As submitted to the Securities and Exchange Commission on February 8, 2000
Registration No. 333-91845
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 5 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Charles River Laboratories, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 2836 76-0509980
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Thomas Ackerman
Chief Financial Officer
251 Ballardvale Street Charles River Laboratories, Inc.
Wilmington, MA 01887 251 Ballardvale Street
(978) 658-6000 Wilmington, MA 01887
(978) 658-6000
(Address, including zip code, and (Name, address, including zip code, and
telephone number, area code, of telephone number, including area
Registrant's principal executive offices) code, of agent for service)
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Copies to:
Richard D. Truesdell, Jr., Esq. Greg Ezring
Davis Polk & Wardwell Latham & Watkins
450 Lexington Avenue 885 Third Avenue
New York, New York 10017 New York, New York 10022
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earliest effective registration statement for the
same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earliest effective registration statement for the
same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $150,000,000 of 13 1/2% series B senior subordinated notes
due 2009 of Charles River Laboratories, Inc. ("Charles River") (the "new notes")
that may be exchanged (the "exchange offer") for equal principal amounts of
Charles River's outstanding 13 1/2% series A senior subordinated notes due 2009
(the "old notes"). This Registration Statement also covers the registration of
the new notes for resale by Donaldson, Lufkin & Jenrette Securities Corporation
in market-making transactions. The complete prospectus relating to the exchange
offer (the "exchange offer prospectus") follows immediately after this
Explanatory Note. Following the exchange offer prospectus are pages relating
solely to such market-making transactions (the "market-making prospectus"),
including alternate front and back cover pages, an alternate "Risk Factors--No
public trading market for the new notes exist" section, an alternate "Use of
Proceeds" section and an alternate "Plan of Distribution" section. In addition,
the market-making prospectus will include references merely to "notes" instead
of to "old notes" and "new notes" and will not include the following captions
(or the information set forth under such captions) in the exchange offer
prospectus: "Summary--The Exchange Offer," "Summary--Consequences of Exchanging
Old Notes in the Exchange Offer," "The Exchange Offer" and "Material United
States Tax Consequences of the Exchange Offer." All other sections of the
exchange offer prospectus will be included in the market-making prospectus. The
market-making prospectus may also be used by DLJ Investment Partners, L.P., DLJ
Investment Funding, Inc., and DLJ ESC II L.P. to comply with their prospectus
delivery requirements under the Securities Act in connection with any resale
transactions.
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<PAGE>
PROSPECTUS
Charles River Laboratories, Inc.
Offers to Exchange
13 1/2% Series A Senior Subordinated Notes Due 2009 for
13 1/2% Series B Senior Subordinated Notes Due 2009
which have been registered under the Securities Act of 1933
We are offering to exchange an aggregate principal amount of up to
$150,000,000 of our new 13 1/2% series B senior subordinated notes due 2009,
which we registered under the Securities Act of 1933 for our existing 13 1/2%
series A senior subordinated notes due 2009. We issued units consisting of the
old notes and warrants to purchase common stock of our holding company in a
transaction exempt from registration under the Securities Act. We are
registering the warrants and the common stock into which the warrants are
exercisable on a separate "shelf" registration statement.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes will not be guaranteed by any
subsidiaries. We merged the subsidiaries which guaranteed the old notes into
Charles River Laboratories, Inc. In addition, transfer restrictions and
registration rights relating to the old notes do not apply to the new notes.
There is no existing market for the new notes, and Charles River does not intend
to apply for their listing on any securities exchange.
To exchange your old notes for new notes:
o You must complete and send the letter of transmittal that accompanies
this prospectus to the exchange agent by 5:00 p.m., New York time, on
March 13, 2000.
o If your old notes are held in book-entry form at The Depository Trust
Company, you must instruct The Depository Trust Company through your
signed letter of transmittal that you wish to exchange your old notes
for new notes. When the exchange offer closes, your Depository Trust
Company account will be changed to reflect your exchange of old notes
for new notes.
o You should read the section called "The Exchange Offer" for additional
information on how to exchange your old notes for new notes.
See "Risk Factors" beginning on page 12 for a discussion of the risk
factors that you should consider prior to tendering your old notes in the
exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February 8, 2000.
<PAGE>
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TABLE OF CONTENTS
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Page
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Summary........................................................................1
Risk Factors..................................................................12
Forward-Looking Statements....................................................22
Industry and Market Data......................................................22
The Transactions..............................................................22
Use of Proceeds...............................................................26
Capitalization................................................................27
Selected Historical Consolidated Financial Data...............................28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................................................30
Business......................................................................43
Management....................................................................52
Executive Compensation........................................................56
Security Ownership of Certain Beneficial Owners and Management................59
Certain Relationships and Related Party
Transactions.............................................................60
Description of New Credit Facility............................................62
Description of Notes..........................................................64
Certain Federal Income Tax Consequences of the
Exchange Offer..........................................................112
Plan of Distribution.........................................................112
Legal Matters................................................................113
Independent Accountants......................................................113
Index to Unaudited Pro Forma Condensed
Consolidated Financial Data.............................................P-1
Index to Consolidated Financial Statements...................................F-1
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<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus
and may not contain all of the information that is important to you. For a more
complete understanding of this exchange offer, we encourage you to read this
entire prospectus carefully.
Our fiscal year ends on the Saturday closest to December 31. Unless the
context indicates otherwise, whenever we refer in this prospectus to a
particular fiscal year, we mean the fiscal year ending in that particular
calendar year. When we refer to "pro forma" financial results, we mean the
financial results of Charles River and its subsidiaries on a consolidated basis
as if the Transactions (which we define on page 2) had occurred at the beginning
of the relevant time period.
CHARLES RIVER LABORATORIES, INC.
Overview
We are a global market leader in the commercial production and supply of
animal research models, meaning whole, living animals bred in a clean
environment specifically for the purpose of research. Most of our animal
research models are rats and mice for use in the discovery, development and
testing of new pharmaceuticals. Because we expanded our core capabilities in
research models, we are currently a leading supplier of related biomedical
products and services in several specialized niche markets. We have a broad
customer base which consists primarily of:
o large pharmaceutical companies, including the ten largest global
pharmaceutical companies based on 1998 revenues
o biotechnology, animal health, medical device and diagnostics companies
o hospitals
o academic institutions
o government agencies
On a pro forma basis, research models accounted for 62%, and biomedical
products and services accounted for 38%, of net sales for the nine-month period
ended September 25, 1999. Over the same time period, we reported pro forma net
sales of $177.1 million and pro forma Adjusted EBITDA, which means EBITDA, as
defined, adjusted for non-recurring, non-cash and cash items, as appropriate, of
$45.4 million.
Our principal executive offices are located at 251 Ballardvale Street,
Wilmington, MA 01887 and our telephone number is (978) 658-6000.
Research Models. We have a leading position in the global market for
research models, which primarily consists of rats and mice bred for the specific
purpose of research. The use of research models is often a critical part of
scientific discovery in the life sciences and is required by FDA guidelines as
well as foreign regulatory agencies for new drug approval processes.
Biomedical Products and Services. Our principal focus in our biomedical
products and services division is meeting the research needs of large
pharmaceutical companies as well as biotechnology, animal health, medical device
and diagnostics companies. We are a leading supplier of endotoxin testing kits
that detect fever producing toxins in injectable drugs and devices and are one
of only two FDA validated in vitro alternatives to an animal test. These kits
are used to test materials for the presence of particular by-products of
bacteria known as endotoxins, which if present and introduced to the bloodstream
can cause serious illness or even death. We manufacture these
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kits which are based on extracts from the blood of horseshoe crabs, which
visibly clots in the presence of endotoxin, thereby acting as a test for the
presence of endotoxin. We are one of the world's largest producers of a kind of
fertile chicken eggs, which are free of most viruses, bacteria and other harmful
agents. We refer to such eggs as "SPF eggs." SPF eggs are principally used to
produce poultry vaccines.
Competitive Strengths
We have a number of competitive strengths, including:
o having long-standing relationships with an extensive customer base
o being a critical component of pharmaceutical research
o having a leading market position
o having a global presence
o our experienced and motivated management team
Business Strategy
Our business strategy combines the following elements:
o increase sales in research models
o expand biomedical products and services, which includes:
-- capitalizing on outsourcing trends within the pharmaceutical
companies. Outsourcing trends mean the increasing tendencies of
companies to contract out to others functions that they
previously performed internally
-- building upon our existing capabilities
-- increasing our global sales
o undertake strategic acquisitions and alliances
The Recapitalization
On September 29, 1999, affiliates of DLJ Merchant Banking Partners II,
L.P., management and other investors acquired us while subsidiaries of Bausch &
Lomb Incorporated retained a portion of their equity investment in us, for total
consideration of $456.2 million. As a result, DLJ Merchant Banking Partners II,
L.P. and some of its affiliates, whom we refer to collectively as the "DLJMB
Funds", indirectly own 71.9% and subsidiaries of Bausch & Lomb Incorporated own
12.5% of Charles River Laboratories Holdings, Inc. We are a wholly owned
subsidiary of Charles River Laboratories Holdings, Inc., which does not have any
material operations or assets other than its ownership of all of our capital
stock. See page 22 for more information on the financing of the
recapitalization.
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The Sierra Acquisition
Concurrently with the recapitalization described above, we acquired SBI
Holdings, Inc. ("Sierra") for an initial total purchase price of $24.0 million,
including approximately $18.0 million in cash paid to the former shareholders.
We also assumed debt of approximately $6.0 million, which we immediately
retired. See page 23 for more information on the funding of the acquisition of
Sierra.
Sierra is a pre-clinical biomedical services company with expertise in drug
safety and effectiveness studies using research models. We believe that the
acquisition of Sierra will contribute to our growing presence in the
pre-clinical testing services business. Sierra submits data from the
pre-clinical stage to the applicable regulatory agency for review in order for a
drug to obtain approval to advance to the human testing stage, commonly known as
clinical studies.
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THE EXCHANGE OFFER
Securities Offered..................... We are offering up to $150,000,000
aggregate principal amount of
131/2% series B senior subordinated
notes due 2009, which have been
registered under the Securities
Act. The terms of the new notes are
identical in all material respects
to the terms of the old notes,
except that the new notes will not
be guaranteed by any subsidiaries.
We merged the subsidiaries which
guaranteed the old notes into
Charles River Laboratories, Inc. We
merged the subsidiaries which
guaranteed the old notes into
Charles River.
We are not offering to exchange the
warrants that were issued with the
old notes in this exchange offer.
We are registering the warrants and
the common stock into which the
warrants are exercisable on a
separate "shelf" registration
statement.
The Exchange Offer..................... We are offering to issue the new
notes in exchange for a like
principal amount of your old notes.
We are offering to issue the new
notes to satisfy our obligations in
the registration rights agreement
entered into when we sold the old
notes in transactions under Rule
144A and Regulation S of the
Securities Act. For procedures for
tendering, see "The Exchange Offer."
Expiration Date, Tenders, Withdrawal... The exchange offer will expire at
5:00 p.m. New York City time on
March 13, 2000 unless we extend the
offer. If you decide to exchange
your old notes for new notes, you
must acknowledge that you are not
engaging in, and do not intend to
engage in, a distribution of the new
notes. If you decide to tender your
old notes in the exchange offer, you
may withdraw them at any time prior
to March 13, 2000. If we decide for
any reason not to accept any old
notes for exchange, we will return
your old notes to you without
expense promptly after the exchange
offer expires.
Federal Income Tax Consequences........ Your exchange of old notes for new
notes in the exchange offer will not
result in any income, gain or loss
to you for Federal income tax
purposes. See "Certain Federal
Income Tax Consequences of the
Exchange Offer."
Use of Proceeds........................ We will not receive any proceeds
from the issuance of the new notes
in the exchange offer.
Exchange Agent......................... State Street Bank and Trust Company
is the exchange agent for the
exchange offer. See page 110 for
information on how to contact the
exchange agent.
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Accounting Treatment................... We intend to account for the
exchange offer based on the
historical basis of accounting for
the old notes. As a result, we will
report the new notes at the same
carrying value as the old notes on
the date of the exchange.
Accordingly, we will not recognize
any gain or loss related to this
exchange.
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CONSEQUENCES OF EXCHANGING OLD NOTES
IN THE EXCHANGE OFFER
Based on interpretations by the SEC's staff in no-action letters issued to
third parties, we believe that you may offer for resale, resell or otherwise
transfer the new notes issued in exchange for old notes in the exchange offer
without registering the new notes under the Securities Act or delivering a
prospectus so long as each of the following applies to you:
o you are not one of our "affiliates", which is defined in Rule 405 of
the Securities Act
o you acquire the new notes in the ordinary course of your business
o either you are a broker-dealer or you do not have any arrangement with
any person to participate in the
distribution of such new notes
Unless you are a broker-dealer, you must acknowledge both that:
o you are not engaged in, and do not intend to engage in, a distribution
of the new notes
o you do not have any arrangement or understanding to participate in a
distribution of the new notes
If you are an affiliate of Charles River, or you are engaged in, intend to
engage in or have any arrangement or understanding about, the distribution of
new notes you acquire in the exchange offer, you (1) should not rely on our
interpretations of the position of the SEC's staff and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
If you are a broker-dealer and receive new notes for your own account in
the exchange offer:
o you must acknowledge that you will deliver a prospectus in connection
with any resale of such new notes. The letter of transmittal states
that by acknowledging and delivering a prospectus, you will not be
admitting that you are an "underwriter" within the meaning of the
Securities Act
o you may use this prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of new notes received in
exchange for old notes you acquired as a result of market-making or
other trading activities
For a period of 90 days after the expiration of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection with
any such resale.
You may only offer or sell the new notes in jurisdictions where we
registered or qualified the new notes for sale, or if you comply with an
available exemption from registration or qualification. Subject to the
registration rights agreement, we will register or qualify the new notes for
offer or sale under the securities laws of any jurisdictions that you reasonably
request in writing. Unless you make such a request, we currently do not intend
to register or qualify the sale of the new notes in any jurisdiction. If you do
not comply with the legal requirements, you could incur liability under the
Securities Act, and we will not indemnify you in such circumstances.
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<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
Maturity Date.......................... October 1, 2009.
Interest Rate and Payment Dates........ Interest on the notes will accrue at
the rate of 13.5% per year, payable
semi-annually in cash in arrears on
October 1 and April 1 of each year,
commencing April 1, 2000. The
interest rate is subject to increase
to 14% per year on August 15, 2000
in the event we do not meet a
specified ratio as of June 30, 2000.
Optional Redemption.................... On or after October 1, 2004 we may
redeem some or all of the notes at
any time at the redemption prices
described in the section
"Description of Notes" under the
heading "Optional Redemption."
Prior to October 1, 2002, we may
redeem up to 35% of the notes with
the proceeds of a public equity
offering at the redemption price
listed in the section "Description
of Notes" under the heading
"Optional Redemption."
Mandatory Repurchase Offer............. If we sell particular assets or
experience specific kinds of changes
in control of our company, we must
offer to repurchase the notes at the
prices listed in the section
"Description of Notes" under the
heading "Repurchase at the Option of
Holders." See "Risk Factors--We may
be unable to purchase the notes upon
a change of control."
Ranking................................ The notes will be senior
subordinated debt.
The notes will rank:
o junior to all of our existing
and future senior debt and
secured debt, including any
borrowings under
our new credit facility
o equally with any of our future
senior subordinated debt
o senior to any of our future
subordinated debt
o effectively junior to all of the
liabilities of our subsidiaries
At September 25, 1999, on a pro
forma basis, after giving effect to
the Transactions, the notes were
contractually subordinated to $163.3
million of our senior debt and
effectively subordinated to $5.2
million of liabilities.
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Restrictive Covenants.................. The indenture governing the notes
contains covenants that limit, among
other things, our ability, and the
ability of some of our subsidiaries,
to:
o borrow money
o create liens
o pay dividends on stock or
repurchase stock
o make some investments
o engage in transactions with
affiliates
o sell some assets or merge with
or into other companies
For more details, see the section
"Description of Notes" under the
heading "Certain Covenants."
Use of Proceeds........................ We will not receive any proceeds
from the exchange of new notes for
old notes.
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
The table below presents summary historical and unaudited pro forma
consolidated financial data and other data for Charles River. We derived the
summary historical consolidated financial data for the fiscal years ended
December 28, 1996, December 27, 1997 and December 26, 1998 from our audited
consolidated financial statements and the notes thereto included elsewhere in
this prospectus. We derived the summary unaudited financial data as of September
25, 1999 and for the nine months ended September 26, 1998 and September 25, 1999
from our unaudited consolidated financial statements and the notes to those
statements. In the opinion of management, our unaudited consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
results of operations for these periods. We derived the summary unaudited pro
forma consolidated financial data, which assume our recapitalization and the
Sierra acquisition had been completed as of such dates, from the Unaudited Pro
Forma Condensed Consolidated Financial Data appearing elsewhere in this
prospectus. We believe that the summary unaudited pro forma consolidated
financial data do not what our results may be if our recapitalization and the
Sierra acquisition were completed as of such dates. In addition, they are not a
projection of our future results of operations or financial position. You should
read the information contained in this table in conjunction with "Use of
Proceeds," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Condensed Consolidated Financial Data" and our consolidated
financial statements and the notes thereto contained elsewhere in this
prospectus.
<TABLE>
Pro Forma
-------------------------
Fiscal Year(1) Nine Months Ended Nine Months
---------------------------- --------------------------- Ended
September 26, September 25, Fiscal Year September 25,
1996 1997 1998 1998 1999 Ended 1998 1999
-------- -------- -------- ------------- ------------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales related to products...................$146,477 $156,800 $169,377 $128,478 $139,269 $185,969 $155,303
Net sales related to services................... 9,127 13,913 23,924 17,041 21,827 23,924 21,827
------- ------- ------- ------- ------- ------- -------
Total net sales................................. 155,604 170,713 193,301 145,519 161,096 209,893 177,130
Cost of products sold........................... 91,600 102,980 107,146 80,067 84,557 116,551 94,146
Cost of services provided....................... 6,177 8,480 15,401 10,974 12,673 15,401 12,673
Selling, general and administrative expenses.... 28,327 30,451 34,142 25,202 29,414 39,052 34,778
Amortization of goodwill and other intangibles.. 610 834 1,287 1,036 1,114 3,354 2,553
Restructuring charges........................... 4,748 5,892 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income................................ 24,142 22,076 35,325 28,240 33,338 35,535 32,980
Other Data:
EBITDA, as defined(2)........................... $33,670 $31,779 $46,220 $36,172 $42,039 $49,146 $43,660
Adjusted EBITDA(2).............................. 39,167 38,528 47,234 37,012 43,378 50,642 45,450
Adjusted EBITDA margin.......................... 25.2% 22.6% 24.4% 25.4% 26.9% 24.1% 25.7%
Depreciation and amortization................... $9,528 $9,703 $10,895 $7,932 $8,701 $13,611 $10,680
Capital expenditures............................ 11,572 11,872 11,909 5,834 7,426 13,307 8,398
Cash interest expense(3).................................................................................. 35,013 28,330
Cash flows from operating activities(4)......... $20,545 $23,684 $36,699 $23,486 $19,552
Cash flows from investing activities(4).........$(11,678) $(12,306) $(22,349) $(14,267) $(4,751)
Cash flows from financing activities(4)......... $(4,068) $(12,939) $(8,018) $(2,412) $(34,554)
Selected Ratios:
Ratio of earnings to fixed charges(5)........... 18.8x 16.5x 25.8x 26.1x 33.7x 1.0x 1.2x
Ratio of Adjusted EBITDA to cash interest expense........................................................ 1.4x 1.6x
Ratio of total pro forma debt to Adjusted EBITDA...................................................................... 6.8x
</TABLE>
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As of September 25, 1999
----------------------------
Historical Pro Forma
---------- ---------
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents............. $3,457 $3,678
Working capital....................... 20,596 32,001
Total assets.......................... 210,371 332,198
Total debt(6)......................... 1,033 311,128
Total stockholder's equity............ 148,965 (30,357)
- ----------
(1) Our fiscal year consists of twelve months ending on the Saturday closest to
December 31.
(2) EBITDA, as defined, represents operating income plus depreciation and
amortization. EBITDA, as defined, is presented because it is a widely
accepted financial indicator used by some investors and analysts to analyze
and compare companies on the basis of operating performance.
Adjusted EBITDA, which represents EBITDA, as defined, adjusted for
non-recurring, non-cash and cash items, as appropriate, is presented below
because we believe it is a meaningful indicator of Charles River's
operating performance and it is the measure by which some of the covenants
under the new credit facility are computed.
EBITDA, as defined, and Adjusted EBITDA are not intended to represent cash
flows for the period, nor are they presented as an alternative to operating
income or as an indicator of operating performance. They should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP in the United States and are not
indicative of operating income or cash flow from operations as determined
under GAAP. Our method of computation may or may not be comparable to other
similarly titled measures of other companies.
The following table shows a reconciliation of EBITDA, as defined, to
Adjusted EBITDA:
<TABLE>
Pro Forma
----------------------------
Fiscal Year Nine Months Ended
-------------------------- ----------------------------- Nine Months
Ended
September 26, September 25, Fiscal Year September 25,
1996 1997 1998 1998 1999 Ended 1998 1999
------ ------ ------ ------------- ------------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA, as defined..................... $33,670 $31,779 $46,220 $36,172 $42,039 $49,146 $43,660
Restructuring and other charges........ 4,748 5,892 -- -- 400 -- 400
Dividends received from equity
investments......................... 725 773 681 681 815 681 815
Charles River non-cash
compensation(a)..................... 24 84 333 159 124 333 124
Sierra non-cash compensation(a)........ -- -- -- -- -- 262 --
Non-recurring transaction expenses(b).. -- -- -- -- -- 220 451
------ ------ ------ ------ ------
Adjusted EBITDA........................ $39,167 $38,528 $47,234 $37,012 $43,378 $50,642 $45,450
====== ====== ====== ====== ====== ======
</TABLE>
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(a) Amount represents non-cash compensation expense recorded by Charles
River and Sierra as a result of options under their respective option
plans being issued at below fair market value.
(b) Represents expenses incurred by Sierra related to its acquisition of
HTI Bio-Services, Inc., and to its acquisition by Charles River; these
amounts are considered non-recurring.
(3) Cash interest expense represents total interest expense less amortization
of deferred financing costs and other non-cash interest charges.
(4) Cash flows information is not presented with respect to the unaudited pro
forma data because a statement of cash flows is not required by Article 11
of SEC Regulation S-X.
(5) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes, minority interests and
earnings from equity investments less minority interests plus earnings
from equity investments plus fixed charges. "Fixed charges" consist of
interest expense on all indebtedness, amortization of deferred financing
costs and one-third of rental expense from operating leases that we
believe is a reasonable approximation of the interest component of rental
expense.
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(6) Total debt includes all debt and capital lease obligations, including
current portions.
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RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the following risk factors before making an investment in the
new notes.
Risks relating to our debt
We have a significant amount of debt, which could limit our growth and our
ability to respond to changing conditions
On a pro forma basis as of September 25, 1999, after giving effect to the
Transactions, we had:
o total consolidated indebtedness of approximately $311.1 million
o approximately $28 million we could borrow under our new credit
facility. In addition, subject to the restrictions in our new credit
facility and the indenture, we may incur significant additional debt.
Our additional debt may be secured from time to time.
The level of our debt could have important consequences, including:
o if a substantial portion of our cash flow from operations must be
dedicated to servicing our debt, then this limits our cash flow
available for general corporate purposes and acquisitions
o limiting our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions
o limiting our flexibility in reacting to competitive and other changes
in our industry and economic conditions generally
Though we currently have enough cash flow to service our debt, we may not in
the future and you may not receive interest or principal payments on the notes
Our ability to pay or to refinance our debt will depend on our future
operating performance. General economic, financial, competitive, legislative,
regulatory, business and other factors beyond our control affect our operating
performance.
We anticipate that our operating cash flow, together with money we can
borrow under our new credit facility, will sufficiently meet our anticipated
future operating expenses, fund capital expenditures and pay our debt as it
becomes due. If we still are not able to pay our debt, we could attempt to
restructure or refinance our debt or seek additional equity capital. We may not
be able to accomplish these actions on favorable financial terms, or at all.
This inability may reduce our flexibility, potential for growth and ability to
pay you interest and principal on the notes.
We may in the future incur significant additional debt in order to fund our
working capital or capital expenditure needs, or to acquire other businesses. If
our cash flow were to decline, or our debt levels or interest rates were to
increase, the risks that we face in terms of our ability to service debt could
intensify. If we are unable to service our debt, you may not receive interest or
principal payments on the notes in a timely manner, or at all.
Restrictive covenants in our indenture and new credit facility may adversely
affect us by limiting the types of transactions we can enter into, potentially
leading to a default and our debt becoming immediately due and payable.
The indenture governing the notes contains various covenants that limit our
ability to engage in particular transactions.
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In addition, our new credit facility contains other and more restrictive
covenants and prohibits us from prepaying our subordinated debt, including the
notes. Our new credit facility also requires us to maintain specified financial
ratios and satisfy some other financial condition tests. The other tests include
requiring us to maintain a minimum EBITDA, minimum coverage of interest expense,
minimum coverage of fixed charges and a maximum leverage ratio. We currently
comply with such ratios and tests; however, events beyond our control may affect
our ability to meet these financial ratios and tests in the future. A breach of
any of these covenants could cause us to default under our new credit facility
and/or the notes. If we default under our new credit facility, which includes a
cross default to debt of Charles River Laboratories Holdings, the lenders could
elect to declare all amounts outstanding under our new credit facility to be
immediately due and payable. They could also terminate all commitments to extend
further credit to us. We pledged substantially all of our assets, other than
assets of our foreign subsidiaries, as security under our new credit facility.
If the lenders under our new credit facility make our borrowing immediately due
and payable, we may not have sufficient assets to repay our new credit facility
and our other debt. If we are not able to repay amounts due under our new credit
facility, the lenders could proceed against the collateral that secures that
debt.
The notes are subordinated to other debt and holders of our senior debt must be
paid before you receive any payment under the notes
The notes are subordinated to our senior debt and holders of our senior debt
must be paid before you receive any payment under the notes
The notes rank junior to all of our existing and future senior debt,
including all debt under our new credit facility.
As a result of the notes being subordinated, if:
o we become insolvent or enter into a bankruptcy or similar proceeding
o we fail to make a payment when due on senior debt
o any senior debt becomes immediately due and payable
then the holders of our senior debt must be paid in full before you are paid.
In addition, we cannot make any payments to you if we have failed to make
payments to holders of designated senior debt. Under some circumstances, we
cannot make any payments to you for a period of up to 179 days if we have
defaulted, other than failures to make payments, under our senior debt
covenants.
At September 25, 1999 after giving effect to the Transactions, on a pro
forma basis, the notes ranked junior in right of payment to $163.3 million of
senior debt.
We may incur additional debt ranking equal to the notes and holders of that
debt would also receive equally with you, any proceeds from any dissolution of
our company
If we incur any additional debt that ranks equally with the notes, the
holders of that debt will be entitled to share equally with you in any proceeds
distributed in connection with any insolvency, liquidation, reorganization,
dissolution or other winding-up of our company. This would have the effect of
reducing the amount of proceeds you receive.
The notes will be structurally junior to our subsidiaries' debt and the
claims of those holders are senior to your claims against those subsidiaries
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Holders of debt and other liabilities of our subsidiaries will effectively
be senior to your claims under the notes against those subsidiaries. As of
September 25, 1999, on a pro forma basis, our subsidiaries had $5.2 million of
outstanding liabilities, excluding intercompany obligations.
We may not be able to purchase the notes upon a change of control as required
under the indenture because of restrictions in our new credit facility
Upon the occurrence of "change of control" events specified in the
"Description of Notes," you may require us to purchase your notes at 101% of
their principal amount, plus accrued interest. The terms of our new credit
facility limit our ability to purchase your notes in such circumstances. Any of
our future debt agreements may contain similar restrictions and provisions.
Accordingly, we may not be able to satisfy our obligations to purchase your
notes unless we are able to refinance or obtain waivers under the new credit
facility and other debt with similar restrictions. Also, we may not have the
financial resources to purchase your notes, particularly if such change of
control event triggers a similar repurchase requirement for other debt, or
results in other debt becoming immediately due and payable. Our new credit
facility currently provides that change of control events will constitute a
default and could result in our debt becoming immediately due and payable under
the new credit facility.
Risks relating to our business
"Contaminations" can damage our inventory and result in decrease in sales
On a pro forma basis, research models accounted for 62% of our net sales
for the nine-month period ended September 25, 1999. We breed research models
that are free of particular agents, such as viruses and bacteria. If these
agents are present, they can distort or otherwise compromise the quality of
research results. We also produce fertile chicken eggs that must be free of
particular contaminants in order to be used in poultry and human vaccine
production. If a foreign agent entered one of our over 150 isolated breeding
rooms or 50 poultry houses, it could disrupt our disease-free animal production,
result in a decrease in sales and harm our reputation. These disruptions or
contaminations can arise from several factors or conditions, including:
o a supervisor's or animal care technician's failure to oversee or
follow our operating procedures
o already contaminated breed stock
o from a defect in equipment or structure
Such contaminations typically results in the "recycling" or cleaning up of
the contaminated room. This clean-up results in inventory loss, clean-up and
start-up costs, and can reduce sales as a result of lost customer orders and
credits for prior shipments. These contaminations are unanticipated and
difficult to predict. We experienced several material contaminations in 1996 and
a few significant contaminations in 1997 that adversely impacted our 1996 and
1997 financial results. We experienced no significant contaminations in 1998.
Future contaminations may harm our reputation for providing high quality
products. In the event of a known contamination, we immediately notify our
customers. Avoiding contaminations in our research model and SPF egg facilities
around the world is our highest priority, with several worldwide programs in
place. Future contaminations may negatively impact our operations and financial
results as described above.
We depend on particular industries; mergers or combinations of companies in
the pharmaceutical industry may decrease demand for our business
Our sales are highly dependent on research and development expenditures by
the pharmaceutical and, to a lesser extent, biotechnology industries. General
economic downturns in our clients' industries, or any decrease in research and
development expenditures, could decrease our revenues.
Over the past several years, companies in the pharmaceutical industry have
undergone a period of significant mergers and combinations, particularly in
Europe. Many industry experts expect this trend to continue. After recent
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mergers and combinations, some customers combined or otherwise reduced their
research and development operations, resulting in fewer animal research
activities. Due to these mergers and combinations, we experienced both temporary
disruptions and permanent reductions in purchases of our research models by some
of our customers. Mergers and combinations within the industry may also lead to
reduced demand as our customers eliminate redundant research activities. Future
mergers and combinations in the pharmaceutical industry could result in
additional disruptions and reductions in purchasing of our products or services.
The outsourcing trend in the pharmaceutical industry, meaning when
companies contract out to others functions that were previously performed
internally, may decrease, which could slow our growth
Some of our biomedical products and services businesses have grown
significantly as a result of the increase over the past several years in
pharmaceutical companies outsourcing their non-clinical research support
activities. While industry analysts expect the outsourcing trend to continue for
the next several years, a substantial decrease in outsourcing activity could
result in a diminished growth rate in the sales of one or more of our expected
higher growth businesses.
Displacement technologies may be developed, validated and increasingly used
in biomedical research, and as a result could reduce demand for some of our
products
For many years, groups within the scientific and research community have
attempted to develop models, methods and systems that would replace or
supplement the use of living animals as test subjects in biomedical research.
Companies have developed several techniques that have scientific merit,
especially in the area of cosmetics and household product testing (markets in
which we are not active). Only a few companies have validated and successfully
deployed alternative test methods in the discovery and development of effective
and safe treatments for human and animal disease conditions. The principal
validated non-animal test system is the LAL, or endotoxin testing system, a
technology which we acquired and have aggressively marketed as an alternative to
an animal test. We expect to participate in some fashion with any non-animal
test method as it becomes validated as a research model alternative or adjunct
in our markets. However, these methods may not be available to us or we may not
be successful in commercializing these methods. Even if we are successful, net
sales from these methods may not offset reduced research model net sales, which
would decrease our revenues.
In our SPF egg business, researchers developed recombinant technologies
that could displace particular avian vaccine applications for SPF eggs.
"Recombinant technologies" refers to technologies related to the manipulation of
DNA in a cell. At this time, we do not believe that these technologies can
compete with SPF eggs from a cost or performance standpoint, but recombinant
technologies may improve in the future until they become a commercially viable
alternative to SPF eggs.
In our endotoxin testing business, researchers are in the early stages of
developing a potential recombinant alternative to the naturally occurring LAL
product. We intend to collaborate with an academic research group with early
stage proprietary technology. We do not expect the recombinant technology to be
a viable commercial alternative to LAL, due to cost and performance
deficiencies. However, a technology derived in vitro may be developed, which
would make our product obsolete.
Such alternative research methods would decrease the need for research
models, and we may not be able to develop new products effectively or in a
timely manner to replace any lost sales.
Animal rights issues could increase the costs of our primate business and
decrease sales
Although our primate business constitutes a small part of our overall
business, animal rights media attention and on-site protests have occurred,
especially at our small import facility located in England. In addition, animal
rights activists have also focused on Sierra's business, which involves large
animals. Our core research models of rats, mice and other rodents have not
historically been the subject of such protests, but may be in the future.
Protests and demonstrations by animal rights activists may lead our customers,
many of whom are concerned with public perception, to decide to decrease their
business with us. In addition, animal rights activists have made threats against
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our facility located in England, which may result in property damages, or
require us to incur expenses in protecting our employees and our facility and
subject us to liabilities.
Some of our businesses are dependent on a few sources of animal suppliers and
supply and if we are unable to obtain resources from those suppliers, our
revenues may be adversely affected
Our primate import business depends on animals both captured and bred on
the island of Mauritius. These animals are unique in that they are naturally
free of herpes B virus, which is important to our customers. We have a long-term
supply agreement with Bioculture Mauritius Ltd., the leading provider of these
animals, and supply has not been disrupted since we commenced importing these
animals a decade ago. However, disruptions to their continued supply may arise
from:
o export or import restrictions or embargos
o government or economic instability in Mauritius
o severe weather conditions in Mauritius
Sierra also depends on a supply agreement with Scientific Resources
International, Ltd., a provider in China. Any disruption of this supply may harm
its business if Sierra could not remove the disruption or if it was unable to
secure an alternative source or secondary source on comparable commercial terms.
Our endotoxin testing business depends on the plentiful availability of
horseshoe crabs. We use the blood from these crabs to produce the test material.
Horseshoe crabs may be subject to regulatory or other restrictions in the
future.
If we are not able to obtain these animals from our existing sources, we
may not be able to find an alternative source on commercially reasonable terms,
or delivery to our customers may be delayed.
Our supply of animal feed may be interrupted by the bankruptcy of our
commercial supplier Purina Mills, Inc.
Purina Mills, Inc., our commercial supplier of animal feed for our United
States research model business, has filed for reorganization under the U.S.
Bankruptcy Code. We do not expect this to interrupt our supply of animal feed.
In addition, we believe an alternative or secondary source of animal feed could
be secured if necessary on terms comparable with our current supplier. If we are
not able to secure an alternative or secondary source on comparable commercial
terms, our costs of animal feed may increase.
Factors such as exchange rate fluctuations and increased international and
U.S. regulatory requirements may increase our costs of doing business in foreign
countries
Approximately 46%, 41%, 40% and 35% of our net sales for 1996, 1997, 1998
and the nine months ended September 25, 1999 were derived from our operations
outside the United States. In addition, approximately 35% of our pro forma net
sales for the nine-month period ended September 25, 1999 were derived from
operations outside the United States. Our operations and financial results could
be significantly affected by factors such as changes in foreign currency rates,
uncertainties related to regional economic circumstances and the costs of
complying with a wide variety of international and United States regulatory
requirements.
Because the sales and expenses of our foreign operations are generally
denominated in local currencies, we are subjected to exchange rate fluctuations
between local currencies and the United States dollar in the reported results of
our foreign operations. These fluctuations may decrease our earnings. We
currently do not hedge against the risk of exchange rate fluctuations.
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We face significant competition in our business and if we are unable to
respond to competition in our business, our revenues may decrease
We have different competitors in each of our business areas. We primarily
compete against smaller companies, which only provide a few services in our
research models business, and numerous other companies of varying sizes in our
biomedical products and services business. A few of our competitors in our
biomedical products and services business are larger than we are and may have
greater capital, technical and other resources than we do; however, many are
smaller and more regionalized. Of all of our businesses, we have the smallest
relative share in the biosafety testing market, where the market leader is a
well established company. Expansion by our competitors in other areas in which
we operate could affect our competitive position. We generally compete on the
basis of quality, reputation, and availability, which our international presence
supports with strategically located facilities. Any erosion of our competitive
advantage may decrease our revenues or limit our growth.
