b) disclosed in Section 4.6 of the Seller
Disclosure Letter or (c) expressly required by this Agreement, (i) since March
31, 1996 no event which would result in a Company Material Adverse Effect has
occurred and (ii) since September 30, 1996 the Company has not taken any
action that, if taken after the date hereof, would constitute a violation or
breach of any of the provisions set forth in Section 6.1(a) through (o)
hereof.
4.7 No Undisclosed Liabilities. Except for liabilities and
obligations incurred in the ordinary course of business that are reflected on
the Financial Statements or the Seller Disclosure Letter or will be reflected
in the Closing Date Balance Sheet, since March 31, 1996 the Company has not
incurred any, and there are no, liabilities or obligations, contingent or
otherwise, that would be required to be disclosed, reflected or reserved
against in a balance sheet of the Company (including the related notes thereto
where appropriate) prepared in accordance with generally accepted accounting
principles.
4.8 Litigation; Compliance with Law. Except as set forth in
Section 4.8 of the Seller Disclosure Letter, there is no action, suit or
proceeding pending or, to the best Knowledge of Seller, any investigation
pending or, to the best Knowledge of Seller, any action, suit or proceeding
threatened, which in any way involves or affects the Company, by or before any
court, Governmental Entity or arbitration panel or any other Person that could
or would have a Company Material Adverse Effect. The business and operations
of the Company are not being conducted in violation of any applicable law,
ordinance, rule, regulation, decree or order of any court or Governmental
Entity or other regulatory authority, or arbitration panel, except for
violations that, individually or in the aggregate, would not have a Company
Material Adverse Effect.
4.9 Employee Benefit Plans; ERISA.
(a) Section 4.9(a) of the Seller Disclosure Letter
lists each "employee benefit plan" (as defined in
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section 3(3) of ERISA), and all other material employee benefit(including,
without limitation, any non-qualified plans), bonus, deferred compensation,
incentive, stock option (or other equity-based), severance, change in control
and fringe benefit plans maintained for the benefit of, or contributed to by
the Company or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that would be deemed a "single employer" within the meaning of
section 4001 of ERISA, for the benefit of any employee or former employee of
the Company (the "Plans"). Seller has heretofore delivered to Purchaser true,
correct and complete copies of each of the Plans, including all amendments to
date.
(b) Each of the Plans that is subject to ERISA
complies with ERISA and the applicable provisions of the Code, and has been
administered in accordance with ERISA and, where applicable, the Code, except
for any such violations that would not have a Company Material Adverse Effect.
Each of the Plans intended to be "qualified" within the meaning of section
401(a) of the Code has been determined by the Internal Revenue Service to be
so qualified and Seller knows of no fact or set of circumstances that would
materially adversely affect such qualification prior to and including the
close of business on the day immediately preceding the Closing Date. Except as
set forth in Section 4.9(b) of the Seller Disclosure Letter, none of the Plans
is subject to Title IV of ERISA. No "reportable event", as such term is
defined in section 4043(b) of ERISA (for which the 30 day notice requirement
to the Pension Benefit Guaranty Board has not been waived) has occurred with
respect to any Plan, except where the occurrence of any such event would not
have a Company Material Adverse Effect. There are no pending or, to the best
Knowledge of Seller, threatened claims (other than routine claims for
benefits), actions, suits or proceedings by, on behalf of or against any of
the Plans or any trusts related thereto or against Seller or the Company in
respect of the Plans, except for any such claims, actions, suits or
proceedings that would not reasonably be likely to have a Company Material
Adverse Effect.
(c) Except as set forth in Section 4.9(c) of the
Seller Disclosure Letter, no Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with respect
to any employees or former employees of the Company beyond their retirement or
other termination of service (other than (i) coverage mandated by applicable
law, (ii) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in section 3(2) of ERISA, or (iii) benefits the
full cost of which is borne by the current or former employee (or his or her
beneficiary).
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(d) No Plan has incurred an "Accumulated Funding
Deficiency" (as defined in section 302(a) of ERISA or Section 412(a) of the
Code), whether or not waived.
(e) Except as set forth in Section 4.9(e) of the
Seller Disclosure Letter, none of the Company or any ERISA Affiliate has
incurred or would incur a "withdrawal" or "partial withdrawal", as defined in
sections 4203 and 4205 of ERISA, from any Plan that has resulted or would
result in a withdrawal liability of the Company or any ERISA Affiliate under
such Plan, except where the occurrence of any such event would not have a
Company Material Adverse Effect.
4.10 Real Property.
(a) Section 4.10 of the Seller Disclosure Letter
sets forth a list of all real property owned by the Company (the "Owned Real
Property"). The Company owns the Owned Real Property in fee subject to no
Liens, except for Permitted Liens.
(b) Section 4.10 of the Seller Disclosure Letter
sets forth a list (including, without limitation, all amendments) of all
leases and subleases under which the Company is tenant or subtenant (the
"Leases"), that, in any 12-month period, requires total lease or rent payments
by the Company of more than $50,000 (each such Lease, a "Material Lease"),
including the date of the Material Lease, the premises demised thereunder, the
name of the lessee and lessor, the commencement date and expiration date of
such Material Lease and the annual rent payable by the lessee under such
Material Lease. As used herein, the term "Material Leased Real Property" shall
mean the real property demised by Material Leases.
(c) Seller has heretofore delivered to Purchaser
true, correct and complete copies of the Material Leases. The Material Leases
are in full force and effect and are enforceable in accordance with their
respective terms, except as such enforceability may be subject to or limited
by bankruptcy, insolvency, reorganization or other similar laws, now or
hereafter in effect, affecting the enforcement of creditors' rights generally.
Except as set forth in Section 4.10(b) of the Seller Disclosure Letter, the
Material Leases have not been amended. The Company has not assigned, pledged
or otherwise transferred, and has not sublet the premises demised by, any
Material Lease. The Company is in possession of the premises demised by the
Material Leases. To Seller's best Knowledge, no event has occurred or failed
to occur which, with the giving of notice or the passage of time or both,
would constitute a default under any Material Lease. As of the date of this
Agreement, no lessor or lessee under
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any Material Lease has exercised any option or right to (i) cancel or
terminate such Material Lease or shorten the term thereof, (ii) lease
additional premises, (iii) reduce or relocate the premises demised by such
Material Lease or (iv) purchase any property.
(d) All licenses, permits and permanent
certificates of occupancy (the "Approvals"), if any, needed by the Company or,
to the Knowledge of Seller, any third party in connection with the
construction, use, occupancy and maintenance of any Owned Real Property or any
Material Leased Real Property are in full force and effect in accordance with
the respective terms thereof and none of the Approvals have been amended,
assigned, pledged or otherwise transferred, except where the failure of any of
the Approvals to be in full force and effect or any such amendment,
assignment, pledge or transfer would not have a Company Material Adverse
Effect.
(e) The Owned Real Property and the Material
Leased Real Property, including, without limitation, all building systems,
structural components, and building equipment, are in good condition and
repair, normal wear and tear excepted, and there exist no defects in the same,
except for such defects that would not have a Company Material Adverse Effect.
4.11 Intellectual Property. Section 4.11 of the Seller
Disclosure Letter lists all material trademarks, trade names, service marks,
service names, mark registrations, logos, assumed names and copyright
registrations, patents and all applications therefor which are owned by the
Company or any other Person and used by the Company in the operations of the
Company, as currently conducted (collectively, the "Intellectual Property", it
being understood that such term does not include computer software programs
used by the Company in the operations of the Company) and, as of the date
hereof, there are no pending or threatened claims of which Seller has been
given written notice by any Person relating to the Company's use of any
Intellectual Property. Except as set forth in Section 4.11 of the Seller
Disclosure Letter, the Company has such ownership and use (free and clear of
all Liens) of or rights by license, lease or other agreement to use (free and
clear of all Liens) the Intellectual Property as are necessary to permit the
Company to conduct the Company's business and its operations as currently
conducted and the Company is not obligated to pay any royalty or similar fee
to any Person in connection with the Company's use or license of any of the
Intellectual Property.
4.12 Computer Software. The Company has such title or such
rights by license, lease or other agreement to
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the computer software programs, including, without limitation, application
software, which are used by the Company and which are material to the conduct
of its business and operations as currently conducted, as are necessary to
permit the conduct of its business and operations as currently conducted,
except (i) as set forth in Section 4.12 of the Seller Disclosure Letter and
(ii) for computer software programs owned, licensed or leased by Seller and to
be used by Seller in providing services to the Company pursuant to the
Transitional Services Agreement.
4.13 Material Contracts.
(a) Section 4.13 of the Seller Disclosure Letter
sets forth, as of the date hereof, a true, complete and correct list of every
contract, agreement, loan, lease, license, guarantee, understanding or
commitment (any such item, a "Contract") that (i) provides for aggregate
future payments by the Company or to the Company of more than $100,000 and has
an unexpired term exceeding one year and may not be canceled upon 60 days
notice without any liability, penalty or premium (excluding purchase orders
and invoices arising in the ordinary course of business); (ii) was entered
into by the Company with Seller or a stockholder, officer, director or
significant employee of the Company or Seller (other than those identified in
Section 4.9 of the Seller Disclosure Letter); (iii) is a collective bargaining
or similar agreement; (iv) guarantees or indemnifies or otherwise causes the
Company to be liable or otherwise responsible for the obligations or
liabilities of any other Person or provides for a charitable contribution by
the Company; (v) involves an agreement with any bank, finance company or
similar organization; (vi) restricts the Company from engaging in any business
or activity anywhere in the world; (vii) is an employment agreement,
consulting agreement or similar arrangement with any employee of the Company
or any other Person (other than those identified in Section 4.9 of the Seller
Disclosure Letter); or (viii) any joint venture agreement to which the Company
is a party (the foregoing, collectively, "Material Contracts"). For purposes
hereof, Material Contracts shall not include Material Leases, plans or
agreements in respect of computer software programs owned, licensed or leased
by Seller and to be used by Seller in providing services to the Company
pursuant to the Transitional Services Agreement. Seller has heretofore
provided true, complete and correct copies of all Material Contracts to
Purchaser.
(b) Except as set forth in Section 4.13 of the
Seller Disclosure Letter, (i) there is not, and, to the best of Seller's
Knowledge, as of the date hereof, there has not been, claimed or alleged by
any Person with respect to
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any Material Contract, any existing default, or event that with notice or
lapse of time or both would constitute a default or event of default, on the
part of the Company or, to the best of Seller's Knowledge, on the part of any
other party thereto, except such defaults, events of default and other events
that would not result in a Company Material Adverse Effect and (ii) no
consent, approval, authorization or waiver from, or notice to, any
Governmental Entity or other Person is required in order to maintain in full
force and effect any of the Material Contracts, other than such consents and
waivers that have been obtained and are unconditional and in full force and
effect and such notices that have been duly given.
4.14 Taxes. Except as set forth in Section 4.14 of the
Seller Disclosure Letter:
(a) (i) each of Seller and the Company has (A)
duly and timely filed with the appropriate governmental authorities
all material Tax Returns required to be filed by it and such Tax
Returns are true, correct and complete in all material respects, and
(B) duly and timely paid in full, or provision for such payment has
been recorded on the books and records of the Company in accordance
with GAAP for the payment of, all Taxes due with respect to the
Company;
(ii) the Company has complied in all material
respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes;
(iii) no federal, state, local or foreign
audits or other administrative proceedings or court proceedings are
presently pending, proposed or threatened (in each case in writing)
with regard to any Taxes or Tax Returns of the Company;
(iv) there are no Liens for Taxes upon any
property or assets of the Company, except for Permitted Liens;
(v) all Tax Returns with respect to Income
Taxes ("Income Tax Returns"), and any state and local sales, use,
highway use, and real or personal property Tax Returns of or
including the Company, and any other Tax Return of or including the
Company showing thereon as due for the period of such Tax Return
Taxes of at least $25,000, have been examined by the Internal Revenue
Service or the appropriate state or local taxing authority (or the
applicable statutes of limitation for the assessment of such Taxes
for such periods have ex-
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pired) for all periods through the taxable year ended March 31, 1992;
(vi) with respect to the Company, (i) there
are no pending requests for rulings from any Taxing authority, (ii)
there are no outstanding subpoenas or requests for information by any
Taxing authority with respect to Taxes, and (iii) there are no
material proposed reassessments by any Taxing authority of any
property owned or leased by the Company;
(vii) there are no agreements in effect to
extend (i) the time to file any Tax Return of the Company or (ii) the
period of limitations for the assessment or collection of any Taxes
for which the Company would be liable;
(viii) neither the Company nor any Tax
Affiliate has, and Seller has not on behalf of the Company, entered
into any closing agreement, within the meaning of Section 7121 of the
Code or any analogous provision of applicable state or local Tax law,
which closing agreement could affect any Taxes for which the Company
could be liable after the Closing Date;
(ix) all deficiencies of Taxes other than
Income Taxes asserted or proposed in writing or, to the Knowledge of
the Seller, otherwise asserted or proposed with respect to the
Company or any predecessor of the Company as a result of any audit,
examination, investigation or similar proceeding by any taxing
authority have been paid or adequate provision therefor has been made
on the Financial Statements;
(x) the Company is a member of a U.S.
consolidated return filing group of which Seller is the common
parent; and
(xi) there are no powers of attorney in
effect relating to Taxes of the Company that relate to Taxes for any
Post-Closing Period.
(b) Section 4.14(b) of the Seller Disclosure
Letter sets forth a list of states, territories and other jurisdictions
(whether foreign or domestic) in which the Company has filed Income,
franchise, sales and use and property (real, personal and intangible) Tax
Returns for taxable periods ending after March 31, 1991; and except as set
forth thereon, no taxing authority in a jurisdiction where the Company does
not file Tax Returns has made a claim or assertion in writing that the Company
is subject to Tax by such jurisdiction.
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(c) Seller has provided to Purchaser all audit
reports relating to each adjustment, if any, to Taxes of the Company of
$25,000 or more made by any taxing authority with respect to any taxable
period ended after March 31, 1991.
4.15 Affiliated Party Transactions. Except as set forth in
Section 4.15 of the Seller Disclosure Letter, no contracts or agreements in
which the amount involved either alone or together with all similar items
exceeds $100,000 are in effect as of the date hereof, or have been in effect
at any time since December 31, 1993, between the Company, on the one hand, and
Seller or its Affiliates or any other Affiliates of the Company, on the other
hand (such contracts or agreements, "Affiliate Transactions").
4.16 Environmental Matters. Except as set forth in Section
4.16 of the Seller Disclosure Letter:
(a) the Company has obtained and holds, and is
in compliance with all Environmental Laws and Environmental Permits except as
would not have a Company Material Adverse Effect or materially hinder or
impair the business and operations of the Company as presently conducted;
(b) no Current Site is a treatment, storage or
disposal facility, as defined in and regulated under the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., is or, to Seller's Knowledge,
ever was listed or is proposed for listing on the National Priorities List
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., or on any similar state list of sites
requiring investigation or cleanup;
(c) the Company has not received any notice or
entered into any written agreement with respect to any Current Site from or
with any Governmental Entity or Person that remains pending or outstanding
alleging that the Company is not in compliance with any Environmental Law
except as would not have a Company Material Adverse Effect or materially
hinder or impair the business and operations of the Company as presently
conducted;
(d) there has been no Release of a Hazardous
Substance at, from, in, to, on or under any Current Site or at any other
property to which it is alleged the Company is liable, and no Hazardous
Substances are present in, on, about or, to Seller's Knowledge, migrating to
or from any Current Site that could reasonably be expected to give rise to an
Environmental Claim against the Company except as would not have a Company
Material Adverse Effect or materially hinder
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or impair the business and operations of the Company as presently conducted;
(e) there are no pending or outstanding corrective
actions requested, required or being conducted by any Governmental Entity for
the investigation, remediation or cleanup of any Current Site, and there have
been no such corrective actions, whether still pending or otherwise, that
would have a Company Material Adverse Effect or materially hinder or impair
the business and operations of the Company as presently conducted;
(f) there are no outstanding past or pending, or
to Seller's Knowledge threatened Environmental Claims against the Company, and
the Seller is not aware of any facts or circumstances relating to any Current
Site that could reasonably be expected to form the basis for any Environmental
Claim against the Company except as would not have a Company Material Adverse
Effect or materially hinder or impair the business and operations of the
Company as presently conducted;
(g) the Company has not transported or arranged
for the treatment, storage, handling, disposal, or transportation of any
Hazardous Substance to any off-Site location from any Current Site that could
reasonably be expected to result in an Environmental Claim against the Company
except as would not have a Company Material Adverse Effect or materially
hinder or impair the business and operations of the Company as presently
conducted;
(h) to Seller's Knowledge, there are no (i)
underground storage tanks, active or abandoned, (ii) polychlorinated biphenyl
containing equipment, or (iii) asbestos containing material at any Current
Site; and
(i) there have been no environmental
investigations, studies, audits, tests, reviews or other analyses (which have
been reduced to writing) conducted by, on behalf of, and which are otherwise
in the possession of the Company or Seller with respect to any Current Site or
any transportation, handling or disposal of any Hazardous Substance which have
not been delivered to or made available to Purchaser prior to execution of
this Agreement.
4.17 No Brokers. Seller has not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees or other similar fees in connection with the
transactions contemplated by this Agreement, except for Paine Webber
Incorporated, whose fees shall be borne solely by Seller.
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4.18 Receivables, Inventory and Payables. All accounts
receivable, inventory and accounts payable of the Company have arisen, and as
of the Closing Date will have arisen, from bona fide transactions in the
ordinary course of business consistent with past practice.
4.19 Letters of Credit. Except as set forth in Section 4.19
of the Seller Disclosure Letter, the Company has no outstanding letters of
credit (whether documentary, standby or otherwise), or any obligation or
responsibility in respect of an outstanding letter of credit (whether
documentary, standby or otherwise) of any other Person, or any obligation in
respect of any account party agreement or other similar financial arrangement
with respect to any such letter of credit, or any obligation to cause any
letter of credit to be issued. Seller has heretofore delivered to Purchaser
true, correct and complete copies of each letter of credit listed or described
in Schedule 4.19 of the Seller Disclosure Letter, and all underlying or
related documentation.
4.20 Entire Business. Except as set forth in Section 4.20
of the Seller Disclosure Letter and for computer software programs owned,
licensed or leased by Seller and to be used by Seller in providing services to
the Company pursuant to the Transitional Services Agreement, the assets,
properties and rights owned, leased or licensed by the Company, or used in
connection with the business or operations of the Company, and that will be
owned, leased or licensed by the Company as of the Closing Date, constitute
substantially all of the properties and assets necessary to the Company in
connection with the operation and conduct by the Company of its business as
now operated and conducted.
4.21 Unclaimed Funds. Except as disclosed in Section 4.21
of the Seller Disclosure Letter, there are no liabilities or obligations with
respect to any unclaimed funds or other property of any kind that at any time
in the past have been turned over by the Company to Seller or any other Person
that are subject to any recovery by any state or other Governmental Entity or
any other Person (including, without limitation, the owner or purported owner
of such funds or other property) pursuant to any escheat or other law.
4.22 Pending Transactions. Except as set forth in Section
4.22 of the Seller Disclosure Letter, as of the date hereof, there is no
contract, agreement or, to the Knowledge of Seller, outstanding proposal with
any customer or vendor pursuant to which the Company is or would be required
to advance $100,000 or more to such customer or vendor. To the Knowledge of
the Seller and as of the date hereof, there are no outstanding proposals to
current or prospective new
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customers regarding the establishment of a new business relationship that
would provide any pricing, discount, rebate or other term unusual in amount or
percentage and that would be detrimental or adverse to the business or
operations of the Company.
4.23 Insurance. Section 4.23 of the Seller Disclosure
Letter sets forth a summary of the insurance policies (including the carrier,
the expiration date, the amounts and lines of coverage) currently maintained
by Seller, including, without limitation, any umbrella or excess liabilities
policies, which relate to, or in any way provide coverage for, the Company,
its business or operations or for which the Company is an insured or which
would provide coverage to the Company had the Company been included among
Seller's Subsidiaries entitled to coverage under the applicable policy, but
excluding from the foregoing any insurance policies providing coverage for
acts or omissions of directors and officers of Seller or the Company in their
capacities as such (such policies, together with all such policies maintained
by Seller during the past three (3) years, collectively, the "McKesson
Insurance Policies"). All McKesson Insurance Policies not summarized in
Section 4.23 of the Seller Disclosure Letter contained substantially the same
limits of liability and coverage as the corresponding policy summarized in
said Section 4.23. Seller has heretofore delivered to Purchaser true, correct
and complete copies of the McKesson Insurance Policies summarized in Section
4.23 of the Seller Disclosure Letter.
V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
5.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted except
where failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a Purchaser Material Adverse Effect.
Purchaser is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature
of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified, licensed and in
good standing, to have such power and authority or to be so
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qualified or licensed would not have a Purchaser Material Adverse Effect.
Purchaser has heretofore delivered to Seller true, correct and complete copies
of its Certificate of Incorporation and Bylaws as currently in effect.
5.2 Authorization; Validity of Agreement. Purchaser has the
requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by Purchaser of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Purchaser, and no other
corporate proceedings on the part of Purchaser are necessary to authorize the
execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Purchaser and, assuming due authorization,
execution and delivery of this Agreement by Seller, is a valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with its
terms, except as such enforceability may be subject to or limited by
applicable bankruptcy, insolvency, reorganization, or other similar laws, now
or hereafter in effect, affecting the enforcement of creditors' rights
generally, except that the availability of equitable remedies, including
specific performance, may be subject to the discretion of the court before
which any proceeding therefor may be brought.
5.3 No Violations; Consents and Approvals.
(a) The execution, delivery and performance of
this Agreement by Purchaser do not, and the consummation by Purchaser of the
transactions contemplated hereby will not, (i) violate any provision of the
certificate of incorporation or Bylaws of Purchaser, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, guarantee, other
evidence of indebtedness, license, contract, agreement or other instrument to
which Purchaser is a party or by which the Purchaser or any of its properties
or assets may be bound or otherwise subject or (iii) violate any order, writ,
judgment, injunction, decree, law, statute, rule or regulation applicable to
Purchaser, or any of its properties or assets; except in the case of clauses
(ii) and (iii) for violations, breaches or defaults which (A) would not have a
Purchaser Material Adverse Effect, or (B) would not materially impair, hinder
or adversely affect the ability of Purchaser to perform any of its obligations
under or as
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contemplated by this Agreement or to consummate the transactions contemplated
hereby.
(b) No filing or registration with, notification
to, or authorization, consent or approval of, any Governmental Entity is
required in connection with the execution, delivery and performance of this
Agreement by Purchaser or the consummation by Purchaser of the transactions
contemplated hereby, except (i) filings with the FTC and with the DOJ pursuant
to the HSR Act, and (ii) such other consents, approvals, orders,
authorizations, notifications, registrations, declarations and filings the
failure of which to be obtained or made would not have a Purchaser Material
Adverse Effect, and do not materially impair, hinder or adversely affect the
ability of Purchaser to perform any of its obligations under or as
contemplated by this Agreement or to consummate the transactions contemplated
hereby.
5.4 Sufficient Funds. Purchaser has sufficient funds
available, in cash or pursuant to existing credit agreements or binding
commitments in effect on the date of this Agreement, to purchase all the
Shares for the Purchase Price set forth in Section 2.2 hereof and to perform
all of its obligations hereunder.
5.5 Litigation; Compliance with Law. There is no action,
suit or proceeding pending or, to the best knowledge of Purchaser, any
investigation pending or, to the best knowledge of Purchaser, any action, suit
or proceeding threatened, which in any way involves or affects Purchaser, by
or before any court, Governmental Entity or arbitration panel or any other
Person that would have a Purchaser Material Adverse Effect. The business and
operations of Purchaser are not being conducted in violation of any applicable
law, ordinance, rule, regulation, decree or order of any court or Governmental
Entity, except for violations that, individually or in the aggregate, would
not have a Purchaser Material Adverse Effect.
5.6 No Brokers. Purchaser has not employed any broker or
finder or incurred any liability for any brokerage or investment banking fees,
commissions, or finders' fees or other similar fees in connection with the
transactions contemplated by this Agreement.
5.7 Investigation by Purchaser. Purchaser has conducted a
review and analysis of the business, assets, condition and operations of the
Company and acknowledges that Seller has provided Purchaser access to certain
of the properties, premises and records of the Company for this purpose;
provided, however, this Section 5.7 shall not limit,
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restrict, modify or otherwise have any effect on any of the rights or remedies
of Purchaser under this Agreement or the Transitional Services Agreement.
5.8 Prior Seller Representations; No Personal Liability.
(a) Purchaser acknowledges that none of Seller,
its Subsidiaries or any of their respective directors, officers, employees,
affiliates, agents or representatives makes any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the
information provided or made available to Purchaser or its agents or
representatives prior to the execution of this Agreement and the delivery of
the Seller Disclosure Letter which is being made concurrently with the
execution and delivery of this Agreement, except as to such documents and
agreements specifically referred to in this Agreement as being delivered (as
to which Seller represents and warrants the accuracy and completeness thereof)
or made available by Seller to Purchaser prior to the date hereof.
(b) Purchaser agrees, to the fullest extent
permitted by applicable law, that none of Seller, its Subsidiaries or any of
their respective directors, officers, employees, affiliates, controlling
persons, agents or representatives shall have any liability or responsibility
whatsoever to Purchaser, its directors, officers, employees, affiliates,
controlling persons, agents or representatives on any basis (including,
without limitation, in contract or tort, under federal or state securities
laws or otherwise) based upon any information provided or made available, or
statements made, to Purchaser or its directors, officers, employees,
affiliates, controlling persons, agents or representatives (or any omissions
therefrom) in connection with the transactions contemplated hereby, except
(solely with respect to Seller) to the extent expressly set forth in this
Agreement, the Seller Disclosure Letter or the Transitional Services
Agreement.
5.9 Investment Intent. The Shares will not be taken by
Purchaser with a view to the public distribution thereof, and will not be
transferred, except in a transaction registered or exempt from registration
under the Securities Act.
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VI
COVENANTS
VI.1 Conduct of the Business by the Company Pending the
Closing. During the period from the date hereof to the Closing, unless
Purchaser shall otherwise agree in writing, except as required by applicable
law, or as otherwise expressly provided for by this Agreement, Seller shall
cause the Company to conduct its businesses in the ordinary course, consistent
with past practice, and in such a manner that would not have a Company
Material Adverse Effect. Without limiting the generality of and in addition to
the foregoing, and except as set forth in the Seller Disclosure Letter hereto
or as otherwise provided in this Agreement, prior to the Closing, Seller will
cause the Company not to, without the prior written consent of Purchaser (in
the case of items (f), (m), (n) and (o) below, such consent not to be
unreasonably withheld or delayed):
(a) amend its certificate of incorporation or
bylaws;
(b) authorize for issuance, issue, sell, deliver
or agree or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any stock of any class or any other securities;
(c) split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock or redeem or otherwise acquire any of its securities;
(d) (i) incur or assume any indebtedness other than
trade payables incurred in the ordinary course of business; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any material obligations of any other
Person; or (iii) make any loans, advances or capital contributions to, or
investments in, any other Person (other than customary loans or advances to
employees in accordance with past practices);
(e) enter into, adopt or amend any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreements, trusts, plans, funds or other arrangements of or for the benefit
or welfare of any Company Employee (as such term is
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hereinafter defined), or (except for normal increases in the ordinary course
of business that are consistent with past practices) increase in any manner
the compensation or fringe benefits of any Company Employee or pay any benefit
not required by any existing plan and arrangement (including, without
limitation, the granting of stock options, stock appreciation rights, shares
of restricted stock or performance units);
(f) acquire, sell, lease, transfer or dispose of
any of its properties or assets, except in the ordinary course of business and
consistent with past practice, or any properties or assets that are material,
individually or in the aggregate, to the Company's business or operations or
enter into any Material Contract or any commitment that would result in a
Material Contract or enter into any Affiliate Transaction other than in the
ordinary course of business and consistent with past practice;
(g) except as may be required by law, take any
action to terminate or materially amend any of its employee benefit plans with
respect to or for the benefit of Company Employees;
(h) modify any policy or procedure with respect to
credit to customers or collection of receivables or make any proposal with
respect thereto (provided that Purchaser's consent with respect to any
proposal shall not be unreasonably withheld or delayed) to any prospective
customer;
(i) pay, discharge or satisfy before it is due any
claim or liability of the Company, or fail to pay any such item in a timely
manner, given the Company's prior practices;
(j) cancel any debts or waive any claims or rights
of substantial value;
(k) except to the extent required by applicable
law, change any accounting principle or method or make any election for
foreign, federal, state or local income Tax purposes;
(l) take or suffer any action that would result in
the creation, or consent to the imposition, of any Lien on any of the
properties or assets of the Company;
(m) make any capital expenditure or commitment for
additions to property, plant, equipment or other capital assets in excess of
$50,000;
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(n) except in the ordinary course of the Company's
business consistent with past practice, amend, waive, surrender or terminate or
agree to the amendment, waiver, surrender or termination of any Material
Contract, Material Lease or Approval;
(o) except in the ordinary course of the Company's
business consistent with past practice, exercise any right or option under any
Lease or extend or renew any Material Contract or Material Lease; or
(p) enter into any contract, agreement, commitment
or arrangement to do, or take, or agree in writing or otherwise to take or
consent to, any of the foregoing actions.