If we cannot retain key personnel, our business may suffer
Our success depends to a significant extent on the continued services of
our senior management and other members of management. James C. Foster, our
President, Chief Executive Officer and director, has been with Charles River for
over 23 years holding various positions, with him serving as our President and
Chief Executive since 1992. We have no employment agreement with Mr. Foster, nor
with any other named executive. If Mr. Foster or other members of management do
not continue in their present positions, our business may suffer.
Some of our biomedical products and services businesses, most notably the
Special Animal Services and biosafety testing businesses, are particularly
dependent on the retention and recruitment of key personnel with highly
specialized technical backgrounds. We may not be able to continue to recruit and
retain key scientific staff necessary to support our service in our higher
growth businesses, especially during a period of tight labor markets. This may
hurt our operating performance.
If we are not successful in selecting and integrating the businesses we
acquire, our business may suffer
Since December 31, 1996, we have completed four acquisitions and will
continue to review future acquisition opportunities in the ordinary course of
our business. However, acquisition candidates may not be available on terms and
conditions we find acceptable and potential growth through acquisitions may be
limited. Acquisitions involve numerous risks, including, among other things:
o difficulties and expenses incurred because of the acquisitions and
assimilation of the acquired company's operations and services or
products
o the difficulty of operating new businesses and the diversion of
management's attention from other business concerns
o the potential loss of key employees of the acquired company
Acquisitions of foreign companies also may involve the additional risks of
assimilating differences in foreign business practices and overcoming language
barriers. In the event that the operations of an acquired business do not live
up to expectations, we may be required to restructure the acquired business. We
may not be able to successfully integrate our past and any future acquisitions,
including the Sierra Acquisition, into our operations.
We are controlled by our principal shareholders whose interests may differ
from your interests
The interests of our principal shareholders could be in conflict with your
interests. In addition, these shareholders may have an interest in pursuing
transactions that, in their judgment, enhance the value of their equity
investment in our company, even though such transactions may involve risks to
you as a holder of the notes.
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Most of our outstanding shares of common stock are directly or indirectly
held by the DLJMB Funds. As a result of their stock ownership, the DLJMB Funds
control us and indirectly have the power to:
o elect most of our directors
o appoint new management
o approve any action requiring the approval of the holders of common
stock. This includes adopting amendments to our certificate of
incorporation and approving recapitalizations or sales of all or
substantially all of our assets
The directors elected by the DLJMB Funds will have the ability to control
decisions affecting our capital structure. This includes the issuance of
additional capital stock, the implementation of stock repurchase programs and
the declaration of dividends.
The general partners of each of the DLJMB Funds are affiliates or employees
of Donaldson, Lufkin & Jenrette, Inc. Donaldson, Lufkin & Jenrette Securities
Corporation, which was the initial purchaser of the units, is an affiliate of
Donaldson, Lufkin & Jenrette, Inc., as is DLJ Capital Funding, Inc., which is
the lead arranger, syndication agent and a lender under our new credit facility.
Our historical financial information may not be representative of our results
as a separate company
The historical financial information in this prospectus may not reflect
what our results of operations, financial position and cash flows would have
been had we been a separate, stand-alone company during the periods presented.
In addition, the information may not reflect what our results of operations,
financial position and cash flows will be in the future. We made various
adjustments and allocations to the historical financial statements in this
prospectus because Bausch & Lomb Incorporated did not account for us as a single
stand-alone business for all periods presented. Our adjustments and allocations
made in preparing our historical and pro forma consolidated financial statements
may not appropriately reflect our operations during the periods presented as if
we had operated as a stand-alone company.
We must comply with many federal, state and local rules and regulations which
could impose unanticipated costs, limit our flexibility in growing our business
and restrict our business opportunities
Our business is affected by FDA regulations and similar foreign regulations
which may affect the demand for our products
Our endotoxin testing business is regulated as a medical device
manufacturer under FDA regulations. We received a "warning letter" from the FDA
earlier last year. This letter cited quality control and other problems in our
operation at our Charleston, South Carolina facility which the agency considered
to be in violation of the laws or regulations enforced by the FDA. The FDA has
allowed our operation to continue to manufacture and sell the LAL product line
produced at the Charleston facility. However, we must make prescribed changes to
our production and quality control systems in order to maintain our license to
manufacture at that facility. We expect to be able to meet all of the FDA's
requirements in the near future, and have already made considerable progress in
addressing the non-compliance issues. However, the FDA may conclude that our
corrective actions are inadequate. If the FDA decides that we have not corrected
the deficiencies noted in the warning letter, the agency could, among other
things:
o issue another warning letter
o request that we enter into a consent decree
o prohibit us from introducing new products
o require us to recall our products
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o prohibit us from shipping products until we correct all deficiencies
to its satisfaction
o temporarily revoke our manufacturing license
Any of these actions could impose additional costs and affect our ability to
provide our customers with products.
Our business may be affected by changes in the Animal Welfare Act and
related regulations which may require us to alter our operations
Some of our business activities are currently regulated by the Animal
Welfare Act, which governs the treatment of some animals intended for use in
research. Most of our United States small animal research model business, which
is predominantly rats and mice, is not subject to regulation under the Animal
Welfare Act. However, we comply with licensing and registration requirement
standards set by the USDA for handling animals, including breeding, maintenance
and transportation of our animals. Birds, including the chickens used in our
United States SPF egg business, are also not subject to Animal Welfare Act
regulations. However, the USDA, which enforces the Animal Welfare Act, is
presently considering changing the regulations issued under the Animal Welfare
Act, in light of judicial action, to include rats, mice and birds within its
coverage. The Animal Welfare Act imposes a wide variety of specific regulations
on producers and users of animal subjects, most notably cage size, shipping
conditions and environmental enrichment methods. If the USDA decides to include
rats, mice and birds, especially chickens, in its regulations, we could be
required to alter our production operation for these models. This may include
adding production capacity, new equipment and additional employees. We believe
that application of the Animal Welfare Act to our rats, mice and SPF egg
businesses in the United States will not result in loss of net sales, margin or
market share, since all producers and users are subject to the same regulations.
However, the USDA's actions may harm our operations. In addition, although we do
not anticipate the addition of rats, mice and birds to the Animal Welfare Act to
require significant expenditures, the Animal Welfare Act, when amended, may be
more stringent than we expect and require significant expenditures. Any future
amendments to the Animal Welfare Act or other laws or regulations may also
require significant expenditures by us.
In addition, some states have their own regulations, including general
anti-cruelty legislation, which establish standards in handling animals. To the
extent that we provide products and services overseas, we also have to comply
with foreign laws, such as the European Convention for the Protection of Animals
During International Transport and other anti-cruelty laws. The Council of
Europe is presently considering proposals to more stringently regulate animal
research.
If we do not comply with such laws and regulations described above, it can
result in significant civil and criminal penalties.
We have been engaged in legal disputes over environmental compliance at our
Florida Keys primate business for many years and may incur substantial costs to
resolve these disputes
For two decades we raised rhesus monkeys on two islands in the Florida
Keys. We recently sold the assets of this rhesus primate breeding business to
Merck & Co. Federal, state and local environmental and wildlife authorities, as
well as private environmental advocacy groups, challenged the continuing
legality of this operation. They cited damage to a subsequently protected plant
species, mangroves, resulting from the free range conditions in which the
primates were maintained. To settle our disputes, we agreed to move the primates
off the islands and thereafter transfer the real property to the government. We
also agreed to replant the islands at our cost, restoring them to their
conditions prior to our arrival. While we believe the replanting process can be
efficiently completed within a reasonable period, the replanting process may not
be successful. Also, there may be further disputes with environmental
authorities relating to this replanting obligation in which they may assess
restitution costs, damages and penalties.
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Healthcare reform could reduce or eliminate our business opportunities
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. Government healthcare reform, most notably price controls on new
drugs, may adversely affect research and development expenditures by
pharmaceutical and biotechnology companies, resulting in a decrease of the
business opportunities available to us. Many foreign governments have also
reviewed or undertaken healthcare reform, and we cannot predict the impact that
any pending or future healthcare reform proposals may have on our business in
foreign countries.
Our business may be disrupted by year 2000 problems
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished during the years leading up to
2000 was effective to prevent any problems. We have not experienced any such
computer difficulty, however, computer experts have warned that there may still
be residual consequences of the change in centuries. Any such difficulties may,
depending upon their pervasiveness and severity, harm our business, financial
condition and results of operations.
If we cannot obtain governmental consents and approvals as required as a result
of the change in control of our company, it may hurt our ability to conduct
business
A substantial number of our material agreements contain provisions that
require consents and/or approvals from third parties, including government
entities, in case of a change in control of our company. In addition, a
substantial number of our leases contain provisions prohibiting such change in
control or permitting the landlord to terminate the lease upon a change in
control. The Recapitalization constituted a change of control as defined in
those agreements. We received the necessary consents and/or approvals from third
parties to our material agreements, except those from government entities.
Consents from government entities generally require post-transaction disclosure
which is in process, and we expect to receive such consents. We may not be able
to obtain from government entities all of the consents and/or approvals that are
triggered by the change in control of our company.
Fraudulent transfer statutes may limit your rights as a noteholder
Federal or state fraudulent transfer laws permit a court, if it makes
particular findings, to
o deny all or a portion of our obligations to you
o subordinate our obligations to you to our other existing and future
debt, which entitles other creditors to receive payment in full before
you receive any payment; and
o take other action detrimental to you, including possibly invalidating
the notes
If a court were to take any of these actions, you may not be repaid on the
notes. Moreover, a court may determine that payments made to some of our
stockholders under the recapitalization agreement with proceeds of the notes
violated the financial requirements in the Delaware corporations statute. In
such a circumstance, you will not be entitled under such law to recover these
payments from either the stockholders or the members of our board of directors
that authorized these payments.
In order to take any of these actions under federal and state fraudulent
transfer laws, courts will typically need to find that at the time the notes
were issued, we:
(1) issued the notes with the intent of hindering, delaying or defrauding
current or future creditors; or
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(2) received less than fair consideration or reasonably equivalent value
for incurring the indebtedness represented by the notes and
(a) were insolvent or became insolvent because we issued the notes;
(b) were engaged, or about to engage, in a business or transaction for
which our assets were unreasonably small; or
(c) intended to incur, or believed (or should have believed) we would
incur, debts beyond our ability to pay as such debts mature.
Different jurisdictions define "insolvency" differently. However, we
generally would be considered insolvent at the time we issued the debt if (1)
the fair market value (or fair saleable value) of our assets is less than our
total existing debts and liabilities (including the probable liability related
to contingent liabilities) or (2) we were incurring debts beyond our ability to
pay as such debts mature. We do not know what standard a court would apply in
order to determine whether we were "insolvent" as of the date we issued the
notes. Regardless of the method of valuation, a court may determine that we were
insolvent on that date. Also, a court may determine, regardless of whether we
were insolvent on the date we issued the notes, that the payments constituted
fraudulent transfers on another ground.
There are no public trading markets for the notes which may limit your ability
to sell your notes
The notes are a new issue of securities for which there is currently no
active trading markets. If any of the notes are traded after they are initially
issued, they may trade at a discount from their initial offering price. The
trading price of the notes depends on prevailing interest rates, the market for
similar securities and other factors, including economic conditions and our
financial condition, performance and prospects.
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FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" including, in
particular, the statements about our plans, strategies and prospects under the
headings "Summary," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and in the Unaudited Pro Forma
Financial Information and the related notes. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we may not be able to achieve such plans, intentions
or expectations. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this prospectus are
set forth in this prospectus, including under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." All forward looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements and risk factors contained throughout this prospectus.
INDUSTRY AND MARKET DATA
In this prospectus, we rely on and refer to information and statistics
regarding the research model and biomedical products and services industries,
and our market share in the sectors in which we compete. We obtained this
information and statistics from various third party sources, discussions with
our customers and/or our own internal estimates. We believe that these sources
and estimates are reliable, but we have not independently verified them.
THE TRANSACTIONS
The Recapitalization
We entered into a recapitalization agreement dated as of July 25, 1999 with
Bausch & Lomb Incorporated ("B&L"), subsidiaries of Bausch & Lomb, Charles River
Laboratories Holdings, DLJMB and CRL Acquisition LLC, a wholly owned subsidiary
of DLJMB. The recapitalization agreement provided for, among other things:
o the contribution of all assets and liabilities (except as described
below) relating to our business by the to us in exchange for all of
our capital stock
o the exchange by the subsidiaries of Bausch & Lomb of their shares of
our capital stock for an equivalent ownership of shares of Charles
River Laboratories Holdings, so that Charles River Laboratories
Holdings will own 100% of our capital stock
o the subsidiaries of Bausch & Lomb retaining some assets including:
o substantially all of our cash and cash equivalents as of the day
preceding the closing date
o all receivables owed by the subsidiaries of Bausch & Lomb or
their affiliates
o the subsidiaries of Bausch & Lomb retaining some liabilities
including:
o all indebtedness for borrowed money outstanding immediately prior
to the closing date
o all payables and other obligations owed to the subsidiaries of
Bausch & Lomb or any of their affiliates
o all tax liabilities relating to pre-closing periods
22
<PAGE>
o the formation by CRL Acquisition LLC of a wholly owned subsidiary
("Acquisition Subco"). CRL Acquisition LLC and Acquisition Subco were
organized by DLJMB for the purpose of consummating the
Recapitalization.
o the merger of Acquisition Subco with and into Charles River
Laboratories Holdings, with Charles River Laboratories Holdings being
the surviving entity
o the redemption by Charles River Laboratories Holdings of 87.5% of its
capital stock from the subsidiaries of Bausch & Lomb for $400.0
million in cash and a subordinated discount note for $43.0 million
issued by Charles River Laboratories Holdings to the subsidiaries of
Bausch & Lomb; the subsidiaries of Bausch & Lomb retained 12.5% of
their equity investment with a fair market value of $13.2 million
As a result of the Recapitalization, the DLJMB Funds, management and some
other investors indirectly own (through CRL Acquisition LLC) 87.5% of the
capital stock of Charles River Laboratories Holdings and the subsidiaries of
Bausch & Lomb own 12.5% of the capital stock of Charles River Laboratories
Holdings.
The Sierra Acquisition
In addition to the $24.0 million initial purchase price, we have
obligations to pay:
o up to $2.0 million in contingent purchase price if specified financial
objectives are reached by December 31, 2000
o up to $10.0 million in performance-based bonus payments if specified
financial objectives are reached over the next five years, with no
payment in any individual year to exceed $2.7 million
o $3.0 million in retention and non-competition payments contingent upon
the continuing employment of specified key scientific and management
personnel through June 30, 2001
23
<PAGE>
The following table sets forth the sources and uses of funds for the
Transactions on a pro forma basis.
As of September
25, 1999
---------------
(dollars in
thousands)
Sources:
Available cash.................................................... $2,508
Borrowings under our new credit facility:
Revolving credit facility(1)...................................... 2,000
Term loans(2)..................................................... 160,000
Units(3).......................................................... 150,000
Senior discount debentures with warrants of Holdings(4)........... 37,613
Subordinated discount note of Holdings(5)......................... 43,000
Equity investment by DLJMB Funds, management and other investors.. 92,387
Subsidiaries of Bausch & Lomb equity(6)........................... 13,198
-------
Total sources.................................................... $500,706
=======
Uses:
Recapitalization consideration.................................... $443,000
Sierra acquisition consideration(7)............................... 24,000
Subsidiaries of Bausch & Lomb equity(6)........................... 13,198
Debt issuance costs............................................... 13,237
Loans to management............................................... 920
Transaction fees and expenses(8).................................. 6,351
-------
Total uses....................................................... $500,706
=======
- -------------------
(1) We have availability of $28.0 million under our new revolving credit
facility, subject to customary borrowing conditions. See "Description of
New Credit Facility."
(2) Includes a senior secured Term Loan A facility of $40.0 million and a
senior secured Term Loan B facility of $120.0 million.
(3) Represents the issuance of $150.0 million of units previously offered which
was allocated between senior subordinated notes ($147.9 million) and the
warrants ($2.1 million).
(4) Investment by the DLJMB Funds in Charles River Laboratories Holdings, Inc.
(5) Investment by the subsidiaries of Bausch & Lomb in Charles River
Laboratories Holdings, Inc.
(6) Subsidiaries of Bausch & Lomb retained a portion of their equity investment
in Charles River Laboratories Holdings, Inc.
(7) The total Sierra acquisition consideration of $24.0 million was used to pay
existing shareholders (approximately $18.0 million) and to retire Sierra's
existing debt (approximately $6.0 million).
(8) Includes financial advisory and other fees, and legal, accounting and other
professional fees. See "Certain Relationships and Related Transactions."
24
<PAGE>
USE OF PROCEEDS
Our net proceeds from the offering of the units, after deducting the
expenses of the Transactions, including discounts and commissions to the initial
purchaser, were approximately $143.2 million. We dividended $270.0 million less
some fees and expenses, consisting of a portion of the net proceeds from the
offering together with a portion of the $162.0 million of initial borrowings
under our new credit facility to Charles River Laboratories Holdings. Holdings
used the proceeds from this dividend, together with its new equity investment by
the DLJMB Funds, management and other investors, proceeds from the issuance of
its senior discount debentures with warrants and its subordinated discount note,
to fund the Recapitalization and to pay particular fees and expenses related to
the Recapitalization as required by the recapitalization agreement. We used the
remaining proceeds to fund the Sierra Acquisition and pay some related fees and
expenses. See "The Transactions." We will not receive any proceeds from the
issuance of the new notes.
25
<PAGE>
CAPITALIZATION
The following table presents Charles River's consolidated cash and cash
equivalents and capitalization as of September 25, 1999 (i) on a historical
basis and (ii) as adjusted to give pro forma effect to the Transactions. This
table should be read in conjunction with "The Transactions," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our consolidated financial statements and notes thereto included
elsewhere in this prospectus. See "Unaudited Pro Forma Condensed Consolidated
Financial Data."
As of September 25, 1999
-------------------------
Historical Pro Forma
---------- ---------
(dollars in thousands)
Debt:
New credit facility(1):
Revolving credit facility............................ $ -- $ 2,000
Term loans(2)........................................ -- 160,000
Senior subordinated notes(3).......................... -- 147,872
Capital lease obligations and other long-term debt.... 1,033 1,256
------- -------
Total debt......................................... 1,033 311,128
------- -------
Shareholder's equity:
Common stock......................................... 1 1
Additional paid-in capital........................... 17,836 105,896
Retained earnings.................................... 142,422 (124,040)
Loans to officers............................... -- (920)
Accumulated other comprehensive income............... (11,294) (11,294)
------- -------
Total shareholder's equity......................... 148,965 (30,357)
------- -------
Total capitalization............................... $149,998 $280,771
======= =======
- -------------------
(1) We have availability of $28.0 million under our new revolving credit
facility, subject to customary borrowing conditions. See "Description of
New Credit Facility."
(2) Includes a senior secured Term Loan A facility of $40.0 million and a
senior secured Term Loan B facility of $120.0 million.
(3) Represents the offering proceeds of $150.0 million related to the units
which was allocated between the senior subordinated notes ($147.9 million)
and the warrants ($2.1 million).
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents Charles River's selected historical
consolidated financial data and other data as of and for the fiscal years ended
December 31, 1994, December 30, 1995, December 28, 1996, December 27, 1997 and
December 26, 1998 and as of and for the nine months ended September 26, 1998 and
September 25, 1999. We derived the selected historical consolidated financial
data as of and for the three fiscal years ended December 26, 1998 from our
audited consolidated financial statements and the notes to those statements. We
derived the selected historical consolidated financial data as of and for the
fiscal years ended December 31, 1994 and December 30, 1995 and as of and for the
periods ended September 26, 1998 and September 25, 1999 from our unaudited
consolidated financial statements and the notes to those statements. In the
opinion of management, our unaudited consolidated financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial condition and results of operations for
these periods. You should read the information contained in this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes thereto contained elsewhere in this prospectus.
<TABLE>
Fiscal Year(1) Nine Months Ended
---------------------------------------------- ----------------------
September September
1994 1995 1996 1997 1998 26, 1998 25, 1999
------ ------ ------ ------ ------ --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales related to products $128,890 $133,514 $146,477 $156,800 $169,377 $128,478 $139,269
Net sales related to services 6,857 7,527 9,127 13,913 23,924 17,041 21,827
------- ------- ------- ------- ------- ------- -------
Total net sales.............. 135,747 141,041 155,604 170,713 193,301 145,519 161,096
Cost of products sold........ 78,235 78,877 91,600 102,980 107,146 80,067 84,557
Cost of services provided.... 6,857 7,527 6,177 8,480 15,401 10,974 12,673
Selling, general and
administrative expenses.... 25,824 27,976 28,327 30,451 34,142 25,202 29,414
Amortization of goodwill and
other intangibles.......... 437 558 610 834 1,287 1,036 1,114
Restructuring charges........ 4,788 -- 4,748 5,892 -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income............. 19,606 26,103 24,142 22,076 35,325 28,240 33,338
Other income............. -- -- -- -- -- -- 1,441
Interest income.............. 149 634 654 865 986 659 496
Interest expense............. (464) (768) (491) (501) (421) (311) (207)
Gain/(loss) from foreign
currency, net.............. 39 (68) 84 (221) (58) (127) (143)
------- ------- ------- ------- ------- ------- -------
Income before income taxes,
minority interests and
earnings from equity
investments................ 19,330 25,901 24,389 22,219 35,832 28,461 34,925
Provision for income taxes... 7,995 10,759 10,889 8,499 14,123 11,280 16,903
------- ------- ------- ------- ------- ------- -------
Income before minority
interests and earnings from
equity investments......... 11,335 15,142 13,500 13,720 21,709 17,181 18,022
Minority interests........... -- (13) (5) (10) (10) (8) (10)
Earnings from equity
investments................ 1,492 1,885 1,750 1,630 1,679 1,286 1,940
------- ------- ------- ------- ------- ------- -------
Net income................... $12,827 $17,014 $15,245 $15,340 $23,378 $18,459 $19,952
======= ======= ======= ======= ======= =======
Other Data:
Depreciation and amortization $9,635 $9,717 $9,528 $9,703 $10,895 $7,932 $8,701
Capital expenditures......... 5,727 10,239 11,572 11,872 11,909 5,834 7,426
27
<PAGE>
Fiscal Year(1) Nine Months Ended
---------------------------------------------- ----------------------
September September
1994 1995 1996 1997 1998 26, 1998 25, 1999
------ ------ ------ ------ ------ --------- ---------
(dollars in thousands)
Ratio of earnings to fixed
charges(2).................... 21.9x 18.9x 18.8x 16.5x 25.8x 26.1x 33.7x
Balance Sheet Data (at end
of period):
Cash and cash equivalents....... $9,584 $15,336 $19,657 $17,915 $24,811 $25,184 $3,457
Working capital................. 23,366 35,901 45,204 41,746 37,422 48,457 20,596
Total assets.................... 164,680 184,271 196,981 196,211 233,410 222,092 210,371
Total debt(3)................... 4,142 4,626 1,645 1,363 1,582 1,462 1,033
Total shareholder's equity...... 126,000 142,212 153,818 149,364 168,259 165,324 148,965
</TABLE>
- -------------------
(1) Our fiscal year consists of twelve months ending on the Saturday closest to
December 31.
(2) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes, minority interests and
earnings from equity investments less minority interests plus earnings from
equity investments plus fixed charges. "Fixed charges" consist of interest
expense on all indebtedness, amortization of deferred financing costs and
one-third of rental expense from operating leases that we believe is a
reasonable approximation of the interest component of rental expense.
(3) Total debt includes all debt and capital lease obligations, including
current portions.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and our unaudited pro forma condensed
consolidated financial statements, including the notes thereto, included
elsewhere in this prospectus.
This discussion contains forward-looking statements which involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, those discussed in "Risk Factors."
CHARLES RIVER
Overview
We are a global market leader in the commercial production and supply of
animal research models for use in the discovery, development and testing of new
pharmaceuticals. The expansion of our core capabilities in research models has
enabled us to become a leading supplier of related biomedical products and
services in several specialized niche markets.
We operate in two segments for financial reporting purposes--research
models and biomedical products and services. On a pro forma basis, research
models accounted for 62%, and biomedical products and services accounted for
38%, of net sales for the nine-month period ended September 25, 1999. Over the
same period, we reported pro forma net sales of $177.1 million and pro forma
Adjusted EBITDA of $45.4 million. Adjusted EBITDA represents EBITDA, as defined,
adjusted for non-recurring, non-cash and cash items, as appropriate, which are
more fully described on page 10. EBITDA, as defined, represents operating income
plus depreciation and amortization. We present Adjusted EBITDA because we
believe it is a meaningful indicator of Charles River's operating performance,
and it is the measure by which some of the covenants under the new credit
facility are computed. EBITDA, as defined, and Adjusted EBITDA are not intended
to represent cash flows for the period, nor are they presented as an alternative
to operating income or as an indicator of operating performance. They should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP in the United States and are not indicative of
operating income or cash flow from operations as determined under GAAP. Our
method of computation may not be comparable to other similarly titled measures
of other companies.
Sierra, which we recently acquired, is a pre-clinical biomedical services
company with expertise in drug safety and effectiveness studies using research
models. Sierra offers its services to biotechnology, pharmaceutical and medical
device companies that are principally focused on conducting studies needed in
the early stages of drug development, especially those that require highly
specialized scientific capabilities. Sierra has expertise in conducting critical
developmental studies on potential new drugs and devices using research models,
including short-term evaluations of potential new treatment for human or animal
disease conditions.
Net Sales. We recognize net sales when a product is shipped or as services
are rendered. Over the past three years, unit volume of small animal research
models has increased modestly in North America and has decreased modestly in
Europe. During the same period, sales in both North America and Europe have
increased, principally as a result of price increases and a shift in mix towards
higher priced research models. In recent years, we have increased our focus on
the sale of specialty research models, such as special disease models, which
have contributed to additional sales growth.
Our customers typically place orders for research models with less than a
week's lead time. Meeting such demand requires efficient inventory management
and strong customer service support. We improved inventory availability in the
last two years through better forecasting and production mix, and most
importantly, improved biosecurity, thereby reducing the possibility of
contaminations.
29
<PAGE>
Biomedical products and services have grown at a compounded rate of 31%
from 1996 to 1998 and accounted for 30% of our sales in 1998, compared to 22% in
1996. Our growth in this business demonstrates our ability to capitalize on our
core research model technology and enter into related product development
activities undertaken by our customers.
Pricing. We maintain published list prices for all of our research models,
biomedical products and some of our services. We also have pricing agreements
with our customers which provide some discounts, usually based on volume. Many
of our services are based on customized orders and are priced accordingly. While
pricing has been competitive, some of our products are priced at a premium due
to the higher quality, better availability, and superior customer support that
our customers associate with our products.
Biosecurity. Biosecurity is our highest operational priority. Prior
breaches of biosecurity have adversely affected our results of operations, and
we cannot assure you that future breaches would not materially affect our
results of operations. A biosecurity breach typically results in additional
expenses from the need to "recycle" or clean up the contaminated room, which in
turn results in inventory loss, clean-up and start-up costs, and can reduce net
sales as a result of lost customer orders and credits for prior shipments. We
experienced several significant contaminations in 1996 and a few significant
contaminations in 1997, both in our isolation rooms for research models and in
our poultry houses for SPF eggs. As a result, our net sales in 1996 and 1997
were adversely affected by our inability to fulfill customer orders and our
expenses were increased during those periods by the costs associated with
cleaning up the contaminations. Since December 31, 1996, we have made over $6.0
million of capital expenditures designed to strengthen our biosecurity,
primarily by upgrading our production facilities. In addition, we have made
significant changes to our operating procedures for isolation rooms and poultry
houses designed to further minimize the risks of contamination, including, for
example, increasing the frequency of replacing masks and gowns, and most
importantly, increasing awareness and training among our employees. These
improvements to our operating procedures increased annual ongoing biosecurity
related expenses by approximately $0.5 million in 1998. While we cannot assure
you that we will not experience future significant isolation room or poultry
house contaminations in the future, these changes have contributed to our
absence of significant contaminations during 1998 and the first nine months of
1999.
Acquisitions. Since December 31, 1996, we have successfully acquired and
integrated four companies, which contributed $6.3 million in sales in 1998, or
3.3% of total sales. We acquired Sierra for an initial total purchase price of
$24.0 million, including approximately $18.0 million in cash paid to former
shareholders and assumed debt of approximately $6.0 million, which we
immediately retired. In addition, we have agreed to pay (a) up to $2.0 million
in contingent purchase price if specified financial objectives are reached by
December 31, 2000, (b) up to $10.0 million in performance-based bonus payments
if specified financial objectives are reached over the next five years, with no
payment in any individual year to exceed $2.7 million, and (c) $3.0 million in
retention and non-competition payments contingent upon the continuing employment
of specified key scientific and managerial personnel through June 30, 2001.
The $2.0 million in contingent purchase price will, if paid, increase
goodwill and/or other identifiable intangibles by the same amount and not affect
our results of operations except through the subsequent related amortization
expense and any interest expense related to any borrowings necessary to finance
such payment. The $10.0 million in performance-based bonus payments, will, if
paid, be expensed during the period in which it becomes reasonably probable that
such financial objectives will be achieved. We will expense the $3.0 million in
retention and non-competition payments over the next two years. The contingent
purchase price and performance-based bonus payments are not reflected in the pro
forma financial data included elsewhere herein because they are not considered
reasonably estimable; the retention and non-competition payments are not
included in the pro forma financial data as they are considered non-recurring.
Joint Ventures. We have two unconsolidated joint ventures which are
accounted for under the equity method. Our largest is Charles River Japan, which
we own 50%/50% with Ajinimoto Co., Inc., and is an extension of our research
model business. Our royalty agreement provides us with 3% of the sales of
locally produced research models. We also receive dividends based on our
pro-rata share of 50% of net income. Dividends received from Charles River Japan
were $0.7 million, $0.8 million and $0.7 million in 1996, 1997 and 1998,
respectively. In addition, we received dividends of $0.8 million in 1999. Our
other unconsolidated joint venture is Charles River Mexico, an extension of our
SPF eggs business, which is not significant to our operations.
30
<PAGE>
Restructuring Program. During 1996 and 1997, we implemented two
restructuring programs. Our plans, which were submitted to and approved by B&L,
were designed to reduce excess capacity, increase efficiencies, eliminate
nonessential operating and staff personnel, and close several small
product-lines.
In 1996, we established a restructuring reserve in the amount of $4.7
million, based on our plan to close some animal facilities in the U.S.,
eliminate personnel in U.S., Europe and elsewhere, and close an animal facility
in Germany. These were areas in our business where due to excess capacity or
staff, financial performance was below expectations. These actions, which were
completed in 1996, had the impact of reducing cost of products sold and services
provided and selling, general and administrative expenses. These initiatives
contributed to improved profitability by eliminating costs, and improving
operating efficiencies in all areas targeted. When we prepared our restructuring
program, we estimated we would save approximately $2.6 million on an annual
basis. While we were successful in reducing our headcount, closing the small
product lines and reducing our excess capacity, we did not achieve all of the
efficiencies we had hoped for and our savings were somewhat less than planned.
In 1996 we saved approximately $1.6 million from these actions, and in 1997 we
saved approximately $1.9 million. After 1997, we have not continued to track
expense savings, in part because the continuous evolution and changes that take
place in our business make this difficult, and in addition, the value of
monitoring the savings diminishes over time.
In 1997, we established a restructuring reserve in the amount of $5.9
million, based on our plan to close some facilities and eliminate personnel in
our SPF egg business, eliminate personnel in Europe, reduce corporate staff, and
relocate our primate colony. We have completed the actions underlying this plan
and such actions had the impact of reducing cost of products sold and services
provided and selling, general and administrative expenses. This had the impact
of improving profitability in those areas affected. At the time we prepared our
restructuring program, we estimated we would save approximately $3.1 million on
an annual basis. While our savings were significant, we did not achieve our
original estimate, principally because we have not realized any benefit from the
relocation of our primate colony, which has just been completed. In 1997 we
saved approximately $0.6 million from these actions, and in 1998 we saved
approximately $2.6 million. Since we are currently in the process of selling the
entire colony, we are unable to measure the positive impact of the relocation.
Allocation of Costs from Bausch & Lomb. Historically, B&L charged us for
some direct expenses, including insurance, information technology and other
miscellaneous expenses, based upon actual charges incurred on our behalf.
However, these charges and estimates are not necessarily indicative of the costs
and expenses which would have resulted had we incurred these costs as a
stand-alone entity. The actual amounts of expenses we incur in future periods
may vary significantly from these allocations and estimates. We expect to incur
other incremental expenses as a stand-alone company. See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
The Transactions. The Recapitalization, which was consummated on September
29, 1999, was accounted for as a leveraged recapitalization, which will have no
impact on the historical basis of our assets and liabilities. The Sierra
Acquisition was accounted for under the purchase method of accounting with the
purchase price allocated to the assets and liabilities of Sierra based on an
estimate of their fair value, with the remainder, if any, being allocated to
goodwill. On a pro forma basis, we incurred various costs of approximately $19.6
million (pre-tax) in connection with consummating the Transactions. We will
capitalize and amortize the portion of these costs that represents deferred
financing costs over the life of the related financing. We will charge a portion
of the expenses related to the Recapitalization to retained earnings and include
in the purchase price the portion related to the Sierra Acquisition.
Deferred Tax Assets. In conjunction with the Recapitalization, we will make
an election under section 338(h)(10) of the Internal Revenue Code of 1986, as
amended. Such election results in a step-up in the tax basis of the underlying
assets. The resulting net deferred tax asset of $88.1 million is expected to be
realized over 15 years through future tax deductions which are expected to
reduce future tax payments. See Note (e) to the Unaudited Pro Forma Condensed
Consolidated Balance Sheet included in the Unaudited Pro Forma Condensed
Consolidated Financial Data.
Results of Operations
The following table summarizes historical results of operations as a
percentage of net sales for the periods shown:
31
<PAGE>
<TABLE>
Fiscal Year Ended Nine Months Ended
---------------------------------------------- -----------------------------
December 28, December 27, December 26, September 26, September 25,
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of products sold and service provided.... 62.8 65.3 63.4 62.6 60.4
Selling, general and administrative expenses... 18.2 17.8 17.7 17.3 18.3
Amortization of goodwill and other intangibles. 0.4 0.5 0.7 0.7 0.7
Restructuring charges.......................... 3.1 3.5 -- -- --
---- ---- ---- ---- ----
Operating income............................... 15.5 12.9 18.2 19.4 20.6
---- ---- ---- ---- ----
Net income..................................... 9.8% 9.0% 12.1% 12.7% 12.4%
==== ==== ==== ==== ====
</TABLE>
Nine Months ended September 25, 1999 Compared to Nine Months ended September 26,
1998
Net Sales. Net sales for the first nine months of 1999 were $161.1 million,
an increase of $15.6 million, or 10.7%, from $145.5 million in the first nine
months of 1998.
Research Models. Net sales of research models for the first nine months of
1999 were $109.2 million, an increase of $6.0 million, or 5.8%, from $103.2
million for the first nine months of 1998. Sales increased due to the increase
in small animal research model sales in North America and Europe of $6.7
million, resulting from improved pricing, a more favorable product mix (meaning
a shift to higher priced units) and an increase in unit volume. We also
experienced growth in our primate import and conditioning business of $0.6
million, mainly due to pricing.
Biomedical Products and Services. Net sales of biomedical products and
services for the first nine months of 1999 were $51.9 million, an increase of
$9.6 million, or 22.7%, from $42.3 million for the first nine months of 1998. At
the beginning of the second quarter of 1998, we acquired two new businesses that
contributed $2.8 million of this sales growth. The remaining increase was due to
significant sales increases of Special Animal Services of $2.1 million and
Endotoxin testing kits of $1.3 million, and sales from our facility management
contracts of $1.1 million, primarily due to better customer awareness of our
outsourcing solutions.
Cost of Products Sold and Services Provided. Cost of products sold and
services provided for the first nine months of 1999 was $97.2 million, an
increase of $6.2 million, or 6.8%, from $91.0 million for the first nine months
of 1998.
Research Models. Cost of products sold and services provided for research
models for the first nine months of 1999 was $65.4 million, an increase of $1.7
million, or 2.7%, compared to $63.7 million for the first nine months of 1998.
Cost of products sold and services provided for the first nine months of 1999
was 59.9% of net sales compared to 61.7% of net sales for the first nine months
of 1998. Cost of products sold and services provided increased at a lower rate
than net sales due to the more favorable product mix and better pricing, as well
as improved capacity utilization.