6.2 Access to Information.
(a) Between the date of this Agreement and the
Closing, during normal business hours, Seller will give Purchaser and its
authorized representatives reasonable access to all offices and other facilities
of the Company and to all books and records of the Company and of Seller, with
respect to the Company, and the Company and Seller, as applicable, will permit
Purchaser to make such inspections and to make copies of such books and records
as it may reasonably require and will cause its officers and the Company and its
officers to furnish Purchaser with such financial and operating data and other
information as Purchaser may from time to time reasonably request. Purchaser and
its authorized representatives will conduct all such inspections in a manner
which will minimize any disruptions of the business and operations of the
Company.
(b) Purchaser and Seller agree that the provisions
of the confidentiality agreement between Seller and Purchaser, dated November
1, 1996 (the "Confidentiality Agreement") shall remain binding and in full
force and effect until the Closing, that the information contained herein, in
the Seller Disclosure Letter and provided to Purchaser or its authorized
representatives pursuant hereto shall be subject to the Confidentiality
Agreement as "Information" (as defined therein) until the Closing and that,
for that purpose and to that extent, the terms of the Confidentiality
Agreement are incorporated herein by reference.
6.3 Best Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
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regulations to consummate and make effective the transactions contemplated by
this Agreement.
6.4 Consents. Seller and Purchaser shall cooperate, and use
their respective best efforts, in as timely a manner as is reasonably
practicable, to make all filings with, and obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders from, all
Governmental Entities and other Persons necessary or required to be obtained
for Purchaser and Seller, as applicable, to consummate the transactions
contemplated by this Agreement (collectively, the "Consents"). Each of the
parties hereto will furnish to the other party such necessary information and
reasonable assistance as such other persons may reasonably request in
connection with the foregoing and will provide the other party with (i) copies
all filings made by such party with any Governmental Entity or other Person or
any other information supplied by such party in connection with this Agreement
and the transactions contemplated hereby and (ii) all consents obtained from
any party to any Contract or any Material Lease and any Approval with respect
to any Material Leased Real Property and the Owned Real Property.
6.5 HSR Filings.
(a) In addition to and without limiting the
agreements of the parties contained in Section 6.4, hereof, Seller and
Purchaser will (i) take promptly all actions necessary to make the filings
required of them or any of their Affiliates under the HSR Act, (ii) comply at
the earliest practicable date with any request for additional information or
documentary material received by Seller or Purchaser, as applicable, or any of
their Affiliates from the FTC or DOJ pursuant to the HSR Act,(iii) cooperate
with each other in connection with any filing under the HSR Act and in
connection with resolving any investigation or other inquiry concerning the
transactions contemplated by this Agreement commenced by either the FTC or DOJ
or states attorneys general and (iv) use all commercially reasonable efforts
to resolve such objections, if any, as may be asserted with respect to the
transactions contemplated by this Agreement under any Antitrust Law.
(b) Each of Seller and Purchaser shall promptly
inform the other party of any material communication received by such party
from the FTC, DOJ or any other Governmental Entity regarding any of the
transactions contemplated hereby, and of any understandings, undertakings or
agreements (oral or written) such party proposes to make or enter into with
the FTC, DOJ or any other Governmental Entity in connection with the
transactions contemplated hereby.
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6.6 Public Announcements. Purchaser and Seller will consult
with each other and obtain the other's consent, which consent shall not be
unreasonably withheld or delayed, before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated hereby and shall not issue any such press release or make any
such public statement prior to such consultation and obtaining such consent,
except if the issuance of any such press release or the making of any such
public statement prior to such consultation and obtaining such consent is
required by applicable law or any securities exchange listing agreement to
which Seller is a party.
6.7 Employee Agreements. Purchaser agrees to cause the
Company, to honor and be bound by the terms of the employment agreements (the
"Employment Agreements") and severance agreements (the "Severance Agreements")
with officers of the Company listed on Section 6.7 of the Seller Disclosure
Letter. Seller has heretofore delivered to Purchaser true, correct and
complete copies of such Employment Agreements and Severance Agreements.
6.8 Employee Benefits.
(a) For a period of eighteen (18) months
immediately following the Closing, Purchaser shall, or shall cause the Company
to, continue to maintain, for the benefit of employees and officers of the
Company, employee benefit plans (as defined in section 3(3) of ERISA) which
are comparable in the aggregate to those provided to them under the active
employee benefit plans provided by the Company or Seller for the benefit of
employees of the Company immediately prior to the Closing, other than plans or
parts of plans providing for contributions in Seller, Purchaser or Company
stock, ESOPs or other Seller, Purchaser or Company stock or equity related
plans. Anything to the contrary contained herein notwithstanding, Purchaser
shall cause the Company to assume, to indemnify Seller, and to hold Seller
harmless from and against, any and all obligations and liabilities reflected
on the Closing Date Balance (to the extent required to be so reflected by the
Accounting Principles and Procedures) under the terms of the Mass
Merchandisers, Inc. Deferred Compensation Plan, the Mass Merchandisers, Inc.
Employee Supplemental Retirement Plan and the NAPCO Industries Plan, dated
January 1982.
(b) Purchaser or the Company may provide the
benefits referred to in the first sentence of Section 6.8(a) under newly
established plans of Purchaser or the Company or under existing employee
benefit plans that are maintained by Purchaser or the Company prior to the
Closing.
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(c) Except to the extent specifically provided in
this Agreement, effective as of the Closing Date, each Company Employee (as
such term is hereinafter defined) shall cease to be a participant in each of
the employee benefit plans sponsored or maintained by Seller; provided,
however, that Seller shall, upon the reasonable request of Purchaser, provide
information necessary and appropriate to assist Purchaser in establishing
successor employee benefit plans for the benefit of such Company Employees.
(d) "Company Employees" shall mean the employees
of the Company as of the Closing Date, excluding any such employees receiving
disability benefits (whether long-term or short-term) as of the Closing Date;
provided, however, that with respect to any such employee receiving short-term
disability benefits as of the Closing Date who returns to full-time employment
with the Company prior to the expiration of his or her short-term disability
benefits, Purchaser shall cause the Company to make an appropriate payment, if
necessary, to Seller to reimburse Seller for benefits paid as a result of not
treating such employee as a Company Employee from and after the Closing Date;
provided that any employee of the Company who is on short-term disability as
of the Closing Date and does not return to the employ of the Company shall not
be a Company Employee for purposes hereof.
(e) Purchaser shall cause the Company to assume,
to indemnify Seller, and to hold Seller harmless from and against any and all
obligations and liabilities arising under health, medical, hospitalization,
drug prescription and dental benefit insurance plans with respect to any and
all health, medical, hospitalization, drug prescription and dental benefit
expenses incurred by the Company with respect to claims of Company Employees,
after the Closing Date, including any such expenses arising after the Closing
in connection with injuries or claims first incurred prior to the Closing Date
("Post-Closing Medical Expenses"). To the extent that any Post-Closing Medical
Expenses are paid by Seller or any employee benefit plan of Seller, Seller
shall notify the Company of the payment of such expenses and the Company shall
reimburse Seller for such expenses as soon as is reasonably practicable
following such notification.
(f) For purposes of all employee benefit plans,
programs and arrangements maintained by or contributed to by Purchaser and its
Subsidiaries (including, without limitation, the Company following the
Closing), Purchaser shall, or shall cause its Subsidiaries to, cause each such
plan, program or arrangement to treat the prior service with the Company of
each Company Employee (to the same extent such service is recognized under
analogous plans, programs or
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arrangements of the Company or Seller prior to the Closing) as service
rendered to Purchaser or its Subsidiaries, as the case may be, for all
purposes including, without limitation, eligibility to participate,
eligibility to receive benefits (including the application of waiting periods
in respect of preexisting conditions or any other waiting periods under the
Company's welfare plans) and vesting thereunder. Company Employees shall also
be given credit for any deductible, copayments or similar amounts paid in
respect of the plan year in which the Closing occurs, to the extent that,
following the Closing, they participate in any other plan for which
deductibles, copayments or similar amounts are required. Purchaser shall not
impose any preexisting condition or waiting period limitation under any
applicable Purchaser plan that is greater than that which would otherwise be
applicable to a Company Employee under an analogous plan prior to the Closing.
(g) Nothing contained in this Section 6.8 shall
confer on any Company Employee or other Person any third party beneficiary
rights or constitute any Company Employee or other Person a third party
beneficiary of any of the terms or provisions hereof.
6.9 Notification of Certain Matters. Seller shall give
prompt notice to Purchaser and Purchaser shall give prompt notice to Seller,
of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would cause any representation or warranty contained in
this Agreement (including the Seller Disclosure Letter) to be untrue or
inaccurate in any material respect at the Closing, (ii) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would
cause any representation or warranty contained in this Agreement (including
the Seller Disclosure Letter) to be untrue or inaccurate in any material
respect at the Closing, but for the fact that such representation or warranty
is dated as of the date of this Agreement, and (iii) any material failure of
the Seller or Purchaser, as the case may be, to comply with or satisfy any
covenant, warranty, obligation, condition or agreement to be observed,
complied with or satisfied by it hereunder; provided, however, that the
qualification by the use of the word "material" of the obligation to provide
prompt notice pursuant to the foregoing shall not apply to any representation,
covenant, warranty, obligation, condition or agreement that is itself
qualified by a materiality qualification, including, without limitation, a
Company Material Adverse Effect.
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6.10 Tax Matters.
(a) With respect to the Company, Seller and
Purchaser shall jointly make the election provided for by Section 338(h)(10)
of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations and any
comparable election under state or local tax law (the "Election"). As soon as
practicable after the Closing, with respect to such Election, Seller and
Purchaser shall mutually prepare a Form 8023-A, with all attachments, and
Seller shall sign such Form 8023-A. Also, Purchaser and Seller shall cooperate
with each other to take all actions necessary and appropriate (including
filing such additional forms, returns, elections, schedules and other
documents as may be required) to effect and preserve such Election in
accordance with the provisions of Section 1.338(h)(10)-1 of the Treasury
Regulations (or any comparable provisions of state or local tax law) or any
successor provisions.
(b) With respect to the Election, Purchaser shall
in good faith determine the modified Aggregate Deemed Sales Price (the "modified
ADSP") and allocate the modified ADSP reasonably among the assets of the Company
and the covenants contained in Section 6.13 pursuant to Treasury Regulation
Section 1.338(h)(10)-1. Purchaser shall provide to Seller a schedule and
supporting material reflecting such allocation. Purchaser agrees that Purchaser
shall consult with Seller in the determination of the purchase price allocation
hereunder. The parties shall take no action inconsistent with, or fail to take
any action necessary for the validity of, the Election, and shall adopt and
utilize the asset values determined from such reasonable allocation for the
purpose of all Tax Returns filed by them, and shall not voluntarily take any
position inconsistent therewith upon examination of any Tax Return, in any
refund claim, in any litigation or otherwise with respect to such Tax Returns.
(c) Seller and Purchaser shall and shall cause
their respective affiliates to provide the requesting party with such
assistance and documents as may be reasonably requested by such party in
connection with (i) the preparation of any Tax Returns of the Company, (ii)
the conduct of any Tax Audit relating to liability for or refunds or
adjustments with respect to Taxes, and (iii) any other Tax-related matter that
is a subject of this Agreement. Such cooperation shall be provided to the
requesting party promptly upon its request. Such cooperation and assistance
shall include, without limitation, providing all information, records and
other documents relating to Taxes with respect to the Pre-Closing Periods and
Straddle Periods, preserving all such information until after the expiration
of any applicable statute of limitations (including extensions), and making
em-
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ployees available to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such Tax
Audit. Purchaser shall, within 90 days following the Closing Date prepare and
provide to Seller a package of tax information materials (the "Tax Package")
relating to the tax items of the Company for the taxable years ending March
31, 1997, and on the Closing Date, if later, which Tax Package shall, to the
extent permissible under applicable law, be completed in accordance with past
practice, including past practice as to providing the information, schedules,
work papers and other documentation, and as to the method of computation of
separate taxable income or other relevant measures of income. Notwithstanding
the foregoing sentence, the Tax Package for the taxable year ending March 31,
1997 shall be provided to Seller no later than August 31, 1997.
(d) (i) For purposes of this Agreement, (x) the
amount of Taxes attributable to the pre-closing portion of a Straddle
Period shall be determined based on an interim closing of the books as
of the close of the Closing Date, except that the amount of any such
Taxes that are imposed on a periodic basis shall be determined by
reference to the relative number of days in the pre-closing and
post-closing portions of such Straddle Period; and (y) the taxable
year of any partnership or other pass-through entity in which the
Company is partner or other beneficial interest holder shall be
deemed to terminate on the Closing Date.
(ii) Purchaser shall cause the Company to
join, for all Pre-Closing Periods for which the Company is required
or eligible to do so, in all consolidated, combined or unitary
federal, state or local Income Tax or franchise Tax Returns of Seller
(or any Tax Affiliate) for all Pre-Closing Periods ("Seller Tax
Returns"), and shall, in each jurisdiction where this is required or
permissible under applicable law, cause the taxable year of the
Company to terminate as of the Closing Date. Seller shall cause to be
prepared and timely filed all such Seller Tax Returns and shall cause
to be timely paid all Taxes shown to be due on such Seller Tax
Returns.
(iii) Purchaser shall or shall cause the
Company to prepare and timely file all Income Tax Returns of the
Company for all Pre-Closing Periods, other than those Tax Returns
referred to in Section 6.10(d)(ii), which Income Tax Returns have not
been filed as of the Closing Date, and all Income Tax Returns of the
Company relating to a Straddle Period, and shall cause to be timely
paid all Taxes shown to be due on
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such Tax Returns. No later than ten days prior to the due date for
the filing of each Income Tax Return referred to in this Section
6.10(d)(iii), Seller shall pay to the Company the amount of Taxes
shown as due thereon; provided, however, that in the case of an
Income Tax Return for a Straddle Period, Seller shall only be
required to pay the Company the portion of such Taxes that is
attributable to the pre-closing portion of such Straddle Period
determined in accordance with Section 6.10(d)(i). Seller shall fully
cooperate with Purchaser and the Company and shall provide assistance
to Purchaser and the Company in accordance with past practice in the
preparation of the Income Tax Returns referred to in this Section
6.10(d)(iii).
(iv) Purchaser shall or shall cause the
Company to prepare and timely file all Tax Returns of the Company for
all Pre-Closing Periods and Straddle Periods, other than those Tax
Returns referred to in Section 6.10(d)(ii) and (iii), which Tax
Returns have not been filed as of the Closing Date, and shall cause
to be timely paid all Taxes shown as due thereon. No later than ten
days prior to the due date for the filing of each Tax Return referred
to in this Section 6.10(d)(iv), Seller shall pay to the Company the
excess, if any, of (A) the amount of Taxes shown as due on such Tax
Returns (in the case of a Tax Return for a Straddle Period, the
amount of such Taxes attributable to the pre-closing portion of such
Straddle Period), over (B) the amount, if any, specifically accrued
with respect to such particular Tax on the Closing Date Balance
Sheet.