Biomedical Products and Services. Cost of products sold and services
provided for biomedical products and services for the first nine months of 1999
was $31.8 million, an increase of $4.5 million, or 16.5%, compared to $27.3
million for the first nine months of 1998. Cost of products sold and services
provided for the first nine months of 1999 was 61.3% of net sales compared to
64.5% of net sales for the first nine months of 1998. Cost of products sold and
services provided increased at a lower rate than net sales, due to improved
utilization in our SPF egg business, and a favorable sales mix in our Special
Animal Services and biosafety testing businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first nine months of 1999 were $29.4 million, an
increase of $4.2 million, or 16.7% from $25.2 million for the first nine months
of 1998. Selling, general and administrative expenses for the first nine months
of 1999 were 18.2% of net sales, compared to 17.3% of net sales for the first
nine months of 1998. Selling, general and administrative expenses also included
research and development expense of $0.4 million for the first nine months of
1999 compared to $0.8 million for the same period in 1998.
32
<PAGE>
Research Models. Selling, general and administrative expenses for research
models for the first nine months of 1999 were $15.7 million, an increase of $2.5
million, or 18.9%, compared to $13.2 million, for the first nine months of 1998.
Selling, general and administrative expenses for the first nine months of 1999
were 14.4% of net sales, compared to 12.8% for the first nine months of 1998.
The increase was attributable to additional worldwide marketing efforts,
additional salespeople in the United States and the impact of selling efforts in
Europe for ESD, a business acquired at the end of 1998.
Biomedical Products and Services. Selling, general and administrative
expenses for biomedical products and services for the first nine months of 1999
were $7.5 million, an increase of $0.9 million, or 13.6%, compared to $6.6
million for the first nine months of 1998. Selling, general and administrative
expenses for the first nine months of 1999 decreased to 14.5% of net sales,
compared to 15.6% of net sales for the first nine months of 1998, due to the
significant increase in sales.
Unallocated Corporate Overhead. Unallocated corporate overhead, which
consists of various corporate expenses, was $6.2 million for the first nine
months of 1999, an increase of $0.8 million, or 14.8%, compared to $5.4 million
for the first nine months of 1998. The increase resulted from a number of items,
the most significant of which related to the write down of a small investment in
one of our joint ventures, which is undergoing significant financial
difficulties.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles for the first nine months of 1999 was $1.1 million, an
increase of $0.1 million, or 10.0%, from $1.0 million for the first nine months
of 1998. The increase was due to the effect of three recent acquisitions, two in
April 1998 and one in December 1998.
Restructuring Charges. There were no restructuring charges during the nine
months ended September 25, 1999 and September 26, 1998. During the nine months
ended September 25, 1999, we charged $0.8 million of previously reserved for
costs against the recorded restructuring reserves. The remaining reserves, which
primarily relate to continuing severance payments and relocation and refoliation
costs, are expected to be fully utilized by the end of 1999.
Operating Income. Operating income for the first nine months of 1999 was
$33.3 million, an increase of $5.1 million, or 18.1%, from $28.2 million in the
first nine months of 1998. Operating income for the first nine months of 1999
was 20.7% of net sales, compared to 19.4% of net sales for the first nine months
of 1998. Operating income increased in total and as a percentage of net sales
for the reasons described below.
Research Models. Operating income from sales of research models for the
first nine months of 1999 was $28.0 million, an increase of $1.7 million, or
6.5%, from $26.3 million in the first nine months of 1998. Operating income from
sales of research models for the first nine months of 1999 was 25.5% of net
sales, unchanged from the first nine months of 1998.
Biomedical Products and Services. Operating income from sales of biomedical
products and services for the first nine months of 1999 was $11.5 million, an
increase of $4.2 million, or 57.5%, from $7.3 million in the first nine months
of 1998. Operating income from sales of biomedical products and services for the
first nine months of 1999 increased to 22.2% of net sales, compared to 17.3% of
net sales for the first nine months of 1998, due to improvements in pricing,
sales mix and cost savings achieved.
Other Income. During the third quarter of 1999, we recorded a $1.4 million
gain on the sale of two small facilities, one located in Florida, and the other
located in the Netherlands.
Income Taxes. The effective tax rate of 48.4% for the first nine months of
1999 as compared to 39.6% for the first nine months of 1998, reflects the
remittance of cash dividends of $20.7 million from our foreign subsidiaries
which, in turn, were remitted to B&L. The related amounts were previously
considered permanently reinvested in the foreign jurisdictions for U.S. income
tax reporting purposes, therefore, we were required to provide additional taxes
upon their repatriation to the U.S. In addition, during the nine months ended
September 25, 1999, an election was made by B&L to treat some foreign entities
as branches for United States income tax purposes. As a result, all previously
untaxed accumulated earnings of such entities became immediately subject to tax
in the United States. The receipt of the cash
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dividends from the foreign subsidiaries and the foreign tax elections made
resulted in incremental United States taxes of $2.0 million, net of foreign tax
credits, during the nine months ended September 25, 1999.
Net Income. Net income for the first nine months of 1999 was $20.0 million,
an increase of $1.5 million, or 8.1%, from $18.5 million in the first nine
months of 1998. The increase was attributable to the factors described above.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales in 1998 were $193.3 million, an increase of $22.6
million, or 13.2%, from $170.7 million in
1997.
Research Models. Net sales of research models in 1998 were $134.6 million,
an increase of $9.4 million, or 7.5%, from $125.2 million in 1997. Sales
increased due to the increase in small animal research model sales in North
America of $4.2 million, resulting from improved pricing and a more favorable
product mix. In addition, in 1998 we were not affected by the significant
contaminations which negatively impacted sales in 1997. Overall, unit volumes
remained relatively flat, with modest increases in North America offset by
modest declines in Europe. Our net sales in our primate import and conditioning
business increased by $3.2 million as a result of expansion in our boarding and
service business.
Biomedical Products and Services. Net sales of biomedical products and
services in 1998 were $58.7 million, an increase of $13.2 million, or 29.0%,
from $45.5 million in 1997. During 1998 we acquired three businesses that
contributed $6.1 million of our sales growth. The remaining increase was due to
increased sales across all of our product lines, and in particular our Special
Animal Services of $2.2 million and Endotoxin testing businesses of $1.9
million.
Cost of Products Sold and Services Provided. Cost of products sold and
services provided in 1998 was $122.5 million, an increase of $11.0 million, or
9.9%, from $111.5 million in 1997.
Research Models. Cost of products sold and services provided for research
models for 1998 was $85.8 million, an increase of $3.3 million, or 4.0%,
compared to $82.5 million in 1997. Cost of products sold and services provided
for 1998 was 63.7% of net sales compared to 65.9% for 1997. Cost of products
sold and services provided increased for 1998 compared to 1997, but at a slower
rate than net sales due principally to better product mix and pricing as well as
greater economies of scale and improved production efficiencies.
Biomedical Products and Services. Cost of products sold and services
provided for biomedical products and services for 1998 was $36.7 million, an
increase of $7.7 million, or 26.6%, compared to $29.0 million in 1997. Cost of
products sold and services provided was 62.5% of net sales in 1998 compared to
63.7% in 1997. Cost of products sold and services provided increased for 1998
compared to 1997, but at a slower rate than net sales due principally to cost
savings.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1998 were $34.1 million, an increase of $3.6 million,
or 11.8%, from $30.5 million in 1997. Selling, general and administrative
expenses in 1998 were 17.6% of net sales compared to 17.9% of net sales in 1997.
These expenses increased mainly in line with sales. Selling, general and
administrative expenses also included research and development expense of $1.4
million in 1998, which was the same amount as in 1997.
Research Models. Selling, general and administrative expenses for research
models for 1998 were $18.1 million, a decrease of $1.5 million, or 7.7%,
compared to $19.6 million, for 1997. Selling, general and administrative
expenses for 1998 decreased to 13.4% of net sales, compared to 15.7% for 1997
due primarily to the significant increase in sales.
Biomedical Products and Services. Selling, general and administrative
expenses for biomedical products and services for 1998 were $9.7 million, an
increase of $2.8 million, or 40.6%, compared to $6.9 million for 1997. Selling,
general and administrative expenses for 1998 were 16.5% of net sales, compared
to 15.2% of net sales for 1997. The increase was principally attributable to the
acquisition of two small businesses in April 1998.
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Unallocated Corporate Overhead. Unallocated corporate overhead was $6.3
million for 1998, an increase of $2.3 million, or 57.5%, compared to $4.0
million in 1998. The increase was due to an increase in our supplemental
retirement program costs, along with an increase in management bonuses for 1998.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles in 1998 was $1.3 million, an increase of $0.5 million, or
62.5%, from $0.8 million in 1998. The increase was due to the acquisition of two
small service businesses in April 1998.
Restructuring Charges. There were no restructuring charges in 1998 compared
to $5.9 million in 1997 associated with the restructuring program discussed
above. During 1998, we charged $1.6 million of previously reserved for costs
against the previously recorded restructuring reserves.
Operating Income. Operating income in 1998 was $35.3 million, an increase
of $13.2 million, or 59.7%, from $22.1 million in 1997. Operating income in 1998
was 18.3% of net sales compared to 12.9% of net sales in 1997.
Research Models. Operating income from research models in 1998 was $30.5
million, an increase of $10.9 million, or 55.6%, from $19.6 million in 1997.
Operating income from sales of research models in 1998 increased to 22.7% of net
sales, compared to 15.7% of net sales in 1997 for the reasons described above.
Biomedical Products and Services. Operating income from biomedical products
and services in 1998 was $11.1 million, an increase of $4.6 million, or 70.8%,
from $6.5 million in 1997. Operating income increased to 18.9% of net sales,
compared to 14.3% of net sales in 1997 for the reasons described above.
Income Taxes. The effective tax rate in 1998 was 39.4% compared to 38.3% in
1997.
Net Income. Net income in 1998 was $23.4 million, an increase of $8.1
million, or 52.9%, from $15.3 million in 1997. The increase was attributable to
the factors referred to above.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales in 1997 were $170.7 million, an increase of $15.1
million, or 9.7%, from $155.6 million in
1996.
Research Models. Net sales of research models in 1997 were $125.2 million,
an increase of $3.9 million, or 3.2%, from $121.3 million in 1996. Sales
increased due to the increase in small animal research model sales in North
America of $1.7 million, primarily due to improved pricing and a favorable
product mix which more than offset slight unit volume declines in Europe and
flat unit volume sales in North America. The unit volume declines were partially
due to a number of contaminations which occurred in 1996 and several
contaminations in 1997, which mostly impacted net sales in 1997. In addition,
net sales in 1997 were negatively impacted by $6.2 million due to foreign
currency translations. Sales in our primate business increased $6.8 million
after our imported primates business was reacquired at the beginning of the
third quarter of 1996.
Biomedical Products and Services. Net sales of biomedical products and
services in 1997 were $45.5 million, an increase of $11.2 million, or 32.7%,
from $34.3 million in 1996. The increase was due to increased sales of SPF eggs
of $3.0 million, an increase in facility management contracts of $2.9 million
and $1.6 million from the acquisition of our French distributor for Endotoxin
testing kits in the beginning of the second quarter of 1996.
Cost of Products Sold and Services Provided. Cost of products sold and
services provided in 1997 was $111.5 million, an increase of $13.7 million, or
14.0%, from $97.8 million in 1996.
Research Models. Cost of products sold and services provided for research
models for 1997 was $82.5 million, an increase of $6.5 million, or 8.6%,
compared to $76.0 million in 1996. Cost of products sold and services provided
for 1997 was 65.9% of net sales compared to 62.7% for 1996. Cost of products
sold and services provided increased for
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1997 compared to 1996 at a greater rate than sales due principally to additional
costs associated with biosecurity and the prevention of contaminations.
Biomedical Products and Services. Cost of products sold and services
provided for biomedical products and services for 1997 was $29.0 million, an
increase of $7.2 million, or 33.0%, compared to $21.8 million in 1996. Cost of
products sold and services provided for 1997 was 63.7% of net sales in 1997
compared to 63.6% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1997 were $30.5 million, an increase of $2.2 million,
or 7.8%, from $28.3 million in 1996. Selling, general and administrative
expenses in 1997 were 17.9% of net sales compared to 18.2% of net sales in 1996.
Selling, general and administrative expenses also included research and
development expense of $1.4 million in 1997, compared to $1.5 million in 1996.
Research Models. Selling, general and administrative expenses for research
models for 1997 were $19.6 million, a decrease of $0.1 million, or 0.5%,
compared to $19.7 million, for 1996. Selling, general and administrative
expenses for 1997 were 15.7% of net sales, compared to 16.2% for 1996.
Biomedical Products and Services. Selling, general and administrative
expenses for biomedical products and services for 1997 were $6.9 million, an
increase of $1.5 million, or 27.8%, compared to $5.4 million for 1996. Selling,
general and administrative expenses for 1997 were 15.2% of net sales, compared
to 15.7% of net sales for 1996.
Unallocated Corporate Overhead. Corporate overhead was $4.0 million for
1997, an increase of $0.8 million, or 25.0%, compared to $3.2 million in 1996.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles in 1997 was $0.8 million, an increase of $0.2 million, or
33.3%, from $0.6 million in 1996. The increase was due to the acquisition of our
French distributor for Endotoxin testing kits in the beginning of the second
quarter of 1996.
Restructuring Charges. Restructuring charges in 1997 were $5.9 million, an
increase of $1.2 million, or 25.5%, from $4.7 million in 1996. The 1997
restructuring charges consisted of the following: plant closings and personnel
reductions in our SPF egg business, severance costs and relocation costs for our
purpose bred primates in the Florida Keys and related refoliation costs and
staff reductions and associated severance costs in Europe and the United States.
The 1996 restructuring charges consisted of the following: plant closings in the
United States and Europe of the small animal business, personnel reductions at
our European headquarters, administrative staff reductions at the SPF egg
business, and shut-down or combining of several other small businesses. During
1997, we charged $3.2 million of costs against the reserves recorded in 1997.
The restructuring activities provided for in 1996 were completed by the end of
the year with actual charges approximating those originally provided for.
Operating Income. Operating income in 1997 was $22.1 million, a decrease of
$2.0 million, or 8.3%, from $24.1 million in 1996. Operating income in 1997 was
12.9% of net sales compared to 15.5% of net sales in 1996. Operating income
decreased in total and as a percentage of net sales due to the factors described
above.
Research Models. Operating income from research models in 1997 was $19.6
million, a decrease of $4.5 million, or 18.7%, from $24.1 million in 1996.
Operating income from sales of research models in 1997 decreased to 15.7% of net
sales, compared to 19.9% of net sales in 1996 due primarily to biosecurity costs
and higher restructuring charges.
Biomedical Products and Services. Operating income from biomedical products
and services in 1997 was $6.5 million, an increase of $3.2 million, or 97%, from
$3.3 million in 1996. Operating income from sales of biomedical products and
services in 1997 increased to 14.3% of net sales, compared to 9.6% of net sales
in 1996 due to the significant increase in sales.
Income Taxes. The effective tax rate in 1997 was 38.3%, compared to 44.6%
in 1996, due to higher foreign statutory tax rates in 1996.
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Net Income. Net income in 1997 was $15.3 million, an increase of $0.1
million, or 0.7%, from $15.2 million in 1996. The increase was attributable to
the factors referred to above.
Liquidity and Capital Resources
Post-Transactions
Our principal sources of liquidity are cash flow from operations and
borrowings under our new credit facility. Our principal uses of cash are debt
service requirements as described below, capital expenditures, working capital
requirements and acquisitions.
On a pro forma basis, after giving effect to the Transactions, as of
September 25, 1999, we had:
o total consolidated indebtedness of approximately $311.1 million
o approximately $28.0 million of borrowings available under our new
credit facility, subject to customary conditions
Our significant debt service obligations following the Transactions could,
under some circumstances, have material consequences to our security holders.
See "Risk Factors--Risks relating to our debt."
The term loan facility under the new credit facility consists of a $40.0
million term loan A facility and a $120.0 million term loan B facility. The term
loan A facility matures six years after the closing date of the facility and the
term loan B facility matures eight years after the closing date of the facility.
The new credit facility also includes a $30.0 million revolving credit
facility which matures six years after the closing date of the facility. The
revolving credit facility may be increased by up to $25.0 million at our
request, which will only be available to us under some circumstances, subject to
a successful syndication under the same terms and conditions of the $30.0
million revolving credit facility.
Loans under the term loan A facility and the revolving facility will bear
interest, at our option, at the alternate base rate or the reserve adjusted
LIBOR rate plus, in each case, applicable margins of 3.00% for LIBOR loans and
1.75% for base rate loans. Loans under the term loan B facility will bear
interest, at our option, at the alternate base rate or the reserve adjusted
LIBOR rate plus, in each case, applicable margins of 3.75% for LIBOR loans and
2.50% for base rate loans. We pay commitment fees in an amount equal to 0.50%
per annum on the daily average unused portion of the revolving credit facility.
Such fees are payable quarterly in arrears and upon the maturity or termination
of the revolving credit facility. Beginning approximately six months after the
closing date of the new credit facility, the applicable margins applicable to
loans under the term loan A facility and the revolving facility and commitment
fees will be determined based on the ratio (the "Leverage Ratio") of
consolidated total debt to consolidated EBITDA (as defined in the new credit
facility) of our company and our restricted subsidiaries (as defined in the new
credit facility).
CRL Transactions Co., Inc. was newly incorporated in the state of Delaware
on December 16, 1999, and is a wholly owned subsidiary of Charles River.
Therefore, no financial data exists for CRL Transactions Co. for the nine
months ended September 25, 1999. Under a covenant described under "Description
of Notes - Certain Covenants", CRL Transactions Co. is required to guarantee
the notes if it guarantees the debt under the new credit facility. Currently,
Charles River is in the process of and expects to obtain a waiver from the
lenders under the new credit facility, releasing CRL Transactions Co.'s
obligation to guarantee the debt under the new credit facility. Therefore, CRL
Transactions Co. will not be a guarantor of the notes.
All of our future domestic restricted subsidiaries will be guarantors of
the new credit facility. Our obligations under the new credit facility are or
will be secured by:
o all of our stock,
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o all of our existing and after-acquired personal property and all the
existing and after-acquired personal property of our future domestic
restricted subsidiaries, including a pledge of all of the equity
interests of all our future restricted subsidiaries held by us or any
of our restricted subsidiaries and no more than 65% of the equity
interests of any foreign restricted subsidiary, and all intercompany
debt in our favor,
o first-priority perfected liens on all of our material existing and
after-acquired real property fee and leasehold interests, subject to
customary permitted liens (as defined in the new credit facility), and
o a negative pledge on all of our and our subsidiaries' assets.
The new credit facility contains customary covenants and restrictions on
our ability to engage in particular activities, including, but not limited to:
o limitations on other indebtedness, liens, investments and guarantees,
o restrictions on dividends and redemptions and payments on subordinated
debt and
o restrictions on mergers and acquisitions, sales of assets and leases.
The new credit facility also contains customary events of default and
a cross-default to indebtedness of Charles River Laboratories
Holdings, Inc.
The notes mature in 2009. Interest on the notes is payable semi-annually in
cash. The notes contain customary covenants and events of default, including
covenants that limit our ability to incur debt, pay dividends and make
particular investments.
We anticipate that we will spend approximately $15.0 million on a pro forma
basis for capital expenditures in 1999. The new credit facility contains
restrictions on our ability to make capital expenditures. Based on current
estimates, management believes that the amount of capital expenditures permitted
to be made under the new credit facility will be adequate to grow our business
according to our business strategy and to maintain the properties and businesses
of our continuing operations. We anticipate we will spend approximately $13.5
million for capital expenditures in 2000.
Working capital totaled $31.9 million at September 25, 1999 on a pro forma
basis. Management believes that we will continue to require working capital
consistent with past experience and that current levels of working capital,
together with borrowings available under the new credit facility, will be
sufficient to meet expected liquidity needs in the near term.
Reference should be made to Quantitative and Qualitative Disclosures about
Market Risk found on pages 41 and 42 where a table disclosing the Company's
total anticipated debt service requirements in the period 2000 through 2004 can
be found. We anticipate that our operating cash flow, together with borrowings
under the new credit facility, will be sufficient to meet our anticipated future
operating expenses, capital expenditures and the above debt service obligations
as they become due. However, our ability to make scheduled payments of principal
of, to pay interest on or to refinance our indebtedness and to satisfy our other
debt obligations will depend upon our future operating performance, which will
be affected by general economic, financial, competitive, legislative,
regulatory, business and other factors beyond our control. See "Risk Factors."
From time to time we will continue to explore additional financing methods
and other means to lower our cost of capital, which could include stock issuance
or debt financing and the application of the proceeds therefrom to the repayment
of bank debt or other indebtedness. In addition, in connection with any future
acquisitions, we may require additional funding which may be provided in the
form of additional debt or equity financing or a combination thereof. It is
possible that we will not be able to obtain such additional financing on
favorable financial terms.
In connection with the Transactions, Charles River Laboratories Holdings,
Inc. issued $37.6 million aggregate principal amount of 16.27% senior discount
debentures with warrants to the DLJMB Funds and other investors. The senior
discount debentures accrete from their original issue price of $37.6 million to
$82.3 million by October 1, 2004. Thereafter, interest is payable in cash. The
senior discount debentures mature on April 1, 2010. The senior discount
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debentures contain covenants and events of default substantially similar to
those contained in the notes. In addition, Holdings issued to the subsidiaries
of Bausch & Lomb a subordinated discount note with an original issue price of
$43.0 million. The subordinated discount note accretes at the rate of 12% prior
to October 1, 2004 and thereafter at 15% to an aggregate principal amount of
$175.3 million at maturity on October 1, 2010. The subordinated discount notes
are subject to mandatory redemption upon a change of control at the option of
the holder thereof and are subject to redemption at Holdings' option at any
time.
As previously discussed, Holdings is a holding company with no operations
or assets other than its ownership of 100% of Charles River's outstanding common
stock. Charles River neither guarantees nor pledges its assets as collateral for
the senior discount debenture or the subordinated discount note, both issued by
Holdings. Holdings has no source of liquidity other than dividends from Charles
River. Charles River's ability to pay dividends will be subject to limitations
contained in the indenture and the new credit facility.
Historical
Nine Months Ended September 25, 1999 Compared to Nine Months Ended
September 26, 1998
Cash flow from operating activities for the nine months ended September 25,
1999 was $19.6 million compared to $23.5 million for the nine months ended
September 26, 1998 due to an increase in working capital.
Net cash used in investing activities, consisting primarily of capital
expenditures and acquisitions, was $4.8 million for the nine months ended
September 25, 1999 compared to $14.3 million for the nine months ended September
26, 1998. The investing levels primarily change from year to year as the result
of spending on acquisitions. The large amount in 1998 primarily relates to the
acquisition of Tektagen, Inc. Capital expenditures were $7.4 million for the
nine months ended September 25, 1999, compared to $5.8 million for the nine
months ended September 26, 1998. There were not any significant capital
commitments at September 25, 1999. We continually monitor our capital spending
in relation to current and anticipated business needs. Our operations typically
do not require large capital expenditures and we anticipate that capital
spending will remain relatively consistent except for requirements related to
acquisitions.
Net cash used in financing activities, consisting principally of net
activity with B&L, was $34.6 million for the nine months ended September 25,
1999 compared to $2.4 million for the nine months ended September 26, 1998. This
large increase relates principally to B&L dividending all excess cash in Charles
River Laboratories in connection with the Transactions.
Fiscal 1998 Compared to Fiscal 1997
Cash flow from operating activities in 1998 was $36.7 million compared to
$23.7 million in 1997, due to an increase in net income and a decrease in
working capital.
Net cash used in investing activities in 1998 was $22.3 million compared to
$12.3 million in 1997. The increase in 1998 was primarily due to the acquisition
of Tektagen, Inc. Capital expenditures were $11.9 million in 1998, the same as
1997. Cash paid for acquisitions was $11.1 million in 1998, compared to $1.2
million in 1997.
Net cash used in financing activities was $8.0 million in 1998 compared to
$12.9 million in 1997. The decrease is due to less remittances to B&L.
Fiscal 1997 Compared to Fiscal 1996
Cash flow from operating activities in 1997 was $23.7 million compared to
$20.5 million in 1996, due to a decrease in working capital.
Net cash used in investing activities in 1997 was $12.3 million compared to
$11.7 million in 1996. Capital expenditures were $11.9 million in 1997, compared
to $11.6 million in 1996.
Net cash used in financing activities was $12.9 million in 1997 compared to
$4.1 million in 1996. The increase is due to increased remittances to B&L.
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We anticipate that our operating cash flow, together with borrowings under
the new credit facility, will be sufficient to meet our anticipated future
operating expenses, capital expenditures and debt service obligations as they
become due. However, our ability to make scheduled payments of principal of, to
pay interest on or to refinance our indebtedness and to satisfy our other debt
obligations will depend upon our future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond our control. See "Risk Factors."
Year 2000 Compliance
We have been addressing the potential risks associated with the year 2000
date issue. We are following a formal program developed by B&L to assess and
renovate internal information technology ("IT") and non-information technology
("non-IT") operations that are at risk, and further, to evaluate the year 2000
readiness of key third-party suppliers and recipients of products, services,
materials or data. Year 2000 issues are being addressed through a combination of
software replacement, system upgrades and, in limited instances, source code
modifications (collectively, "renovation"). Ongoing reengineering projects have
had the incidental benefit of remediating several major year 2000 issues.
The assessment phase of IT systems is substantially complete. The
renovation phase is on schedule and all key IT systems are compliant as of
November 1999. We expect other IT systems to be tested and compliant by
mid-December 1999. For non-IT systems, we have utilized a leading production
systems integration firm specializing in year 2000 assessment and remediation of
manufacturing, laboratory and research and development facilities. The
assessment phase was fully completed during the second quarter of 1999. At this
time, we have tested all key non-IT systems and such systems are compliant. We
assessed the readiness of key suppliers and customers in early 1999. We have
interacted with each major supplier or recipient of data, including face-to-face
interviews with many of those considered to be critical to our company. This
assessment is complete.
Our anticipated costs, comprised of both period expenses and capital
expenditures, of identifying and remediating year 2000 issues on the
above-described areas, are not expected to exceed $1.5 million. The majority of
this work has been done by in-house personnel, which commenced in 1995.
Management believes that our year 2000 program will substantially reduce the
risk of a material adverse impact on future financial results caused by the year
2000 issue. Potential risks of a failure to address a year 2000 issue (whether
IT, non-IT, or external) that could have a materially detrimental impact to us
include the inability to manufacture or ship products, the inability to receive
and fill orders, and problems with customers or suppliers, including the loss of
electrical power or the failure of a key customer or supplier to purchase
products or provide anticipated goods and services. At this stage, we have
contingency plans for all our major facilities globally.
On September 29, 1999, we acquired Sierra. We are currently working with
local management to implement the year 2000 compliance program of Charles River.
We expect to complete all phases by the end of the fourth quarter of 1999.
Subsequent Transactions
We have recently reached an agreement in principle to acquire a controlling
stake in Charles River Japan. We expect to sign a definitive agreement on or
about January 31, 2000, and expect the closing to take place on or about March
1, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are in the areas of interest-rate risk
and foreign currency exchange-rate risk.
Our exposure to interest-rate risk arises from variable-rate and fixed-rate
debt arrangements entered into for other-than-trading purposes. To mitigate the
risks associated with increases in interest rates, we plan to enter into
interest-rate protection agreements for at least 50% of our total variable rate
debt amount.
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The table below summarizes our market risks associated with debt
obligations arising from the Transaction. The term loan and revolving loan will
bear interest, at our option, at prime or LIBOR, plus an applicable margin.
Effective interest rates shown in the table below for the term loan facility is
a weighted-average of interest rates, based on the current rates. Further, as
disclosed in the Summary Description of the Notes, the interest rate on the
subordinated debt is subject to increase to 14% per year on August 15, 2000 in
the event that we do not meet a specified ratio as of June 30, 2000.
<TABLE>
Fiscal Year
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2000 2001 2002 2003 2004
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Subordinated Debt Balance..... $150,000 $150,000 $150,000 $150,000 $150,000
Effective Interest Rate....... 13.5% 13.5% 13.5% 13.5% 13.5%
Principal Payments............ 0 0 0 0 0
Interest Expense.............. 20,250 20,250 20,250 20,250 20,250
Term Facility Balance......... 158,800 155,600 150,400 141,200 130,000
Effective Interest Rate....... 9.69% 9.69% 9.70% 9.72% 9.76%
Principal Payments............ 1,200 3,200 5,200 9,200 11,200
Interest Expense.............. 15,450 15,240 14,848 14,181 13,240
Revolver Balance.............. 0 0 0 0 0
Available Credit.............. 30,000 30,000 30,000 30,000 30,000
Fee on Unused Portion......... 0.50% 0.50% 0.50% 0.50% 0.50%
Interest Expense.............. 150 150 150 150 150
</TABLE>
We also have exposure to some foreign currency exchange-rate fluctuations
for the cash flows received from our foreign affiliates. This risk is mitigated
by the fact that the operations of our subsidiaries are conducted in their
respective local currencies. Currently, we do not engage in any foreign currency
hedging activities as we do not believe that our foreign currency exchange-rate
risk is material.
41
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BUSINESS
CHARLES RIVER
Overview
We are a global market leader in the commercial production and supply of
small research models for use in the discovery, development and testing of new
pharmaceuticals. The expansion of our core capabilities in research models has
enabled us to become a leading supplier of related biomedical products and
services in several specialized niche markets. Our research model capabilities
and biomedical products and services, together with our global distribution
network, allow us to meet the extensive needs of our broad customer base. Our
customers consist primarily of:
o large pharmaceutical companies, including the ten largest global
pharmaceutical companies based on 1998 revenues
o biotechnology, animal health, medical device and diagnostics companies
o hospitals
o academic institutions
o government agencies
Our facilities are located in 18 countries, including the United States,
Canada, Japan and many European countries. On a pro forma basis, research models
accounted for 62%, and biomedical products and services accounted for 38%, of
net sales for the nine-month period ended September 25, 1999. Over the same time
period, we reported pro forma net sales of $177.1 million and pro forma Adjusted
EBITDA of $45.4 million. Adjusted EBITDA represents EBITDA, as defined, adjusted
for non-recurring, non-cash and cash items, as appropriate, which are more fully
described on page 10. EBITDA, as defined, represents operating income plus
depreciation and amortization. We present Adjusted EBITDA because we believe it
is a meaningful indicator of Charles River's operating performance, and it is
the measure by which some of the covenants under the new credit facility are
computed. EBITDA, as defined, and Adjusted EBITDA are not intended to represent
cash flows for the period, nor are they presented as an alternative to operating
income or as an indicator of operating performance. They should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP in the United States and are not indicative of operating
income or cash flow from operations as determined under GAAP. Our method of
computation may not be comparable to other similarly titled measures of other
companies.
Research Models. We have a leading position in the global market for
research models, which primarily consists of purpose-bred rats and mice, but
also includes other rodent species such as guinea pigs and hamsters, and
primates such as cynomolgous monkeys imported from Mauritius. The use of
research models is often a critical part of scientific discovery in the life
sciences and is required by FDA guidelines as well as foreign regulatory
agencies for new drug approval processes. Our business is primarily involved in
the early stages of drug discovery and development, commonly referred to as the
pre-clinical stage of drug development. During this stage, promising new drug
candidates are evaluated for their effectiveness and safety through testing in
research models. Data from the pre-clinical stage is submitted to the applicable
regulatory agency for review in order for the drug to obtain approval to advance
to the human testing stage, commonly known as clinical studies. We principally
produce and sell rats, mice, other rodents and primates (principally cynomolgus
monkeys) with highly defined health and genetic backgrounds, primarily for use
in pre-clinical research. Our research models include special disease rodent
models, such as mice with impaired immune systems, which are increasingly
demanded by biomedical researchers for specialized research and discovery. We
focus on maintaining reliable biosecurity, which refers to the process of
ensuring that research models are produced and maintained in a clean room
environment that is free of viruses, bacteria and other agents which if present
could alter research results when using these models. As a result, we provide
consistent product availability and offer a wide variety of healthy, genetically
defined and specifically
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targeted research models. We further differentiate our research models by
providing extensive technical service and support, including scientific
oversight from a team of more than 70 full-time, dedicated professionals (DVMs,
MDs and PhDs) specializing in laboratory animal medicine, pathology and the
study of viruses and primates, as well as molecular biology and genetics.
Biomedical Products and Services. The principal focus of our biomedical
products and services division is to meet the research needs of large
pharmaceutical companies as well as biotechnology, animal health, medical device
and diagnostics companies. We are a leading supplier of endotoxin testing kits
that detect fever producing toxins in injectable drugs and devices and are one
of only two FDA validated in vitro alternatives to an animal test. These kits
are used to test materials for the presence of particular by-products of
bacteria known as endotoxins, which if present and introduced to the bloodstream
can cause serious illness or even death. We manufacture these kits which are
based on extracts from the blood of horseshoe crabs, which visibly clots in the
presence of endotoxin, thereby acting as a test for the presence of endotoxin.
In addition, we are one of the world's largest producers of SPF fertile chicken
eggs, which are principally used to produce poultry vaccines. Our other
biomedical products and services, many of which are related to technologies
developed in our research model business, include:
o transgenic animal production, which refers to the breeding of mice
genetically engineered by a scientist by introducing a gene into the
mouse that would not be present otherwise
o medical device testing
o contract research services
o comprehensive health monitoring programs, including DNA testing, of
animal colonies
o testing services for human protein drug candidates, which are drugs
developed from human cells rather than from chemical synthesis
o facility management services
Competitive Strengths
Long-Standing Relationships with an Extensive Customer Base. Our customers
consist primarily of large pharmaceutical companies, including the ten largest
global pharmaceutical companies based on 1998 revenues, as well as
biotechnology, animal health, medical device and diagnostics companies and
hospitals, academic institutions and government agencies. We have many
long-term, stable relationships with our customers as evidenced by the fact that
all of our top 20 customers in 1989 remain our customers today. We have further
strengthened our customer relationships by offering related biomedical products
and services to our research model customers. Our customer base is also
diversified with no individual customer accounting for more than 3% of net sales
in 1998 and the top 30 customers representing approximately 30% of total net
sales.
Critical Component of Pharmaceutical Research. The research models we
supply are essential to the new drug discovery and development process. FDA
guidelines and some foreign regulatory agencies for many years have required
that new drug candidates be tested on two separate animal species in the
pre-clinical stage. According to the Pharmaceutical Research and Manufacturers
of America, total research and development spending in the United States by
research-based pharmaceutical companies was $17 billion in 1998. While
pharmaceutical companies generally invest large sums of money in developing new
drugs, the purchase of research models typically represents an immaterial
portion of the cost to commercialize a new drug. As a result, most customers are
principally focused on the quality of the research model which is critical for
achieving accurate and reproducible study results and facilitating timely FDA
approval of new drug candidates. For these reasons, our reputation for high
quality models and consistent product availability enable us to maintain and
expand our customer relationships.
Leading Market Position. We believe that our worldwide infrastructure,
global staff of nearly 100 scientific professionals, 50 years of operating
history and reputation of Charles River and its predecessors for high quality
43
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products have established us as a global market leader in the commercial
production and supply of research models. We maintain our leadership position
through our well-established customer relationships, extensive high quality
product offerings and our ability to provide complementary services. Our market
leadership in research models has allowed us to capitalize on the significant
research and development spending by large pharmaceutical companies. More
recently, we have also been able to capitalize on outsourcing trends by our
customers who are increasingly contracting out to others functions that were
previously done internally, such as conducting tests of new drug compounds for
effectiveness or safety in animals.
Global Presence. We are a global provider of research models, with 49
facilities in the United States, Canada, Japan and many European countries. On a
pro forma basis, our international business contributed approximately 35% of our
net sales for the nine-month period ended September 25, 1999. We believe that as
our customers continue to expand globally, they are likely to prefer to deal
with a select number of suppliers who have the ability to offer them a wide
range of products and services worldwide and in a timely manner. In addition,
our customers benefit from our global presence because it reduces potential
exposure to biosecurity risks. It also minimizes regulatory restrictions and
costs relating to transporting research models over long distances. We provide
our customers with uniform and consistent research models regardless of the
location of their research study.
Experienced and Motivated Management Team. Our senior management team has
extensive experience in supplying the biomedical research industry, and an
average of 17 years of experience with Charles River. Our senior management
team, led by our chief executive officer, James C. Foster, has successfully
grown our business, secured our current strong market positions, integrated
eight strategic acquisitions since 1992 and positioned us for growth. Our senior
management team has broadened our pure research model focus to also include
being a leading supplier of biomedical products and services in several
specialized niche markets. As a result of the recapitalization of our business,
our management team indirectly holds 6.1% of the equity of Charles River, and
expects to have the option to acquire additional equity of Charles River through
a customary equity incentive plan.
Business Strategy
Increase Sales in Research Models. We believe we can continue to increase
our market share in this division by introducing new research models, providing
exceptional technical service and support, increasing our existing price
structure and product mix and maintaining reliable biosecurity. In general, we
have been able to increase our prices at rates that are above the rate of
inflation in the United States by maintaining high quality and specialized
products, enhancing service and improving availability. We also have been
focused on periodically adding higher value research models to our portfolio.