(v) The Tax Returns referred to in Section
6.10(d)(ii), (iii) and (iv) shall be prepared in a manner consistent
with past practice, unless a contrary treatment is required by an
intervening change in applicable law. Seller shall cause a pro forma
federal Income Tax Return for the Company, together with the relevant
workpapers and other information, and a state Income Tax information
statement showing income, deductions and other tax items and the
Company apportionment factor for each appropriate state, to be made
available to Purchaser for its review no later than 20 days prior to
the due date for filing the Seller Tax Returns to which such pro
forma Income Tax Returns and information statements relate (taking
into account proper extensions). Purchaser shall cause any Tax Return
that is required to be filed by Purchaser or the Company under
Section 6.10(d)(iii) or (iv), together with all relevant workpapers
and other information, to be made available to Seller for its review
and approval
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no later than 20 days prior to the due date for the filing of such
Tax Return (taking into account proper extensions), such approval not
to be required where Purchaser and the Company have prepared such Tax
Returns in accordance with past practice (including without
limitation, as to accounting methods and methods of measuring sales,
income, property values or other relevant items), or a contrary
treatment is required by an intervening change in the applicable law.
(e) (i) Without duplication, Seller shall
indemnify, defend and hold the Purchaser Indemnified Persons harmless
from and against any and all Damages which may be suffered or
incurred by them in respect of or relating to, directly or indirectly
(i) Taxes of or attributable to the Company with respect to all
Pre-Closing Periods, (ii) Taxes of or attributable to the Company
with respect to the pre-closing portion of any Straddle Period, (iii)
Taxes payable by the Company with respect to any Pre-Closing Period
or Straddle Period by reason of the Company being severally liable
for the Tax of any Tax Affiliate pursuant to Treasury Regulation
Section 1.1502-6 or any analogous state or local Tax law; (iv) any
amount required to be paid by the Company, under an indemnification
agreement or on a transferee liability theory, in respect of any
Taxes of any Person, which indemnification agreement or application
of transferee liability theory relates to an acquisition, disposition
or similar transaction occurring on or prior to the Closing Date; (v)
to the extent not included in the other clauses of this Section
6.10(e), Taxes payable by reason of the Election; (vi) to the extent
not included in the other clauses of this Section 6.10(e), any other
Taxes imposed upon or payable by the Company by reason of or
attributable to the breach of any representation, warranty or
covenant under this Agreement; and (vii) to the extent not included
in other clauses of Section 6.10(e), Taxes payable by reason of any
transactions contemplated by Sections 6.15 and 6.17 of this Agreement
(relating to the retention of McKesson Rights and McKesson
Obligations); provided, however, that in the case of Taxes other than
Income Taxes, Seller shall be required to indemnify Purchaser
pursuant to this Section 6.10(e) only if and to the extent that (A)
Purchaser's and the Company's total aggregate costs or payments
attributable to Taxes other than Income Taxes (including without
limitation, all amounts shown as due on the Tax Returns filed
pursuant to the first sentence of Section 6.10(d)(iv)) plus the total
aggregate amount of Damages attributable to or resulting from such
Taxes exceed (B) the sum of (1) the total aggregate amount of Taxes
other than Income Taxes
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accrued on the Closing Date Balance Sheet plus (2) the total
aggregate amount previously reimbursed to Purchaser or the Company by
Seller for Taxes other than Income Taxes pursuant to the last
sentence of Section 6.10(d)(iv) and this Section 6.10(e).
(ii) Without duplication, Purchaser shall
indemnify, defend and hold the Seller Indemnified Persons harmless
from and against any and all Damages which may be suffered or
incurred by them in respect of or relating to, directly or indirectly
(i) Taxes of or attributable to the Company with respect to all
post-closing periods, (ii) Taxes of or attributable to the Company
with respect to the post-closing portion of any Straddle Period, and
(iii) any liability for Taxes attributable to breach by Purchaser of
any covenant relating to Taxes under this Agreement.
(iii) Any payment required to be made
pursuant to this Section 6.10(e) shall be made within ten days after
written request therefor.
(f) (i) Each of Seller and Purchaser shall notify
the other party in writing within 30 days of receipt of written
notice of any pending or threatened examination, audit or other
administrative or judicial proceeding (a "Tax Audit") that could
reasonably be expected to result in an indemnification obligation
under this Agreement of such other party pursuant to this Agreement.
If the recipient of such notice of a Tax Audit fails to provide such
notice to the other party it shall not be entitled to indemnification
for any Taxes arising in connection with such Tax Audit, but only to
the extent, if any, that such failure or delay shall have adversely
affected the indemnifying party's ability to defend against, settle,
or satisfy any action, suit, or proceeding against it, or any damage,
loss, claim, or demand for which the indemnified party is entitled to
indemnification hereunder.
(ii) If a Tax Audit relates to any period
ending on or prior to the Closing Date or to any Taxes for which the
Seller is liable in full hereunder, Seller shall at its expense
control the defense and settlement of such Tax Audit. If such Tax
Audit relates to any period beginning after the Closing Date or to
any Taxes for which Purchaser is liable in full hereunder, Purchaser
shall at its expense control the defense and settlement of such Tax
Audit. The party not in control of the defense shall have the right
to observe the conduct of any Tax Audit at its own expense, including
through its own counsel and other professional experts.
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Purchaser and Seller shall jointly represent the Company in any Tax
Audit relating to a Straddle Period, and fees and expenses related to
such representation shall be paid equally by Purchaser and Seller.
(iii) Notwithstanding Section 6.10(f)(ii),
to the extent that an issue raised in any Tax Audit controlled by one
party or jointly controlled could materially affect the liability for
Taxes of the other party, the controlling party shall not, and
neither party in the case of joint control shall, enter into a final
settlement without the consent of the other, which consent shall not
be unreasonably withheld. Where a party withholds its consent to any
final settlement, that party may continue or initiate further
proceedings, at its own expense, and the liability of the party that
wished to settle (as between the consenting and the non-consenting
party) shall not exceed the liability that would have resulted from
the proposed final settlement (including interest, additions to tax
and penalties that have accrued at that time), and the non-consenting
party shall indemnify the consenting party for any such excess.
(g) In the event that a dispute arises between
Seller and Purchaser as to the amount of Taxes or indemnification or any other
matter relating to Taxes, the parties shall attempt in good faith to resolve
such dispute, and any agreed upon amount shall be paid to the appropriate
party. If such dispute is not resolved 15 days thereafter, the parties shall
submit the dispute to the national office of the certified accounting firm of
Deloitte & Touche LLP (the "Settlement Accountants") for resolution, which
resolution shall be final, conclusive and binding on the parties.
Notwithstanding anything in this Agreement to the contrary, the fees and
expenses of the Settlement Accountants in resolving the dispute shall be borne
equally by Seller and Purchaser. Any payment required to be made as the result
of the resolution of the dispute by the Settlement Accountants shall be made
within ten days after such resolution, together with any interest determined
by the Settlement Accountants to be appropriate.
(h) Any Tax sharing agreement or contract between
the Company and any other Person shall be terminated on, and effective as of,
the Closing Date, and no Person shall have any rights or obligations under
such Tax sharing agreement or contract after such termination, and no such
rights or obligations shall be included in the Closing Date Balance Sheet.
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(i) Purchaser shall (A) cause to be prepared and
timely filed all Tax Returns relating to excise, sales, use, real or personal
property transfer Taxes, recording fees and charges and all other similar
charges and transfer Taxes imposed by any taxing authority upon or by reason
of the transactions to be effected pursuant to this Agreement (the "Transfer
Taxes"), and (B) cause all such Transfer Taxes to be duly and timely paid in
full. The Transfer Taxes shall be borne equally by Seller and Purchaser.
Purchaser shall cause each such Transfer Tax Return, together with all
relevant work papers and other information, to be made available to Seller for
its review and approval no later than 20 days prior to the due date for the
filing of such Transfer Tax Return (taking into account proper extensions) to
the extent practicable. Seller shall pay to Purchaser its share of the
Transfer Taxes due and payable not later than 10 days prior to the due date
for payment of such Transfer Taxes (taking into account proper extensions) to
the extent practicable.
(j) Subject to the last sentence of this
Section 6.10(j), any refunds or credits of the Taxes of the Company (but only
to the extent of the amount in excess of any refunds or credits accrued on the
Closing Date Balance Sheet) plus any interest received with respect thereto
from the applicable taxing authorities for any Pre-Closing Period (including
without limitation, refunds or credits arising from amended returns filed
after the Closing Date) shall be for the account of Seller and, if received by
Purchaser or the Company, shall be paid by Purchaser or the Company to Seller
within ten days after Purchaser receives such refund or after the relevant Tax
Return is filed in which the credit is applied against Purchaser or the
Company's liability for Taxes for a period which begins after the Closing
Date, net of any Taxes Purchaser or the Company is required to pay on account
of the receipt of such refund or credit (including a reasonable estimate of
resulting future Tax costs.) Seller shall not apply for any refund that will
have a material and adverse effect on any post-closing period Tax Return
without the consent of Purchaser. Any refunds or credits of Taxes of the
Company for any Straddle Period shall be apportioned between Seller and
Purchaser in the same manner as the liability for such Taxes is apportioned
pursuant to Section 6.10(d)(i). Notwithstanding any other provision of this
Section 6.10(j), with respect to each Tax Return of the Company other than a
consolidated, combined or unitary federal, state, or local franchise or Income
Tax Return, a refund or credit of Tax shall be for the account of (or
apportioned to) Seller only if such refund or credit by itself exceeds
$25,000.
(k) Notwithstanding anything to the contrary in
this Agreement, the representations and warranties
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contained in Section 4.14 and the covenants of the parties contained in this
Section 6.10 shall survive the Closing until the date 90 days after the
expiration of the applicable statute of limitations including extensions.
6.11 Transfer of Intellectual Property. At or prior to the
Closing, Seller shall cause all Intellectual Property, and any registrations
thereof, owned by or held in the name of Seller or any of its Affiliates, to
be transferred and assigned to the Company pursuant to instruments of
assignment and transfer reasonably acceptable to Purchaser (the "IP Transfer
Instruments").
6.12 Transitional Services Agreement. At the Closing,
Seller shall enter into the transitional services agreement with the Company
in the form of Exhibit 6.12 attached hereto (the "Transitional Services
Agreement").
6.13 Seller Confidentiality and Non-Solicitation Covenants.
(a) Seller agrees that for a period of two (2)
years following the Closing Date (the "Restrictive Period") Seller will keep
secret and retain in confidence, and will not publish or disclose to any third
Person, any Confidential Information. In addition, from the date hereof
through the end of the Restrictive Period, Seller will keep secret and retain
in confidence, and will not disclose, any Confidential Information obtained by
Seller after the date hereof to any of Seller's sales or marketing personnel
or other personnel performing similar functions. Notwithstanding the
foregoing, Seller may disclose Confidential Information (A) to its agents and
other representatives who need to know such Confidential Information to
perform their duties on behalf of Seller; provided, however, that Seller shall
require such agents and representatives to maintain such Confidential
Information in confidence in accordance with the provisions of this Section
6.13(a) and Seller shall be responsible for any breach of such obligation and
(B) (i) as required by applicable law, judicial or regulatory subpoena or any
securities exchange listing agreement to which Seller is a party; (ii) to the
extent such Confidential Information has been disclosed by a third party
(through no fault of Seller); or (iii) to the extent such Confidential
Information is or becomes otherwise publicly available (through no fault of
Seller).
(b) For purposes of this Agreement, Confidential
Information shall mean confidential information relating to the Company's
business, including, without limitation, the Company's research and
development plans or projects, data and reports; computer material such as
programs, instructions
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and printouts; formulas; product testing information; business improvements;
processes, marketing and selling; strategic business plans; budgets;
unpublished financial statements; licenses, pricing, pricing strategy and cost
data; information regarding the compensation of Company employees; the
identities of the clients and customers; the identities of contact persons at
customers; the particular preferences, likes, dislikes and needs of customers
and contact persons with respect to products, pricing, sales calls, timing,
sales terms, service plans, methods, practices, strategies, forecasts,
know-how, and other marketing techniques; the identities of key accounts, the
identities of the suppliers and contractors, and all information about those
supplier and contractor relationships such as contact person(s), pricing and
other terms. Notwithstanding the foregoing the term "Confidential Information"
shall not include information that Seller has in its possession as a result of
the operation or conduct of Seller's business (other than as a result of
Seller's ownership of the Company), including, without limitation, as a result
of joint sales or marketing efforts by Seller and the Company.
(c) During the Restrictive Period, Seller shall
not, and shall not permit any Person in which Seller holds any interest giving
Seller effective control (whether by vote, management or otherwise) or any of
their respective directors, officers, employees or agents to, directly or
indirectly, solicit the employment of any employee or consultant of the
Company; provided, however, that the foregoing shall not apply to any general
solicitation by Seller not directed specifically to the Company or the
Company's employees or consultants.
(d) Seller acknowledges and agrees the provisions
of this Section 6.13 are reasonable and necessary for the protection of
Purchaser and the Company and Purchaser and the Company will be irreparably
damaged if such provisions are not specifically enforced, the loss of which
cannot be reasonably or adequately compensated in damages. Accordingly,
Purchaser and the Company shall be entitled to injunctive and other equitable
relief (without requirement of posting of a bond or other security) for the
purpose of restraining any breach or threatened breach of the Seller from
violating these provisions in addition to any other remedy or relief to which
Purchaser or the Company may be entitled under applicable law or otherwise.
6.14 Risk of Loss.
(a) If prior to the Closing any portion of any
Owned Real Property or any portion of any Material Leased
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Real Property shall be taken (or any public announcement shall be made of an
intent to take) by condemnation, eminent domain or similar means or shall be
damaged or destroyed by fire or other casualty, and as a result thereof, a
Company Material Adverse Effect has or would occur, Purchaser shall have the
right to terminate this Agreement by giving notice to Seller within ten (10)
days following receipt of the notice provided for in Section 6.14(c).
(b) If prior to the Closing any portion of any
Owned Real Property or any portion of any Material Leased Real Property shall
be taken (or any public announcement shall be made of an intent to take) by
condemnation, eminent domain or similar means or shall be damaged or destroyed
by fire or other casualty, and as a result thereof, a Company Material Adverse
Effect would not occur, Seller shall promptly pay to Purchaser all
condemnation proceeds and any amounts paid or payable with respect to any such
event that constitutes an Insurance Risk; provided, however, that Seller shall
not be obligated to make any such payment to Purchaser to the extent, and only
to the extent, that the Closing Date Balance Sheet fully reflects the value of
any such event.
(c) Seller shall give Purchaser prompt written
notice of any such taking, public announcement, damage or destruction.
6.15 Assignment of McKesson Rights. At or prior to the
Closing, the Company shall convey, assign and otherwise transfer to Seller,
all of the Company's right, title and interest in the McKesson Rights.
6.16 Real Estate Matters. Seller agrees to use commercially
reasonable efforts to (i) assist Purchaser in its efforts to obtain title
insurance with respect to the Owned Real Property and Material Leased Real
Property and (ii) obtain an estoppel certificate from each of the lessors of
the Material Leased Real Property; provided, however, that neither Seller nor
the Company shall be required to make any payments or incur any liabilities in
connection with any of the foregoing.
6.17 Performance of McKesson Obligations. After the
Closing, Seller shall timely and fully perform and does hereby fully assume
each of the McKesson Obligations, it being acknowledged and agreed that
Purchaser and the Company shall not have any responsibility, liability or
obligation for or in respect of any of the McKesson Obligations.
6.18 Insurance Matters.
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(a) To the extent that all or any portion of any
Insurance Risk is covered under an applicable McKesson Insurance Policy, prior
to requesting Seller to satisfy such Insurance Risk pursuant to Section 6.17
of this Agreement, Purchaser shall cooperate with Seller, at Seller's cost and
expense, in making any claim under any applicable McKesson Insurance Policy
pursuant to Section 6.18(b) hereof.
(b) For so long as any claim can be made under any
McKesson Insurance Policy for any Insurance Risk, Seller shall make such claim
(or permit the Company to make such claim) so as to provide the Company with
all of the protections and/or benefits under the McKesson Insurance Policies
for such occurrences.
(c) Nothing in this Section 6.18 shall relieve or
limit Seller of its obligations pursuant to Section 6.17 with respect to any
Insurance Risk.
6.19 Further Assurances.
(a) In connection with the performance of the
McKesson Obligations, upon the request from time to time of Seller after the
Closing and at the sole cost and expense of Seller but without further
consideration, Purchaser shall, and shall cause the Company to, (i) provide
Seller and Seller's representatives and authorized agents with reasonable
access upon reasonable notice during normal business hours to copies of all of
the books and records of the Company relevant to the performance of the
McKesson Obligations, which Purchaser shall retain for such period of time as
indemnification may be available pursuant to Article X, (ii) make such
personnel of the Company reasonably available to meet with Seller and Seller's
representatives and authorized agents at such times and places as may be
reasonably requested by Seller to assist Seller in the defense of any action,
suit, proceeding or investigation pending or threatened in writing against the
Company prior to Closing and (iii) do each and every other thing as may be
reasonably requested by Seller in connection with Seller's performance of the
McKesson Obligations; provided, however, that in connection with the foregoing
(x) any out-of-pocket costs and expenses reasonably incurred by Purchaser or
the Company shall be borne by Seller; (y) the Company shall not be required to
perform in such a manner as is unreasonably disruptive of the Company's
business or operations; and (z) the Company shall not be required to disclose
to Seller or Seller's representatives or agents confidential or proprietary
information unrelated to Seller's performance of the McKesson Obligations or
information protected by attorney-client privilege.
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(b) Subject to the terms and conditions herein
provided, upon the request from time to time of Purchaser after the Closing,
Seller shall execute and deliver such instruments, certificates and other
documents and take all such other action as Purchaser may reasonably request
in order to consummate and make effective the transactions contemplated by
this Agreement.
VII
CONDITIONS
7.1 Conditions to Seller's Obligations. The obligations of
Seller to consummate the transactions contemplated hereby are subject to the
satisfaction or waiver by Seller (any such waiver to be evidenced in writing),
at or prior to the Closing, of the following conditions:
(a) The representations and warranties of
Purchaser contained in this Agreement shall be true and correct in all
material respects (without reference to any materiality qualifications
contained therein, including, without limitation, reference to any Purchaser
Material Adverse Effect) as of the date made and as of the Closing Date as if
made on and as of the Closing Date (except to the extent that any
representation or warranty is made expressly as of a specific date, in which
case such representation or warranty shall be true and correct as of such
specified date), except if the failure of such representations and warranties
to be true and correct as of any of such dates would not, individually or in
the aggregate, have a Company Material Adverse Effect;
(b) Purchaser shall have performed in all
material respects its obligations under this Agreement required to be
performed by it at or prior to the Closing pursuant to the terms hereof;
(c) Seller shall have received a certificate of
the President, an Executive Vice President, a Senior Vice President or the
Chief Financial Officer of Purchaser as to the satisfaction of the conditions
set forth in Section 7.1(a) and (b) hereof;
(d) Any applicable waiting period applicable to
the consummation of the transactions contemplated hereby under the HSR Act
shall have expired or been terminated;
(e) There shall be no order, decree or
injunction of a court of competent jurisdiction or other
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governmental entity that prevents the consummation of the transactions
contemplated by this Agreement;
(f) Seller shall have received the opinion of
Parker Chapin Flattau & Klimpl, LLP, counsel to Purchaser, substantially in the
form of Exhibit 7.1(f) attached hereto;
(g) Seller shall have received Purchaser's Closing
Documents (as defined below) in form and substance reasonably satisfactory to
Seller and its counsel; and
(h) Seller shall have received the Consents set forth
in Exhibit 7.1(h).
7.2 Conditions to Purchaser's Obligations. The obligations
of Purchaser to consummate the transactions contemplated hereby are subject to
the satisfaction or waiver by Purchaser (any such waiver to be evidenced in
writing), at or prior to the Closing, of the following conditions:
(a) The representations and warranties of Seller
contained in this Agreement shall be true and correct in all material respects
(without reference to any materiality qualifications contained therein,
including, without limitation, reference to any Company Material Adverse
Effect) as of the date made and as of the Closing Date as if made on and as of
the Closing Date (except to the extent that any representation or warranty is
made expressly as of a specific date, in which case such representation or
warranty shall be true and correct as of such specified date), except if the
failure of such representations and warranties to be true and correct as of
any of such dates would not, individually or in the aggregate, have a Company
Material Adverse Effect;
(b) Seller shall have performed in all material
respects each of its obligations under this Agreement required to be performed
by it at or prior to the Closing pursuant to the terms hereof;
(c) Purchaser shall have received a certificate
of the President, a Vice President or the Chief Financial Officer of Seller as
to the satisfaction of the conditions set forth in Section 7.2(a) and (b)
hereof;
(d) Any applicable waiting period applicable to
the consummation of the transactions contemplated hereby under the HSR Act
shall, have expired or been terminated;
(e) There shall be no order, decree or injunction
of a court of competent jurisdiction or other
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governmental entity that prevents the consummation of the transactions
contemplated by this Agreement;
(f) Purchaser shall have received Seller's Closing
Documents (as defined below) in form and substance reasonably satisfactory to
Purchaser and its counsel;
(g) Purchaser shall have received (i) the opinion
of Skadden, Arps, Slate, Meagher & Flom, counsel to Seller, substantially in
the form of Exhibit 7.2(g)(i) attached hereto and (ii) the opinion of the
General Counsel or an Associate General Counsel of Seller substantially in the
form of Exhibit 7.2(g)(ii) attached hereto;
(h) Seller shall have delivered to Purchaser an
affidavit, in form reasonably satisfactory to Purchaser, described in section
1445(b)(2) of the Code;
(i) No Company Material Adverse Effect shall have
occurred since March 31, 1996; and
(j) Purchaser shall have received all Consents
required to be obtained by Seller in order for Seller to consummate the
transactions contemplated hereby.
VIII
DOCUMENTS TO BE DELIVERED AT THE CLOSING
8.1 Documents to be Delivered by Seller. At the Closing,
Seller shall deliver, or cause to be delivered, to Purchaser the following
("Seller's Closing Documents"):
(a) stock certificates representing the Shares,
duly endorsed in blank or accompanied by stock transfer powers and with all
requisite stock transfer tax stamps attached;
(b) the Transitional Services Agreement duly executed
by Seller and the Company;
(c) the certificate referred to in Section 7.2(c);
(d) the legal opinions referred to in Section 7.2(g);
(e) copies of any Consents referred to in Section 7.2(j);
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(f) the IP Transfer Instruments referred to in
Section 6.11; and
(g) the affidavit referred to in Section 7.2(h).
8.2 Documents to be Delivered by Purchaser. At the
Closing, Purchaser shall deliver to Seller the following ("Purchaser's Closing
Documents"):
(a) the payment referred to in Section 2.2(b);
(b) the certificate referred to in Section 7.1(c);
(c) the legal opinion referred to in Section 7.1(f); and
(d) copies of any Consents referred to in Section 7.1(h).
IX
TERMINATION
9.1 Termination. Notwithstanding anything herein to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(a) By mutual written consent of Purchaser and
Seller;
(b) By Purchaser, on the one hand, or Seller, on
the other hand, if the Closing shall not have occurred on or before May 31,
1997;
(c) By Purchaser, on the one hand, or Seller, on
the other hand, if any court of competent jurisdiction in the United States or
other United States governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and nonappealable;
(d) By Purchaser, if (i) there has been a material
violation or breach by Seller of any agreement, representation or warranty of
Seller contained in this Agreement (including without limitation, the Seller
Disclosure Letter but without reference to any materiality
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qualifications contained in this Agreement, including, without limitation,
reference to any Company Material Adverse Effect), which material violation or
breach is not curable or, if curable, is not cured within thirty (30) days
after written notice of such violation or breach is given by Purchaser to
Seller, and such violation or breach has not been waived by Purchaser or (ii)
there has been any Company Material Adverse Effect;
(e) By Seller, if there has been a material
violation or breach by Purchaser of any agreement, representation or warranty
of Purchaser contained in this Agreement (without reference to any materiality
qualifications contained in this Agreement, including, without limitation,
reference to any Purchaser Material Adverse Effect), which material violation
or breach is not curable or, if curable, is not cured within thirty (30) days
after written notice of such violation or breach is given by Seller to
Purchaser and such violation or breach has not been waived by Seller; or
(f) By Purchaser pursuant to the terms of Section
6.14.
9.2 Effect of Termination. In the event of the termination
of this Agreement as provided in Section 9.1, written notice thereof shall
forthwith be given to the other party or parties specifying the Section of
this Agreement pursuant to which such termination is made, and upon any such
permitted termination this Agreement shall forthwith terminate and become null
and void, without liability on the part of Purchaser or Seller except as set
forth in Sections 6.2(b) and 11.1 hereof, which will not be affected by such
termination.
X
INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by
Knowledge or Waivers.
(a) All representations, warranties, covenants
and obligations of the parties contained in this Agreement and in any document
or instrument executed and delivered in connection herewith shall survive the
Closing (subject to Sections 10.4 and 10.8), regardless of any investigation
made by the parties hereto.
(b) Except as expressly set forth below, the
right to indemnification, payment of Damages or other remedy
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based on any representation, warranty, covenant or obligation of a party
hereunder shall not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or obligation. The foregoing
notwithstanding, if the Closing occurs, no claim for indemnification may be
asserted by Purchaser against Seller under Section 10.2(a)(i) for breach of
any representation or warranty if the facts, claims and circumstances giving
rise to such claim were actually known to either Mr. Richard A. Bernstein or
Mr. Steven M. Grossman before the Closing. Except as expressly set forth in
the immediately preceding sentence, the waiver of any condition to a party's
obligation to consummate the transactions contemplated hereunder, where such
condition is based on the accuracy of any representation or warranty, or on
the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, payment of Damages, or other remedy based
on such representation, warranty, covenant or obligation.
10.2 Indemnification by Seller.
(a) Seller shall indemnify and hold harmless
Purchaser, the Company, and each of their respective representatives,
employees, officers, directors, stockholders, controlling persons and
Affiliates (collectively, the "Purchaser Indemnified Persons") for, and will
pay to the Purchaser Indemnified Persons the amount of, any loss, liability,
claim, damage (including, without limitation, incidental and consequential
damages), expense (including, without limitation, interest, penalties, costs
of investigation and defense and the reasonable fees and expenses of attorneys
and other professional experts) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), directly or
indirectly, arising from or in connection with or attributable to:
(i) any representation or warranty made by
Seller in this Agreement (including, without limitation, the Seller
Disclosure Letter) or any of Seller's Closing Documents, that is, or
was at the time made, false or inaccurate, or any breach of, or
misrepresentation with respect to, any such representation or
warranty;
(ii) any breach by Seller of any covenant,
agreement or obligation of Seller contained in this Agreement; and
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(iii) any and all McKesson Obligations.
(b) Anything to the contrary notwithstanding,
none of the Purchaser Indemnified Persons shall be deemed to have suffered or
incurred any Damages to the extent, if any, that such loss or expense was
included as a liability in the computation of the adjustment to the Purchase
Price pursuant to Section 2.3 hereof; provided that nothing shall prejudice
any Purchaser Indemnified Person from pursuing rights pursuant to Section
10.2(a) by reason of having first sought an adjustment to the Purchase Price
pursuant to Section 2.3 hereof.
(c) Purchaser acknowledges and agrees that
after the Closing, except with respect to any breach by Seller of a covenant,
agreement or obligation to be performed or complied with by Seller following
the Closing (including, without limitation, Seller's obligations under Section
6.17), Purchaser's sole and exclusive remedy with respect to any and all
claims relating to the subject matter of this Agreement shall be pursuant to
the indemnification provisions set forth in this Section 10.2. In furtherance
of the foregoing, Purchaser, for itself and on behalf of any Purchaser
Indemnified Person, hereby waives, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action it may have
against Seller arising under or based upon any federal, state or local
statute, law, ordinance, rule or regulation; provided, however, that such
acknowledgment, agreement and waiver shall (i) be of no force or effect with
respect to any willful misconduct that results in a breach of any
representation, warranty, covenant, agreement or obligation by Seller
(provided, further, that the limitation on damages set forth in Section
10.5(b) shall apply with full force and effect in all circumstances,
including, without limitation, in respect of any claim of willful misconduct
by Seller) and (ii) not in any way limit or restrict the Seller's liability or
obligations under the Transitional Services Agreement.
10.3 Indemnification by Purchaser. Purchaser shall indemnify
and hold harmless Seller, the Company, and each of their respective
representatives, employees, officers, directors, stockholders, controlling
persons and Affiliates (collectively, the "Seller Indemnified Persons") for,
and will pay to the Seller Indemnified Persons the amount of any Damages,
directly or indirectly, arising from, attributable to or in connection with:
(i) any representation or warranty made by
Purchaser in this Agreement or in any of Purchaser's Closing
Documents, that is, or was at the time made, false or inaccurate, or
any breach of, or
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misrepresentation with respect to, any such representation or
warranty;
(ii) any breach by Purchaser of any
covenant, agreement or obligation of Purchaser contained in this
Agreement; and
(iii) the Leicester, Massachusetts
facility lease guaranty.