These higher value research models tend to be premium priced, targeted towards
specific disease conditions and provide us with an enhanced product mix that
contributes to moderate but sustained growth in the research model business. We
expect to continue to expand this division, both through sustained growth in
demand for already introduced models and the introduction of new models.
Expand Biomedical Products and Services. Our biomedical products and
services division has been our fastest growing division over the past several
years. We believe we can continue to grow this business by capitalizing on
outsourcing trends, building upon our existing capabilities and increasing our
global sales.
Capitalize on Outsourcing Trends. We have increased our offerings of
biomedical products and services primarily in response to the increasing
outsourcing trends within the pharmaceutical industry. We believe this
shift toward increased outsourcing began in response to the pharmaceutical
companies' growing capabilities in identifying potential new drug compounds
and the resulting resource constraints placed on pharmaceutical research
infrastructures by non-core activities. By outsourcing their non-core
activities to us, our customers can focus on proprietary drug development
and streamline their drug development process. In response, we have
expanded our offerings to include many pre-clinical research activities
undertaken by our customers.
Build Upon Our Existing Capabilities. As a result of our strong
position in research models, our global presence and our professional
expertise, we have the unique capability to offer related biomedical
products and services to many of our customers. We intend to build upon
this expertise to capture more outsourcing business opportunities by using
our existing infrastructure, reputation for quality and extensive customer
contacts. We
44
<PAGE>
believe there are numerous other opportunities for increasing our share of
high value pre-clinical research services and products.
Increase Our Global Sales. Our current biomedical products and
services customer base is primarily composed of our domestic research model
customers. We intend to continue to offer and sell new biomedical products
and services to our existing international research model customers as well
as seek new international customers for this division. We believe that we
can rapidly increase our global presence in this area by taking advantage
of our existing international customer relationships and infrastructure.
Undertake Strategic Acquisitions and Alliances. We have a history of
acquiring and successfully integrating small companies in both our research
model and our biomedical products and services businesses. We expect that
strategic acquisitions will continue to provide an additional source of
long-term growth. In addition, we believe that our association with GHCP, one of
our equity investors, will assist us in identifying attractive acquisition
candidates while expanding our existing business. GHCP, which is comprised of
several experienced healthcare executives, has a strategic partnership with
DLJMB to invest in healthcare related businesses. The founding partners of GHCP
who are represented on the Charles River board include Henry Wendt, former
Chairman of SmithKline Beecham Corporation, Robert Cawthorn, former Chairman and
CEO of Rhone-Poulenc Rorer Inc. and Douglas Rogers, founder of Kidder, Peabody's
Health Care Group.
Business Divisions
Our business is divided into two divisions, research models and related
biomedical products and services.
Research Models
The research model business is our core business and accounted for 70% of
our 1998 sales. The business is principally comprised of small animals (rats,
mice and other rodents), and primates.
Small Animal Models
Our largest product line is the small animal models group, which consists
primarily of the production and sale of large numbers of purpose-bred rats and
mice to researchers. We believe we are a commercial leader in this business,
supplying rodents for research since 1947. We began as a supplier of outbred
rats, with genetic characteristics representative of a random population. Over
the years we added other small animal species and strains to our product mix. We
have also added:
o inbred animals, which have essentially identical genes
o hybrid animals, which are the offspring of two different inbred
parents
o spontaneous mutant animals, which contain a naturally occurring
genetic mutation (such as immune deficiency)
o transgenic animals, which contain genetic material transferred from
another source
We believe we offer one of the largest selections of small animal models and
provide our customers with high volume and high quality production. Our rats,
mice and other rodent species (e.g., guinea pigs, hamsters) have been and
continue to be some of the most extensively used research models in the world,
largely as a result of our continuous commitment to innovation and quality in
the breeding process. We provide our small animal models to numerous customers
around the world, including pharmaceutical and biotechnology companies and
hospitals and universities.
The most common use of our small animal models is for the screening,
discovery and testing of new drug candidates. For example, in order for a
pharmaceutical company to file a complete submission for FDA approval of a
45
<PAGE>
new drug, it must provide evidence of safe and effective testing on two species
of animal models, one small and one large, before moving into the clinic for
testing on humans. Animal testing is used in order to identify, define,
characterize and assess the safety of new drug candidates. Outbred, and
increasingly, inbred mice are often the model of choice in early discovery and
development work. Outbred rats are frequently used in safety assessment studies.
Our models are also used in basic life science research within universities,
hospitals and other research institutions. Unlike drug discovery, these uses are
generally not specifically mandated by regulatory agencies such as the FDA, but
instead are governed by the terms of government grants, institutional protocols
as well as the scientific inquiry and peer review publication processes.
Primates
We provide primates to the research community, principally for use in drug
development and testing studies. The primates we provide are most often
cynomolgus monkeys sourced from the island of Mauritius, which are both purpose
bred and wild caught. Primates are often used as the required large animal
species in FDA or similar regulated testing protocols. We believe that the use
of primates has been moderately increasing recently, as they are often the
preferred model for testing the growing number of new drug candidates derived
from human proteins, such as drugs developed in AIDS research.
Our largest primate business is located in Houston, where we import,
quarantine, condition, hold and sell primates exported to us by our supplier in
Mauritius. We believe that these primates are unique, in that they are naturally
free of herpes B virus, a common virus present in the species which is
transmissible to humans in a highly toxic form. We have a long-term supply
contract under which our supplier provides us with a reliable stream of
purpose-bred and wild caught animals. The contract expires in December 31, 2005
but is automatically renewed for an additional five-year period unless it is
breached. We also have a primate import and quarantine facility in the United
Kingdom. The importing and care of these animals is not an FDA regulated
activity, but rather it is principally a USDA and CDC regulated activity.
Biomedical Products and Services
Biomedical products and services include our newer, higher growth
businesses, such as: SPF eggs; endotoxin testing; special animal services;
diagnostics; biosafety testing; facility management; and medical device testing.
SPF Eggs
Fertile SPF chicken embryos within eggs are often used by animal health
companies as a living "bioreactor," or self-contained manufacturing vehicle, to
grow large quantities of live or killed avian viruses. These viruses are then
used as the raw material in poultry vaccines. We are a leading supplier to the
major global manufacturers of poultry vaccines, researchers and other users. We
also provide specially raised SPF eggs for some human vaccines. We have entered
into an agreement with a company that is in the FDA approval process for a nasal
spray flu vaccine for human use that, if commercially successful, may
significantly increase our existing SPF eggs business.
We have a worldwide presence that includes several SPF eggs production
facilities in the United States, as well as facilities in Germany and in
Australia. We have a joint venture in Mexico and a franchise in India. We also
operate a specialized avian (or bird) laboratory in Storrs, Connecticut which
provides support services to our customers.
Endotoxin Testing
We are a market leader in the endotoxin testing business, which is used to
test quality control samples of injectable drugs and devices, their components
and the processes under which they are manufactured, for the presence of
endotoxin. Endotoxins are fever producing pathogens or toxic compounds that are
highly toxic to humans when sufficient quantities are introduced into the body.
Quality control testing for endotoxin contamination by our customers is a
mandatory FDA requirement for injectable drugs and devices, and the manufacture
of the test kits and reagents is regulated by the FDA as a medical device.
Endotoxin testing uses a processed extract from the
46
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blood of the horseshoe crab, known as limulus amebocyte lysate, or "LAL." The
LAL test is the first and one of the only FDA validated in vitro alternatives to
an animal model test, specifically the rabbit pyrogen test. The process of
extracting blood is not harmful to the crabs, which are subsequently returned to
their natural ocean environment. We produce and distribute test kits and
reagents to pharmaceutical and biotechnology medical device and product
companies on a global basis.
Special Animal Services
Special Animal Services, or SAS, provides services for our customers to
help them maintain, improve, breed and test animals purchased or created by them
for biomedical research activities. Our special animal services business
includes: transgenic breeding, model characterization and scale-up, genetic
testing and characterization, quarantine, embryo cryopreservation, embryo
transfer, rederivation, and health and genetic monitoring. We provide these
services to more than 100 customers around the world, from pharmaceutical and
biotechnology companies to hospitals and universities, and maintain more than
150 different lines of research models. Our Contract Research Services business
is a discrete unit within the SAS business that provides more advanced or
specialized research model studies. These projects not only capitalize on our
strong historical research model capabilities, but also exploit more recently
developed capabilities in protocol development, animal micro-surgery, dosing
techniques, drug effectiveness testing and data management and analysis. We
initiated SAS five years ago in response to our customers' outsourcing needs.
The business is managed and staffed by a senior team that was trained and
developed internally. This business leverages the technologies and relationships
associated with our research model business.
Diagnostics
Diagnostics is an internally developed business that was built upon the
scientific foundation created by the diagnostic laboratory needs of our research
model business. We now provide commercial laboratory services to monitor and
analyze the health and genetics of our customers' research models used in their
research protocols. We may serve as the customer's sole source testing
laboratory, or as a back-up source supporting some internal capability. Our
diagnostics business is principally located in Wilmington, Massachusetts and
Troy, New York.
Biosafety Testing
We recently entered the evolving business generally known as "biosafety
testing." This is a specialized area of non-clinical quality control testing
that is frequently outsourced by both pharmaceutical and biotechnology
companies. The testing services we provide allow the customer to determine if
the human protein drug candidates, or the process for manufacturing those
products, are essentially "pure," or free of residual biological materials. The
bulk of this testing work is required by the FDA, either for obtaining new drug
approval or maintaining a licensed manufacturing capability. Our scientific
staff consults with customers in the areas of process development, validation,
manufacturing scale-up, and biological tests. Our biosafety business is located
in Malvern, Pennsylvania.
Facility Management
Facility management involves managing the animal care function and
facilities on behalf of government, academic, pharmaceutical and biotechnology
companies. This business builds upon our core capabilities as a leading provider
of high quality research models. We now manage all or a part of the animal care
facilities of several commercial, government and academic institutions in both
the United States and Europe.
Medical Device Testing
We have capabilities in medical device testing that are complementary to
our research model business, especially in the large and growing cardiovascular
field, using large research models. This business also provides services in
support of animal and human health research, most notably in the area of new
drug and vaccine development and experimental xenotransplantation of whole
organs and tissues from swine to humans. Our medical device testing business is
located in Southbridge, Massachusetts.
47
<PAGE>
Sierra
Sierra, which we recently acquired, is a pre-clinical biomedical services
company with expertise in drug safety and effectiveness studies using research
models. Sierra offers its services to biotechnology, pharmaceutical and medical
device companies that are principally focused on conducting studies needed in
the early stages of drug development, especially those that require highly
specialized scientific capabilities. Sierra has expertise in conducting critical
developmental studies on potential new drugs and devices using research models,
including short-term evaluations of potential new treatment for human or animal
disease conditions.
Customers
Our customers consist primarily of large pharmaceutical companies,
including the ten largest pharmaceutical companies based on 1998 revenues, as
well as biotechnology, animal health, medical device and diagnostic companies
and hospitals, academic institutions and government agencies. We have many
long-term, stable relationships with our customers as evidenced by the fact that
all of our top 20 customers in 1989 remain our customers today.
During 1998, in both the research models and biomedical products and
services businesses, approximately two-thirds of our sales were to
pharmaceutical and biotechnology companies, and the balance to hospitals,
universities and the government.
Sales, Marketing and Customer Support
We sell our products and services principally through a direct sales force.
As of September 25, 1999, we have approximately 51 employees engaged in field
sales, of which 30 are in the United States, 12 are in Europe and 9 are with our
joint venture company in Japan. The direct sales force is supplemented by a
network of international distributors for some of our biomedical product and
services businesses.
Our internal marketing groups support the field sales staff, while
developing and implementing programs to create close working relationships with
customers in the biomedical research industry. Our web site, www.criver.com, is
an effective marketing tool, and has become recognized as a valuable resource in
the laboratory animal field by a broad spectrum of industry leaders. Our website
is not incorporated by reference in this prospectus.
We maintain both a customer service and technical assistance department,
which services our customers' routine and more specialized needs. We frequently
assist our customers in solving problems related to animal husbandry, health and
genetics, biosecurity, protocol development and other areas in which our
internal expertise is recognized as a valuable customer resource.
Research and Development
We do not maintain a fully dedicated research and development staff.
Rather, this work is done on an individual project basis or through a university
or other forms of collaborations. Our annual dedicated research and development
spending was $1.5 million in 1996, $1.4 million in 1997, $1.4 million in 1998
and $0.4 million for the nine months ended September 25, 1999. Our approach to
developing new products or services is to extend our base technologies into new
applications and fields, and to license or acquire technologies to serve as a
platform for the development of new businesses that service our existing
customer base. Our research and development focus is principally on developing
projects that improve our productivity or processes.
Industry Support and Animal Welfare
Among the shared values of our employees is a concern for and commitment to
animal welfare. We have been in the forefront of animal welfare improvements in
our industry, and continue to demonstrate our commitment with special
recognition programs for employees who demonstrate an extraordinary commitment
in this critical area of our business.
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We support a wide variety of organizations and individuals working to
further animal welfare as well as the interests of the biomedical research
community. We fund internships in laboratory animal medicine, provide financial
support to non-profit institutions that educate the public about the benefits of
animal research, and provide awards and prizes to outstanding leaders in the
laboratory animal medicine field. Our primate import business dedicates a
portion of its net sales, through a royalty, to support similar programs and
initiatives.
Employees
As of September 25, 1999, we have approximately 2,430 employees, including
nearly 100 professionals with advanced degrees (DVMs, PhDs and MDs). Our
employees are not unionized in the United States, though we are unionized in
some European locales, consistent with local custom for our industry. We believe
that we have a good relationship with our employees.
Competition
Our strategy is to be the leader in each of the markets in which we
participate. Our competitors are generally different in each of our business
areas.
In our research models business division, we have three smaller competitors
in the United States, several smaller ones in Europe, and two in Japan. Of our
main United States competitors, two are privately held businesses and the third
is a government financed non-profit institution. We believe that none of our
competitors for research models has our comparable global reach, financial
strength, breadth of product offering or pharmaceutical industry relationships.
We have several competitors in our biomedical products and services
business division. A few of our competitors in our biomedical products and
services business are larger than we are; however, many are smaller and more
regionalized. Expansion by our competitors in other areas in which we operate
could affect our competitive position. Of all of our businesses, we have the
smallest relative share in the biosafety testing market, where the market leader
is a well established company.
We generally compete on the basis of quality, reputation, and availability,
which is supported by our international presence with strategically located
facilities.
Environmental Matters; Legal Proceedings
Our operations and properties are subject to extensive foreign and federal,
state and local environmental protection and health and safety laws and
regulations. These laws and regulations govern, among other things, the
generation, storage, handling, use and transportation of hazardous materials and
the handling and disposal of hazardous and biohazardous waste generated at our
facilities. Under such laws and regulations, we are required to obtain permits
from governmental authorities for some of our operations. If we violate or fail
to comply with these laws, regulations or permits, we could be fined or
otherwise sanctioned by regulators. Under some environmental laws and
regulations, we could also be held responsible for all of the costs relating to
any contamination at our past or present facilities and at third party waste
disposal sites.
Although we believe that our costs of complying with current and future
environmental laws, and our liabilities arising from past or future releases of,
or exposure to, hazardous substances will not materially adversely affect our
business, results of operations or financial condition, we cannot assure you
that they will not do so.
We have for many years been engaged in disputes with federal, state and
local authorities and private environmental groups regarding damage to mangrove
plants resulting from our maintaining a free range primate breeding operation on
two islands we purchased in the Florida Keys. To settle our disputes, we have
agreed to move the primates off the islands, and thereafter transfer the real
property to the government. We have also agreed to refoliate the islands at our
cost, restoring them to their conditions prior to our arrival. Despite our best
efforts, we have not been able to successfully replant the lost mangroves,
principally due to the presence of a free range animal
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population and storms. We believe that we will finally resolve these disputes by
successfully refoliating the islands over the next three years.
We are not a party to any other material legal proceedings, other than
ordinary routine litigation incidental to our business which is not otherwise
material to our business or financial condition.
Regulatory Matters
Some of our business activities are currently regulated by the AWA, which
governs the treatment of particular animals intended for use in research. Much
of our United States small animal research model business, which is
predominantly rats and mice, is not subject to regulation under the AWA although
we comply with licensing and registration requirement standards set by the USDA
for handling animals, including breeding, maintenance and transportation of our
animals. Birds, including the chickens used in our United States SPF egg
business, are also not subject to AWA regulations. However, the USDA, which
enforces the AWA, is presently considering changing the regulations issued under
the AWA, in light of judicial action, to include rats, mice and birds within its
coverage. The AWA imposes a wide variety of specific regulations on producers
and users of animal subjects, most notably cage size, shipping conditions and
environmental enrichment methods. Our animal production facilities in the United
States are accredited by a highly regarded member association known as AAALAC,
which maintains standards that often exceed those of the USDA.
Our biomedical products and services businesses are also generally
regulated by the USDA, and in the case of our endotoxin testing business, the
FDA. Our manufacture of test kits and reagents for endotoxin testing is subject
to regulation by the FDA, under the authority of the Federal Food, Drug, and
Cosmetic Act. We are required to register with the FDA as a device manufacturer
and are subject to inspection on a routine basis for compliance with the FDA's
Quality System Regulations. These regulations require that we manufacture our
products and maintain our documents in a prescribed manner with respect to
manufacturing, testing and control activities. We are in receipt of a "warning
letter" from the FDA for quality control deficiencies with regard to our
Charleston, South Carolina facility, and are attempting to address the agency's
concerns. See "Risk Factors--We must comply with many federal, state and local
rules and regulations."
Properties
The following charts provide summary information on our properties. The
first chart lists the sites we own, and the second chart the sites we lease.
Most of our material leases expire from 2000 to 2005.
Sites--Owned
No. of
Country Sites Total Square Feet Principal Functions
- --------------- ------ ----------------- ------------------------------
Canada......... 1 48,789 Office, Production, Laboratory
France......... 3 373,214 Office, Production, Laboratory
Germany........ 3 122,314 Office, Production, Laboratory
Italy.......... 1 36,677 Office, Production, Laboratory
Japan.......... 3 114,831 Office, Production, Laboratory
Netherlands.... 1 6,502 Office
United Kingdom. 2 67,331 Office, Production, Laboratory
USA............ 19 732,980 Office, Production, Laboratory
China.......... 1 10,000 Office, Production Laboratory
-- ---------
Total.......... 34 1,512,638
== =========
50
<PAGE>
Sites--Leased
No. of
Country Sites Total Square Feet Principal Functions
- --------------- ------ ----------------- ------------------------------
Australia...... 1 16,787 Office, Production
Belgium........ 1 16,140 Office, Production
Czech Republic. 1 23,704 Office, Production, Laboratory
Hungary........ 1 4,681 Office, Production, Laboratory
Spain.......... 1 3,228 Production, Laboratory
Sweden......... 1 8,070 Production
USA(1)......... 10 255,895 Office, Production, Laboratory
-- ---------
Total.......... 16 328,505
== =========
- --------------
(1) Includes two properties leased by Sierra with a total square footage of
116,751 square feet.
51
<PAGE>
MANAGEMENT
The following table sets forth the name, age and position of each person
who is an executive officer, significant member of our management, or director
of our company. Each director has been a director of our company as of the
Recapitalization. Further, each director also serves as a director of Charles
River Laboratories Holdings, and has been a director of Charles River
Laboratories Holdings as of the Recapitalization.
Name Age Position
- ---- --- --------
James C. Foster........ 48 President, Chief Executive Officer and Director
Real H. Renaud......... 52 Senior Vice President and General Manager,
European and North American Animal Operations
Thomas F. Ackerman..... 45 Senior Vice President and Chief Financial Officer
David P. Johst......... 37 Senior Vice President, Human Resources and
Administration
Dr. Charn Sun Lee...... 55 Vice President, Asian Operations
Julia D. Palm.......... 52 Vice President and General Manager, Biotech
Products and Services
Dennis R. Shaughnessy.. 41 Senior Vice President, Corporate Development,
General Counsel and Secretary
Dr. Jorg M. Geller..... 43 Vice President, Charles River Europe;
President, Charles River SPAFAS
Gilbert M. Slater...... 61 Vice President, Sales & Marketing
Robert Cawthorn........ 63 Director
Stephen D. Chubb....... 55 Director
Thompson Dean.......... 41 Director
Stephen C. McCluski.... 47 Director
Reid S. Perper......... 40 Director
Douglas E. Rogers...... 44 Director
William Waltrip........ 62 Director
Henry C. Wendt......... 66 Director
James C. Foster joined Charles River in 1976 as General Counsel. Over the
past 23 years, Mr. Foster has held various staff and managerial positions with
Charles River, culminating in Mr. Foster being named Charles River's President
and Chief Operating Officer in 1991. He has served as our President and Chief
Executive Officer since 1992. Mr. Foster also serves on the Board of Directors
of BioTransplant, Inc.
Real H. Renaud joined Charles River in 1964 and has 35 years of small
animal production and related management experience. In 1986, Mr. Renaud became
Charles River's Vice President of Production, with responsibility for
overseeing our North American small animal operations, and was named Vice
President, Worldwide Production in 1990. Mr. Renaud assumed his current
position in 1996, following a two-year European assignment during which he
provided direct oversight to Charles River's European operations.
Thomas F. Ackerman joined Charles River in 1988 with over eleven years of
combined public accounting and international finance experience. He was named
Controller, North America in 1992 and became our Vice President and Chief
Financial Officer in 1996. He is currently responsible for overseeing Charles
River's Accounting and Finance Department, as well as our Information
Management & Technology Group. Prior to joining Charles River, Mr. Ackerman was
an accountant at Arthur Anderson & Co.
David P. Johst joined Charles River in 1991 as Corporate Counsel and was
named Vice President, Human Resources in 1995. He assumed his current position
in 1996, and is responsible for overseeing Charles River's Human Resources
Department, as well as several other corporate staff departments. He also
serves as our attorney on
52
<PAGE>
labor relations matters. Prior to joining Charles River, Mr. Johst was a
corporate associate at Boston's Hale and Dorr.
Dr. Charn Sun Lee joined Charles River in 1975 as a Staff Veterinarian and
has 24 years of experience in laboratory animal medicine. In 1995, Dr. Lee was
named Vice President, Asian Operations and serves as our primary corporate
liaison in dealings with Charles River Japan, providing both business and
technical support.
Julia D. Palm joined Charles River in 1995 with nearly 20 years of
management and marketing experience in the medical device and biotechnology
industries. Prior to joining Charles River, she held various marketing positions
with Becton Dickinson, National Medical Care and W. R. Grace, and served as
President of W.R. Grace's Amicon Division immediately prior to joining us. Ms.
Palm has responsibility for overseeing our portfolio of biotechnology companies
on a worldwide basis.
Dennis R. Shaughnessy joined Charles River in 1988 as Corporate Counsel and
was named Vice President, Business Affairs in 1991. Prior to joining Charles
River, Mr. Shaughnessy was a corporate associate at Boston's Testa, Hurwitz &
Thibeault and previously served in government policy positions. He assumed his
current position in 1994 and is responsible for overseeing our business
development initiatives on a worldwide basis, as well as handling our overall
legal affairs. Mr. Shaughnessy also serves as our Corporate Secretary.
Dr. Jorg M. Geller joined Charles River in 1986 as Production Manager for
German operations. In 1994, Dr. Geller was named Vice President, Charles River
Europe, with responsibility for overseeing operations in Germany and Eastern
Europe, as well as implementing Charles River's strategic growth and
diversification initiatives in the European market. In 1997, Dr. Geller became
President of Charles River's SPAFAS subsidiary where he oversees the worldwide
operations of SPAFAS in addition to his current European responsibilities.
Gilbert M. Slater joined Charles River in 1960, in connection with our
acquisition of a privately held laboratory animal supplier which included Mr.
Slater as one of its principals. Mr. Slater assumed his position as Vice
President of Sales & Marketing in January of 1998. Mr. Slater has extensive
knowledge of the U.S. market for laboratory research animals based on more than
40 years of direct sales and customer relations experience. Mr. Slater also
oversees Charles River's industry relation initiatives and serves as our key
point of contact in dealings with major laboratory animal customers.
Robert Cawthorn has been a Managing Director of Global Health Care
Partners, a group of DLJ Merchant Banking, Inc. since 1997. Mr. Cawthorn was
Chief Executive Officer and Chairman of Rhone-Poulenc Rorer Inc. until May
1996. Further, he previously served as an Executive Officer of Pfizer
International and the first President of Biogen Inc. Mr. Cawthorn serves as a
director of CBS Corporation and Sunoco, Inc.
Stephen D. Chubb has been Chairman, Director and Chief Executive Officer
of Matritech, Inc. since its inception in 1987. Previously, Mr. Chubb served as
President and Chief Executive Officer of T Cell Sciences, Inc. and as President
and Chief Executive Officer of Cytogen Company.
Thompson Dean has been a Managing Partner of DLJ Merchant Banking, Inc.
since November 1996. Previously, Mr. Dean was a Managing Director of DLJ
Merchant Banking, Inc. and its predecessor since January 1992. Mr. Dean serves
as a director of Commvault Inc., Von Hoffmann Press, Inc., Manufacturer's
Services Limited, Phase Metrics, Inc., AKI Holdings Corp., Amatek Ltd., DeCrane
Aircraft Holdings Inc., Insilco Holding Corporation, Formica Corporation and
Mueller Group, Inc.
Stephen C. McCluski has been Senior Vice President and Chief Financial
Officer of Bausch & Lomb Incorporated since 1995. Previously, Mr. McCluski
served as Vice President and Controller of Bausch & Lomb Incorporated and
President of Outlook Eyewear Company.
Reid S. Perper has been a Principal of DLJ Merchant Banking, Inc. since
January 1996. Prior to that time, Mr. Perper had been a Vice President of DLJ
Merchant Banking, Inc. since January 1993. Mr. Perper was formerly a director
of IVAC Holdings, Inc. and Fiberite Holdings, Inc.
53
<PAGE>
Douglas E. Rogers has been Managing Director of Global Health Care
Partners, a group of DLJ Merchant Banking, Inc. since 1996. Previously, Mr.
Rogers was Vice President at Kidder Peabody & Co., Senior Vice President at
Lehman Brothers, and head of U.S. Investment Banking at Baring Brothers. Mr.
Rogers serves as a director of Computerized Medical Systems, Inc. and Wilson
Greatbatch Ltd.
William Waltrip has been a director of Bausch & Lomb Incorporated since
1985, and Chairman of the Board of Directors of Technology Solutions Company
since 1993. He has also been a director of Teachers Insurance and Annuity
Association since 1980 and Thomas & Betts Corporation and Technology Solutions
Company since 1983. Previously, Mr. Waltrip served as Chairman and Chief
Executive Officer of Bausch & Lomb Incorporated, as Chief Executive Officer of
Technology Solutions Company, as Chairman and Chief Executive Officer of Biggers
Brothers, Inc., and as Chief Operating Officer of IU International Corporation.
He was also previously President and Chief Executive Officer and a director of
Purolator Courier Corporation.
Henry C. Wendt has been the Chairman of Global Health Care Partners, a
group of DLJ Merchant Banking, Inc. since 1996. Previously, Mr. Wendt was
Chairman of SmithKline Beecham Corporation and President and Chief Executive
Officer of SmithKline Beckman Corp. prior to its merger with Beecham and served
as founder and First Chairman of Pharmaceutical Partners for Better Health
Care. Mr. Wendt serves as a director of Allergen, Inc., Atlantic Richfield
Company, Computerized Medical Systems, The Egypt Investment Company, West
Marine Products and Wilson Greatbatch Ltd.
54
<PAGE>
EXECUTIVE COMPENSATION
The aggregate remuneration of our chief executive officer during 1998 and
the four other most highly compensated executive officers whose salary and
bonus exceeded $100,000 for the fiscal year ended December 26, 1998, is set
forth in the following table:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
-------------------------
Annual Restricted Securities
---------------------- Stock Underlying All Other
Name and Principal Position Salary Bonus Awards(s) Options Compensation
- ---------------------------- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
James C. Foster................. $308,700 $230,705(1) 4,500 19,000 $204,985(2)
Director, President and Chief
Executive Officer
Real H. Renaud.................. 212,000 99,814 -- 4,200 64,834(3)
Senior Vice President and
General Manager, European
and North American Animal
Operations
David P. Johst.................. 146,800 69,911 -- 4,200 69,871(4)
Vice President, Human
Resources and Administration
Julia D. Palm................... 165,200 50,829 -- 1,720 66,953(5)
Vice President and General
Manager, Biotech Products
and Services
Dennis R. Shaughnessey.......... 167,800 79,898 -- 4,200 82,056(6)
Vice President, Corporate
Development, General
Counsel and Secretary
</TABLE>
- -------------------
(1) Includes $12,000 in cash paid to Mr. Foster under Bausch & Lomb's Long Term
Incentive Plan during 1998.
(2) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan and EVA Long-Term Incentive Plan ($168,068) and
Employee Savings Plan ($3,200), costs associated with a corporate
automobile ($23,861) and corporate club dues and services ($9,856).
(3) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan ($40,075) and Employee Savings Plan ($3,200) and
costs associated with a corporate automobile ($21,559).
(4) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan ($54,982) and Employee Savings Plan ($3,200) and
costs associated with a corporate automobile ($11,689).
(5) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan ($50,691) and Employee Savings Plan ($3,200) and
costs associated with a corporate automobile ($13,062).
(6) Includes employer contribution under our Executive Supplemental Life
Insurance Retirement Plan ($57,956) and Employee Savings Plan ($2,132) and
costs associated with a corporate automobile ($21,968).
Stock Options
The following table presents material information regarding options to
acquire shares of Bausch & Lomb's common stock granted to our named executive
officers in 1998.
55
<PAGE>
Option Grants in 1998 Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------- Potential Realizable Value
Number at Assumed
Number of of Total Annual Rates of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise or for Option Term(1)
Options Employees in Base price Expiration -------------------------------
Name Granted(#) Fiscal Year(%) ($/Sh) Date 0%($) 5%($) 10%($)
- ---- --------- -------------- ---------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James C. Foster....... 19,000 1.36% 50.94 7/27/08 -- 608,682 1,542,520
Real H. Renaud........ 4,200 0.30% 50.94 7/27/08 -- 134,551 340,978
David P. Johst........ 4,200 0.30% 50.94 7/27/08 -- 134,551 340,978
Julia D. Palm......... 1,720 0.12% 50.94 7/27/08 -- 55,102 139,639
Dennis R. Shaughnessy. 4,200 0.30% 50.94 7/27/08 -- 134,551 340,978
</TABLE>
- -------------------
(1) We cannot assure you that the value realized by an optionee will be at or
near the amount estimated using this model. These amounts rely on assumed
future stock price movements which management believes cannot be predicted
with a reliable degree of accuracy. We based these amounts on the
assumption that the option holders hold the options granted for their full
term. We included the column headed "0% ($)" to illustrate that we granted
the options at fair market value and option holders will not recognize any
gain without an increase in the stock price, which increase benefits all
shareholders commensurately.
The following table provides material information related to the number and
value of options exercised during 1998 and the value of named executive
officers' options at the end of 1998. On December 26, 1998, the closing sale
price of Bausch & Lomb common stock on NYSE was $58 11/16.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1998 Fiscal Year and Fiscal Year-End Option Values
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
Shares at Fiscal Year-End(#) Year End ($)(2)
Acquired on Value Realized ---------------------------- ----------------------------
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Foster................. 362 10,238 73,740 37,760 1,244,664 497,373
Real H. Renaud.................. 5,036 82,873 17,696 9,418 257,909 125,719
David P. Johst.................. 3,144 64,194 7,370 8,407 105,561 111,026
Julia D. Palm................... 1,880 39,600 3,214 4,267 60,463 64,727
Dennis R. Shaughnessy........... 6,890 54,303 1,650 8,350 15,469 109,697
</TABLE>
- ------------
(1) Value realized represents the difference between the exercise price of the
option shares and the market price of the option shares on the date the
option was exercised. We determined the value realized without
consideration for any issues or brokerage expenses which may have been
owed.
(2) If all in-the-money options held at year end were exercised, this
represents the total gain realized. We determined this by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value on December
26, 1998.
Employee Agreements and Compensation Arrangements
We do not currently have employment agreements with any of our named
executive officers.
56
<PAGE>
Director Compensation
We intend to pay our independent directors $10,000 per year and $1,000 per
board meeting, plus travel expenses.
57
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Charles River Laboratories Holdings holds all of our common stock. The
following table shows information with respect to the beneficial ownership of
Holdings common stock by (a) any person or group who beneficially owns more than
five percent of Holdings common stock, (b) each of our directors and executive
officers and (c) all directors and officers as a group.
<TABLE>
<CAPTION>
Percentage of
Outstanding
Name of Beneficial Owner: Common Stock(1)
- ------------------------ ---------------
<S> <C>
DLJ Merchant Banking Partners II, L.P. and related investors(2)(3).... 71.9%
Bausch & Lomb Incorporated............................................ 12.5%
James C. Foster(4).................................................... 2.0%
Real H. Renaud(4)..................................................... *
Thomas F. Ackerman(4)................................................. *
David P. Johst(4)..................................................... *
Dr. Charn Sun Lee(4).................................................. *
Julia D. Palm(4)...................................................... *
Dennis R. Shaughnessy(4).............................................. *
Dr. Jorg M. Geller(4)................................................. *
Gilbert M. Slater(4).................................................. *
Robert Cawthorn(5).................................................... --
Stephen D. Chubb...................................................... --
Thompson Dean(5)...................................................... --
Stephen C. McCluski................................................... --
Reid S. Perper(5)..................................................... --
Douglas E. Rogers(5).................................................. --
William Waltrip....................................................... --
Henry C. Wendt(5)..................................................... --
Officers and directors as a group(4).................................. 6.1%
</TABLE>
- -------------------
* less than 1%.
(1) Under the SEC's rules, a beneficial owner is any person or entity with the
power to vote and direct the disposition of these shares.
(2) Consists of shares held indirectly through CRL Acquisition LLC by the
DLJMB Funds and the following related investors: DLJ Merchant Banking
Partners II-A, L.P.; DLJ Investment Partners, L.P.; DLJ Offshore Partners
II, C.V.; DLJ Capital Corp.; DLJ Diversified Partners, L.P.; DLJ
Diversified Partners-A, L.P.; DLJ Millennium Partners, L.P.; DLJ
Millennium Partners-A, L.P.; DLJMB Funding II, Inc.; DLJ First ESC L.P.;
DLJ EAB Partners, L.P.; DLJ ESC II, L.P.; Sprout Capital VIII, L.P. and
Sprout Venture Capital, L.P. See "Certain Relationships and Related Party
Transactions" and "Plan of Distribution." The address of each of these
investors is 277 Park Avenue, New York, New York 10172, except the address
of Offshore Partners is John B. Gorsiraweg 14, Willemstad, Curacao,
Netherlands Antilles.
(3) Does not include the effect of warrants issued previously with the old
notes or in connection with the issuance by Holdings of senior discount
debentures with warrants to the DLJMB Funds and other investors. If such
warrants were exercised, the percentage of outstanding common stock
beneficially owned by DLJ Merchant Banking Partners II, L.P. and related
investors would decrease by 1.0%.
(4) Consists of shares held indirectly through CRL Acquisition LLC.
(5) Messrs. Cawthorn, Dean, Perper, Rogers and Wendt are officers of DLJ
Merchant Banking, Inc., an affiliate of the DLJMB Funds and the initial
purchaser. Shares shown for Messrs. Cawthorn, Dean, Perper, Rogers and
Wendt exclude shares shown as held by the DLJMB Funds, as to which they
disclaim beneficial ownership. The address of each of these investors is
277 Park Avenue, New York, New York 10172.
58
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Recapitalization
Financial Advisory Fees and Agreements
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities
Corporation"), an affiliate of the DLJMB Funds, acted as financial advisor to us
and was also the initial purchaser of the old notes. We paid customary fees to
DLJ Securities Corporation as compensation for its services as financial advisor
and initial purchaser. DLJ Capital Funding, an affiliate of the DLJMB Funds,
received customary fees and reimbursement of expenses in connection with the
arrangement and syndication of the new credit facility and as a lender
thereunder. The aggregate amount of all fees paid to the DLJ entities in
connection with the Recapitalization and the related financing was approximately
$13.2 million plus out-of-pocket-expenses.
Under the investors' agreement described below, for a period of five years
from the date of the investors' agreement, DLJ Securities Corporation or any of
its affiliates will be engaged as the exclusive financial and investment banking
advisor of Holdings. We expect that DLJ Securities Corporation or such affiliate
will receive customary fees for such services rendered and will be entitled to
reimbursement for all reasonable disbursements and out-of-pocket expenses
incurred in connection with such engagement. We expect that any such arrangement
will include provisions for the indemnification of DLJ Securities Corporation
against some liabilities, including liabilities under the federal securities
laws.
CRL Acquisition LLC Operating Agreement
CRL Acquisition LLC, DLJMB Funds, management and some other investors are
parties to an operating agreement in connection with the Recapitalization. The
operating agreement provides, among other things, that any person acquiring
limited liability company units of CRL Acquisition LLC who is required by the
operating agreement or by any other agreement or plan of CRL Acquisition LLC to
become a party to the operating agreement will execute an agreement to be bound
by the operating agreement.
The terms of the operating agreement restrict transfers of the limited
liability company units of CRL Acquisition LLC by some investors or management
and some future limited liability company unit holders parties thereto. The
agreement provides for, among other things:
o the ability of the other limited liability company unit holders to
participate in particular sales of units of CRL Acquisition LLC by the
DLJMB Funds
o the ability of the DLJMB Funds to require the other limited liability
company unit holders to sell limited liability company units of CRL
Acquisition LLC in particular circumstances should the DLJMB Funds
choose to sell any such units owned by them
The operating agreement also provides that DLJMB Funds has the right to
appoint the three members of the board of directors of CRL Acquisition LLC,
including the chairman.
Investors' Agreement
Charles River Laboratories Holdings, CRL Acquisition LLC, CRL Holdings,
Inc. (a subsidiary of B&L), management and some other investors are parties to
an investors' agreement in connection with the Recapitalization. The investors'
agreement provides, among other things, that any person acquiring shares of
common stock of Holdings who is required by the investors' agreement or by any
other agreement or plan of Holdings to become a party to the investors'
agreement will execute an agreement to be bound by the investors' agreement.
59
<PAGE>
The terms of the investors' agreement restrict transfers of the shares of
Charles River Laboratories Holdings' common stock by CRL Holdings Inc.,
management and some other investors and some future shareholders parties
thereto. The agreement provides for, among other things:
o the ability of some other shareholders to participate in particular
sales of shares of Charles River Laboratories Holdings by CRL
Acquisition LLC or its permitted transferees
o the ability of DLJMB Funds or CRL Acquisition LLC to require the other
shareholders to sell shares of Charles River Laboratories Holdings in
particular circumstances should the DLJMB Funds or CRL Acquisition LLC
choose to sell any such shares owned by them
o some registration rights with respect to shares of common stock of
Charles River Laboratories Holdings, including rights to
indemnification against some liabilities, including liabilities under
the Securities Act
o the right of CRL Holdings Inc. to sell to Charles River Laboratories
Holdings all of the common stock of Charles River Laboratories
Holdings acquired by it as of the closing date of the Recapitalization
and still held by it, beginning on the date that substantially all of
the debt of Charles River Laboratories Holdings and its subsidiaries
is either repaid or refinanced and such refinanced debt permits it
(such right terminates upon the occurrence of particular events,
including an initial public offering, or 12 years from the closing
date of the Recapitalization)
o pre-emptive rights of all the parties, other than CRL Acquisition LLC
and its permitted transferees, to acquire its pre-emptive portion of
Charles River Laboratories Holdings common stock in particular
instances when Charles River Laboratories Holdings proposes to issue
common stock
The investors' agreement also provides that DLJ Merchant Banking Partners
II, L.P. has the right to appoint seven of the nine members of the board of
directors of Charles River Laboratories Holdings, including the chairman.
Transactions with Officers and Directors
In connection with the Recapitalization, some of our officers purchased
units of CRL Acquisition LLC, some of whom also borrowed funds up to a maximum
aggregate amount of $1.3 million from DLJ Inc. secured by their units. James C.
Foster borrowed $.3 million and each of Real H. Renaud, Thomas F. Ackerman and
Dennis R. Shaughnessy borrowed approximately $0.2 million. Two weeks after the
consummation of the Recapitalization, the loans matured and were repaid by the
officers, partially with funds borrowed from Charles River up to a maximum
aggregate amount of $.9 million. The loans from Charles River matures in ten
years and interest accrues at the initial rate of the Term Loan B of the new
credit facility. Each loan is secured by units in CRL Acquisition LLC held by
the borrower, 25% of each loan is recourse to the borrower and all proceeds from
the sale of such equity and options will be used to pay down the loan until it
is repaid in full. All payments due under each loan accelerates immediately upon
the termination of the borrower's employment with Charles River for any reason.
60
<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
A syndicate of financial institutions led by DLJ Capital Funding, as sole
book runner, lead arranger and syndication agent, provided the new credit
facility. The new credit facility includes a $40.0 million term loan A facility,
a $120.0 million term loan B facility and a $30.0 million revolving credit
facility, which provides for loans and under which up to $15.0 million in
letters of credit may be issued. The term loan A facility matures six years
after the closing date of the facility, the term loan B facility matures eight
years after the closing date of the facility and the revolving facility matures
six years after the closing date of the facility. The revolving credit facility
is subject to a potential, but uncommitted, increase of up to $25 million at our
request at any time prior to such revolving credit facility maturity date. Such
increase will be available only if one or more financial institutions agrees, at
the time of our request, to provide it.
Loans under the term loan A facility and the revolving facility will bear
interest, at our option, at the alternate base rate or the reserve adjusted
LIBOR rate plus, in each case, applicable margins of 3.00% for LIBOR loans and
1.75% for base rate loans. Loans under the term loan B facility will bear
interest, at our option, at the alternate base rate or the reserve adjusted
LIBOR rate plus, in each case, applicable margins of 3.75% for LIBOR loans and
2.50% for base rate loans. We pay commitment fees in an amount equal to 0.50%
per annum on the daily average unused portion of the revolving credit facility.
Such fees are payable quarterly in arrears and upon the maturity or termination
of the revolving credit facility. Beginning approximately six months after the
closing date of the new credit facility, the applicable margins applicable to
loans under the term loan A facility and the revolving facility and commitment
fees will be determined based on the ratio (the "Leverage Ratio") of
consolidated total debt to consolidated EBITDA (as defined in the new credit
facility) of us and our restricted subsidiaries (as defined in the new credit
facility).
We will pay a letter of credit fee on the outstanding undrawn amounts of
letters of credit issued under the new credit facility at a rate per year equal
to the margin applicable to LIBOR loans under the revolving facility (in the
case of standby letters of credit) or 1.25% (in the case of commercial letters
of credit), which shall be shared by all lenders participating in the relevant
letters of credit. In addition, we will pay an additional fee to the issuer of
each letter of credit in an amount agreed between us and the issuer.
The term loan A is subject to the following amortization schedule:
Term Loan
Year Amortization(%)
- ---- ---------------
1........................................................... 0%
2........................................................... 5
3........................................................... 10
4........................................................... 20
5........................................................... 25
6........................................................... 40
The term loan B is subject to the following amortization schedule:
Term Loan
Year Amortization(%)
- ---- ---------------
7........................................................... 1%
8........................................................... 93
The new credit facility is subject to mandatory prepayment:
o with the net cash proceeds of the sale or other disposition of any
property or assets of, or receipt of casualty proceeds by, us or any
of our restricted subsidiaries, subject to some exceptions, including
an exception for reinvestment in our and our restricted subsidiaries'
business,
61
<PAGE>
o with 50% of the net cash proceeds received from the issuance of equity
securities of Charles River Laboratories Holdings, us or any of our
restricted subsidiaries (subject to some exceptions) so long as the
Leverage Ratio following such payment would exceed 3.5:1,
o with the net cash proceeds received from issuances of debt securities
by Charles River Laboratories Holdings, us or any of our restricted
subsidiaries (subject to some exceptions) and
o with 50% of excess cash flow (as defined in the new credit facility)
for each fiscal year so long as the Leverage Ratio following such
payment would exceed 3.5:1.
All mandatory prepayment amounts will be applied first to the prepayment of
the term loans.
All of our future domestic restricted subsidiaries will be guarantors of
the new credit facility. Our obligations under the new credit facility will be
secured by:
o all of our stock,
o all of our existing and after-acquired personal property and all the
existing and after-acquired personal property of our future domestic
restricted subsidiaries, including a pledge of all of the equity
interests of all our future restricted subsidiaries held by us or any
of our restricted subsidiaries and no more than 65% of the equity
interests of any foreign restricted subsidiary, and all intercompany
debt in our favor,
o first-priority perfected liens on all of our material existing and
after-acquired real property fee and leasehold interests, subject to
customary permitted liens (as defined in the new credit facility), and
o a negative pledge on all of our and our subsidiaries' assets.
The new credit facility contains customary covenants and restrictions on
our ability to engage in some activities, including, but not limited to:
o limitations on other indebtedness, liens, investments and guarantees,
o restrictions on dividends and redemptions and payments on
subordinated debt and
o restrictions on mergers and acquisitions, sales of assets and leases.
The new credit facility also contains financial covenants requiring us to
maintain a minimum EBITDA, minimum coverage of interest expense, minimum
coverage of fixed charges and a maximum leverage ratio. The new credit facility
contains customary events of default and a cross-default to indebtedness of
Charles River Laboratories Holdings.
Borrowings and reimbursement obligations under the new credit facility are
subject to significant conditions, including compliance with some financial
ratios and the absence of any material adverse change. See "Risk Factors--Risks
relating to our debt."
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DESCRIPTION OF NOTES
General
We issued the old notes and the new notes under an indenture between
Charles River and State Street Bank and Trust Company, as trustee. The terms of
the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended. The notes
are subject to all those terms, and holders of notes are referred to the
indenture and the Trust Indenture Act for a statement thereof. Copies of the
proposed form of indenture and registration rights agreement are available as
set forth below under "--Additional Information."
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes will not be guaranteed by any
subsidiaries. We merged the subsidiaries which guaranteed the old notes into
Charles River Laboratories, Inc. In addition, the old notes contain transfer
restrictions and registration rights and, if the registration statement relating
to this exchange offer is not declared effective on or prior to 180 days after
the closing of the old notes, which was on September 29, 1999, holders of old
notes that have complied with their obligations under the registration rights
agreement will be entitled, subject to exceptions, to liquidated damages in an
amount equal to $0.05 per week per $1,000 principal amount of notes held by such
holder and increasing every 90 days thereafter up to a maximum amount equal to
$0.25 per week per $1,000 principal amount of notes until the registration
statement is declared effective.
The following description is a summary of the material provisions of the
indenture. It is not complete and is qualified in its entirety by reference to
the indenture, including the definitions therein of terms used below. We urge
you to read the indenture because it, and not this description, defines your
rights as a holder of the notes.
The definitions of terms used in the following summary are set forth below
under "--Certain Definitions." For purposes of this summary, the term "Charles
River" refers only to Charles River Laboratories, Inc. and not to any of its
Subsidiaries.
The notes will:
o be general unsecured obligations of Charles River
o rank junior in right of payment to all existing and future Senior
Indebtedness of Charles River, including borrowings under our New
Credit Facility
o rank equally in right of payment with any future senior subordinated
Indebtedness of Charles River
o rank senior in right of payment to all future subordinated
Indebtedness of Charles River and
o be effectively junior to all liabilities of Charles River's
subsidiaries
On a pro forma basis, after giving effect to the Transactions, as of
September 25, 1999, we had outstanding approximately $163.3 million of Senior
Indebtedness and our subsidiaries had $5.2 million of outstanding liabilities,
including trade payables but excluding intercompany obligations. The indenture
will permit Charles River and its Subsidiaries to incur additional Indebtedness,
including Senior Indebtedness, in the future. See "Risk Factors--The notes are
subordinated to our other debt" and "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
As of the date of the indenture, all of our Subsidiaries will be Restricted
Subsidiaries. However, so long as we satisfy the conditions described in the
definition of "Unrestricted Subsidiary," we will be permitted to designate
current or future Subsidiaries as "Unrestricted" Subsidiaries that are not
subject to the restrictive covenants included in the indenture.
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Principal, Maturity and Interest
o The notes will initially be limited in aggregate principal amount to
$150.0 million and will mature on October 1, 2009.
o The notes will be issued in denominations of $1,000 and integral
multiples thereof.
o Interest on the notes will accrue at the rate of 13.5% per year;
provided that the rate at which interest accrues will increase to
14.0% per year on August 15, 2000 in the event that the Ratio of
Consolidated Net Debt to Consolidated Cash Flow for Charles River as
of June 30, 2000 is equal to or greater than 5.00 to 1.
o We will pay interest in arrears every October 1 and April 1,
commencing on April 1, 2000, to holders of record on the immediately
preceding September 15 and March 15.
o Interest on the 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.
o Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
We will pay principal of, premium, if any, and interest and liquidated
damages, if any, on the notes:
o at the office or agency we maintain for that purpose within the City
and State of New York
o or, at our option, by check mailed to the holders of the notes at
their respective addresses set forth in the register of holders of
notes
o however, all payments with respect to notes represented by one or
more permanent Global Notes will be paid by wire transfer of
immediately available funds to the account of the Depository Trust
Company or any successor thereto.
Until we designate another office or agency, our office or agency in New
York will be the office of the trustee maintained for that purpose.
Subject to the covenants described below, we may issue additional notes
under the indenture having the same terms in all respects as the notes, or
similar in all respects except for the payment of interest on the notes (1)
scheduled and paid prior to the date of issuance of those additional notes or
(2) payable on the first Interest Payment Date following that date of issuance.
The notes offered hereby and any additional notes would be treated as a single
class for all purposes under the indenture.
Subordination
The payment of Subordinated Note Obligations will be subordinated in right
of payment, as set forth in the indenture, to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness, whether outstanding on the date
of the indenture or thereafter incurred.
Upon any distribution to creditors of Charles River in a liquidation or
dissolution of Charles River or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Charles River or its property, an
assignment for the benefit of creditors or any marshaling of Charles River's
assets and liabilities,
(1) the holders of Senior Indebtedness will be entitled to receive
payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Indebtedness, including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness, before the holders of notes will be entitled to
receive any payment with respect to the Subordinated Note Obligations, and
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(2) until all Obligations with respect to Senior Indebtedness are paid
in full in cash or cash equivalents, any distribution to which the holders
of notes would be entitled shall be made to the holders of Senior
Indebtedness.
However, holders of notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "--Legal Defeasance
and Covenant Defeasance."
Charles River also may not make any payment upon or in respect of the
Subordinated Note Obligations, except in Permitted Junior Securities or from the
trust described under "--Legal Defeasance and Covenant Defeasance," until all
obligations with respect to Senior Indebtedness have been paid in full in cash
or cash equivalents if:
(1) a default in the payment of the principal (including reimbursement
obligations in respect of letters of credit) of, premium, if any, or
interest on or commitment, letter of credit or administrative fees relating
to, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace; or
(2) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated
Senior Indebtedness as to which that default relates to accelerate its
maturity and the trustee receives a notice of that default (a "Payment
Blockage Notice") from Charles River or the holders of any Designated
Senior Indebtedness.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
that nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Indebtedness has been accelerated.
No new period of payment blockage may be commenced unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless that default
shall have been waived or cured for a period of not less than 90 days.
"Designated Senior Indebtedness" means:
(1) any Indebtedness outstanding under the New Credit Facility; and
(2) any other Senior Indebtedness permitted under the indenture the
principal amount of which is $25.0 million or more and that has been
designated by Charles River in writing to the trustee as "Designated Senior
Indebtedness."
"Permitted Junior Securities" means Equity Interests in Charles River or
debt securities of Charles River that are subordinated to all Senior
Indebtedness and any debt securities issued in exchange for Senior Indebtedness
to substantially the same extent as, or to a greater extent than, the notes are
subordinated to Senior Indebtedness.
"Senior Indebtedness" means, with respect to any Person:
(1) all Obligations of that Person outstanding under the New Credit
Facility and all Hedging Obligations payable to a lender or an Affiliate
thereof or to a Person that was a lender or an Affiliate thereof at the
time the contract was entered into under the New Credit Facility or any of
its Affiliates, including, without limitation, interest accruing subsequent
to the filing of, or which would have accrued but for the filing of, a
petition for bankruptcy, whether or not that interest is an allowable claim
in that bankruptcy proceeding;
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(2) any other Indebtedness, unless the instrument under which that
Indebtedness is incurred expressly provides that it is subordinated in
right of payment to any other Senior Indebtedness of that Person; and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include:
(a) any liability for federal, state, local or other taxes;
(b) any Indebtedness of that Person, other than under the New
Credit Facility, to
any of its Subsidiaries or other Affiliates;
(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the
indenture.
"Subordinated Note Obligations" means all Obligations with respect to the
notes, including, without limitation, principal, premium, if any, interest and
liquidated damages, if any, payable under the terms of the notes (including upon
the acceleration or redemption thereof), together with and including any amounts
received or receivable upon the exercise of rights of rescission or other rights
of action, including claims for damages, or otherwise.
We will promptly notify holders of Senior Indebtedness if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of notes may recover less ratably than
creditors of Charles River who are holders of Senior Indebtedness.
Optional Redemption
Except as provided below, the notes will not be redeemable at Charles
River's option prior to October 1, 2004. Thereafter, the notes will be subject
to redemption at any time at the option of Charles River, in whole or in part,
upon not less than 30 nor more than 60 days' notice, in cash at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on October 1 of the years indicated below:
Year Percentage
- ----- ----------
2004.......................................................... 106.750%
2005.......................................................... 104.500%
2006.......................................................... 102.250%
2007 and thereafter........................................... 100.000%
Notwithstanding the foregoing, on or prior to October 1, 2002, Charles
River may redeem up to 35% of the aggregate principal amount of notes from time
to time originally issued under the indenture in cash at a redemption price of
113.500% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes from time
to time originally issued under the indenture remains outstanding
immediately after the occurrence of the redemption; and
(2) the redemption shall occur within 90 days of the date of the
closing of any such Public Equity Offering.
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Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select the notes for redemption as follows:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
another method the trustee considers fair and appropriate;
provided that no notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original note. Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of them called for redemption.
Mandatory Redemption
Charles River is not required to make mandatory redemption of, or sinking
fund payments with respect to, the notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of notes will have
the right to require Charles River to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of that holder's notes as specified in
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 60 days following any
Change of Control, Charles River will, or will cause the trustee to, mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase notes on the date specified in
that notice, which date shall be no earlier than 30 days and no later than 60
days from the date that notice is mailed (the "Change of Control Payment Date"),
under the procedures required by the indenture and described in that notice.
Charles River will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the provisions of the indenture
relating to a Change of Control Offer, Charles River will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the indenture by virtue thereof.
On the Change of Control Payment Date, Charles River will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly
tendered under the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
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(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by Charles
River.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for that holder's notes, and the trustee will promptly
authenticate and mail or cause to be transferred by book-entry to each holder a
new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple thereof.
The indenture will provide that, prior to complying with the provisions of
this covenant, but in any event within 90 days following a Change of Control,
Charles River will either repay all outstanding Senior Indebtedness or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Indebtedness to permit the repurchase of notes required by this covenant.
The indenture requires Charles River to publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that Charles River
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility will prohibit Charles River from purchasing any
notes and also will provide that some change of control events, which may
include events not otherwise constituting a Change of Control under the
indenture, with respect to Charles River would constitute a default thereunder.
Any future credit agreements or other agreements relating to Senior Indebtedness
to which Charles River becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when Charles River
is prohibited from purchasing notes, Charles River could seek the consent of its
lenders to the purchase of notes or could attempt to refinance the borrowings
that contain that prohibition. If Charles River does not obtain such a consent
or repay those borrowings, Charles River will remain prohibited from purchasing
notes. In that case, Charles River's failure to purchase tendered notes would
constitute an Event of Default under the indenture, which would, in turn,
constitute a default under the New Credit Facility. In those circumstances, the
subordination provisions in the indenture would likely restrict payments to the
holders of notes.
Charles River will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Charles River
and purchases all notes validly tendered and not withdrawn under that Change of
Control Offer.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other
than by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of Charles River
and its Subsidiaries, taken as a whole, to any "person" or "group" (as
those terms are used in Section 13(d) of the Exchange Act), other than the
Principals and their Related Parties;
(2) the adoption of a plan for the liquidation or dissolution of
Charles River;
(3) the consummation of any transaction, including, without
limitation, any merger or consolidation, the result of which is that any
"person" or "group" (as those terms are used in Section 13(d) of the
Exchange Act), other than the Principals and their Related Parties, becomes
the "beneficial owner" (as that term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly through one or more
intermediaries, of 50% or more of the voting power of the outstanding
voting stock of Charles River; or
(4) the first day on which a majority of the members of the board of
directors of Charles River are not Continuing Members.
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The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Charles River and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of notes to require Charles River to
repurchase notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of Charles River and its Subsidiaries
taken as a whole to another person or group may be uncertain.
"Continuing Members" means, as of any date of determination, any member of
the board of directors of Charles River who:
(1) was a member of Charles River's board of directors immediately
after consummation of the Recapitalization and the Recapitalization
Financing; or
(2) was nominated for election or elected to Charles River's board of
directors with the approval of, or whose election to the board of directors
was ratified by, at least a majority of the Continuing Members who were
members of Charles River's board of directors at the time of that
nomination or election.
Certain Covenants
Asset Sales
The indenture will provide that Charles River will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) Charles River or the Restricted Subsidiary, as the case may be,
receives consideration at the time of that Asset Sale at least equal to the
fair market value (evidenced by a resolution of the board of directors set
forth in an Officers' Certificate delivered to the trustee) of the assets
or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration therefor received by Charles
River or the Restricted Subsidiary is in the form of:
(a) cash or Cash Equivalents; or
(b) property or assets that are used or useful in a Permitted
Business, or the Capital Stock of any Person engaged in a Permitted
Business if, as a result of the acquisition by Charles River or any
Restricted Subsidiary thereof, that Person becomes a Restricted
Subsidiary.
For the purposes of this provision, each of the following shall be deemed
to be cash:
(i) any liabilities, as shown on Charles River's or the
Restricted Subsidiary's most recent balance sheet, of Charles
River or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated
to the notes or any guarantee thereof) that are assumed by the
transferee of any such assets under a customary novation
agreement that releases Charles River or the Restricted
Subsidiary from further liability;
(ii) any securities, notes or other obligations received by
Charles River or the Restricted Subsidiary from the transferee
that are converted within 180 days of their receipt by Charles
River or the Restricted Subsidiary by Charles River or the
Restricted Subsidiary into cash or Cash Equivalents, but only to
the extent of the cash or Cash Equivalents received; and
(iii) any Designated Noncash Consideration received by
Charles River or any of its Restricted Subsidiaries in that Asset
Sale having an aggregate fair market value, taken together with
all other Designated Noncash Consideration received under this
clause (iii) that is at that time outstanding, not
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to exceed 15% of Total Assets at the time of the receipt of that
Designated Noncash Consideration, with the fair market value of
each item of Designated Noncash Consideration being measured at
the time received and without giving effect to subsequent changes
in value.
The 75% limitation referred to in clause (2) above will not apply to any
Asset Sale in which the cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with subclauses (i), (ii) and (iii)
above, is equal to or greater than what the after-tax proceeds would have been
had that Asset Sale complied with the aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Charles River or the Restricted Subsidiary, as the case may be, shall apply the
Net Proceeds, at its option (or to the extent Charles River is required to apply
the Net Proceeds under the terms of the New Credit Facility), to:
(1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness
of Charles River or any Indebtedness of any Restricted Subsidiary, as the
case may be,
provided that if Charles River shall so repay or purchase Pari Passu
Indebtedness of Charles River;
(a) it will equally and ratably reduce Indebtedness under the
notes if the notes are then redeemable; or
(b) if the notes may not then be redeemed, Charles River shall
make an offer, in accordance with the procedures set forth below for
an Asset Sale Offer, to all holders of notes to purchase at a purchase
price equal to 100% of the principal amount of the notes, plus accrued
and unpaid interest and liquidated damages, if any, thereon to the
date of purchase, the notes that would otherwise be redeemed; or
(2)(a) an investment in property, the making of a capital expenditure
or the acquisition of assets that are used or useful in a Permitted
Business; or
(b) the acquisition of Capital Stock of any Person primarily
engaged in a Permitted Business if:
(x) as a result of the acquisition by Charles River or any
Restricted Subsidiary thereof, that Person becomes a Restricted
Subsidiary; or
(y) the Investment in that Capital Stock is permitted by
clause (6) of the definition of Permitted Investments.
Pending the final application of any Net Proceeds, Charles River may
temporarily reduce Indebtedness or otherwise invest those Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of the second preceding paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, Charles River will be required to make an offer to all
holders of notes (an "Asset Sale Offer") to purchase the maximum principal
amount of notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in the indenture.
To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, Charles River may use those Excess Proceeds for any purpose
not otherwise prohibited by the indenture. If the aggregate principal amount of
notes surrendered by holders thereof in connection with an Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee shall select the notes to be
purchased as set forth under "--Selection and Notice." Upon completion of an
offer to purchase, the amount of Excess Proceeds shall be reset at zero.
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Charles River will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the notes under an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to an Asset Sale Offer, Charles River will comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the indenture by virtue thereof.
Restricted Payments
The indenture will provide that Charles River will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Charles River's or any of its Restricted
Subsidiaries' Equity Interests other than
o dividends or distributions payable in Equity Interests other than
Disqualified Stock of Charles River or
o dividends or distributions payable to Charles River or any Wholly
Owned Restricted Subsidiary of Charles River;
(2) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of Charles River or Parent other than any of those Equity
Interests owned by Charles River or any Restricted Subsidiary of Charles
River;
(3) make any principal payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any Indebtedness
of Charles River that is subordinated in right of payment to the notes,
except in accordance with the mandatory redemption or repayment provisions
set forth in the original documentation governing that Indebtedness (but
not under any mandatory offer to repurchase upon the occurrence of any
event); or
(4) make any Restricted Investment
(all payments and other actions set forth in clauses (1) through (4) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to that Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) Charles River would, immediately after giving pro forma effect
thereto as if that Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness under the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(3) that Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Charles River and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted Payments
permitted by clauses (1) (to the extent that the declaration of any
dividend referred to therein reduces amounts available for Restricted
Payments under this clause (3)), (2) through (9), (11) through (15) and
(17) of the next succeeding paragraph), is less than the sum, without
duplication, of:
(a) 50% of the Consolidated Net Income of Charles River for the period
(taken as one accounting period) commencing June 27, 1999 to the end of
Charles River's most recently ended fiscal quarter for which internal
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financial statements are available at the time of that Restricted Payment
(or, if Consolidated Net Income for that period is a deficit, less 100% of
the deficit); plus
(b) 100% of the Qualified Proceeds received by Charles River on or
after the date of the indenture from contributions to Charles River's
capital or from the issue or sale on or after the date of the indenture of
Equity Interests of Charles River or of Disqualified Stock or convertible
debt securities of Charles River to the extent that they have been
converted into those Equity Interests, other than
o Equity Interests, Disqualified Stock or convertible debt securities
sold to a Subsidiary of Charles River and
o Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock; plus
(c) the amount equal to the net reduction in Investments in Persons
after the date of the indenture who are not Restricted Subsidiaries (other
than Permitted Investments) resulting from:
(i) Qualified Proceeds received as a dividend, repayment of a
loan or advance or other transfer of assets (valued at the fair
market value thereof) to Charles River or any Restricted Subsidiary
from those Persons;
(ii) Qualified Proceeds received upon the sale or liquidation of
those Investments; and
(iii) the redesignation of Unrestricted Subsidiaries (excluding
any increase in the amount available for Restricted Payments under
clause (10) or (14) below arising from the redesignation of that
Unrestricted Subsidiary) whose assets are used or useful in, or which
is engaged in, one or more Permitted Business as Restricted
Subsidiaries (valued, proportionate to Charles River's equity
interest in that Subsidiary, at the fair market value of the net
assets of that Subsidiary at the time of that redesignation).
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, the payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness or Equity Interests of Charles River in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of Charles River) of other Equity Interests of
Charles River (other than any Disqualified Stock), provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase, retirement or other acquisition
of subordinated Indebtedness of Charles River with the net cash proceeds from an
incurrence of, or in exchange for, Permitted Refinancing Indebtedness;
(4) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Charles River or Parent or CRL Acquisition LLC held
by any member of Parent's, Charles River's (or any of its Restricted
Subsidiaries') management under any management equity subscription agreement or
stock option agreement and any dividend to Parent to fund any such repurchase,
redemption acquisition or retirement; provided that:
(a) the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed:
(i) $5.0 million in any calendar year, with unused amounts in any
calendar year being carried over to succeeding calendar years subject
to a maximum (without giving effect to the following clause (ii)) of
$10.0 million in any calendar year; plus
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(ii) the aggregate net cash proceeds received by Charles River
during that calendar year from any reissuance of Equity Interests by
Charles River, Parent or CRL Acquisition LLC to members of management
of Charles River and its Restricted Subsidiaries; provided that the
amount of any such net cash proceeds that are used to permit an
acquisition or retirement for value under this clause (4) shall be
excluded from clause (3)(b) of the preceding paragraph; and
(b) no Default or Event of Default shall have occurred and be
continuing immediately after that transaction;
(5) payments and transactions in connection with
o the Transactions, including any purchase price adjustment or any other
payments made under or as contemplated in the Transaction Agreements
or the financial advisory agreements with DLJ Securities Corporation
described under "Certain Relationships and Related Party
Transactions,"
o the Transaction Financing,
o the Offering,
o the New Credit Facility (including commitment, syndication and
arrangement fees payable thereunder) and
o the application of the proceeds thereof, and the payment of fees and
expenses with respect thereto;
(6) the payment of dividends or the making of loans or advances by Charles
River to Parent not to exceed $2.5 million in any fiscal year for costs and
expenses incurred by Parent in its capacity as a holding company for services
rendered by Parent on behalf of Charles River;
(7) payments or distributions to Parent under any Tax Sharing Agreement;
(8) the payment of dividends by a Restricted Subsidiary on any class of
common stock of that Restricted Subsidiary if:
(a) that dividend is paid pro rata to all holders of that class of
common stock; and
(b) at least 50.1% of that class of common stock is held by Charles
River or one or more of its Restricted Subsidiaries;
(9) the repurchase of any class of common stock of a Restricted Subsidiary
if:
(a) that repurchase is made pro rata with respect to that class of
common stock; and
(b) at least 50.1% of that class of common stock is held by Charles
River or one or more of its Restricted Subsidiaries;
(10) any other Restricted Investment made in a Permitted Business which,
together with all other Restricted Investments made under this clause (10) since
the date of the indenture, does not exceed $5.0 million (in each case, after
giving effect to all subsequent reductions in the amount of any Restricted
Investment made under this clause (10), either as a result of (i) the repayment
or disposition thereof for cash or (ii) the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary (valued, proportionate to Charles River's
equity interest in that Subsidiary at the time of that redesignation, at the
fair market value of the net assets of that Subsidiary at the time of that
redesignation), in the case of clause (i) and (ii), not to exceed the amount of
the Restricted Investment previously made under this clause (10); provided that
no Default or Event of Default shall have occurred and be continuing immediately
after making that Restricted Investment;
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(11) the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of Charles River or any Restricted Subsidiary
issued on or after the date of the indenture in accordance with the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" provided that no Default or Event of Default shall have
occurred and be continuing immediately after making that Restricted Payment;
(12) repurchases of Equity Interests deemed to occur upon exercise of stock
options if those Equity Interests represent a portion of the exercise price of
those options;
(13) any other Restricted Payment which, together with all other Restricted
Payments made under this clause (13) since the date of the indenture, does not
exceed $5.0 million, in each case, after giving effect to all subsequent
reductions in the amount of any Restricted Investment made under this clause
(13) either as a result of (i) the repayment or disposition thereof for cash or
(ii) the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued, proportionate to Charles River's equity interest in that Subsidiary at
the time of that redesignation, at the fair market value of the net assets of
that Subsidiary at the time of that redesignation), in the case of clause (i)
and (ii), not to exceed the amount of the Restricted Investment previously made
under this clause (13); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making that Restricted Payment;
(14) the pledge by Charles River of the Capital Stock of an Unrestricted
Subsidiary of Charles River to secure Non-Recourse Debt of that Unrestricted
Subsidiary;
(15) the purchase, redemption or other acquisition or retirement for value
of any Equity Interests of any Restricted Subsidiary issued after the date of
the indenture, provided that the aggregate price paid for any such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed the sum of:
(a) the amount of cash and Cash Equivalents received by that
Restricted Subsidiary from the issue or sale thereof; and
(b) any accrued dividends thereon the payment of which would be
permitted under clause (11) above;
(16) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by Charles River on or after the date of the
indenture from contributions to Charles River's capital or from the issue and
sale on or after the date of the indenture of Equity Interests of Charles River
or of Disqualified Stock or convertible debt securities to the extent they have
been converted into that Equity Interests (other than Equity Interests,
Disqualified Stock or convertible debt securities sold to a Subsidiary of
Charles River and other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock) in an amount (measured at the
time that Investment is made and without giving effect to subsequent changes in
value) that does not exceed the amount of those Qualified Proceeds (excluding
any such Qualified Proceeds to the extent utilized to permit a prior "Restricted
Payment" under clause (3)(b) of the preceding paragraph); and
(17) distributions or payments of Receivables Fees.
The board of directors of Charles River may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if that designation would not cause
a Default. For purposes of making that designation, all outstanding Investments
by Charles River and its Restricted Subsidiaries (except to the extent repaid in
cash) in the Subsidiary so designated will be deemed to be Restricted Payments
at the time of that designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Restricted Investments in
an amount equal to the greater of
(1) the net book value of that Investments at the time of that designation
and
(2) the fair market value of that Investments at the time of that
designation.
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That designation will only be permitted if that Restricted Investment would
be permitted at that time and if that Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of
(1) all Restricted Payments (other than cash) shall be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Charles River or that Restricted
Subsidiary, as the case may be, under the Restricted Payment and
(2) Qualified Proceeds (other than cash) shall be the fair market value on
the date of receipt thereof by Charles River of those Qualified Proceeds.
The fair market value of any non-cash Restricted Payment shall be
determined by the board of directors of Charles River whose resolution with
respect thereto shall be delivered to the trustee.
Not later than the date of making any Restricted Payment, Charles River
shall deliver to the trustee an Officers' Certificate stating that the
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture will provide that:
(1) Charles River will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness);
(2) Charles River will not, and will not permit any of its Restricted
Subsidiaries to, issue any shares of Disqualified Stock; and
(3) Charles River will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock;
provided that Charles River or any Restricted Subsidiary may incur Indebtedness,
including Acquired Indebtedness, or issue shares of Disqualified Stock if the
Fixed Charge Coverage Ratio for Charles River's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which that additional Indebtedness is incurred
or that Disqualified Stock is issued would have been at least 2.0 to 1 if such
four-quarter period ended prior to September 30, 2002 and 2.25 to 1 thereafter,
determined on a consolidated pro forma basis, including a pro forma application
of the net proceeds therefrom, as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of that four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(1) the incurrence by Charles River and its Restricted Subsidiaries of
Indebtedness under the New Credit Facility and the Foreign Credit Facilities;
provided that the aggregate principal amount of all Indebtedness (with letters
of credit being deemed to have a principal amount equal to the maximum potential
liability of Charles River and those Restricted Subsidiaries thereunder) then
classified as having been incurred in reliance upon this clause (1) that remains
outstanding under the New Credit Facility and the Foreign Credit Facilities
after giving effect to that incurrence does not exceed an amount equal to $215.0
million;
(2) the incurrence by Charles River and its Restricted Subsidiaries of
Existing Indebtedness;
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(3) the incurrence by Charles River of Indebtedness represented by the
notes and the indenture and any guarantees thereof by its Restricted
Subsidiaries as specified in "Note Guarantees";
(4) the incurrence by Charles River or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Expenditure Indebtedness, Capital Lease
Obligations or other obligations, in each case, the proceeds of which are used
solely for the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property, plant or equipment (including
acquisitions of Capital Stock of a Person that becomes a Restricted Subsidiary
to the extent of the fair market value of the property, plant or equipment so
acquired) used in the business of Charles River or that Restricted Subsidiary,
in an aggregate principal amount (or accreted value, as applicable) not to
exceed $20.0 million outstanding after giving effect to that incurrence;
(5) Indebtedness arising from agreements of Charles River or any Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing that
acquisition; provided that:
(a) that Indebtedness is not reflected on the balance sheet of
Charles River or any Restricted Subsidiary (contingent obligations
referred to in a footnote or footnotes to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be
reflected on that balance sheet for purposes of this clause (a)); and
(b) the maximum assumable liability in respect of that Indebtedness
shall at no time exceed the gross proceeds including non-cash proceeds
(the fair market value of those non-cash proceeds being measured at the
time received and without giving effect to any subsequent changes in
value) actually received by Charles River and/or that Restricted
Subsidiary in connection with that disposition;
(6) the incurrence by Charles River or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be incurred;
(7) the incurrence by Charles River or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among Charles River and/or any of its
Restricted Subsidiaries; provided that:
(a) if Charles River is the obligor on that Indebtedness, that
Indebtedness is expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than Charles
River or a Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either Charles
River or a Restricted Subsidiary thereof shall be deemed, in each case, to
constitute an incurrence of that Indebtedness by Charles River or that
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (7);
(8) the incurrence by Charles River or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or hedging;
(a) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this indenture to be outstanding; and
(b) exchange rate risk with respect to agreements or Indebtedness of
that Person payable denominated in a currency other than United States
dollars;
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provided that those agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or because of fees, indemnities and
compensation payable thereunder;
(9) the guarantee by Charles River or any of its Restricted Subsidiaries of
Indebtedness of Charles River or a Restricted Subsidiary of Charles River that
was permitted to be incurred by another provision of this covenant;
(10) obligations in respect of performance and surety bonds and completion
guarantees (including related letters of credit) provided by Charles River or
any Restricted Subsidiary in the ordinary course of business; and
(11) the incurrence by Charles River or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted value,
as applicable) outstanding after giving effect to that incurrence, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred under this clause (11), not to exceed $30.0 million.