10.4 Time Limitations.
(a) If the Closing occurs, Seller shall have no
liability (for indemnification or otherwise) with respect to the matters
described in clauses (i) or (ii) of Section 10.2(a) (other than with respect
to (x) the representations and warranties in Sections 4.2 and 4.16 as provided
below, (y) any covenant, agreement or obligation contained in this Agreement
to be performed by Seller following the Closing, and (z) any willful
misconduct that results in a breach of any representation, warranty, covenant,
agreement or obligation by Seller, as to which the time limitations set forth
herein shall not apply) unless, on or before the date that is the 19-month
anniversary of the Closing Date, Purchaser notifies Seller of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Purchaser. A claim with respect to representations and
warranties in Section 4.2, or with respect to any covenant, agreement or
obligation contained in this Agreement to be performed by Seller following the
Closing or with respect to any of the McKesson Obligations may be made at any
time without any time limitation; a claim with respect to the representations
and warranties in Section 4.16 may be made at any time prior to the date that
is the seventh anniversary of the Closing Date. Any claim relating to a
breach, alleged breach or non-performance of Seller's obligations set forth in
Section 6.17, including, without limitation, Seller's obligations under
Section 10.2(a)(iii), shall not be limited in time for any reason whatsoever,
including, without limitation, by reason of the fact that a breach of one or
more representations and warranties hereunder may have occurred as a result of
the same facts and circumstances.
(b) If the Closing occurs, Purchaser will have no
liability (for indemnification or otherwise) with respect to the matters
described in clauses (i) or (ii) of Section 10.3 (other than with respect to
any covenant, agreement or obligation contained in this Agreement to be
performed by Purchaser following the Closing) unless, on or before the
19-month anniversary of the Closing Date, Seller notifies Purchaser of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by
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Seller. A claim with respect to Purchaser's obligations under clause (iii) of
Section 10.3 shall not be limited in time for any reason whatsoever.
10.5 Limitations on Amount; Environmental Damages.
(a) Seller shall have no liability (for
indemnification or otherwise) with respect to the matters described in clauses
(i) or (ii) of Section 10.2(a) (other than the representations and warranties
in Section 4.2 of this Agreement as set forth in the proviso to this sentence)
until the total amount of all Damages with respect to such matters exceeds
$750,000, and then Seller will be responsible only for all such Damages in
excess of $750,000; provided, however, that, anything to the contrary
notwithstanding, Seller shall be responsible from and including the first
dollar of Damages with respect to (w) any matter in Section 10.5(c), (x) any
matter in connection with the representations and warranties in Section 4.2,
(y) any matter resulting from the willful misconduct of Seller and (z) any
matter relating to Section 6.17, including, without limitation, Seller's
obligations under Section 10.2(a)(iii).
(b) Anything to the contrary notwithstanding,
Seller shall have no liability with respect to the matters described in
clauses (i) or (ii) of Section 10.2(a) for and to the extent that the
aggregate amount of all Damages with respect to such matters exceeds
$25,000,000; provided, however, that, anything to the contrary
notwithstanding, Seller shall be responsible for Damages without regard to
such $25,000,000 ceiling with respect to (x) any matter in connection with the
representations and warranties in Section 4.2, and (y) any matter relating to
Section 6.17, including, without limitation, Seller's obligations under
Section 10.2(a)(iii).
(c) (i) Seller shall have no liability (for
indemnification or otherwise) for Damages with respect to the matters
described in Section 4.16, except to the extent, and only to the extent, that
such liabilities constitute a breach of Seller's representations and
warranties set forth in Section 4.16 or relate to or arise from any
Environmental Claim with respect to a Current Site based on an event or
occurrence prior to the Closing (including, without limitation, any Damages
relating to or arising from the full restoration of any of the Company's
property, plant, equipment or other assets that were affected by any
remediation or other action by Seller, or in the event that Seller does not
elect to assume control, by the Company) ("Environmental Damages"). The
procedures set forth in Section 10.6 shall govern as to any claim by any
Purchaser Indemnified Person for indemnification under this Section
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10.5(c); provided, however, that any notice of such a claim given to Seller
shall include at the time such notice is made a writing from the applicable
Person or Governmental Entity asserting the claim and such copies of any
summons, complaint or other pleading served on the Purchaser Indemnified
Parties, or any invoice, billing, independent consultant's report or certified
laboratory test data relating to such claim as Purchaser may have (an
"Environmental Claim Notice"). Upon receipt of an Environmental Claim Notice,
Seller shall thereupon be entitled to assume control immediately of any and
all investigations, remediations and other actions related to addressing or
responding to all conditions and circumstances underlying such Environmental
Claim Notice. Seller shall consult with Purchaser regarding the impact of any
such investigations, remediations or other actions undertaken by or for Seller
on the business or operations of the Company. In controlling such
investigations, remediations and other actions, Seller shall use reasonable
efforts not to disrupt the business or operations of the Company or the
ability of the Company to utilize its properties and assets. Liability for
Environmental Damages shall be allocated to and between Seller and Purchaser
as follows:
(A) Seller and Purchaser shall be
responsible for 90 percent and 10 percent, respectively, of
Environmental Damages noticed in Environmental Claim Notices
given to Seller in accordance herewith from the Closing to
and including the first anniversary of the Closing Date;
(B) Seller and Purchaser shall be
responsible for 83 1/3 percent and 16 2/3 percent,
respectively, of Environmental Damages noticed in
Environmental Claim Notices given to Seller in accordance
herewith from and including the day immediately following the
first anniversary of the Closing Date to and including the
second anniversary of the Closing Date;
(C) Seller and Purchaser shall be
responsible for 76 2/3 percent and 23 1/3 percent,
respectively, of Environmental Damages noticed in
Environmental Claim Notices given to Seller in accordance
herewith from and including the day immediately following the
second anniversary of the Closing Date to and including the
third anniversary of the Closing Date;
(D) Seller and Purchaser shall be
responsible for 70 percent and 30 percent, respectively, of
Environmental Damages noticed in
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Environmental Claim Notices given to Seller in accordance
herewith from and including the day immediately following the
third anniversary of the Closing Date to and including the
fourth anniversary of the Closing Date;
(E) Seller and Purchaser shall be
responsible for 63 1/3 percent and 36 2/3 percent,
respectively, of Environmental Damages noticed in
Environmental Claim Notices given to Seller in accordance
herewith from and including the day immediately following the
fourth anniversary of the Closing Date to and including the
fifth anniversary of the Closing Date;
(F) Seller and Purchaser shall be
responsible for 56 2/3 percent and 43 1/3 percent,
respectively, of Environmental Damages noticed in
Environmental Claim Notices given to Seller in accordance
herewith from and including the day immediately following the
fifth anniversary of the Closing Date to and including the
sixth anniversary of the Closing Date;
(G) Seller and Purchaser shall be
responsible for 50 percent and 50 percent, respectively, of
Environmental Damages noticed in Environmental Claim Notices
given to Seller in accordance herewith from and including
the day immediately following the sixth anniversary of the
Closing Date to and including the seventh anniversary of the
Closing Date; and
(H) Seller shall have no responsibility or
liability for any claim for indemnification under this
Section 10.5(c), notice of which is first given to Seller on
or after the day immediately following the seventh
anniversary of the Closing Date.
(ii) Seller shall be responsible only for
that portion of Environmental Damages set forth in subsections (A)
through (G) of Section 10.5(c)(i) above, and shall not be responsible
for any additional Environmental Damages, except to the extent that
such Environmental Damages constitute a McKesson Obligation.
Notwithstanding the foregoing, any matter remaining outstanding
pursuant to an Environmental Claim Notice shall be subject to the
respective allocations set forth in subsections (i)(A)-(H), above, so
long as the respective matter for which the claim was made or the
remediation
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action necessary to be taken in connection therewith remains open or
not fully satisfied.
(iii) Any payment made by Seller for
Environmental Damages shall not obligate Seller to conduct any other
or additional testing or remediation; nor shall any provision herein
prevent Seller from seeking reimbursement or contribution from any
other party liable therefor. Any recovery from third parties realized
by Seller as reimbursement or contribution shall be apportioned
between Seller and Purchaser, as appropriate, in accordance with the
claim period set forth in subsections (A)-(G) of Section 10.5(c)(i)
above to which the recovery applies.
(d) Anything to the contrary notwithstanding,
Seller shall have no liability with respect to Environmental Damages,
inclusive of any other Damages for which Seller is responsible, in excess of
$30,000,000 except for matters covered by clause (i) of the defined term
McKesson Obligation for which no such limitation on liability shall be
applicable. Except for those matters which are retained as McKesson
Obligations pursuant to Section 6.17: (i) the provisions set forth in
subsection (c) above shall be the exclusive remedy of the Purchaser
Indemnified Persons against Seller with respect to any Environmental Damages;
and (ii) the Purchaser Indemnified Persons agree to waive and release, to the
fullest extent permitted under applicable law, Seller from any and all rights,
claims and causes of action that the Purchaser Indemnified Persons may have
against Seller with respect to any Environmental Damages, or pertaining to or
arising under any Environmental Laws, whether now or hereafter in effect,
relating in any way to the business and operations of the Company.
(e) Anything to the contrary notwithstanding,
the limitations set forth in Section 10.5(a), (b), (c) and (d) shall not apply
to the Purchase Price Adjustment pursuant to Section 2.3. Anything to the
contrary notwithstanding, no limitation of any kind shall apply either to the
performance of Seller's obligations under 6.17 or to Seller's obligation to
indemnify the Purchaser Indemnified Persons for Damages pursuant to Section
10.2(a)(iii).
(f) Notwithstanding the foregoing, if Seller
fully performs its obligations pursuant to Section 6.17 hereof and the facts
and circumstances giving rise to such obligation could also be the basis of a
claim for indemnification pursuant to Section 10.2(a)(i), then no Purchaser
Indemnified Person shall be entitled to seek indemnification pursuant to
Section 10.2(a) with respect to such facts and circumstances.
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10.6 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party
under Section 10.1 or 10.2 of written notice (the "Notice of Claim") of the
commencement of any action, suit or proceeding against it, or written threat
thereof, such indemnified party will, if a claim is to be made against an
indemnifying party under either of said Sections, as applicable, give notice
to the indemnifying party of the commencement of such action, suit or
proceeding, or threat thereof. The indemnified party shall furnish to the
indemnifying party in reasonable detail such information as the indemnified
party may have with respect to such indemnification claims (including copies
of any summons, complaint or other pleading which may have been served on it
and any written claim, demand, invoice, billing or other document evidencing
or assenting the same). Subject to the limitations set forth in this Section
10.6(a), no failure or delay by the indemnified party in the performance of
the foregoing shall reduce or otherwise affect the obligation of the
indemnifying party to indemnify and hold the indemnified party harmless except
to the extent that such failure or delay shall have materially and adversely
affected the indemnifying party's ability to defend against, settle or satisfy
any action, suit or proceeding or claim for which the indemnified party is
entitled to indemnification hereunder.
(b) If the claim or demand set forth in the
Notice of Claim given by the indemnified party is a claim or demand asserted
by a third party, the indemnifying party shall have thirty (30) days after the
Date of Notice of Claim to notify the indemnified party in writing of its
election to defend such third party claim or demand on behalf of the
indemnified party (the "Notice Period"); provided, however that the
indemnified party is authorized to file any motion, answer or other pleading
that may be reasonably necessary or appropriate to protect its interests
during the Notice Period with the prior consent of the indemnifying party,
which consent shall not be unreasonably withheld or delayed. If the
indemnifying party elects to defend such third party claim or demand, the
indemnified party shall make available to the indemnifying party and its
agents and representatives all records and other materials which are
reasonably required in the defense of such third party claim or demand and
shall otherwise cooperate with, and assist the indemnifying party in the
defense of, such third party claim or demand (provided that such cooperation
and assistance shall not require the indemnified party to incur any
out-of-pocket expenses), and so long as the indemnifying party is diligently
defending such third party claim in good faith, the indemnified party shall
not pay, settle or compromise such third party claim or
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demand. If the indemnifying party elects to defend such third party claim or
demand, the indemnifying party shall have the right to control the defense of
such third party claim or demand, at the indemnifying party's own expense. If
the indemnifying party does not elect to defend such third party claim or
demand or does not defend such third party claim or demand in good faith, the
indemnified party shall have the right, in addition to any other right or
remedy it may have hereunder at the indemnifying party's expense, to defend
such third party claim or demand.
(c) The term "Date of Notice of Claim" shall mean
the date the Notice of Claim is effective pursuant to Section 11.3 of this
Agreement.
10.7 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
10.8 Limitations on Application to Taxes. Notwithstanding
anything to the contrary in this Agreement, other than 10.2(a) (but only to
the extent that it defines "Damages" and "Purchaser Indemnified Persons") and
this Section 10.8, the provisions of this Article X shall not apply in any
manner to indemnification with respect to Taxes (including, without
limitation, the limitations set forth in Sections 10.4 and 10.5), and Section
6.10 shall be the only provision that applies with respect to such
indemnification. Subject to the aforesaid definition of "Damages" and
"Purchaser Indemnified Persons," should there be any conflict between the
provisions of Section 6.10 and this Article X with respect to any issue or
matter relating to indemnification for Taxes, the provision of Section 6.10
shall be controlling and binding on the parties.
XI
MISCELLANEOUS
11.1 Fees and Expenses. Except as otherwise contemplated by,
or expressly provided for in, this Agreement, all costs and expenses incurred
in connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses, and
the Company shall not pay any of the costs of this Agreement or the
transactions contemplated hereby incurred on behalf of Seller (including, but
not limited to, the fees and expenses of the attorneys, tax and accounting
advisors and investment bankers for Seller).
Page 61
<PAGE>
11.2 Amendments. This Agreement can be amended, supplemented
or modified, any provision hereof may be waived, only by written instrument
making specific reference to this Agreement signed by each of the parties
hereto.
11.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery
by a standard overnight carrier or when delivered by hand or (c) the
expiration of five Business Days after the day when mailed in the United
States by certified or registered mail, postage prepaid, addressed at the
following addresses (or at such other address for a party as shall be
specified by like notice).
(a) if to the Seller, to:
McKesson Corporation
One Post Street
San Francisco, California 94104
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center
Suite 3800
San Francisco, California 94111
Attention: Kenton J. King, Esq.
(b) if to Purchaser, to:
R.A.B. Holdings, Inc.
444 Madison Avenue - Suite 601
New York, New York 10022
Attention: Mr. Richard A. Bernstein
with copies to:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
and
Mitchell N. Baron, Esq.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Page 62
<PAGE>
11.4 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement. they shall be deemed to be followed by
the words "without limitation". The phrase "made available" when used this
Agreement shall mean that the information referred to has been made available
by the party to whom such information is to be made available.
11.5 Headings; Schedules. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Any matter disclosed pursuant to
the Seller Disclosure Letter shall be deemed to be disclosed for all purposes
under this Agreement, but such disclosure shall not be deemed to be an
admission or representation as to the materiality of the item so disclosed.
11.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall be considered one and the same agreement.
11.7 Entire Agreement. This Agreement (including the Seller
Disclosure Letter), together with the Confidentiality Agreement, the
Transitional Services Agreement and the other agreements and documents
delivered pursuant to this Agreement, constitute the entire agreement of the
parties with respect to the subject matter hereof, and collectively they
supersede all other prior or contemporaneous negotiations, commitments,
agreements and understandings (whether written or oral), between the parties
with respect to the subject matter hereof.