For purposes of determining compliance with this covenant:
o in the event that an item of Indebtedness meets the criteria of more
than one of the categories of Permitted Indebtedness described in
clauses (1) through (11) above or is entitled to be incurred under the
first paragraph of this covenant, Charles River shall, in its sole
discretion, classify that item of Indebtedness in any manner that
complies with this covenant and that item of Indebtedness will be
treated as having been incurred under only one of those clauses or
under the first paragraph hereof
o Charles River may, at any time, change the classification of an item
of Indebtedness (or any portion thereof) to any other clause or to the
first paragraph hereof; provided that Charles River would be permitted
to incur that item of Indebtedness (or that portion thereof) under
that other clause or the first paragraph hereof, as the case may be,
at the time of reclassification
o accrual of interest, accretion or amortization of original issue
discount will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
All Indebtedness under the New Credit Facility and the Foreign Credit
Facilities outstanding on the date on which notes are first issued and
authenticated under the indenture shall be deemed to have been incurred on that
date in reliance on the first paragraph of the covenant described under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock." As a result, Charles River will be permitted to incur
significant additional secured indebtedness under clause (1) of the definition
of "Permitted Indebtedness." See "Risk Factors."
Liens
The indenture will provide that Charles River will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien, other than a Permitted Lien, that secures
obligations under any Pari Passu Indebtedness or subordinated Indebtedness of
Charles River on any asset or property now owned or hereafter acquired by
Charles River or any of its Restricted Subsidiaries, or any income or profits
therefrom or assign or convey any right to receive income therefrom, unless the
notes are equally and ratably secured with the obligations so secured until such
time as those obligations are no longer secured by a Lien; provided that, in any
case involving a Lien securing subordinated Indebtedness of Charles River, that
Lien is subordinated to the Lien securing the notes to the same extent that
subordinated Indebtedness is subordinated to the notes.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The indenture will provide that Charles River will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
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(1) (a) pay dividends or make any other distributions to Charles River or
any of its Restricted Subsidiaries (i) on its Capital Stock or (ii) with respect
to any other interest or participation in, or measured by, its profits; or
(b) pay any Indebtedness owed to Charles River or any of its
Restricted Subsidiaries;
(2) make loans or advances to Charles River or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Charles River or any of
its Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or because of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the New Credit Facility as in effect as of the date of the indenture,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof;
(3) the indenture and the notes;
(4) applicable law and any applicable rule, regulation or order;
(5) any agreement or instrument of a Person acquired by Charles River or
any of its Restricted Subsidiaries as in effect at the time of that acquisition
(except to the extent created in contemplation of that acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, that
Indebtedness was permitted by the terms of the indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in clause (5) above
on the property so acquired;
(8) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary under an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of that Subsidiary;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing that Permitted Refinancing Indebtedness
are, in the good faith judgment of Charles River's board of directors, not
materially less favorable, taken as a whole, to the holders of the notes than
those contained in the agreements governing the Indebtedness being refinanced;
(10) secured Indebtedness otherwise permitted to be incurred as specified in
the covenants described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock" and "--Liens" that limit the right of the debtor to dispose of
the assets securing that Indebtedness;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) other Indebtedness or Disqualified Stock of Restricted Subsidiaries
permitted to be incurred subsequent to the Issuance Date as specified in the
provisions of the covenant described under "--Incurrence of Indebtedness and
Issuance of Preferred Stock;"
(13) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business; and
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(14) restrictions created in connection with any Receivables Facility that,
in the good faith determination of the board of directors of Charles River, are
necessary or advisable to effect that Receivables Facility.
Merger, Consolidation, or Sale of Assets
The indenture will provide that Charles River may not consolidate or merge
with or into (whether or not Charles River is the surviving corporation), or
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions to, another
Person unless:
(1) Charles River is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than Charles River) or to
which that sale, assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than Charles River) or the Person to which that sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all the
obligations of Charles River under the registration rights agreement, the notes
and the indenture under a supplemental indenture in a form reasonably
satisfactory to the trustee;
(3) immediately after that transaction no Default or Event of Default
exists; and
(4) Charles River or the Person formed by or surviving any such
consolidation or merger (if other than Charles River), or to which that sale,
assignment, transfer, conveyance or other disposition shall have been made
(a) will, at the time of such transaction and after giving pro forma
effect thereto as if that transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness under the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or
(b) would, together with its Restricted Subsidiaries, have a higher
Fixed Charge Coverage Ratio immediately after that transaction (after
giving pro forma effect thereto as if that transaction had occurred at the
beginning of the applicable four-quarter period) than the Fixed Charge
Coverage Ratio of Charles River and its Restricted Subsidiaries
immediately prior to that transaction.
The foregoing clause (4) will not prohibit:
(a) a merger between Charles River and a Wholly Owned Subsidiary of
Parent created for the purpose of holding the Capital Stock of Charles
River;
(b) a merger between Charles River and a Wholly Owned Restricted
Subsidiary; or
(c) a merger between Charles River and an Affiliate incorporated
solely for the purpose of reincorporating Charles River in another State
of the United State
so long as, in each case, the amount of Indebtedness of Charles River and its
Restricted Subsidiaries is not increased thereby.
The indenture will provide that Charles River will not lease all or
substantially all of its assets to any Person.
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Transactions with Affiliates
The indenture will provide that Charles River will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of Charles River (each of the foregoing, an "Affiliate
Transaction"), unless:
(1) that Affiliate Transaction is on terms that are no less favorable to
Charles River or that Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Charles River or that Restricted
Subsidiary with an unrelated Person; and
(2) Charles River delivers to the trustee, with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $7.5 million, either:
(a) a resolution of the board of directors set forth in an Officers'
Certificate certifying that the relevant Affiliate Transaction complies
with clause (1) above and that the Affiliate Transaction has been approved
by a majority of the disinterested members of the board of directors; or
(b) an opinion as to the fairness to the holders of that Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:
(1) customary directors' fees, indemnification or similar arrangements or
any employment agreement or other compensation plan or arrangement entered into
by Charles River or any of its Restricted Subsidiaries in the ordinary course of
business (including ordinary course loans to employees not to exceed (a) $5.0
million outstanding in the aggregate at any time and (b) $2.0 million to any one
employee) and consistent with the past practice of Charles River or that
Restricted Subsidiary;
(2) transactions between or among Charles River and/or its Restricted
Subsidiaries;
(3) payments of customary fees by Charles River or any of its Restricted
Subsidiaries to the DLJ Merchant Banking funds and their Affiliates made for any
financial advisory, financing, underwriting or placement services or in respect
of other investment banking activities, including, without limitation, in
connection with acquisitions or divestitures which are approved by a majority of
the board of directors in good faith;
(4) any agreement as in effect on the date of the indenture or any
amendment thereto (so long as that amendment is not disadvantageous to the
holders of the notes in any material respect) or any transaction contemplated
thereby;
(5) payments and transactions in connection with the Transaction, including
any purchase price adjustment or any other payments made under the Transaction
Agreements or the financial advisory agreements with DLJ Securities Corporation
described under "Certain Relationships and Related Party Transactions," and the
Transaction Financing, the New Credit Facility (including commitment,
syndication and arrangement fees payable thereunder) and the Offering (including
underwriting discounts and commissions in connection therewith) and the
application of the proceeds thereof, and the payment of the fees and expenses
with respect thereto;
(6) Restricted Payments that are permitted by the provisions of the
indenture described under the caption "--Restricted Payments" and any Permitted
Investments; and
(7) sales of accounts receivable, or participations therein, in connection
with any Receivables Facility.
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Sale and Leaseback Transactions
The indenture will provide that Charles River will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that Charles River or any Restricted Subsidiary may enter
into a sale and leaseback transaction if:
(1) Charles River or that Restricted Subsidiary, as the case may be, could
have:
(a) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to that sale and leaseback transaction under the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(b) incurred a Lien to secure that Indebtedness under the covenant
described under the caption "--Liens;"
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by the board
of directors and set forth in an Officers' Certificate delivered to the trustee)
of the property that is the subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Charles River applies the proceeds of that transaction in
compliance with, the covenant described under the caption "Repurchase at the
Option of Holders--Asset Sales."
No Senior Subordinated Indebtedness
The indenture will provide that
o Charles River will not Incur any Indebtedness that is subordinated or
junior in right of payment to any Senior Indebtedness and senior in
right of payment to the notes, and
o no Guarantor will Incur any Indebtedness that is subordinate or
junior in right of payment to any Senior Indebtedness and senior in
right of payment to that Guarantor's guarantee (the "Guarantee").
Note Guarantees
The Indenture will provide that, if any Wholly-Owned Restricted Subsidiary
of Charles River that is a Domestic Subsidiary guarantees any Indebtedness under
the New Credit Facility, then such Restricted Subsidiary shall become a
Guarantor and execute a supplemental indenture and deliver an opinion of
counsel, in accordance with the terms of the Indenture.
Reports
The indenture will provide that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, Charles River will
furnish to the holders of notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if Charles River
were required to file those Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by Charles River's certified
independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if Charles River were required to file those reports, in each case,
within the time periods specified in the SEC's rules and regulations.
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In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the rules and
regulations of the SEC, Charles River will file a copy of all that information
and reports referred to in clauses (1) and (2) above with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make that
information available to securities analysts and prospective investors upon
request.
In addition, Charles River has agreed that, for so long as any notes remain
outstanding, it will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered under Rule 144A(d)(4) of the Securities Act.
Events of Default and Remedies
The indenture will provide that each of the following constitutes an Event
of Default:
(1) default for 30 days in the payment when due of interest on, or
liquidated damages with respect to, the notes (whether or not prohibited by the
subordination provisions of the indenture);
(2) default in payment when due of the principal of or premium, if any, on
the notes (whether or not prohibited by the subordination provisions of the
indenture);
(3) failure by Charles River or any of its Restricted Subsidiaries for 30
days after receipt of notice from the trustee or holders of at least 25% in
principal amount of the notes then outstanding to comply with the provisions
described under the captions "Repurchase at the Option of Holders--Change of
Control," "--Asset Sales," "Certain Covenants--Restricted Payments,"
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger,
Consolidation or Sale of Assets;"
(4) failure by Charles River for 60 days after notice from the trustee or
the holders of at least 25% in principal amount of the notes then outstanding to
comply with any of its other agreements in the indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by Charles River or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by Charles River or any of its Restricted
Subsidiaries), whether that Indebtedness or guarantee now exists, or is created
after the date of the indenture, which default:
(a) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period provided in
that Indebtedness) (a "Payment Default"); or
(b) results in the acceleration of that Indebtedness prior to its
stated final maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more;
(6) failure by Charles River or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $10.0 million (net of any amounts with
respect to which a reputable and creditworthy insurance company has acknowledged
liability in writing), which judgments are not paid, discharged or stayed for a
period of 60 days;
(7) except as permitted by the indenture, any Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting of
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Guarantee; and
(8) some events of bankruptcy or insolvency with respect to Charles River
or any of its Restricted Subsidiaries that is a Significant Subsidiary.
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If any Event of Default (other than an Event of Default specified in clause
(8) above with respect to events of bankruptcy or insolvency with respect to
Charles River or any Restricted Subsidiary that is a Significant Subsidiary)
occurs and is continuing, the holders of at least 25% in principal amount of the
then outstanding notes may direct the trustee to declare all the notes to be due
and payable immediately. However, so long as any Indebtedness permitted to be
incurred under the New Credit Facility shall be outstanding, that acceleration
shall not be effective until the earlier of:
(1) an acceleration of any such Indebtedness under the New Credit
Facility; or
(2) five business days after receipt by Charles River and the
administrative agent under the New Credit Facility of written notice of
that acceleration.
Except as stated in the prior sentence, upon any such declaration, the notes
shall become due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default specified
in clause (8) above with respect to events of bankruptcy or insolvency with
respect to Charles River or any Restricted Subsidiary that is a Significant
Subsidiary, all outstanding notes will become due and payable without further
action or notice. Holders of the notes may not enforce the indenture or the
notes except as provided in the indenture.
The holders of a majority in aggregate principal amount of the then
outstanding notes by written notice to the trustee may on behalf of all of the
holders rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium or liquidated damages, if
any, that has become due solely because of the acceleration) have been cured or
waived, provided that, in the event of a declaration of acceleration of the
notes because an Event of Default has occurred and is continuing as a result of
the acceleration of any Indebtedness described in clause (5) above, the
declaration of acceleration of the notes shall be automatically annulled if the
holders of any Indebtedness described in that clause (5) have rescinded the
declaration of acceleration in respect of that Indebtedness within 30 days of
the date of that declaration and if:
(1) the annulment of the acceleration of the notes would not conflict
with any judgment or decree of a court of competent jurisdiction; and
(2) all existing Events of Default, except non-payment of principal
or interest on the notes that became due solely because of the
acceleration of the notes, have been cured or waived.
Subject to some limitations, holders of a majority in principal amount of
the then outstanding notes may direct the trustee in its exercise of any trust
or power. The trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
Charles River is required to deliver to the trustee annually a statement
regarding compliance with the indenture, and Charles River is required upon
becoming aware of any Default or Event of Default to deliver to the trustee a
statement specifying that Default or Event of Default.
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No Personal Liability of Member, Directors, Officers, Employees and Stockholders
No member, director, officer, employee, incorporator or stockholder of
Charles River, as such, shall have any liability for any obligations of Charles
River under the notes or the indenture or for any claim based on, in respect of,
or because of, those obligations or their creation. Each holder of notes by
accepting a note waives and releases all that liability. The waiver and release
are part of the consideration for issuance of the notes. That waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the SEC that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
Charles River may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and the indenture
("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and liquidated
damages, if any, on those notes when those payments are due from the trust
referred to below;
(2) Charles River's 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 payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and Charles River's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Charles River may, at its option and at any time, elect to
have its obligations released with respect to some covenants that are described
in the indenture released ("Covenant Defeasance") and thereafter any omission
to comply with those obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs,
some events (not including non-payment with respect to the notes, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with
respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) Charles River must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in those amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and liquidated damages, if any, on the outstanding notes on the stated
maturity or on the applicable redemption date, as the case may be, and Charles
River must specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, Charles River shall have delivered to
the trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that:
(a) Charles River 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 that opinion of
counsel shall confirm that, subject to customary assumptions and
exclusions, the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of that
Legal Defeasance and will be subject to federal income
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tax on the same amounts, in the same manner and at the same times as would
have been the case if that Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Charles River shall have delivered
to the trustee an opinion of counsel in the United States reasonably acceptable
to the trustee confirming that, subject to customary assumptions and exclusions,
the holders of the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of that 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 that Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of that deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to that deposit) or, insofar as Events
of Default from bankruptcy or insolvency events are concerned, at any time in
the period ending on the 123rd day after the date of deposit;
(5) that Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than the indenture) to which Charles River or any of its
Subsidiaries is a party or by which Charles River or any of its Subsidiaries is
bound;
(6) Charles River must have delivered to the trustee an opinion of counsel
to the effect that, subject to customary assumptions and exclusions, after the
123rd day following the deposit, the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or any analogous New
York State law provision or any other applicable federal or New York bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) Charles River must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Charles River with the intent of
preferring the holders of notes over the other creditors of Charles River with
the intent of defeating, hindering, delaying or defrauding creditors of Charles
River or others; and
(8) Charles River must deliver to the trustee an Officers' Certificate and
an opinion of counsel (which opinion may be subject to customary assumptions and
exclusions), each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and Charles River may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. Charles River is not required to transfer or exchange any note
selected for redemption. Also, Charles River is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed. The registered holder of a note will be treated as the owner of it for
all purposes.
Amendment, Supplement and Waiver
Except as provided below, the indenture and the notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the notes then outstanding, and any existing default or compliance
with any provision of the indenture or the notes may be waived with the consent
of the holders of a majority in principal amount of the then outstanding notes.
Consents obtained in connection with a purchase of, or tender offer or exchange
offer for, notes shall be included for those purposes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose holders must consent
to an amendment, supplement or waiver;
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(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than the provisions described under the caption "--Repurchase at the
Option of Holders");
(3) reduce the rate of or extend the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or liquidated damages, if any, on the
notes (except a rescission of acceleration of the notes by the holders of
at least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from that acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults;
(7) waive a redemption payment with respect to any note (other than
the provisions described under the caption "--Repurchase at the Option of
Holders");
(8) release any Guarantor from its obligations under its Guarantee or
the indenture, except in accordance with the terms of the indenture; or
(9) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, any
(1) amendment to or waiver of the covenant described under the
caption "--Repurchase at the Option of Holders--Change of Control;" and
(2) amendment to Article 10 of the indenture (which relates to
subordination) will require the consent of the holders of at least
two-thirds in aggregate principal amount of the notes then outstanding if
that amendment would materially adversely affect the rights of holders of
notes.
Notwithstanding the foregoing, without the consent of any holder of notes,
Charles River, any Guarantor and the trustee may amend or supplement the
indenture, any Guarantee or the notes:
(1) to cure any ambiguity, defect or inconsistency,
(2) to provide for uncertificated notes in addition to or in place of
certificated notes,
(3) to provide for the assumption of Charles River's obligations to
holders of notes in the case of a merger or consolidation or sale of all
or substantially all of the assets of Charles River or to provide for the
assumption of any Guarantor's obligations under its Guarantee in the case
of a merger or consolidation of the Guarantor,
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not materially adversely
affect the legal rights under the indenture of any such holder,
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act
or
(6) to provide for guarantees of the notes.
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Concerning the Trustee
The indenture contains some limitations on the rights of the trustee,
should it become a creditor of Charles River, to obtain payment of claims in
particular cases, or to realize on particular property received in respect of
any such claim as security or otherwise. The trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate that conflict within 90 days, apply to the SEC for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to some
exceptions. The indenture provides that in case an Event of Default shall occur
(which shall not be cured), the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless that holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Charles River at 251
Ballardvale Street, Wilmington, MA 01887, Attention: Secretary.
Book-Entry, Delivery and Form
The certificates representing the new notes will be issued in fully
registered form, without coupons. Except as described below, the new notes will
be deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), and registered in the name of Cede & Co. as DTC's nominee, in the
form of a global note (the "global registered note").
The Global Registered Note. Charles River expects that under procedures
established by DTC (a) upon deposit of the global registered note, DTC or its
custodian will credit on its internal system interests in the global registered
note to the accounts of persons who have accounts with DTC ("Participants") and
(b) ownership of the global registered note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC or
its nominee, with respect to interests of Participants, and the records of
Participants with respect to interests of persons other than Participants.
Ownership of beneficial interests in the global registered note will be limited
to 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 the global registered note for all purposes under the
indenture. No beneficial owner of an interest in the global registered note will
be able to transfer such interest except in accordance with DTC's procedures, in
addition to those provided for under the indenture with respect to the new
notes.
Payments of the principal of, or premium and interest on, the global
registered note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of Charles River, the trustee or any paying agent
under the indenture will 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 registered note 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 the
principal of, or premium and interest on, the global registered note, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global
registered note 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
registered note held through such Participants will be governed by standing
instructions and customary practice as is
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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 accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated 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
the global registered note in accordance with the normal procedures of DTC and
with the procedures set forth in the indenture.
DTC has advised us that DTC 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 at DTC interests in the global registered note 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.
However, if there is an Event of Default under the indenture, DTC will exchange
the global registered note for certificated new notes, which it will distribute
to its Participants.
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 of the Uniform
Commercial Code and a "clearing agency" registered under the provisions of
Section 17A of the Exchange Act. 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 and clearing corporations and 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 ("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the global registered notes among Participants, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Charles River nor the trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. Interests in the global registered note will be
exchangeable or transferable, as the case may be, for certificated notes if
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the global registered note and we fail to appoint a
successor depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act,
(2) We, at our option, notify the trustee in writing that we elect to
cause the issuance of the new notes in certificated form or
(3) there shall have occurred and be continuing to occur a Default or
an Event of Default with respect to the new notes.
In addition, beneficial interests in the global registered note may be
exchanged for certificated notes upon request but only upon at least 20 days'
prior written notice given to the trustee by or on behalf of DTC in accordance
with customary procedures. In all cases, certificated notes delivered in
exchange for the global registered note or beneficial interest therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the depositary, in accordance with its customary procedures.
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Same Day Settlement And Payment
The indenture will require that payments in respect of the new notes
represented by the global registered note, including principal, premium, if any,
interest and Liquidated Damages, if any, be made by wire transfer of immediately
available next day funds to the accounts specified by the holder. With respect
to certificated notes, Charles River will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such holder's
registered address. Charles River expects that secondary trading in certificated
notes will also be settled in immediately available funds.
Certain Definitions
Set forth below are some defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all those terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of
Charles River to which Charles River or any of its Restricted Subsidiaries sells
any of its accounts receivable under a Receivables Facility.
"Acquired Indebtedness" means, with respect to any specified Person,
(1) Indebtedness of any other Person existing at the time that other
Person is merged with or into or became a Subsidiary of that specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, that other Person merging with or into or
becoming a Subsidiary of that specified Person; and
(2) Indebtedness secured by a Lien encumbering an asset acquired by
that specified Person at the time that asset is acquired by that specified
Person.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, that specified Person. For purposes of this definition, "control,"
when used with respect to any Person, means the power to direct the management
and policies of that Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means:
(1) the sale, lease, conveyance, disposition or other transfer (a
"disposition") of any properties, assets or rights (including, without
limitation, by way of a sale and leaseback); provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of Charles River and its Subsidiaries taken as a whole will be
governed by the provisions of the indenture described under the caption
"--Change of Control" and/or the provisions described under the caption
"--Merger, Consolidation or Sale of Assets" and not by the provisions of
the Asset Sale covenant; and
(2) the issuance, sale or transfer by Charles River or any of its
Restricted Subsidiaries of Equity Interests of any of Charles River's
Restricted Subsidiaries,
in the case of either clause (1) or (2), whether in a single transaction
or a series of related transactions,
(a) that have a fair market value in excess of $5.0 million; or
(b) for net proceeds in excess of $5.0 million.
Notwithstanding the foregoing, the following items shall not be deemed to
be Asset Sales:
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(1) dispositions in the ordinary course of business;
(2) a disposition of assets by Charles River to a Restricted
Subsidiary or by a Restricted Subsidiary to Charles River or to another
Restricted Subsidiary;
(3) a disposition of Equity Interests by a Restricted Subsidiary to
Charles River or to another Restricted Subsidiary;
(4) the sale and leaseback of any assets within 90 days of the
acquisition thereof;
(5) foreclosures on assets;
(6) any exchange of like property under Section 1031 of the Internal
Revenue Code of 1986, as amended, for use in a Permitted Business;
(7) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary;
(8) a Permitted Investment or a Restricted Payment that is permitted
by the covenant described under the caption "--Restricted Payments"; and
(9) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in that transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in that sale and leaseback transaction, including any
period for which that lease has been extended or may, at the option of the
lessor, be extended.
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by that Person which have a useful life or more than one
year so long as:
(1) the purchase or construction price for that property or assets is
included in "addition to property, plant or equipment" in accordance with
GAAP;
(2) the acquisition or construction of that property or assets is not
part of any acquisition of a Person or line of business; and
(3) that Indebtedness is incurred within 90 days of the acquisition
or completion of construction of that property or assets.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
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(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means;
(1) Government Securities;
(2) any certificate of deposit maturing not more than 365 days after
the date of acquisition issued by, or demand deposit or time deposit of,
an Eligible Institution or any lender under the New Credit Facility;
(3) commercial paper maturing not more than 365 days after the date
of acquisition of an issuer (other than an Affiliate of Charles River)
with a rating, at the time as of which any investment therein is made, of
"A-3" (or higher) according to S&P or "P-2" (or higher) according to
Moody's or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings
of investments;
(4) any bankers acceptances of money market deposit accounts issued
by an Eligible Institution;
(5) any fund investing exclusively in investments of the types
described in clauses (1) through (4) above; and
(6) in the case of any Subsidiary organized or having its principal
place of business outside the United States, investments denominated in
the currency of the jurisdiction in which that Subsidiary is organized or
has its principal place of business which are similar to the items
specified in clauses (1) through (5) above, including without limitation
any deposit with a bank that is a lender to any Restricted Subsidiary.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of that Person and its Restricted Subsidiaries for
that period plus, to the extent deducted in computing Consolidated Net Income,
(1) provision for taxes based on income or profits of that Person and
its Restricted Subsidiaries for that period;
(2) Fixed Charges of that Person for that period;
(3) depreciation, amortization (including amortization of goodwill
and other intangibles) and all other non-cash charges, but excluding any
other non-cash charge to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period, of that Person and
its Restricted Subsidiaries for that period;
(4) net periodic post-retirement benefits;
(5) other income or expense net as set forth on the face of that
Person's statement of operations;
(6) expenses and charges of Charles River related to the
Transactions, including any purchase price adjustment or any other
payments made under or as contemplated in the Transaction Agreements or
the financial advisory agreements with DLJ Securities Corporation
described under "Certain Relationships and Related Party Transactions,"
and Transaction Financing, the New Credit Facility and the application of
the proceeds thereof; and
(7) any non-capitalized transaction costs incurred in connection with
actual, proposed or abandoned financings, acquisitions or divestitures,
including, but not limited to, financing and refinancing fees and costs
incurred in connection with the Transactions and Transaction Financing,
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in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent and
in the same proportion that Net Income of that Restricted Subsidiary was
included in calculating the Consolidated Net Income of that Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication,
(1) the interest expense of that Person and its Restricted
Subsidiaries for that period, on a consolidated basis, determined in
accordance with GAAP, including amortization of original issue discount,
non-cash interest payments, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to Attributable Indebtedness, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, under Hedging Obligations; provided
that in no event shall any amortization of deferred financing costs be
included in Consolidated Interest Expense; and
(2) the consolidated capitalized interest of that Person and its
Restricted Subsidiaries for that period, whether paid or accrued;
provided, however, that Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense.
"Consolidated Net Debt" means, with respect to any Person as of any date of
determination, the aggregate principal amount of Indebtedness for borrowed money
of such Person and its Restricted Subsidiaries as of such date, less the
aggregate amount of cash and Cash Equivalents of such Person and its Restricted
Subsidiaries, in each case determined on a consolidated basis in accordance with
GAAP.
Notwithstanding the foregoing, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent and in the same proportion that
the net income of that Restricted Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of that Person and its Restricted Subsidiaries
for that period, on a consolidated basis, determined in accordance with GAAP;
provided that
(1) the Net Income (or loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted
Subsidiary thereof;
(2) the Net Income (or loss) of any Restricted Subsidiary other than
a Subsidiary organized or having its principal place of business outside
the United States shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income (or loss) is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary;
(3) the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of that acquisition
shall be excluded; and
(4) the cumulative effect of a change in accounting principles shall
be excluded.
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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value of non-cash
consideration received by Charles River or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration in an Officers' Certificate, setting forth the basis of that
valuation, executed by the principal executive officer and the principal
financial officer of Charles River, less the amount of cash or Cash Equivalents
received in connection with a sale of that Designated Noncash Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event (other than any event solely
within the control of the issuer thereof), matures or is mandatorily redeemable,
under a sinking fund obligation or otherwise, is exchangeable for Indebtedness
(except to the extent exchangeable at the option of that Person subject to the
terms of any debt instrument to which that Person is a party) or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the notes mature; provided that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
Charles River to repurchase that Capital Stock upon the occurrence of a Change
of Control or an Asset Sale shall not constitute Disqualified Stock if the terms
of that Capital Stock provide that Charles River may not repurchase or redeem
any such Capital Stock under those provisions unless that repurchase or
redemption complies with the covenant described under the caption "--Certain
Covenants--Restricted Payments," and provided further that, if that Capital
Stock is issued to any plan for the benefit of employees of Charles River or its
Subsidiaries or by any such plan to those employees, that Capital Stock shall
not constitute Disqualified Stock solely because it may be required to be
repurchased by Charles River in order to satisfy applicable statutory or
regulatory obligations.
"DLJ Merchant Banking Funds" means DLJ Merchant Banking Partners II, L.P.
and its Affiliates.
"Domestic Subsidiary" means a Subsidiary that is organized under the laws
of the United States or any State, district or territory thereof.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's
Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Charles River and its
Restricted Subsidiaries (other than Indebtedness under the New Credit Facility)
in existence on the date of the indenture, until those amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of,
(1) the Consolidated Interest Expense of that Person for that period;
and
(2) all dividend payments on any series of preferred stock of that
Person (other than dividends payable solely in Equity Interests that are
not Disqualified Stock),
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of that Person for that period
(exclusive of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior to the
Calculation Date (as defined)) to the
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Fixed Charges of that Person for that period (exclusive of amounts attributable
to discontinued operations, as determined in accordance with GAAP, or operations
and businesses disposed of prior to the Calculation Date).
In the event that the referent Person or any of its Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to that incurrence,
assumption, guarantee or redemption of Indebtedness, or that issuance or
redemption of preferred stock and the use of the proceeds therefrom, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of making the computation referred to above, the
Recapitalization and acquisitions that have been made by Charles River or any of
its Subsidiaries, including all mergers or consolidations and any related
financing transactions, during the four-quarter reference period or subsequent
to that reference period and on or prior to the Calculation Date shall be deemed
to have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for that reference period shall be calculated to include
the Consolidated Cash Flow of the acquired entities on a pro forma basis after
giving effect to cost savings reasonably expected to be realized in connection
with that acquisition, as determined in good faith by an officer of Charles
River (regardless of whether those cost savings could then be reflected in pro
forma financial statements under GAAP, Regulation S-X promulgated by the SEC or
any other regulation or policy of the SEC) and without giving effect to clause
(3) of the proviso set forth in the definition of Consolidated Net Income.
"Foreign Credit Facilities" means any Indebtedness of a Restricted
Subsidiary organized or having its principal place of business outside the
United States. Indebtedness under the Foreign Credit Facilities outstanding on
the date on which the notes are first issued and authenticated under the
indenture shall be deemed to have been incurred on that date in reliance on the
first paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Subsidiary that executes a Note Guarantee in
accordance with the provisions of the indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
that Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect that Person against fluctuations in interest
rates.
"Holdings" means Charles River Laboratories, Inc.
"Indebtedness" means, with respect to any Person, any indebtedness of that
Person in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense, trade payable or customer contract advances, if and to the
extent any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of that
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a
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Lien on any asset of that Person (whether or not that Indebtedness is assumed by
that Person) and, to the extent not otherwise included, the guarantee by that
Person of any Indebtedness of any other Person, provided that Indebtedness shall
not include the pledge by Charles River of the Capital Stock of an Unrestricted
Subsidiary of Charles River to secure Non-Recourse Debt of that Unrestricted
Subsidiary.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest; and
(2) the principal amount thereof (together with any interest thereon
that is more than 30 days past due), in the case of any other Indebtedness
provided that the principal amount of any Indebtedness that is denominated
in any currency other than United States dollars shall be the amount
thereof, as determined under the foregoing provision, converted into
United States dollars at the Spot Rate in effect on the date that
Indebtedness was incurred or, if that indebtedness was incurred prior to
the date of the indenture, the Spot Rate in effect on the date of the
indenture.
"Investments" means, with respect to any Person, all investments by that
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP, provided that an investment by Charles River for consideration consisting
of common equity securities of Charles River shall not be deemed to be an
Investment other than for purposes of clause (3) of the definition of "Qualified
Proceeds."
If Charles River or any Restricted Subsidiary of Charles River sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of Charles River such that, after giving effect to any such sale or
disposition, that Person is no longer a Subsidiary of Charles River, Charles
River shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of that
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described under the caption
"--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of that asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Management Loans" means one or more loans by Charles River or Parent to
officers and/or directors of Charles River and any of its Restricted
Subsidiaries to finance the purchase by such officers and directors of common
stock of Parent or Charles River or membership interests in CRL Acquisition LLC;
provided that the aggregate principal amount of all such Management Loans
outstanding at any time shall not exceed $1.5 million.
"Net Income" means, with respect to any Person, the net income (loss) of
that Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes
on that gain (or loss), realized in connection with:
(a) any Asset Sale, including, without limitation, dispositions
under sale and leaseback transactions; or
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(b) the extinguishment of any Indebtedness of that Person or any
of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain (or loss), together with
any related provision for taxes on that extraordinary or nonrecurring gain
(or loss).
"Net Proceeds" means the aggregate cash proceeds received by Charles River
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of, without duplication,
(1) the direct costs relating to that Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales
commissions, recording fees, title transfer fees and appraiser fees and
cost of preparation of assets for sale, and any relocation expenses
incurred as a result thereof;
(2) taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements);
(3) amounts required to be applied to the repayment of Indebtedness
(other than revolving credit Indebtedness incurred under the New Credit
Facility) secured by a Lien on the asset or assets that were the subject
of that Asset Sale; and
(4) any reserve established in accordance with GAAP or any amount
placed in escrow, in either case for adjustment in respect of the sale
price of such asset or assets until such time as that reserve is reversed
or that escrow arrangement is terminated, in which case Net Proceeds shall
include only the amount of the reserve so reversed or the amount returned
to Charles River or its Restricted Subsidiaries from that escrow
arrangement, as the case may be.
"New Credit Facility" means that Credit Agreement, dated as of September
29, 1999 among Charles River, some subsidiaries of Charles River from time to
time party thereto as guarantors, various financial institutions party thereto,
and DLJ Capital Funding, Inc., as syndication agent and administrative agent,
including any related notes, guarantees, letters of credit collateral documents,
rate protection or hedging arrangement, instruments and agreements executed in
connection therewith, and, in each case, as amended, modified, renewed,
refunded, replaced or refinanced from time to time, including any agreement:
(1) extending or shortening the maturity of any Indebtedness incurred
thereunder or contemplated thereby;
(2) adding or deleting borrowers or guarantors thereunder;
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder, provided that on the date that
Indebtedness is incurred it would not be prohibited by clause (1) of the
second paragraph of the covenant described under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; or
(4) otherwise altering the terms and conditions thereof.
Indebtedness under the New Credit Facility outstanding on the date on
which notes are first issued and authenticated under the indenture shall be
deemed to have been incurred on that date in reliance on the first paragraph of
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
"Non-Recourse Debt" means Indebtedness,
(1) no default with respect to, which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any
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holder of any other Indebtedness of Charles River or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity;
and
(2) as to which the lenders have been notified in writing that they
will not have any recourse to the stock (other than the stock of an
Unrestricted Subsidiary pledged by Charles River to secure debt of that
Unrestricted Subsidiary) or assets of Charles River or any of its
Restricted Subsidiaries;
provided that in no event shall Indebtedness of any Unrestricted Subsidiary fail
to be Non-Recourse Debt solely as a result of any default provisions contained
in a guarantee thereof by Charles River or any of its Restricted Subsidiaries if
Charles River or that Restricted Subsidiary was otherwise permitted to incur
that guarantee under the indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the units by Charles River.
"Parent" means Charles River Laboratories Holdings Inc., the corporate
parent of Charles River, or its successors.
"Pari Passu Indebtedness" means Indebtedness of Charles River that ranks
pari passu in right of payment to the notes.
"Permitted Business" means any person engaged, directly or indirectly, in
the animal research or biomedical products and services business or any business
reasonably related, incidental or ancillary thereto.
"Permitted Investments" means:
(1) any Investment in Charles River or in a Restricted Subsidiary of
Charles River;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by Charles River or any Restricted Subsidiary of
Charles River in a Person, if as a result of that Investment,
(a) that Person becomes a Restricted Subsidiary of Charles
River; or
(b) that Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, Charles River or a Wholly Owned Restricted
Subsidiary of Charles River;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made under and in compliance
with the covenant described under the caption "--Repurchase at the Option
of Holders--Asset Sales";
(5) any Investment acquired solely in exchange for Equity Interests
(other than Disqualified Stock) of Charles River;
(6) any Investment in a Person engaged in a Permitted Business (other
than an Investment in an Unrestricted Subsidiary) having an aggregate fair
market value, taken together with all other Investments made under this
clause (6) that are at that time outstanding, not to exceed 15% of Total
Assets at the time of that Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
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(7) Investments relating to any special purpose Wholly Owned
Subsidiary of Charles River organized in connection with a Receivables
Facility that, in the good faith determination of the board of directors
of Charles River, are necessary or advisable to effect that Receivables
Facility;
(8) the Management Loans or Investments in Parent to fund Management
Loans; and
(9) Hedging Obligations permitted to be incurred under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Permitted Liens" means:
(1) Liens on property of a Person existing at the time that Person is
merged into or consolidated with Charles River or any Restricted
Subsidiary, provided that those Liens were not incurred in contemplation
of that merger or consolidation and do not secure any property or assets
of Charles River or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to that merger or consolidation;
(2) Liens existing on the date of the indenture;
(3) Liens securing Indebtedness consisting of Capitalized Lease
Obligations, purchase money Indebtedness, mortgage financings, industrial
revenue bonds or other monetary obligations, 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 Charles
River or its Restricted Subsidiaries, or repairs, additions or
improvements to those assets, provided that:
(a) those Liens secure Indebtedness in an amount not in excess
of the original purchase price or the original cost of any such
assets or repair, additional or improvement thereto (plus an amount
equal to the reasonable fees and expenses in connection with the
incurrence of that Indebtedness);
(b) those Liens do not extend to any other assets of Charles
River or its Restricted Subsidiaries (and, in the case of repair,
addition or improvements to any such assets, that Lien extends only
to the assets (and improvements thereto or thereon) repaired, added
to or improved);
(c) the Incurrence of that Indebtedness is permitted by
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(d) those Liens attach within 365 days of that purchase,
construction, installation, repair, addition or improvement;
(4) Liens to secure any refinancings, renewals, extensions,
modification or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as that Lien does not extend to
any other property (other than improvements thereto);
(5) Liens securing letters of credit entered into in the ordinary
course of business and consistent with past business practice;
(6) Liens on and pledges of the capital stock of any Unrestricted
Subsidiary securing Non-Recourse Debt of that Unrestricted Subsidiary;
(7) Liens securing (a) Indebtedness (including all Obligations) under
the New Credit Facility or any Foreign Credit Facility (b) Hedging
Obligations payable to a lender under the New Credit Facility or an
Affiliate thereof or to a Person that was a lender of Affiliate thereof at
the time the contract was entered into to
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the extent such Hedging Obligations are secured by Liens on assets also
securing Indebtedness (including all Obligations) under the New Credit
Facility; and
(8) other Liens securing Indebtedness that is permitted by the terms
of the indenture to be outstanding having an aggregate principal amount at
any one time outstanding not to exceed $50.0 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of Charles
River or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of Charles River
or any of its Restricted Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) of that
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus premium, if any, and accrued
interest on the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith);
(2) that Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
notes, that Permitted Refinancing Indebtedness is subordinated in right of
payment to, the notes on terms at least as favorable, taken as a whole, to
the holders of notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means the DLJ Merchant Banking Funds.
"Public Equity Offering" means
o any issuance of common stock by Charles River, other than to Parent
and other than Disqualified Stock
o any issuance of common stock or preferred stock by Parent, other than
Disqualified Stock
that is registered under the Securities Act, other than issuances registered on
Form S-8 and issuances registered on Form S-4, excluding issuances of common
stock under employee benefit plans of Parent or Charles River or otherwise as
compensation to employees of Parent or Charles River.
"Qualified Proceeds" means any of the following or any combination of the
following:
(1) cash;
(2) Cash Equivalents;
(3) assets (other than Investments) that are used or useful in a
Permitted Business; and
(4) the Capital Stock of any Person engaged in a Permitted Business
if, in connection with the receipt by Charles River or any Restricted
Subsidiary of Charles River of that Capital Stock,
(a) that Person becomes a Restricted Subsidiary of Charles River
or any Restricted Subsidiary of Charles River; or
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(b) that Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, Charles River or any Restricted Subsidiary of
Charles River.
"Ratio of Consolidated Net Debt to Consolidated Cash Flow" means, with
respect to any Person as of any date of determination, the ratio of (x) the
Consolidated Net Debt of such Person as of such date of determination (exclusive
of amounts attributable to discontinued operations, as determined in accordance
with GAAP, or operations and businesses disposed of prior to the date of
determination) to the (y) the Consolidated Cash Flow of such Person for the four
full fiscal quarters ending on or immediately preceding such date of
determination (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the date of determination).
In the event that the referent Person or any of its Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Ratio of Consolidated Net Debt to Consolidated Cash
Flow is being calculated but prior to the date of determination, then the Ratio
of Consolidated Net Debt to Consolidated Cash Flow shall be calculated giving
pro forma effect to that incurrence, assumption, guarantee or redemption of
Indebtedness, or that issuance or redemption of preferred stock and the use of
the proceeds therefrom, as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above, the
Recapitalization and acquisitions that have been made by Charles River or any of
its Subsidiaries, including all mergers or consolidations and any related
financing transactions, during the four-quarter reference period shall be deemed
to have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for that reference period shall be calculated to include
the Consolidated Cash Flow of the acquired entities on a pro forma basis after
giving effect to cost savings reasonably expected to be realized in connection
with that acquisition, as determined in good faith by an officer of Charles
River (regardless of whether those cost savings could then be reflected in pro
forma financial statements under GAAP, Regulation S-X promulgated by the SEC or
any other regulation or policy of the SEC) and without giving effect to clause
(3) of the proviso set forth in the definition of Consolidated Net Income.
"Recapitalization" means the recapitalization of Charles River by the
Principals and their Related Parties under the terms of the Recapitalization
Agreement.
"Recapitalization Agreement" means that Recapitalization Agreement dated as
of July 25, 1999 among Charles River, B&L, Parent, Charles River Laboratories,
Inc., Charles River SPAFAS, Inc., Bausch & Lomb International, Inc., Wilmington
Partners, L.P., Bausch & Lomb Canada, Inc., CRL Acquisition LLC and DLJ Merchant
Banking Partners II, L.P.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, under which Charles River or any of its Restricted
Subsidiaries sells its accounts receivable to an Accounts Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Related Party" means, with respect to any Principal,
(1) any controlling stockholder or partner of that Principal on the
date of the indenture; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding (directly or through one or more Subsidiaries) a 51% or more
controlling interest of which consist of the Principals and/or such other
Persons referred to in the immediately preceding clauses (1) or (2).
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"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Sierra Acquisition" means the acquisition of SBI Holdings, Inc. by
Charles River under the terms of the Sierra Acquisition Agreement.
"Sierra Acquisition Agreement" means Stock Purchase Agreement among
Charles River Laboratories, Inc. and SBI Holdings, Inc. and its stockholders
dated September 3, 1999.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as that Regulation is in effect on the date hereof.
"Spot Rate" means, for any currency, the spot rate at which that currency
is offered for sale against United States dollars as determined by reference to
the New York foreign exchange selling rates, as published in The Wall Street
Journal on that date of determination for the immediately preceding business
day or, if that rate is not available, as determined in any publicly available
source of similar market data.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which that payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any that interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person,
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership or limited liability company,
(a) the sole general partner or the managing general partner or
managing member of which is that Person or a Subsidiary of that
Person; or
(b) the only general partners or managing members of which are
that Person or of one or more Subsidiaries of that Person (or any
combination thereof).
"Tax Sharing Agreement" means any tax sharing agreement or arrangement
between Charles River and Parent, as the same may be amended from time to time;
provided that in no event shall the amount permitted to be paid under all such
agreements and/or arrangements exceed the amount Charles River would be required
to pay for income taxes were it to file a consolidated tax return for itself and
its consolidated Restricted Subsidiaries as if it were a corporation that was a
parent of a consolidated group.
"Total Assets" means the total consolidated assets of Charles River and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of Charles River.
"Transactions" means the Recapitalization and the Sierra Acquisition.
"Transaction Agreements" means the Recapitalization Agreement and the
Sierra Acquisition Agreement.
"Transaction Financing" means;
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(1) the issuance and sale by Parent of senior discount debentures
with warrants and senior subordinated discount note for consideration
(2) the issuance and sale by Charles River of the notes; and
(3) the execution and delivery by Charles River and some of its
subsidiaries of the New Credit Facility and the borrowing of loans, if
any, and issuance of letters of credit thereunder to fund the Transactions
and any related transactions, including without limitation, the payment of
fees and expenses and the refinancing of outstanding indebtedness of
Charles River and its subsidiaries;
the proceeds of each of which were used to fund the purchase price for the
Recapitalization and related fees and expenses.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary under a board resolution, but
only to the extent that Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Charles River or any Restricted Subsidiary of Charles
River unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Charles River or that Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of Charles River;
(3) is a Person with respect to which neither Charles River nor any
of its Restricted Subsidiaries has any direct or indirect obligation,
(a) to subscribe for additional Equity Interests (other than
Investments described in clause (7) of the definition of Permitted
Investments); or
(b) to maintain or preserve that Person's financial condition or
to cause that Person to achieve any specified levels, of operating
results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Charles River or any of its
Restricted Subsidiaries.
Any such designation by the board of directors shall be evidenced to the
trustee by filing with the trustee a certified copy of the board resolution
giving effect to that designation and an Officers' Certificate certifying that
designation complied with the foregoing conditions and was permitted by the
covenant described under the caption entitled "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as a Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of that Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Charles River as of that date (and, if that Indebtedness is not
permitted to be incurred as of that date under the covenant described under the
caption entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," Charles River shall be in default of that covenant).
The board of directors of Charles River may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that the
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Charles River of any outstanding Indebtedness of that Unrestricted
Subsidiary and that designation shall only be permitted if:
(1) that Indebtedness is permitted under the covenant described under
the caption entitled "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(2) no Default or Event of Default would be in existence following
that designation.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying,
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth)
that will elapse between that date and the making of that payment; by
(2) the then outstanding principal amount of that Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of that Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by that Person or by one or more Wholly Owned Restricted Subsidiaries
of that Person or by that Person and one or more Wholly Owned Restricted
Subsidiaries of that Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of that Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by that
Person or by one or more Wholly Owned Subsidiaries of that Person.
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THE EXCHANGE OFFER
Under a registration rights agreement between Charles River and the
initial purchaser, we agreed
(1) to file a registration statement on or prior to 90 days after the
closing of the offering of the old notes with respect to an offer to
exchange the old notes for new debt securities of Charles River registered
under the Securities Act, with terms identical in all material respects to
those of the old notes and
(2) to use our reasonable best efforts to cause the registration
statement to be declared effective by the SEC on or prior to 180 days after
the closing of the old notes, September 29, 1999. In some circumstances,
the holders will require us to provide a shelf registration statement to
cover resales of the old notes.
The registration rights agreement provides that, in the event we fail to
satisfy our registration obligations under the registration rights agreement, we
will be required to pay liquidated damages in an amount equal to $0.05 per week
per $1,000 principal amount and increasing every 90 days thereafter up to a
maximum amount equal to $0.25 per week per $1,000 principal amount of notes
until the registration statement is declared effective. Upon consummation of the
exchange offer or the effectiveness of a registration statement, the provision
for liquidated damages on the old notes shall cease.
We have registered the new notes under the Securities Act and transfer
restrictions and registration rights relating to the old notes do not apply to
the new notes. If you fail to exchange your old notes in the exchange offer,
your notes will remain subject to transfer restrictions.
We are not making the exchange offer to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance do not comply with the securities or blue sky laws of
such jurisdiction. Each holder of old notes that wishes to exchange old notes
for new notes must make the representations described below under "--Resale of
the New Notes."
Terms of the Exchange Offer; Period for Tendering Old Notes
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal, which together constitute the exchange offer, we will accept for
exchange old notes which are properly tendered on or prior to the expiration
date, unless you have withdrawn them as permitted below:
o when you tender to us old notes as provided below, our acceptance of
the old notes will constitute a binding agreement between you and us
upon the terms and subject to the conditions in this prospectus and
in the accompanying letter of transmittal.
o for each $1,000 principal amount of old notes surrendered to us in
the exchange offer, we will give you $1,000 principal amount of new
notes. Interest on each new note will accrue from the date of
issuance of the old note for which the new note is exchanged or from
the date of the last periodic payment of interest on such old note,
whichever is later. No additional interest will be paid on old notes
tendered and accepted for exchange.
o we will keep the exchange offer open for not less than 30 days, or
longer if required by applicable law, after the date that we first
mail notice of the exchange offer to the holders of the old notes. We
are sending this prospectus, together with the letter of transmittal,
on or about the date of this prospectus to all of the registered
holders of old notes at their addresses listed in the trustee's
security register with respect to old notes.
o the exchange offer expires at 5:00 p.m., New York City time, on March
13, 2000; provided, however, that we, in our sole discretion, may
extend the period of time for which the exchange offer is open. The
term
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"expiration date" means March 13, 2000 or, if extended by us, the
latest time and date to which the exchange offer is extended.
o as of the date of this prospectus, $150,000,000 in aggregate
principal amount of the old notes were outstanding. The exchange
offer is not conditioned upon any minimum principal amount of old
notes being tendered.
o our obligation to accept old notes for exchange in the exchange offer
is subject to conditions that we describe in the section below called
"--Conditions to the Exchange Offer".
o we expressly reserve the right, at any time, to extend the period of
time during which the exchange offer is open, and thereby delay
acceptance of any old notes, by giving oral or written notice of such
extension to the exchange agent and notice of such extension to the
holders as described below. During any such extension, all old notes
previously tendered will remain subject to the exchange offer and we
may accept them for exchange. Any old notes we do not accept for
exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the
expiration or termination of the exchange offer.
o we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes that we have not
yet accepted for exchange, upon the occurrence of any of the
conditions of the exchange offer specified below under "--Conditions
to the Exchange Offer."
o we will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the old
notes as promptly as practicable. If we extend the expiration date,
we will give notice by means of a press release or other public
announcement no later than 9:00 a.m., New York City Time, on the
business day after the previously scheduled expiration date. Without
limiting the manner in which we may choose to make any public
announcement and subject to applicable law, we will have no
obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to the Dow Jones
News Service.
o holders of old notes do not have any appraisal or dissenters' rights
in connection with the exchange offer.
o old notes which you do not tender for exchange or we do not accept
in connection with the exchange offer will remain outstanding and be
entitled to the benefits of the indenture, but will not be entitled
to any further registration rights under the registration rights
agreement.
o we intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
o by executing, or otherwise becoming bound by, the letter of
transmittal, you will be making representations to us. See "--Resales
of the New Notes."
Important rules concerning the exchange offer
You should note that:
o we will determine all questions as to the validity, form,
eligibility, including time of receipt, and acceptance of old notes
tendered for exchange in our sole discretion, which determination
shall be final and binding.
o we reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered or to not accept any
particular old notes which acceptance might, in our judgment or the
judgment of our counsel, be unlawful.
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o we also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular old notes either before or after the expiration date,
including the right to waive the ineligibility of any holder who
seeks to tender old notes in the exchange offer. Unless we agree to
waive any defect or irregularity in connection with the tender of old
notes for exchange, such waiver must be cured within such reasonable
period of time as we shall determine.
o our interpretation of the terms and conditions of the exchange offer
as to any particular old notes either before or after the expiration
date, including the letter of transmittal and the instructions
thereto, shall be final and binding on all parties.
o neither Charles River, the exchange agent nor any other person shall
be under any duty to give notification of any defect or irregularity
with respect to any tender of old notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
Procedures for Tendering Old Notes
What to submit and how
If you, as the registered holder of an old note, wish to tender your old
notes for exchange in the exchange offer, you must transmit a properly completed
and duly executed letter of transmittal, including all other documents required
by such letter of transmittal, to State Street Bank and Trust Company at the
address set forth below under "Exchange Agent" on or prior to the expiration
date.
In addition,
(1) certificates for such old notes must be received by the exchange
agent along with the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer (what we call a
"book-entry confirmation") of such old notes, if such procedure is
available, into the exchange agent's account at DTC as required by the
procedure for book-entry transfer described below, must be received by the
exchange agent prior to the expiration date or
(3) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at your election and risk. If such delivery is by mail, we
recommend that registered mail, properly insured, with return receipt requested,
be used. In all cases, sufficient time should be allowed to assure timely
delivery. No letters of transmittal or old notes should be sent to Charles
River.
How to sign your letter of transmittal and other documents
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
pursuant thereto are tendered
(1) by a registered holder of the old notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(2) for the account of an Eligible Institution (as defined below).
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by an eligible
institution that is:
o a member of or participant in the Securities Transfer Agents
Medallion Program or the New York Stock Exchange Medallion Signature
Program, or
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o an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If old notes are registered in the name of a person other than the person
signing the letter of transmittal, the old notes surrendered for exchange must
be endorsed by, or be accompanied by, a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the signature thereon
guaranteed by an Eligible Institution.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of old notes, such old notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the old
notes.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by
Charles River, proper evidence satisfactory to Charles River of its authority to
so act must be submitted.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Conditions to the Exchange Offer" below. For purposes of the
exchange offer, we shall be deemed to have accepted properly tendered old notes
for exchange when, as and if we have given oral or written notice thereof to the
Exchange Agent.
In all cases, we will only issue new notes in exchange for old notes that
are accepted for exchange after timely receipt by the exchange agent of:
o certificates for such old notes or
o a timely book-entry confirmation of such old notes into the
exchange agent's account at DTC as required by the book-entry
transfer procedures described below, and
o a properly completed and duly executed letter of transmittal and
all other required documents.
If we do not accept any tendered old notes for any reason included in the
terms and conditions of the exchange offer or if you submit certificates
representing old notes in a greater principal amount than you wish to exchange,
we will return such unaccepted or non-exchanged old notes without expense to the
tendering holder or, in the case of old notes tendered by book-entry transfer
into the exchange agent's account at DTC as required by the book-entry transfer
procedures described below, such non-exchanged old notes will be credited to an
account maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution that is a Participant in
DTC's systems may make book-entry delivery of old notes by causing DTC to
transfer such old notes into the exchange agent's account in accordance with
DTC's Automated Tender Offer Program ("ATOP") procedures for transfer. However,
the exchange for the old notes so tendered will only be made after timely
confirmation of such book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an Agent's Message (as
defined in the next sentence) and any other documents required by the letter of
transmittal. The term "Agent's Message" means a message, transmitted by DTC 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 a Participant
tendering old notes that are the subject of such Book-Entry Confirmation that
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such Participant has received and agrees to be bound by the terms of the letter
of transmittal, and that we may enforce such agreement against such Participant.
Although delivery of old notes may be effected through book-entry transfer into
the exchange agent's account at DTC, the letter of transmittal, or facsimile
thereof, properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the exchange agent at its address set forth under "--Exchange
Agent" on or prior to the expiration date, or the guaranteed delivery procedure
set forth below must be complied with.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
If you are a registered holder of old notes and you want to tender such old
notes but your old notes are not immediately available, or time will not permit
your old notes 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
(1) the tender is made through an Eligible Institution,
(2) prior to the expiration date, the exchange agent receives 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 facsimile transmission, mail
or hand delivery, stating:
o the name and address of the holder of old notes
o the amount of old notes tendered
o the tender is being made by delivering such notice and
guaranteeing that within five New York Stock Exchange
trading days after the date of execution of the notice of
guaranteed delivery, the certificates of all physically
tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other
documents required by the letter of transmittal will be
deposited by that Eligible Institution with the exchange
agent and
(3) the certificates for all physically tendered old notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal, are received by
the exchange agent within five New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
Withdrawal Rights
You can withdraw your tender of old notes at any time prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"--Exchange Agent." Any such notice of withdrawal must specify:
o the name of the person having tendered the old notes to be withdrawn.
o the old notes to be withdrawn, including the principal amount of such
old notes.
o if certificates for old notes have been delivered to the exchange
agent, the name in which such old notes are registered, if different
from that of the withdrawing holder.
o if certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, you must also submit the serial numbers of the
particular certificates to
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be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless you are an Eligible
Institution.
o if old notes have been tendered as specified in the procedure for
book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with
the withdrawn old notes and otherwise comply with the procedures of
such facility.
Please note that all questions as to the validity, form and eligibility,
including time of receipt, of such notices of withdrawal will be determined by
us, and our determination shall be final and binding on all parties. Any old
notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the exchange offer.
If you have properly withdrawn old notes and wish to re-tender them, you
may do so by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of such old notes for exchange or the exchange of the new notes for
such old notes, such acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC.
The foregoing condition is for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to such condition. Our failure at
any time to exercise the foregoing rights shall not be deemed a waiver by us of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the exchange offer
of which this prospectus constitutes a part or the qualification of the
indenture under the Trust Indenture Act.
Exchange Agent
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent, addressed as
follows:
Deliver To:
By Overnight Courier or Hand: By Registered or Certified Mail:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
Two Avenue de Lafayette Two Avenue de Lafayette
Boston, Massachusetts 02111-1724 Boston, Massachusetts 02111-1724
Fifth Floor Fifth Floor
Attn: Kellie Mullen Attn: Kellie Mullen
Telephone: (617) 662-1525 Telephone: (617) 662-1525
Facsimile: (617) 662-1450 Facsimile: (617) 662-1450
Delivery to an address other than as listed above or transmission of
instructions via facsimile other than as listed above does not constitute a
valid delivery.
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Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by our officers,
regular employees and affiliates. We will not pay any additional compensation to
any such officers and employees who engage in soliciting tenders. We will not
make any payment to brokers, dealers, or others soliciting acceptances of the
exchange offer. However, we will pay the exchange agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by us and are estimated in the aggregate to be $.4 million.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Resale of the New Notes
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the new notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act. However, any purchaser of old notes who is an "affiliate" of
Charles River or who intends to participate in the exchange offer for the
purpose of distributing the new notes
(1) will not be able to rely on the interpretation of the staff of the
SEC,
(2) will not be able to tender its old notes in the exchange offer and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the notes unless such sale or transfer is made under an
exemption from such requirements.
By executing, or otherwise becoming bound by, the letter of transmittal,
each holder of the old notes, other than specified holders, will represent that:
(1) it is not our "affiliate";
(2) any new notes to be received by it were acquired in the ordinary
course of its business; and
(3) it has no arrangement with any person to participate in the
distribution, within the meaning of the Securities Act, of the new
notes.
In addition, in connection with any resales of new notes, any broker-dealer
participating in the exchange offer who acquired notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The SEC has taken the position
that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the new notes, other than a resale of an unsold
allotment from the original sale of the old notes, with this prospectus. Under
the registration rights agreement, we are required to allow participating
broker-dealers and other persons, if any, subject to similar prospectus delivery
requirements to use this prospectus as it may be amended or supplemented from
time to time, in connection with the resale of such new notes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of old notes for new notes in the exchange offer will not
result in any United States federal income tax consequences to holders. When a
holder exchanges an old note for a new note in the exchange offer, the holder
will have the same adjusted basis and holding period in the new note as in the
old note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
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 we will make this prospectus, as amended or
supplemented, available to any participating broker-dealer for use in connection
with any such resale and participating broker-dealers shall be authorized to
deliver this prospectus for a period not exceeding 90 days after the exchange
offer expiration date.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the 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 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 in the exchange offer and any broker or
dealer that participates in a distribution of such new notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the exchange offer expiration date, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any Participating Broker-Dealer that requests
such documents in the letter of transmittal. See "The Exchange Offer." We have
agreed to pay all expenses incident to the exchange offer and will indemnify
holders of the old notes (including any broker-dealers) against some
liabilities, including some liabilities under the Securities Act.
111
<PAGE>
LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon for
Charles River Laboratories, Inc. and Charles River Laboratories Holdings, Inc.
by Davis Polk & Wardwell, New York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Charles River Laboratories, Inc.
and the combined financial statements of Charles River Laboratories Holdings,
Inc. and Charles River Laboratories, Inc. as of December 27, 1997 and December
26, 1998 and for each of the three years in the period ended December 26, 1998
included in this prospectus have been audited by PricewaterhouseCoopers LLP as
stated in their report appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to our offering of the new notes. This prospectus
does not contain all the information included in the registration statement and
the related exhibits and schedules. You will find additional information about
us and the new notes in the registration statement. The registration statement
and the related exhibits and schedules may be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public
reference facilities of the SEC's Regional Offices: New York Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of this material may also be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. You can obtain information on the operation of the public
reference facilities by calling 1-800-SEC-0330. The SEC also maintains a site
on the World Wide Web (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
Charles River, that file electronically with the SEC. Statements made in this
prospectus about legal documents may not necessarily be complete and you should
read the documents which are filed as exhibits or schedules to the registration
statement or otherwise filed with the SEC.
The indenture governing the notes obligates us to furnish the holders of
notes with all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on forms 10-Q and 10-K if
Charles River were required to file such Forms, including, without limitation,
(a) "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by Charles River's certified independent accountants, and (b) all current
reports that would be required to be filed with the SEC on Form 8-K if Charles
River were required to file such reports, in each case, within the time periods
specified in the SEC's rules and regulations.
112
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
Page
----
<S> <C>
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Data..................................... P-2
Charles River Laboratories, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 25, 1999............................. P-4
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 25, 1999.................... P-5
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 26,
1998..................................................................................................... P-8
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Nine Months Ended
September 26, 1998....................................................................................... P-9
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Nine Months Ended
September 25, 1999....................................................................................... P-10
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income...................................... P-11
</TABLE>
P-1
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA
On September 29, 1999, Charles River Laboratories, Inc. (the "Company" or
"Charles River") consummated a recapitalization transaction under a
recapitalization agreement dated as of July 25, 1999 (the "Recapitalization
Agreement") with Bausch & Lomb Incorporated ("B&L"), some subsidiaries of B&L
(such subsidiaries and B&L are referred to, collectively, as the "Subsidiaries
of Bausch & Lomb"), Endosafe, Inc. (renamed Charles River Laboratories
Holdings, Inc., referred to as "Holdings") and CRL Acquisition LLC, a
subsidiary of DLJ Merchant Banking Partners II, L.P. ("DLJMB"). Prior to the
consummation of the Recapitalization, the Company became a wholly owned
subsidiary of Holdings. Holdings has no operations other than those related to
Charles River. Holdings was recapitalized in a transaction providing aggregate
consideration of $456.2 million, consisting of $400.0 million in cash, a
subordinated discount note for $43.0 million to be issued by Holdings to the
Subsidiaries of Bausch & Lomb and equity to be retained by the Subsidiaries of
Bausch & Lomb with a fair market value of $13.2 million (the
"Recapitalization"). The $400.0 million cash consideration was raised through
the following:
o $92.4 million cash equity investment in Holdings by DLJMB and some
of its affiliated funds (collectively, "the DLJMB Funds"), management
and some other investors
o $37.6 million senior discount debentures with warrants issued by
Holdings to DLJMB and some of its affiliates and other investors
o $162.0 million senior secured credit facilities at the Company
o a portion of the net proceeds of the Company's units offered hereby
Upon the consummation of the Recapitalization, the DLJMB Funds, management
and some other investors owned 87.5% of the outstanding capital stock of
Holdings and B&L owned 12.5% of the outstanding capital stock of Holdings. The
Recapitalization has been accounted for as a leveraged recapitalization, which
will have no impact on the historical basis of Holdings' and, accordingly
Charles River's, assets and liabilities.
Simultaneously with the Recapitalization, the Company acquired SBI
Holdings, Inc. ("Sierra") under a stock purchase agreement (the "Sierra
Acquisition") for an initial total purchase price of $24.0 million, including
approximately $18.0 million in cash paid to former shareholders, and assumed
debt of approximately $6.0 million, which we immediately retired. The Company
funded the acquisition with available cash, a portion of the net proceeds from
the notes offered hereby and a portion of the borrowings under our new credit
facility. In addition, the Company has agreed to pay (a) up to $2.0 million in
contingent consideration if specified financial objectives are reached by
December 31, 2000, (b) up to $10.0 million in performance-based bonus payments
if specified financial objectives are reached over the next five years, and (c)
$3.0 million in retention and non-competition payments contingent upon the
continuing employment of specified key scientific and managerial personnel
through June 30, 2001. The Recapitalization and the Sierra Acquisition are
collectively referred to as the "Transactions." The Recapitalization and the
Sierra Acquisition were consummated concurrently.
The following unaudited pro forma condensed consolidated financial data of
the Company is based upon historical consolidated financial statements of
Charles River as adjusted to give effect to the impact of the Transactions and
the application of the related net proceeds therefrom as discussed under the
captions "Transactions" and "Use of Proceeds." The unaudited pro forma condensed
consolidated balance sheet as of September 25, 1999 gives effect to the
Transactions assuming that the Transactions had occurred on September 25, 1999.
The unaudited pro forma condensed consolidated statements of income for the year
ended December 26, 1998, the nine months ended September 26, 1998, and the nine
months ended September 25, 1999 give effect to the Transactions as if they had
occurred at the beginning of the period presented. The unaudited pro forma
condensed consolidated statements of income for the twelve months ended December
26, 1998, and the nine months ended September 26, 1998 also give effect to the
Tektagen, Therion and ESD Acquisitions (the "1998 Acquisitions") as if they all
had occurred at the beginning of the period presented.
P-2
<PAGE>
The pro forma adjustments are based on estimates, available information and
some assumptions and may be revised as additional information becomes
available. The unaudited pro forma condensed consolidated financial data do not
purport to represent what Charles River results of operations or financial
position would actually have been if the Transactions and other adjustments had
occurred on the dates indicated and are not necessarily representative of
Charles River results of operations for any future period. The unaudited pro
forma condensed consolidated balance sheet and consolidated statements of income
should be read in conjunction with our consolidated financial statements and the
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information appearing elsewhere
in this prospectus.
P-3
<PAGE>
CHARLES RIVER LABORATORIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 25, 1999
(dollars in thousands)
<TABLE>
Sierra
Settlement Pro Forma -------------------------
Company with Recapitalization for the Acquisition
Historical B&L(a) Adjustments Recapitalization Historical(b) Adjustments Pro Forma
---------- ---------- ---------------- ---------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,457 $ 2,437 $ 21,827(c) $ 27,721 $ 292 $(24,335)(d) $ 3,678
Trade receivables........ 33,820 -- -- 33,820 2,493 -- 36,313
Inventories.............. 28,577 -- -- 28,577 853 131 (d) 29,561
Deferred income taxes.... 5,432 (5,432) -- -- -- -- --
Due from affiliates...... 966 -- -- 966 -- -- 966
Other current assets..... 5,051 -- -- 5,051 791 -- 5,842
--------- -------- -------- -------- -------- -------- ---------
Total current assets..... 77,303 (2,995) 21,827 96,135 4 ,429 (24,204) 76,360
Property, plant and
equipment, net........... 79,349 -- -- 79,349 4,918 280 (d) 84,547
Goodwill and other
intangibles, net......... 16,212 -- -- 16,212 4,919 16,889 (d) 38,020
Investments in affiliates... 19,385 -- -- 19,385 -- -- 19,385
Deferred tax assets......... 5,787 (5,787) 88,060(e) 88,060 -- -- 88,060
Other assets................ 12,335 -- 13,237(c) 25,572 254 -- (d) 25,826
--------- -------- -------- -------- -------- -------- ---------
Total assets............. $ 210,371 $ (8,782) $123,124 $324,713 $ 14,520 (7,035) $ 332,198
========= ======== ======== ======== ======== ======== =========
Liabilities and
Shareholder's Equity
Current Liabilities:
Current portion of long-
term debt............. $ 166 $ -- $ 1,200(c) $ 1,366 $ 1,729 $ (1,729)(d) $ 1,366
Current portion of
capital lease
obligations........... 167 -- -- 167 105 -- 272
Accounts payable......... 5,992 -- -- 5,992 1,134 -- 7,126
Accrued compensation..... 11,015 -- -- 11,015 569 -- 11,584
Accrued ESLIRP........... 5,845 -- -- 5,845 -- -- 5,845
Accrued restructuring.... 354 -- -- 354 -- -- 354
Deferred income.......... 4,550 -- -- 4,550 -- -- 4,550
Accrued liabilities...... 12,410 -- -- 12,410 852 -- 13,262
Accrued income taxes..... 16,208 (16,208) -- -- -- -- --
--------- -------- -------- -------- -------- -------- ---------
Total current liabilities 56,707 (16,208) 1,200 41,699 4,389 (1,729) 44,359
Long-term debt.............. -- -- 308,672(c) 308,672 4,240 (4,240)(d) 308,672
Long-term capital lease
obligations.............. 700 -- -- 700 118 -- 818
Other long-term liabilities. 3,706 -- -- 3,706 333 -- 4,039
Deferred income tax
liability................ -- -- -- -- -- 4,374 (d) 4,374
--------- -------- -------- -------- -------- -------- ---------
Total liabilities........ 61,113 (16,208) 309,872 354,777 9,080 (1,595) 362,262
--------- -------- -------- -------- -------- -------- ---------
Minority interests.......... 293 -- -- 293 -- -- 293
Shareholder's equity
Common stock............. 1 -- -- 1 -- -- 1
Capital in excess of par
value................. 17,836 -- 90,188(e)(c) 108,024 4,667 (4,667)(d) 108,024
Retained earnings
(accumulated deficit). 142,422 7,426 (276,016)(c) (126,168) 4,057 (4,057)(d) (126,168)
Treasury stock, at cost.. -- -- -- -- (3,284) 3,284 (d) --
P-4
<PAGE>
Sierra
Settlement Pro Forma -------------------------
Company with Recapitalization for the Acquisition
Historical B&L(a) Adjustments Recapitalization Historical(b) Adjustments Pro Forma
---------- ---------- ---------------- ---------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans to officers........ (920)(c) (920) (920)
Accumulated other
comprehensive
income (accumulated
deficit).............. (11,294) -- -- (11,294) -- -- (11,294)
--------- -------- -------- -------- -------- -------- ---------
Total shareholder's equity 148,965 7,426 (186,748) (30,357) 5,440 (5,440) (30,357)
--------- -------- -------- -------- -------- -------- ---------
Total liabilities and
shareholder's equity $ 210,371 $ (8,782) $123,124 $324,713 $ 14,520 $ (7,035) $ 332,198
========= ======== ======== ======== ======== ======== =========
- -------------------
(a) Represents assets and liabilities of Charles River as of September 25,
1999 that, according to the terms of the Recapitalization Agreement, were
distributed to or assumed by B&L in conjunction with the closing of the
Recapitalization and, accordingly, are not part of the ongoing operations
of Charles River. In addition, the adjustment includes a cash settlement
paid by B&L to Charles River in accordance with the terms of the
Recapitalization Agreement.
(b) Reflects Sierra's historical unaudited consolidated balance sheet at
September 25, 1999.
(c) Holdings was recapitalized as described under the caption "Transactions."
The Company's portion of the sources and uses of cash required to
consummate the Transactions as of September 25, 1999 follow:
</TABLE>
Sources:
Available cash..........................................$ 2,173
New credit facility
Revolving credit facility.......................... 2,000
Term loans......................................... 160,000
Units: Senior subordinated notes 147,872
Warrants(1) 2,128............. 150,000
--------
Total cash sources.................................$314,173
========
Uses:
Distribution to Holdings................................$270,000
Cash consideration for Sierra acquisition............... 24,000
Debt issuance costs..................................... 13,237
Estimated transaction fees and expenses(2).............. 6,016
Loans to officer........................................ 920
--------
Total cash uses....................................$314,173
========
- -------------------
(1) The fair value of the related warrants was estimated at $2,128.
(2) Consists of bridge facility commitment, legal and other professional fees.
Does not include fees associated with the Sierra Acquisition (see note (d)
below).
The following represents a reconciliation of the amounts presented in the
sources and uses table above to the pro forma adjustments included in the
unaudited pro forma condensed consolidated balance sheet:
P-5
<PAGE>
Adjustment to cash and cash equivalents:
Sources: Revolving credit facility.................. $ 2,000
Term loans................................. 160,000
Units...................................... 150,000
Uses: Distribution to Holdings................... (270,000)
Debt issuance costs........................ (13,237)
Estimated transaction fees and expenses.... (6,016)
Loans to officers.......................... (920)
-------------
$ 21,827
=============
Adjustments to other assets:
Debt issuance costs........................ $ 13,237
=============
Adjustments to debt:
Revolving credit facility.................. $ 2,000
Term loans................................. 160,000
Senior subordinated notes.................. 147,872
-------------
309,872
Less current portion.................. (1,200)
-------------
Long-term debt........................ $ 308,672
=============
Adjustments to capital in excess of par value:
Net deferred tax assets............... $ 80,060
Estimated value of warrants........... 2,128
-------------
$ 90,188
=============
Adjustments to retained earnings:
Distribution to Holdings................... $ (270,000)
Estimated transaction fees and expenses.... (6,016)
-------------
$ (276,016)
=============
Adjustments to loans to officers:
.......................................... $ 920
=============
(d) Reflects the Sierra Acquisition adjustments. The sources and uses of cash
which were required to consummate the Sierra Acquisition on September 29,
1999 follow:
Sources:
Available cash.........................................$24,335
-------
Total cash sources................................$24,335
=======
Uses:
Sierra acquisition consideration(1)....................$24,000
Estimated transaction fees and expenses(2)............. 335
-------
Total cash uses...................................$24,335
=======
- -------------------
(1) Approximately $6,000 will be used to repay Sierra's existing debt.