11.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
11.10 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto (whether by
Page 63
<PAGE>
operation of law or otherwise) without the prior written consent of the other
party, except that Purchaser may assign its rights to purchase the Shares to
any of its Affiliates, provided that Purchaser shall remain liable for all its
obligations hereunder regardless of any such assignment. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by, the parties and their respective successors and
assigns, and except to the extent necessary to enforce the provisions of
Sections 6.7 and 6.8, the provisions of this Agreement are not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
11.11 Specific Performance; Submission to Jurisdiction. The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement are not performed in accordance with its
specific terms or is otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any state or federal court sitting in the
State of Delaware, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto (i)
agrees that the state or federal courts sitting in the State of Delaware shall
have exclusive jurisdiction over any claim or dispute in any way relating to,
arising out of or in connection with the subject matter of this Agreement or
any of the transactions contemplated by this Agreement, (ii) consents to
submit itself to the personal jurisdiction of any state or federal court
sitting in the State of Delaware in the event of any claim or dispute relating
to, arising out of or in connection with the subject matter of this Agreement
or any of the transactions contemplated by this Agreement (provided that such
consent to jurisdiction is solely with respect to any such claim or dispute),
(iii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (iv)
agrees that it will not bring any action relating to, arising out of or in
connection with the subject matter of this Agreement or any of the
transactions contemplated by this Agreement in any court other than a state or
federal court sitting in the State of Delaware.
Page 64
<PAGE>
IN WITNESS WHEREOF, Purchaser and Seller have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
R.A.B. HOLDINGS, INC.
By:
--------------------------------------
Name:
Title:
McKESSON CORPORATION
By:
--------------------------------------
Name:
Title:
Page 65
<PAGE>
Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc.
<TABLE>
<CAPTION>
Pro Forma
Fiscal Year Ended Six Months Ended
March 31, 1998 September 30, 1998
--------------------------- ---------------------------
(Dollars in Thousands)
Enterprises Holdings Enterprises Holdings
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Income(loss) before taxes $ (92) $ (5,499) $ (8,605) $(11,267)
Interest expense, net 16,772 22,171 7,850 10,512
Rental expense 1,569 1,569 788 788
-------- -------- -------- --------
Earnings 18,249 18,241 33 33
Fixed charges 18,341 23,740 8,638 11,300
-------- -------- -------- --------
Deficiency in earnings to fixed charges $ (92) $ (5,499) $ (8,605) $(11,267)
======== ======== ======== ========
<CAPTION>
Historical
Fiscal Year Ended Six Months Ended Six Months Ended
March 31, 1998 September 30, 1998 September 30, 1997
------------------------ ------------------------ -------------------------
(Dollars in Thousands)
Enterprises Holdings Enterprises Holdings Enterprises Holdings
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Income(loss) before taxes $ 2,304 $ 2,296 $ (7,813) $(10,105) $ (286) $ (290)
Interest expense, net 5,079 5,079 6,905 9,197 2,586 2,586
Rental expense 1,423 1,423 777 777 797 797
-------- -------- -------- -------- -------- ---------
Earnings 8,806 8,798 (131) (131) 3,097 3,093
Fixed charges 6,502 6,502 7,682 9,974 3,383 3,383
-------- -------- -------- -------- -------- ---------
Ratio of earnings to fixed charges 1.35 1.35
======== ========
Deficiency in earnings to fixed charges $ (7,813) $(10,105) $ (286) $ (290)
======== ======== ======== ========
</TABLE>
<PAGE>
Exhibit 23.2
Independent Auditors' Consent
To the Board of Directors and Stockholders
of R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc.
New York, New York
We consent to the use in this Amendment No. 1 to the Registration Statement of
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc. on Form S-4, of our reports
dated July 10, 1998, on the consolidated financial statements of R.A.B.
Holdings, Inc. and R.A.B. Enterprises, Inc., appearing in the Prospectus, which
is a part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
December 29, 1998
New York, New York
<PAGE>
Exhibit 23.3
Independent Auditors' Consent
To the Board of Directors and Stockholders
of R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc.
New York, New York
We consent to the use in this Amendment No. 1 to the Registration Statement of
R.A.B. Holdings, Inc. and R.A.B. Enterprises, Inc., on Form S-4 of our report
dated April 30, 1998, on the Statements of Operations of Millbrook Distribution
Services Inc., appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
December 29, 1998
New York, New York
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MANO Holdings Corporation and
KBMC Acquisition Company, L.P.:
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this prospectus.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1067702
<NAME> R.A.B. Holdings, Inc.
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 SEP-30-1998
<CASH> 2,623 4,099
<SECURITIES> 0 0
<RECEIVABLES> 30,383 38,046
<ALLOWANCES> (2,441) (3,479)
<INVENTORY> 41,814 55,060
<CURRENT-ASSETS> 78,086 108,192
<PP&E> 27,455 46,126
<DEPRECIATION> (4,060) (6,467)
<TOTAL-ASSETS> 108,772 270,166
<CURRENT-LIABILITIES> 48,083 66,674
<BONDS> 0 168,000
0 0
9,906 9,906
<COMMON> 1 1
<OTHER-SE> 1,270 (6,007)
<TOTAL-LIABILITY-AND-EQUITY> 108,772 270,166
<SALES> 0 0
<TOTAL-REVENUES> 470,201 234,455
<CGS> 360,162 179,248
<OTHER-EXPENSES> 102,664 56,115
<TOTAL-COSTS> 462,826 235,363
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,079 9,197
<INCOME-PRETAX> 2,296 (10,105)
<INCOME-TAX> 1,122 (2,829)
<INCOME-CONTINUING> 1,174 (7,276)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,174 (7,276)
<EPS-PRIMARY> 0.000 0.000
<EPS-DILUTED> 0.000 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1067700
<NAME> R.A.B. Enterprises, Inc.
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 SEP-30-1998
<CASH> 2,623 4,099
<SECURITIES> 0 0
<RECEIVABLES> 30,383 38,046
<ALLOWANCES> (2,441) (3,479)
<INVENTORY> 41,814 55,060
<CURRENT-ASSETS> 78,189 102,571
<PP&E> 27,455 46,126
<DEPRECIATION> (4,060) (6,467)
<TOTAL-ASSETS> 108,875 251,289
<CURRENT-LIABILITIES> 48,081 64,060
<BONDS> 0 120,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 11,282 35,637
<TOTAL-LIABILITY-AND-EQUITY> 108,875 251,289
<SALES> 0 0
<TOTAL-REVENUES> 470,201 234,455
<CGS> 360,162 179,248
<OTHER-EXPENSES> 102,656 56,115
<TOTAL-COSTS> 462,818 235,363
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,079 6,905
<INCOME-PRETAX> 2,304 (7,813)
<INCOME-TAX> 1,122 (2,786)
<INCOME-CONTINUING> 1,182 (5,027)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,182 (5,027)
<EPS-PRIMARY> 0.000 0.000
<EPS-DILUTED> 0.000 0.000
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 10-1/2% SENIOR NOTES DUE 2005
(INCLUDING THOSE IN BOOK-ENTRY FORM)
IN EXCHANGE FOR
REGISTERED 10-1/2% SENIOR NOTES DUE 2005
OF
R.A.B. ENTERPRISES, INC.
UNDER THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________ 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY R.A.B. ENTERPRISES, INC.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or
The Chase Manhattan Bank The Chase Manhattan Bank Certified Mail:
Global Trust Global Trust The Chase Manhattan Bank
379 Thornall Street, 379 Thornall Street, Global Trust
12th Floor 12th Floor 379 Thornall Street,
Edison, New Jersey 08837 Edison, New Jersey 08837 12th Floor
Attn: Julie Salovitch-Miller, Attn: Julie Salovitch-Miller, Edison, New Jersey 08837
Vice President Vice President Attn: Julie Salovitch-Miller,
Telephone: (732) 603-2837 Telephone: (732) 603-2837 Vice President
Facsimile: (732) 603-2818 Facsimile: (732) 603-2818 Telephone: (732) 603-2837
Facsimile: (732) 603-2818
</TABLE>
(originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, hand delivery, or overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION
OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 10-1/2% SENIOR NOTES DUE 2005
FOR AN EQUAL PRINCIPAL AMOUNT OF REGISTERED 10-1/2% SENIOR NOTES
<PAGE>
DUE 2005 IN THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT WITHDRAW)
SUCH UNREGISTERED NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
ALL REQUIRED SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
- ------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED |
- -------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF | |
REGISTERED OWNER(S) AS THEY APPEAR | CERTIFICATE | PRINCIPAL
ON THE UNREGISTERED 10-1/2% SENIOR | NUMBER(S) OF | AMOUNT OF
NOTES DUE 2005 | NOTES | NOTES
(PLEASE FILL IN, IF BLANK) | TENDERED | TENDERED
- ------------------------------------------------------------------------------
| |
| |
- ------------------------------------------------------------------------------
| |
| |
- ------------------------------------------------------------------------------
| |
| |
- ------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF NOTES | |
TENDERED | |
- ------------------------------------------------------------------------------
Ladies and Gentlemen:
1. The undersigned hereby tenders to R.A.B. Enterprises, Inc., a
Delaware corporation ("Enterprises"), the unregistered 10-1/2% Senior Notes
due 2005 (the "Old Notes") listed above in exchange for an equivalent
principal amount of registered 10-1/2% Senior Notes due 2005 (the "New
Notes"), upon the terms and subject to the conditions contained in the
prospectus dated ___________, 1999, receipt of which is hereby acknowledged,
and in this letter of transmittal (which together constitute the "Exchange
Offer").
2. The undersigned hereby represents and warrants that it has full
power and authority to tender the Old Notes described above. The undersigned
will, upon request, execute and deliver any additional documents deemed by
Enterprises to be necessary or appropriate to complete the tender of Old
Notes.
3. The undersigned understands that the tender of the Old Notes
pursuant to all of the procedures set forth in the prospectus will constitute
an agreement between the undersigned and Enterprises as to the terms and
conditions set forth in the prospectus.
4. The undersigned hereby represents and warrants that:
-2-
<PAGE>
(i) the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the
undersigned, whether or not the undersigned is the holder of the Old
Notes;
(ii) neither the holder nor any such other person is
engaging in or intends to engage in a distribution of such New Notes;
(iii) neither the undersigned nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such New Notes within the meaning of the Securities
Act of 1933;
(iv) neither the undersigned nor any such other person is an
"affiliate," as such term is defined under Rule 405 of the Securities
Act of 1933, of Enterprises or any of the guarantors of the Old
Notes, or if it is an affiliate, the undersigned or such other person
will comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 to the extent applicable;
and
(v) if the undersigned or such other person is a
broker-dealer, the undersigned or such other person will receive New
Notes for its own account in exchange for Old Notes that were
acquired as the result of market-making activities or other trading
activities.
5. If the undersigned is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that
it will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act of 1933. If the undersigned is a broker-dealer and Old
Notes held for its own account were not acquired as a result of market-making
or other trading activities, such Old Notes cannot be exchanged pursuant to
the Exchange Offer.
6. Any obligation of the undersigned hereunder shall be binding upon
the successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives of the undersigned.
7. Unless otherwise indicated herein under "Special Delivery
Instructions," the certificates for the New Notes will be issued in the name
of the undersigned.
-3-
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
(check appropriate boxes) Mail [ ] Issue [ ] certificates to:
Name:
- -------------------------------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Including Zip Code)
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 5)
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN (10)
ADDITIONAL COPIES OF THE PROSPECTUS AND TEN (10) COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
- -------------------------------------------------------------------------------
(Please Print)
Address:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Including Zip Code)
-4-
<PAGE>
SIGNATURE
To be completed by all exchanging noteholders. This section must be
signed by the registered holder exactly as such holder's name appears on the
Old Notes. If the signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in
a fiduciary or representative capacity, please set forth such person's full
title. (See Instruction 3.) Please type or print all information except for
signatures.
X
- ------------------------------------------------------------------------------
X
- ------------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or Authorized Signature
Dated:
---------------------
Name(s):
-------------------
Capacity:
-------------------
Address (including zip code):
-------------------
Area Code and Telephone No.:
--------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
- ------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- ------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
Authorized Signature:
------------------------
Printed Name:
--------------------------------
Title:
---------------------------------------
Dated:
----------------
PLEASE READ THE INSTRUCTIONS ON THE FOLLOWING PAGE,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
-5-
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Unless the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" above has not
been completed or the Old Notes described above are tendered for the account
of an Eligible Institution (as defined below), signatures on this letter of
transmittal must be guaranteed by an eligible guarantor institution that is a
member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934
(an "Eligible Institution").
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. Except as
provided below, the Old Notes, together with a properly completed and duly
executed letter of transmittal (or copy thereof), should be mailed or
delivered to the Exchange Agent at the address set forth on the letter of
transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO ENTERPRISES. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
This letter of transmittal is to be completed either if (a)
certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth under
"The Exchange Offers--Book-Entry Transfer" in the prospectus and an Agent's
Message (as defined below) is not delivered. Certificates, or book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depository Trust Company ("DTC"), as well as this letter of
transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
letter of transmittal, must be received by the Exchange Agent at its address
set forth herein on or prior to the Expiration Date. Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu of this
letter of transmittal. The term "book-entry confirmation" means a confirmation
of a book-entry transfer of Old Notes into the Exchange Agent's account at
DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant, which acknowledgment states that such
participant has received and agrees to be bound by this letter of transmittal
and that Enterprises may enforce this letter of transmittal against such
participant.
Holders of Old Notes whose certificates for such Old Notes are not
immediately available or who cannot deliver their Certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date
(as defined in the prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according
to the
-1-
<PAGE>
guaranteed delivery procedures set forth in "The Exchange Offers--Guaranteed
Delivery Procedures" in the prospectus.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS.
If this letter of transmittal is signed by a person other than a registered
holder of any Old Notes, such Old Notes must be endorsed or accompanied by
appropriate bond powers, signed by such registered holder exactly as such
registered holder's name appears on such Old Notes.
If this letter of transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Enterprises, proper evidence satisfactory to Enterprises of their authority to
so act must be submitted with this letter of transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be determined by Enterprises in its sole discretion, which determination
will be final and binding on all parties. Enterprises reserves the absolute
right to reject any or all Old Notes not properly tendered or any Old Notes
where their acceptance by Enterprises would be unlawful in the opinion of
counsel for Enterprises. Enterprises also reserves the right to waive any
defects, irregularities, or conditions of tender as to particular Old Notes.
The interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this letter of transmittal) by Enterprises will
be final and binding. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as
Enterprises shall determine. Enterprises, the Exchange Agent, or any other
person is not under any duty to give notification of defects in such tenders
and shall not incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects
or irregularities have been cured or waived. Any Old 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 holder thereof as soon as practicable following the
Expiration Date.
-2-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 10-1/2% SENIOR NOTES DUE 2005
(INCLUDING THOSE IN BOOK-ENTRY FORM)
IN EXCHANGE FOR
REGISTERED 10-1/2% SENIOR NOTES DUE 2005
OF
R.A.B. ENTERPRISES, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999
As set forth in the prospectus, this form or one substantially
equivalent hereto must be used to accept the exchange offer if certificates
for unregistered 10-1/2% Senior Notes due 2005 (the "Old Notes") of R.A.B.
Enterprises, Inc.("Enterprises") are not immediately available or time will
not permit a holder's Old Notes or other required documents to reach the
exchange agent on or prior to the expiration date of the exchange offer, or
the procedure for book-entry transfer cannot be completed on a timely basis.
This form may be delivered by facsimile transmission, by registered or
certified mail, by hand, or by overnight delivery service to the exchange
agent. See "The Exchange Offers -- Procedures for tendering your notes" in the
prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY ENTERPRISES.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified
The Chase Manhattan Bank The Chase Manhattan Bank Mail:
Global Trust Global Trust The Chase Manhattan Bank
379 Thornall Street, 379 Thornall Street, Global Trust
12th Floor 12th Floor 379 Thornall Street,
Edison, New Jersey 08837 Edison, New Jersey 08837 12th Floor
Attn: Julie Salovitch-Miller, Attn: Julie Salovitch-Miller, Edison, New Jersey 08837
Vice President Vice President Attn: Julie Salovitch-Miller,
Telephone: (732) 603-2837 Telephone: (732) 603-2837 Vice President
Facsimile: (732) 603-2818 Facsimile: (732) 603-2818 Telephone: (732) 603-2837
Facsimile: (732) 603-2818
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to R.A.B. Enterprises, Inc.
("Enterprises"), in accordance with the offer by Enterprises, upon the terms
and subject to the conditions set forth in the prospectus dated , 1999,
and in the letter of transmittal sent together with the prospectus, receipt of
which is hereby acknowledged, $ in aggregate principal amount of Old Notes
pursuant to the guaranteed delivery procedures described in the prospectus.
Name(s) of Registered Holder(s):
- ------------------------------------------------------------------------------
(Please Type or Print)
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Area Code & Telephone No.:
- ------------------------------------------------------------------------------
Certificate Number(s) for
Old Notes (if available):
- ------------------------------------------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s): $
- ------------------------------------------------------------------------------
Signature of Registered Holder(s):
- ------------------------------------------------------------------------------
Dated:
- ------------------------------------------------------------------------------
The Depository Trust Company
(Check here if Old Notes will be tendered
by book-entry transfer): [ ]
Account Number:
- ------------------------------------------------------------------------------
-2-
<PAGE>
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(THIS FORM IS NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member of or participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby guarantees (a)
that the above named person(s) "own(s)" the Old Notes tendered hereby within
the meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4"), (b) that such
tender of such Old Notes complies with Rule 14e-4 and (c) to deliver to the
Exchange Agent the certificates representing the Old Notes tendered hereby or
confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at The Depository Trust Company, in proper form for transfer,
together with a letter of transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other required documents, within three New York Stock Exchange trading days
after the earlier of (1) the date of execution hereof and (2) the Expiration
Date.
Name of Firm:
- ------------------------------------------------------------------------------
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Area Code and Telephone No.:
- ------------------------------------------------------------------------------
Authorized Signature:
-------------------
Name:
-----------------------------------
Title:
----------------------------------
Dated:
--------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF
OLD NOTES SHOULD BE SENT ONLY WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS.
-3-
<PAGE>
EXHIBIT 99.3
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 13% SENIOR NOTES DUE 2008
(INCLUDING THOSE IN BOOK-ENTRY FORM)
IN EXCHANGE FOR
REGISTERED 13% SENIOR NOTES DUE 2008
OF
R.A.B. HOLDINGS, INC.
UNDER THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON __________ 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY R.A.B. HOLDINGS, INC.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or
The Chase Manhattan Bank The Chase Manhattan Bank Certified Mail:
Global Trust Global Trust The Chase Manhattan Bank
379 Thornall Street, 379 Thornall Street, Global Trust
12th Floor 12th Floor 379 Thornall Street,
Edison, New Jersey 08837 Edison, New Jersey 08837 12th Floor
Attn: Julie Salovitch-Miller, Attn: Julie Salovitch-Miller, Edison, New Jersey 08837
Vice President Vice President Attn: Julie Salovitch-Miller,
Telephone: (732) 603-2837 Telephone: (732) 603-2837 Vice President
Facsimile: (732) 603-2818 Facsimile: (732) 603-2818 Telephone: (732) 603-2837
Facsimile: (732) 603-2818
</TABLE>
(originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, hand delivery, or overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION
OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 13% SENIOR NOTES DUE 2008 FOR AN
EQUAL PRINCIPAL AMOUNT OF REGISTERED 13% SENIOR NOTES DUE 2008 IN THE EXCHANGE
OFFER, YOU MUST VALIDLY TENDER (AND NOT
<PAGE>
WITHDRAW) SUCH UNREGISTERED NOTES TO THE EXCHANGE AGENT PRIOR TO
THE EXPIRATION DATE.
ALL REQUIRED SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
- ------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED |
- ------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF | |
REGISTERED OWNER(S) AS THEY APPEAR | CERTIFICATE | PRINCIPAL
ON THE UNREGISTERED 13% SENIOR | NUMBER(S) OF | AMOUNT OF
NOTES DUE 2008 | NOTES | NOTES
(PLEASE FILL IN, IF BLANK) | TENDERED | TENDERED
- ------------------------------------------------------------------------------
| |
| |
- ------------------------------------------------------------------------------
| |
| |
- ------------------------------------------------------------------------------
| |
| |
- ------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF NOTES | |
TENDERED | |
- ------------------------------------------------------------------------------
Ladies and Gentlemen:
1. The undersigned hereby tenders to R.A.B. Holdings, Inc., a
Delaware corporation ("Holdings"), the unregistered 13% Senior Notes due 2008
(the "Old Notes") listed above in exchange for an equivalent principal amount
of registered 13% Senior Notes due 2008 (the "New Notes"), upon the terms and
subject to the conditions contained in the prospectus dated ___________, 1999,
receipt of which is hereby acknowledged, and in this letter of transmittal
(which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
power and authority to tender the Old Notes described above. The undersigned
will, upon request, execute and deliver any additional documents deemed by
Holdings to be necessary or appropriate to complete the tender of Old Notes.
3. The undersigned understands that the tender of the Old Notes
pursuant to all of the procedures set forth in the prospectus will constitute
an agreement between the undersigned and Holdings as to the terms and
conditions set forth in the prospectus.
4. The undersigned hereby represents and warrants that:
-2-
<PAGE>
(i) the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the
undersigned, whether or not the undersigned is the holder of the Old
Notes;
(ii) neither the holder nor any such other person is
engaging in or intends to engage in a distribution of such New Notes;
(iii) neither the undersigned nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such New Notes within the meaning of the Securities
Act of 1933;
(iv) neither the undersigned nor any such other person is an
"affiliate," as such term is defined under Rule 405 of the Securities
Act of 1933, of Holdings, or if it is an affiliate, the undersigned
or such other person will comply with the registration and prospectus
delivery requirements of the Securities Act of 1933 to the extent
applicable; and
(v) if the undersigned or such other person is a
broker-dealer, the undersigned or such other person will receive New
Notes for its own account in exchange for Old Notes that were
acquired as the result of market-making activities or other trading
activities.
5. If the undersigned is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that
it will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act of 1933. If the undersigned is a broker-dealer and Old
Notes held for its own account were not acquired as a result of market-making
or other trading activities, such Old Notes cannot be exchanged pursuant to
the Exchange Offer.
6. Any obligation of the undersigned hereunder shall be binding upon
the successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives of the undersigned.
7. Unless otherwise indicated herein under "Special Delivery
Instructions," the certificates for the New Notes will be issued in the name
of the undersigned.
-3-
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
(check appropriate boxes) Mail [ ] Issue [ ] certificates to:
Name:
- ------------------------------------------------------------------------------
(Please Print)
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Including Zip Code)
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 5)
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN (10)
ADDITIONAL COPIES OF THE PROSPECTUS AND TEN (10) COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
- ------------------------------------------------------------------------------
(Please Print)
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Including Zip Code)
-4-
<PAGE>
SIGNATURE
To be completed by all exchanging noteholders. This section must be
signed by the registered holder exactly as such holder's name appears on the
Old Notes. If the signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in
a fiduciary or representative capacity, please set forth such person's full
title. (See Instruction 3.) Please type or print all information except for
signatures.
X
- ------------------------------------------------------------------------------
X
- ------------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or Authorized Signature
Dated:
---------------------
Name(s):
-------------------
Capacity:
-------------------
Address (including zip code):
-------------------
Area Code and Telephone No.:
--------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
- ------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- ------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
Authorized Signature:
------------------------
Printed Name:
--------------------------------
Title:
---------------------------------------
Dated:
----------------
PLEASE READ THE INSTRUCTIONS ON THE FOLLOWING PAGE,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
-5-
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Unless the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" above has not
been completed or the Old Notes described above are tendered for the account
of an Eligible Institution (as defined below), signatures on this letter of
transmittal must be guaranteed by an eligible guarantor institution that is a
member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934
(an "Eligible Institution").
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. Except as
provided below, the Old Notes, together with a properly completed and duly
executed letter of transmittal (or copy thereof), should be mailed or
delivered to the Exchange Agent at the address set forth on the letter of
transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO HOLDINGS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES,
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
This letter of transmittal is to be completed either if (a)
certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth under
"The Exchange Offers--Book-Entry Transfer" in the prospectus and an Agent's
Message (as defined below) is not delivered. Certificates, or book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depository Trust Company ("DTC"), as well as this letter of
transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
letter of transmittal, must be received by the Exchange Agent at its address
set forth herein on or prior to the Expiration Date. Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu of this
letter of transmittal. The term "book-entry confirmation" means a confirmation
of a book-entry transfer of Old Notes into the Exchange Agent's account at
DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment
from the tendering participant, which acknowledgment states that such
participant has received and agrees to be bound by this letter of transmittal
and that Holdings may enforce this letter of transmittal against such
participant.
Holders of Old Notes whose certificates for such Old Notes are not
immediately available or who cannot deliver their Certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date
(as defined in the prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according
to the
-1-
<PAGE>
guaranteed delivery procedures set forth in "The Exchange Offers--Guaranteed
Delivery Procedures" in the prospectus.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS.
If this letter of transmittal is signed by a person other than a registered
holder of any Old Notes, such Old Notes must be endorsed or accompanied by
appropriate bond powers, signed by such registered holder exactly as such
registered holder's name appears on such Old Notes.
If this letter of transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
Holdings, proper evidence satisfactory to Holdings of their authority to so
act must be submitted with this letter of transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be determined by Holdings in its sole discretion, which determination
will be final and binding on all parties. Holdings reserves the absolute right
to reject any or all Old Notes not properly tendered or any Old Notes where
their acceptance by Holdings would be unlawful in the opinion of counsel for
Holdings. Holdings also reserves the right to waive any defects,
irregularities, or conditions of tender as to particular Old Notes. The
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in this letter of transmittal) by Holdings will be final and
binding. Unless waived, any defects or irregularities in connection with
tenders of Old Notes must be cured within such time as Holdings shall
determine. Holdings, the Exchange Agent, or any other person is not under any
duty to give notification of defects in such tenders and shall not incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old 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 holder
thereof as soon as practicable following the Expiration Date.
-2-
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 13% SENIOR NOTES DUE 2008
(INCLUDING THOSE IN BOOK-ENTRY FORM)
IN EXCHANGE FOR
REGISTERED 13% SENIOR NOTES DUE 2008
OF
R.A.B. HOLDINGS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999
As set forth in the prospectus, this form or one substantially
equivalent hereto must be used to accept the exchange offer if certificates
for unregistered 13% Senior Notes due 2008 (the "Old Notes") of R.A.B.
Holdings, Inc. ("Holdings") are not immediately available or time will not
permit a holder's Old Notes or other required documents to reach the exchange
agent on or prior to the expiration date of the exchange offer, or the
procedure for book-entry transfer cannot be completed on a timely basis. This
form may be delivered by facsimile transmission, by registered or certified
mail, by hand, or by overnight delivery service to the exchange agent. See
"The Exchange Offers -- Procedures for tendering your notes" in the
prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY HOLDINGS.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE CHASE MANHATTAN BANK
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or
The Chase Manhattan Bank The Chase Manhattan Bank Certified Mail:
Global Trust Global Trust The Chase Manhattan Bank
379 Thornall Street, 379 Thornall Street, Global Trust
12th Floor 12th Floor 379 Thornall Street,
Edison, New Jersey 08837 Edison, New Jersey 08837 12th Floor
Attn: Julie Salovitch-Miller, Attn: Julie Salovitch-Miller, Edison, New Jersey 08837
Vice President Vice President Attn: Julie Salovitch-Miller,
Telephone: (732) 603-2837 Telephone: (732) 603-2837 Vice President
Facsimile: (732) 603-2818 Facsimile: (732) 603-2818 Telephone: (732) 603-2837
Facsimile: (732) 603-2818
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to R.A.B. Holdings, Inc. ("Holdings"),
in accordance with the offer by Holdings, upon the terms and subject to the
conditions set forth in the prospectus dated , 1999, and in the letter of
transmittal sent together with the prospectus, receipt of which is hereby
acknowledged, $ in aggregate principal amount of Old Notes pursuant to the
guaranteed delivery procedures described in the prospectus.
Name(s) of Registered Holder(s):
- ------------------------------------------------------------------------------
(Please Type or Print)
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Area Code & Telephone No.:
- ------------------------------------------------------------------------------
Certificate Number(s) for
Old Notes (if available):
- ------------------------------------------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s): $
- ------------------------------------------------------------------------------
Signature of Registered Holder(s):
- ------------------------------------------------------------------------------
Dated:
- ------------------------------------------------------------------------------
The Depository Trust Company
(Check here if Old Notes will be tendered
by book-entry transfer): [ ]
Account Number:
- ------------------------------------------------------------------------------
-2-
<PAGE>
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(THIS FORM IS NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member of or participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby guarantees (a)
that the above named person(s) "own(s)" the Old Notes tendered hereby within the
meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4"), (b) that such
tender of such Old Notes complies with Rule 14e-4 and (c) to deliver to the
Exchange Agent the certificates representing the Old Notes tendered hereby or
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at The Depository Trust Company, in proper form for transfer, together
with a letter of transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other required
documents, within three New York Stock Exchange trading days after the earlier
of (1) the date of execution hereof and (2) the Expiration Date.
Name of Firm:
- ------------------------------------------------------------------------------
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Area Code and Telephone No.:
- ------------------------------------------------------------------------------
Authorized Signature:
-----------------------
Name:
---------------------------------------
Title:
--------------------------------------
Dated:
----------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF
OLD NOTES SHOULD BE SENT ONLY WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS.
-3-