(2) Consists of legal and other professional fees.
P-6
<PAGE>
Allocation of purchase price:
Current assets..................................................... $ 4,560
Property, plant and equipment...................................... 5,198
Other non-current assets........................................... 254
Intangible assets:
Customer list................................. 11,491
Work force.................................... 2,941
Other identifiable intangibles................ 1,251
Goodwill...................................... 1,751 17,434
27,446
Less assumed liabilities........................................... 3,111
-----------
$ 24,335
===========
The lives established for the intangible assets acquired range from 5 to
15 years.
As a result of the Company buying the stock of Sierra, the historical tax
basis of Sierra continues with the Company and, as such, a deferred tax
liability and offsetting goodwill of $4,374 has been recorded.
In conjunction with the Sierra Acquisition, the Company has agreed to pay
additional consideration of up to $2,000 if Sierra achieves some
financial targets by December 31, 2000. This additional consideration, if
any, will be recorded as additional goodwill at the time the contingency
is resolved.
(e) The adjustment reflects the increase in the deferred tax assets of the
Company due to the Section 338(h)(10) election made in conjunction with
the Recapitalization. Such election results in a step-up in the tax basis
of the underlying assets. The resulting net deferred tax asset of
approximately $88,060 is expected to be realized over 15 years through
future tax deductions which are expected to reduce future tax payments. In
connection with the establishment of this net deferred tax asset,
management has recorded a valuation allowance of $7,770, primarily related
to its realizability with respect to state income taxes. Management has
recorded this net deferred tax asset based on its belief that it is more
likely than not that it will be realized. This belief is based upon a
review of all available evidence, including historical operating results,
projections of future taxable income, and tax planning strategies.
P-7
<PAGE>
CHARLES RIVER LABORATORIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands)
<TABLE>
For the Year Ended December 26, 1998(a)
--------------------------------------------------------------------------
Pro Forma
for the
Recapitalization
Company 1998 Adjusted Recapitalization and the 1998
Historical Acquisitions(b) Historical Adjustments Acquisitions
---------- -------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales related to
products................... $169,377 $3,457 $172,834 $ -- $172,834
Net sales related to
services................... 23,924 -- 23,924 -- 23,924
-------- ------ -------- -------- --------
Total net sales............. 193,301 3,457 196,758 -- 196,758
Cost of products sold....... 107,146 2,716 109,862 -- 109,862
Cost of services provided... 15,401 -- 15,401 -- 15,401
Selling, general and
administrative expenses(d). 34,142 805 34,947 -- 34,947
Amortization of goodwill
and other intangibles...... 1,287 116(e) 1,403 -- 1,403
-------- ------ -------- -------- --------
Operating income............ 35,325 (180) 35,145 -- 35,145
Interest income............. 986 -- 986 -- 986
Interest expense............ (421) (23) (444) (36,536)(f) (36,980)
Loss from foreign currency,
net........................ (58) -- (58) -- (58)
-------- ------ -------- -------- --------
Income (loss) before income
taxes, minority interests
and earnings from equity
investments................ 35,832 (203) 35,629 (36,536) (907)
Provision (benefit) for
income taxes............... 14,123 150 14,273 (14,382)(h) (109)
-------- ------ -------- -------- --------
Income (loss) before
minority interests and
earnings from equity
investments................ 21,709 (353) 21,356 (22,154) (798)
Minority interests.......... (10) -- (10) -- (10)
Earnings from equity
investments................ 1,679 2 1,681 -- 1,681
-------- ------ -------- -------- --------
Net income (loss)........... $ 23,378 $ (351) $ 23,027 $(22,154) $ 873
======== ====== ======== ======== ========
(FINANCIAL INFORMATION TO BE CONTINUED)
P-8
<PAGE>
(FINANCIAL INFORMATION CONTINUED)
For the Year Ended December 26, 1998(a)
---------------------------------------
Sierra
-------------------------
Historical(c) Adjustments Pro Forma
----------- ----------- ----------
<S> <C> <C> <C>
Net sales related to
products................... $ 13,135 $ -- $185,969
Net sales related to
services................... -- -- 23,924
-------- -------- --------
Total net sales............. 13,135 -- 209,893
Cost of products sold....... 6,689 -- 116,551
Cost of services provided... -- -- 15,401
Selling, general and
administrative expenses(d). 4,105 -- 39,052
Amortization of goodwill
and other intangibles...... -- 1,951(e) 3,354
-------- -------- --------
Operating income............ 2,341 (1,951) 35,535
Interest income............. -- -- 986
Interest expense............ (191) 191(g) (36,980)
Loss from foreign currency,
net........................ -- -- (58)
-------- -------- --------
Income (loss) before income
taxes, minority interests
and earnings from equity
investments................ 2,150 (1,760) (517)
Provision (benefit) for
income taxe................ 750 (365)(i) (276)
-------- -------- --------
Income (loss) before
minority interests and
earnings from equity
investments................ 1,400 (1,395) (793)
Minority interests.......... -- -- (10)
Earnings from equity
investments................ -- -- 1,681
-------- -------- --------
Net income (loss)........... $ 1,400 $ (1,395) $ 878
======== ======== ========
</TABLE>
P-8
<PAGE>
CHARLES RIVER LABORATORIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands)
<TABLE>
For the Nine Months Ended September 26, 1998(a)
--------------------------------------------------------------------------
Pro Forma
for the
Recapitalization
Company 1998 Adjusted Recapitalization and the 1998
Historical Acquisitions(b) Historical Adjustments Acquisitions
---------- -------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales related to products... $128,478 $2,984 $131,462 $ -- $131,462
Net sales related to services... 17,041 -- 17,041 -- 17,041
-------- ------ -------- -------- --------
Total net sales................. 145,519 2,984 148,503 -- 148,503
Cost of products sold........... 80,067 2,436 82,502 -- 82,503
Cost of services provided....... 10,974 -- 10,974 -- 10,974
Selling, general and
administrative expenses(d)... 25,202 723 25,925 -- 25,925
Amortization of goodwill and
other intangibles............ 1,036 116(e) 1,152 -- 1,152
-------- ------ -------- -------- --------
Operating income................ 28,240 (291) 27,949 -- 27,949
Interest income................. 659 -- 659 -- 659
Interest expense................ (311) (23) (334) (27,402)(f) (27,736)
Loss from foreign currency, net. (127) -- (127) -- (127)
-------- ------ -------- -------- --------
Income (loss) before income
taxes, minority interests and
earnings from equity
investments.................. 28,461 (314) 28,147 (27,402) 745
Provision (benefit) for income
taxes........................ 11,280 105 11,385 (10,800)(h) 585
-------- ------ -------- -------- --------
Income (loss) before minority
interests and earnings from
equity investments........... 17,181 (419) 16,762 (16,602) 160
Minority interests.............. (8) -- (8) -- (8)
Earnings from equity
investments.................. 1,286 2 1,288 -- 1,288
-------- ------ -------- -------- --------
Net income (loss)............... $ 18,459 $ (417) $ 18,042 $(16,602) $ 1,440
======== ====== ======== ======== ========
(FINANCIAL INFORMATION TO BE CONTINUED)
P-9
<PAGE>
(FINANCIAL INFORMATION CONTINUED)
CHARLES RIVER LABORATORIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands)
For the Nine Months Ended September 26, 1998(a)
-----------------------------------------------
Sierra
-----------------------
Historical(c) Adjustments Pro Forma
------------ ----------- ----------
<S> <C> <C> <C>
Net sales related to products... $ 9,615 $ -- $141,077
Net sales related to services... -- -- 17,041
------- ------- --------
Total net sales................. 9,615 -- 158,118
Cost of products sold........... 4,634 -- 87,137
Cost of services provided....... -- -- 10,974
Selling, general and
administrative expenses(d)... 2,753 -- 28,678
Amortization of goodwill and
other intangibles............ -- 1,439(e) 2,591
------- ------- --------
Operating income................ 2,228 (1,439) 28,738
Interest income................. -- -- 659
Interest expense................ (77) 77(g) (27,736)
Loss from foreign currency, net. -- -- (127)
------- ------- --------
Income (loss) before income
taxes, minority interests and
earnings from equity
investments.................. 2,151 (1,362) 1,534
Provision (benefit) for income
taxes........................ 703 (300)(i) 988
------- ------- --------
Income (loss) before minority
interests and earnings from
equity investments........... 1,448 (1,062) 546
Minority interests.............. -- -- (8)
Earnings from equity
investments.................. -- -- 1,288
------- ------- --------
Net income (loss)............... $ 1,448 $(1,062) $ 1,826
======= ======= ========
</TABLE>
P-9
<PAGE>
<TABLE>
CHARLES RIVER LABORATORIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands)
For the Nine Months Ended Septemnber 25, 1999(a)
----------------------------------------------------------------------------------------------
Sierra Pro Forma for
Pro Forma ---------------------------- Recapitalization
Company Recapitalization & Sierra
Historical Adjustments Recapitalization Historical(c) Adjustments Acquisition
---------- ---------------- ---------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales related to products. $ 139,269 $ -- $ 139,269 $ 16,034 $ -- $ 155,303
Net sales related to services. 21,827 -- 21,827 -- -- 21,827
--------- --------- ---------- ---------- ------- ---------
Total net sales............... 161,096 -- 161,096 16,034 -- 177,130
Cost of products sold......... 84,557 -- 84,557 9,589 -- 94,146
Cost of services provided..... 12,673 -- 12,673 -- -- 12,673
Selling, general and
administrative expenses(d). 29,414 -- 29,414 5,364 -- 34,778
Amortization of goodwill and
other intangibles.......... 1,114 -- 1,114 192 1,247(e) 2,553
--------- --------- ---------- ---------- ------- ---------
Operating income.............. 33,338 -- 33,338 889 (1,247) 32,980
Other income.................. 1,441 -- 1,441 -- -- 1,441
Interest income............... 496 -- 496 -- -- 496
Interest expense.............. (207) (29,472)(f) (29,679) (321) 321(g) (29,679)
Loss from foreign currency,
net...................... (143) -- (143) -- -- (143)
--------- --------- ---------- ---------- ------- ---------
Income (loss) before income
taxes minority interests
and earnings from equity
investments................ 34,925 (29,472) 5,453 568 (926) 5,095
Provision (benefit) for income
taxes...................... 16,903 (11,782)(h) 5,121 233 (203)(i) 5,151
--------- --------- ---------- ---------- ------- ---------
Income (loss) before minority
interests and earnings from
equity investments......... 18,022 (17,690) 332 335 (723) (56)
Minority interests............ (10) -- (10) -- -- (10)
Earnings from equity
investments................ 1,940 -- 1,940 -- -- 1,940
--------- --------- ---------- ---------- ------- ---------
Net income (loss)............. $ 19,952 $ (17,690) $ 2,262 $ 335 $ (723) $ 1,874
========= ========= ========== ========= ======= =========
</TABLE>
P-10
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
(a) Charles River's fiscal year consists of a twelve month period ending on the
Saturday closest to December 31; the Company's nine month periods consist
of the nine months ending on the Saturday closest to September 30.
(b) Represents the financial results for the companies acquired during 1998 for
the periods not included in the Company Historical column as follows:
Tektagen (from January 1, 1998 until March 31, 1998), Therion (from January
1, 1998 until March 31, 1998) and ESD (from January 1, 1998 until November
30, 1998). The tables below detail these results for the year ended
December 26, 1998 and the nine months ended September 26, 1998:
<TABLE>
For the Year Ended December 26, 1998
-----------------------------------------------------------------
Tektagen Therion ESD Adjustments Total
-------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ 917 $310 $2,230 $ -- $ 3,457
Cost of products sold and services
provided.................................. 977 89 1,650 -- 2,716
Selling, general and administrative
expenses................................ 407 85 313 -- 805
Amortization of goodwill and other
intangibles............................... -- -- -- 116(e) 116(e)
----- ----- ------ ------- --------
Operating income............................. (467) 136 267 (116) (180)
Interest income.............................. -- -- -- -- --
Interest expense............................. (23) -- -- -- (23)
(Loss) gain from foreign currency, net....... -- -- -- -- --
----- ----- ------ ------- --------
(Loss) income before income taxes,
minority interests and earnings from
equity investments..................... (490) 136 267 (116) (203)
Provision (benefit) for income taxes... -- 43 107 -- 150
----- ----- ------ ------- --------
(Loss) income before minority interests
and earnings from equity investments... (490) 93 160 (116) (353)
Minority interests..................... -- -- -- -- --
----- ----- ------ ------- --------
Earnings from equity investments............. -- 2 -- -- 2
----- ----- ------ ------- --------
Net (loss) income............................ $(490) $ 95 $ 160 $ (116) $ (351)
===== ===== ====== ======= ========
</TABLE>
P-11
<PAGE>
<TABLE>
For the Nine Months Ended September 26, 1998
-----------------------------------------------------------------
Tektagen Therion ESD Adjustments Total
-------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ 917 $310 $1,757 $ -- $ 2,984
Cost of products sold and services
provided.................................. 977 89 1,370 -- 2,436
Selling, general and administrative
expenses.................................. 407 85 231 -- 723
Amortization of goodwill and other
intangibles............................... -- -- -- 116(e) 116(e)
----- ---- ------ -------- -------
Operating income............................. (467) 136 156 (116) (291)
Interest income.............................. -- -- -- -- --
Interest expense............................. (23) -- -- -- (23)
Loss from foreign currency, net.............. -- -- -- -- --
---- ----- ----- -------- -------
(Loss) income before income taxes,
minority interests and earnings from
equity investments....................... (490) 136 156 (116) (314)
Provision (benefit) for income taxes........ -- 43 62 -- 105
---- ----- ----- ------- -------
(Loss) income before minority interests
and earnings from equity investments..... (490) 93 94 (116) (419)
Earnings from equity investments............ -- 2 -- -- 2
Minority interests.......................... -- -- -- -- --
----- ----- ----- ------- -------
Net (loss) income........................... $(490) $ 95 $ 94 $ (116) $ (417)
===== ===== ===== ======= =======
</TABLE>
(c) Represents the historical unaudited consolidated financial results of
Sierra.
As part of the Sierra Acquisition, the Company has agreed to pay up to
$10,000 in performance-based bonus payments if specified financial
objectives are reached over the next five years. At the time these
contingencies are resolved, the bonuses, if any, will be recorded as
compensation expense. As these amounts are not reasonably estimable, the
expense related to those bonus payments has not been included in the pro
forma financial statements.
Also in conjunction with the Sierra Acquisition, the Company will enter
into employment agreements with some Sierra employees that contain
retention and non-competition payments totaling $3,000 to be paid upon
their continuing employment with the Company at December 31, 1999 and June
30, 2001. The expense related to these payments has not been included in
the pro forma financial statements as they are considered non-recurring.
At the time these contingencies are resolved, the payments, if any, will
be recorded as compensation expense.
(d) The Company does not expect the estimated stand alone costs to be
significantly different from the historical costs allocated by B&L due to
the autonomy with which the Company operated.
(e) Reflects the incremental expense required to reflect amortization of
goodwill generated in the 1998 Acquisitions and the identifiable
intangibles and goodwill acquired in connection with the Sierra
Acquisition based on estimated useful lives ranging from 5-15 years.
(f) Reflects the adjustment to unaudited pro forma consolidated interest
expense as a result of the Transactions:
P-12
<PAGE>
<TABLE>
Nine Months Nine Months
Year Ended Ended Ended
December 26, September 26, September 25,
1998 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Increase in interest expense
Notes offered hereby(1)...................... $ 20,203 $ 15,152 $ 17,222
Term loans(2)................................ 14,500 10,875 10,875
Revolver(3).................................. 310 233 233
Amortization of deferred financing costs(4).. 1,523 1,142 1,142
----------- ----------- -----------
Total(5).................................. $ 36,536 $ 27,402 $ 29,472
=========== =========== ===========
</TABLE>
- -------------------
(1) Interest expense was calculated at an effective interest rate of
13.66%.
(2) Interest expense was calculated at an effective blended interest rate
of 9.06%, which is based upon a base rate or LIBOR plus a margin and
is reset every six months.
(3) Represents interest expense calculated at 8.50% plus fees on the
unused portion of 0.50%.
(4) Represents annual amortization expense utilizing a weighted average
maturity on all borrowings of 8.70 years.
P-13
<PAGE>
(5) A 0.125% increase or decrease in the effective weighted average
interest rate for the senior credit facilities would change pro forma
interest expense by $203, $152 and $152 for the fiscal year ended
December 26, 1998 and the nine months ended September 26, 1998 and
September 25, 1999, respectively.
(g) To eliminate Sierra's historical interest expense related to debt that,
according to the terms of the Sierra stock purchase agreement, will be
repaid.
(h) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (i) Charles River's historical tax provision
using historical amounts and (ii) the direct tax effects of the pro forma
adjustments described above.
(i) Represents the income tax adjustment required to result in a pro forma
income tax provision based on: (i) Sierra's historical tax provision using
historical amounts and (ii) the direct tax effects of the pro forma
adjustments described above.
P-14
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Charles River Laboratories, Inc.
Report of Independent Accountants.......................................... F-2
Consolidated Statements of Income for the years ended December 28, 1996,
December 27, 1997 and December 26, 1998................................. F-3
Consolidated Balance Sheets as of December 27, 1997 and December 26, 1998.. F-4
Consolidated Statement of Cash Flows for the years ended December 28, 1996,
December 27, 1997 and December 26, 1998 ................................ F-5
Consolidated Statement of Changes in Shareholder's Equity for the years
ended December 30, 1995, December 28, 1996, December 27, 1997 and
December 26, 1998....................................................... F-7
Notes to Consolidated Financial Statements................................. F-8
Consolidated Statements of Income for the nine months ended September 26,
1998 and September 25, 1999 (unaudited)................................. F-24
Consolidated Balance Sheet as of September 25, 1999 (unaudited)............ F-25
Consolidated Statements of Cash Flows for the nine months ended
September 26, 1998 and September 25, 1999 (unaudited)................... F-26
Notes to Interim Consolidated Financial Statements (unaudited)............. F-28
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Charles River Laboratories, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in shareholder's equity and
cash flows present fairly, in all material respects, the financial position of
Charles River Laboratories, Inc. and its subsidiaries (the "Company") at
December 26, 1998 and December 27, 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 26,
1998, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 16(b) presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 30, 1999,
except as to Note 2, which is as of September 29, 1999
F-2
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
<TABLE>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales related to products........................................... $146,477 $156,800 $163,377
Net sales related to services........................................... 9,127 13,913 23,924
-------- -------- --------
Total net sales......................................................... 155,604 170,713 193,301
Costs and expenses
Cost of products sold................................................ 91,600 102,980 107,146
Cost of services provided............................................ 6,177 8,480 15,401
Selling, general and administrative.................................. 28,327 30,451 34,142
Amortization of goodwill and intangibles............................. 610 834 1,287
Restructuring charges................................................ 4,748 5,892 --
------- ------- -------
Operating income........................................................ 24,142 22,076 35,325
Other income (expense)
Interest income...................................................... 654 865 986
Interest expense..................................................... (491) (501) (421)
Gain/(loss) from foreign currency, net............................... 84 (221) (58)
------- ------- -------
Income before income taxes, minority interests and earnings
from equity investments.............................................. 24,389 22,219 35,832
Provision for income taxes.............................................. 10,889 8,499 14,123
------- ------- -------
Income before minority interests and earnings from equity investments... 13,500 13,720 21,709
Minority interests...................................................... (5) (10) (10)
Earnings from equity investment......................................... 1,750 1,630 1,679
------- ------- -------
Net income.............................................................. $15,245 $15,340 $23,378
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
December 27, December 26,
1997 1998
------------ ------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents................................................ $17,915 $24,811
Trade receivables, less allowances of $688 and $898, respectively........ 28,280 32,466
Inventories.............................................................. 28,904 30,731
Deferred income taxes.................................................... 4,751 5,432
Due from affiliates...................................................... 1,153 982
Other current assets..................................................... 2,320 2,792
------- -------
Total current assets................................................... 83,323 97,214
Property, plant and equipment, net.......................................... 76,889 82,690
Goodwill and other intangibles, less accumulated amortization of $4,356
and $5,591 respectively.................................................. 8,621 17,705
Investments in affiliates................................................... 16,140 18,470
Other assets................................................................ 11,238 17,331
------- -------
Total assets........................................................... $196,211 $233,410
======= =======
Liabilities and Shareholder's Equity
Current liabilities
Current portion of long-term debt........................................ $83 $202
Current portion of capital lease obligations............................. 144 188
Accounts payable......................................................... 7,566 11,615
Accrued compensation..................................................... 8,601 9,972
Accrued ESLIRP........................................................... 4,407 5,160
Deferred income.......................................................... 1,339 3,419
Accrued restructuring.................................................... 2,732 1,113
Accrued liabilities...................................................... 8,282 13,794
Accrued income taxes..................................................... 8,423 14,329
------- -------
Total current liabilities.............................................. 41,577 59,792
Long-term debt.............................................................. 170 248
Capital lease obligations................................................... 966 944
Other long-term liabilities................................................. 3,844 3,861
------- -------
Total liabilities...................................................... 46,557 64,845
------- -------
Commitments and contingencies (Note 12)
Minority interests.......................................................... 290 306
Shareholder's equity
Common stock, par value $1 per share, 1,000 shares issued................ 1 1
Capital in excess of par value........................................... 17,836 17,836
Retained earnings........................................................ 140,320 156,776
Accumulated other comprehensive income................................... (8,793) (6,354)
------- -------
Total shareholder's equity............................................. 149,364 168,259
------- -------
Total liabilities and shareholder's equity............................. $196,211 $233,410
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows relating to operating activities
Net income.............................................................. $15,245 $15,340 $23,378
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 9,528 9,703 10,895
Provision for doubtful accounts...................................... 81 166 181
Earnings from equity investments..................................... (1,750) (1,630) (1,679)
Minority interests................................................... 5 10 10
Deferred income taxes................................................ (5,693) (1,363) (3,133)
Stock compensation expense........................................... 24 84 333
Property, plant and equipment write downs............................ -- 822 --
Changes in assets and liabilities
Trade receivables.................................................... (1,840) (2,232) (1,712)
Inventories.......................................................... (1,552) (1,917) (1,250)
Due from affiliates.................................................. (845) (462) 538
Other current assets................................................. 133 165 (241)
Other assets......................................................... (1,787) 611 (4,990)
Accounts payable..................................................... (180) 594 2,853
Accrued compensation................................................. (347) 674 2,090
Accrued ESLIRP....................................................... 674 499 821
Deferred income...................................................... (62) 105 1,278
Accrued restructuring................................................ -- 2,732 (1,619)
Accrued liabilities.................................................. 1,705 431 3,970
Accrued income taxes................................................. 6,852 (500) 5,605
*Other long-term liabilities.......................................... 354 (148) (629)
------ ------ ------
*Net cash provided by operating activities.......................... 20,545 23,684 36,699
------ ------ ------
Cash flows relating to investing activities
Dividends received from equity investments.............................. 725 773 681
Capital expenditures.................................................... (11,572) (11,872) (11,909)
*Cash paid for acquisition of businesses................................. (831) (1,207) (11,121)
------ ------ ------
*Net cash used in investing activities.............................. (11,678) (12,306) (22,349)
------ ------ ------
Cash flows relating to financing activities
Proceeds from long-term debt............................................ 21 281 199
Payment on long-term debt............................................... (3,698) (119) (1,247)
Payment on capital lease obligations.................................... (194) (346) (48)
*Net activity with Bausch & Lomb......................................... (197) (12,755) (6,922)
----- ----- -----
* Net cash used in financing activities.............................. (4,068) ( 12,939) (8,018)
----- ----- -----
*Effect of exchange rate changes on cash and cash equivalents.............. (478) (181) 564
----- ----- -----
Net change in cash and cash equivalents.................................... 4,321 (1,742) 6,896
*Cash and cash equivalents, beginning of year.............................. 15,336 19,657 17,915
----- ----- -----
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
**Cash and cash equivalents, end of year................................... $19,657 $17,915 $24,811
====== ====== ======
Supplemental cash flow information
Cash paid for taxes..................................................... $4,821 $4,254 $4,681
Cash paid for interest.................................................. 414 287 177
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(dollars in thousands)
<TABLE>
Accumulated
Other Capital
Retained Comprehensive Common In Excess
Total Earnings Income Stock of Par
----- -------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 30, 1995........................ $142,537 $122,687 $2,013 $ 1 $17,836
Components of comprehensive income:
Net income.................................... 15,245 15,245 -- -- --
Foreign currency translation.................. (3,467) -- (3,467) -- --
Minimum pension liability adjustment.......... 15 -- 15 -- --
-------
Total comprehensive income.................. 11,793
------- -- -- -- --
Net activity with Bausch & Lomb.................. (197) (197) -- -- --
------- ------- ------ ----- ------
Balance at December 28, 1996........................ $154,133 $137,735 $(1,439) $1 $17,836
Components of comprehensive income:
Net income.................................... 15,340 15,340 -- -- --
Foreign currency translation.................. (6,844) -- (6,844) -- --
Minimum pension liability adjustment.......... (510) -- (510) --
-------
Total comprehensive income.................. 7,986
------- -- -- -- --
Net activity with Bausch & Lomb.................. (12,755) (12,755) -- -- --
------- ------- ------ ----- ------
Balance at December 27, 1997........................ $149,364 $140,320 $(8,793) $1 $17,836
Components of comprehensive income:
Net income.................................... 23,378 23,378 -- -- --
Foreign currency translation.................. 2,839 -- 2,839 -- --
Minimum pension liability adjustment.......... (400) -- (400) --
-------
Total comprehensive income.................. 25,817
------- -- -- -- --
Net activity with Bausch & Lomb.................. (6,922) (6,922) -- -- --
------- ------- ------ ----- ------
Balance at December 26, 1998........................ $168,259 $156,776 $(6,354) $1 $17,836
======= ======= ====== ===== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Charles River Laboratories, Inc. (the "Company") is a commercial producer
and supplier of animal research models for use in the discovery, development and
testing of pharmaceuticals. In addition, the Company is a supplier of biomedical
products and services in several specialized niche markets. The Company is a
100% owned subsidiary of Bausch & Lomb Incorporated (Bausch & Lomb). The
Company's fiscal year is the twelve month period ending the last Saturday in
December.
Basis of Presentation
As of the dates and for the periods presented in these financial
statements, the assets, liabilities, operations and cash flows relating to the
Company are held by Bausch & Lomb and some affiliated entities. As more fully
described in Note 2, effective September 29, 1999, the Company consummated a
recapitalization agreement that provides for the contribution of all such
assets, liabilities and operations to an existing dormant subsidiary which was
subsequently renamed CRL Holdings, Inc. These consolidated financial statements
include all such assets, liabilities, operations and cash flows as of and for
each of the periods presented.
Principles of Consolidation
The financial statements include all majority-owned U.S. and non-U.S.
subsidiaries. Intercompany accounts, transactions and profits are eliminated.
Affiliated companies over which the Company does not have the ability to
exercise control are accounted for using the equity method (Note 11).
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents include time deposits and highly liquid investments with
remaining maturities at the purchase date of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method. All inventories have been reduced to
their net realizable value. Costs for primates are accumulated in inventory
until particular primates are sold or declared breeders.
Property, Plant and Equipment
Property, plant and equipment, including improvements that significantly
add to productive capacity or extend useful life, are recorded at cost, while
maintenance and repairs are expensed as incurred. Depreciation is calculated for
financial reporting purposes using the straight-line method based on the
estimated useful lives of the assets as follows: building, 20 to 40 years;
machinery and equipment, 2 to 20 years; and leasehold improvements, shorter of
estimated useful life or the lease periods.
F-8
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
Intangible Assets
Intangible assets are amortized on a straight-line basis over periods
ranging from eight to 20 years. Intangible assets consist primarily of goodwill,
patents and non-compete agreements.
Other Assets
Other assets consist primarily of the cash surrender value of life
insurance net long-term deferred tax assets and the net value of primate
breeders. The value of primate breeders is amortized over 20 years. Total
amortization expense for primate breeders was $378, $348 and $323 in 1996, 1997
and 1998 and is included in costs of products sold and services provided.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets and intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposal are less than its carrying amount. In such instances, the
carrying value of long-lived assets is reduced to the estimated fair value, as
determined using an appraisal or discounted cash flow, as appropriate.
Stock-Based Compensation Plans
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), the Company accounts for
its stock-based compensation plans using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25).
Revenue Recognition
Revenues are recognized when products are shipped or as services are
performed. Deferred income represents cash received in advance of delivery of
primates from customers under contract and is recognized at time of delivery.
Fair Value of Financial Instruments
The carrying amount of the Company's significant financial instruments,
which includes accounts receivable and debt, approximate their fair values at
December 26, 1998 and December 27, 1997.
Income Taxes
As of December 26, 1998, the Company was not a separate taxable entity for
federal, state or local income tax purposes and its results of operations were
included in the consolidated Bausch & Lomb tax returns. The Company accounts for
income taxes under the separate return method in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Foreign Operations
F-9
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
The financial statements of all non-U.S. subsidiaries are translated into
U.S. dollars as follows: assets and liabilities at year-end exchange rates;
income, expenses and cash flows at average exchange rates; and shareholder's
equity at historical exchange rates. The resulting translation adjustment is
recorded as a component of accumulated other comprehensive income on the
accompanying balance sheet.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables from
customers within the pharmaceutical and biomedical industries. As these
industries have experienced significant growth and its customers are
predominantly well-established and viable, the Company believes its exposure to
credit risk to be minimal.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (FAS 130) at the beginning of 1998. As it
relates to the Company, comprehensive income is defined as net income plus the
sum of currency translation adjustments and the change in minimum pension
liability (collectively, other comprehensive income), and is presented in the
Consolidated Statement of Changes in Shareholder's Equity.
Segment Reporting
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131), which requires financial and descriptive information
about an enterprise's reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available and regularly evaluated by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company
operates in two business segments, research models and biomedical products and
services.
Reclassifications
Some amounts in prior year financial statements and related notes have
been changed to conform with current year presentation.
2. Subsequent Events
On September 29, 1999 CRL Acquisition LLC, an affiliate of DLJ Merchant
Banking Partners II, L.P., consummated a transaction in which it acquired 87.5%
of the common stock of Charles River Laboratories, Inc. from Bausch & Lomb for
approximately $443 million. This transaction was effected through Charles River
Laboratories Holdings, Inc. ("Holdings"), a holding company with no operations
or assets other than its ownership of 100% of the Company's outstanding stock.
This transaction will be accounted for as a leveraged recapitalization, which
will have no impact on the historical basis of the Company's assets and
liabilities. In addition, concurrent with the transaction, the Company purchased
all of the outstanding shares of common stock of SBI Holdings, Inc. ("Sierra"),
a pre-clinical biomedical services company, for $24.0 million. This acquisition
will be accounted for as a purchase business combination with the operating
results of Sierra being included in the Company's consolidated operating results
beginning on the effective date of the acquisition. These transactions are
hereafter referred to as the "Acquisitions".
The Acquisitions and related transaction fees and expenses were funded as
follows:
F-10
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
o issuance of 150,000 units, each consisting of a $1,000 principal amount
of 13.5% senior subordinated note (the Series A Note Offering) and one
warrant to purchase 3.942 shares of common stock of Holdings;
o borrowings by the Company of $162.0 million under a new senior secured
credit facility;
o an equity investment of $92.4 million in Holdings;
o senior discount debentures with warrants issued by Holdings for $37.6
million; and
o subordinated discount note issued by Holdings to Bausch & Lomb for
$43.0 million.
The Series A Note Offering (the "Notes") will mature on October 1, 2009.
The Notes will not be redeemable at the issuers' option prior to October 1,
2004. Thereafter, the Notes will be subject to redemption at any time at the
option of the issuer at redemption prices set forth in the Notes. Interest on
the Notes will accrue at the rate of 13.5% per annum and will be payable
semi-annually in arrears on October 1 and April 1 of each year, commencing on
April 1, 2000. The payment of principal and interest on the Notes will be
subordinated in right to the prior payment of all Senior Debt, as defined. The
senior secured credit facility includes a $40 million term loan A facility, a
$120 million term loan B facility and a $30 million revolving credit facility.
The term loan A facility will mature on October 1, 2005, the term loan B
facility will mature on October 1, 2007 and the revolving credit facility will
mature on October 1, 2005. Interest on the term loan A, term loan B and
revolving credit facility will accrue at either a base rate plus 1.75% or LIBOR
plus 3.0%, at the Company's option (8.5%, 9.25% and 8.5%, respectively, at
September 29, 1999) per annum and will be paid quarterly in arrears commencing
on December 30, 1999. A commitment fee in an amount equal to 0.50% per annum on
the daily average unused portion of the revolving credit facility will be paid
quarterly in arrears. Upon the occurrence of a change in control, as defined,
the issuer will be obligated to make an offer to each holder of the Notes to
repurchase all or any part of such holders' Notes at an offer price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest. Restrictions under the Notes include some sales of assets, some
payments of dividends and incurrence of debt, and limitations on some mergers
and transactions with affiliates. With respect to the Notes and the senior
secured credit facility, the Company will be required to maintain some
financial ratios and covenants. The senior discount debentures contain
covenants and events of default substantially similar to those contained in the
Notes. The subordinated discount note accretes at the rate of 12% prior to
October 1, 2004 and thereafter at 15% to an aggregate principal amount of
$175.3 million at maturity on October 1, 2010. The subordinated discount notes
are subject to mandatory redemption upon a change of control at the option of
the holder thereof and are subject to redemption at Holding's option at any
time.
As previously discussed, Holdings is a holding company with no operations
or assets other than its ownership of 100% of Charles River's outstanding common
stock. The Company neither guarantees nor pledges its assets as collateral for
the senior discount debenture or the subordinated discount note, which Holdings
issued. Holdings has no source of liquidity to meet its cash requirements. As
such, repayment of the obligations as outlined above will be dependent upon
either dividends from the Company, which are restricted by terms contained in
the indenture governing the Notes and the new senior secured credit facility, or
through a refinancing or equity transaction at the Holdings level.
3. Restructuring Charges and Asset Impairments
In June 1996 and April 1997, the Bausch & Lomb board of directors approved
plans to restructure portions of the Company. As a result, pre-tax restructuring
charges of $4,748 and $5,892 were recorded in 1996 and 1997, respectively. The
major components of the plans are summarized in the table below:
1996 1997
------ ------
Employee separations.................................. $2,283 $3,200
Asset writedowns...................................... 1,631 2,157
Other................................................. 834 535
----- -----
$4,748 $5,892
===== =====
The overall purpose of the restructuring charges was to reduce costs and
improve profitability by closing excess capacity and eliminating associated
personnel, reducing excess corporate, administrative and professional personnel,
and exiting several small unprofitable product-lines. The restructuring actions
affected both the research model and biomedical products and services divisions.
In total over 70 individuals were terminated in connection with these actions.
These restructuring efforts have reduced the Company's fixed cost structure
and realigned the business to meet its strategic objectives through the closure,
relocation and consolidation of breeding, distribution, sales and administrative
operations, and workforce reductions. Some severance costs are being paid
over periods greater than one year. Further, the Company is under a court order
issued in June 1997 to relocate a portion of its primate operations from two
F-11
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
islands located in the Florida Keys to Miami, Florida. Also, the Company is
required to refoliate the islands due to damage caused by the primates. Due to
complications arising within the plan to relocate the primates, the relocation
has taken longer than anticipated to complete, as the primates needed to be
moved in a controlled manner in order to minimize mortality and breeding
disruption. Asset writedowns relate primarily to the closing of facilities and
losses resulting from equipment dispositions. Other charges included
miscellaneous costs and other commitments.
The following table sets forth the activity in the restructuring reserves
through December 26, 1998:
Restructuring Programs
----------------------------
1996 1997 Total
---- ---- -----
Restructuring provision........................ $4,748 -- $4,748
Cash payments.................................. (3,117) -- (3,117)
Asset write-downs.............................. (1,631) -- (1,631)
----- ----- -----
Balance, December 28, 1996.................. -- -- --
Restructuring provision........................ -- 5,892 5,892
Cash payments ................................. -- (1,725) (1,725)
Asset write-downs.............................. -- (1,435) (1,435)
----- ----- -----
Balance, December 27, 1997.................. -- 2,732 2,732
Cash payments.................................. -- (897) (897)
Asset write-downs.............................. -- (722) (722)
----- ----- -----
Balance, December 26, 1998.................. $ -- $1,113 $1,113
===== ===== =====
Reserves remaining at December 26, 1998 primarily represent liabilities for
continuing severance payments and relocation and refoliation costs. The
remaining balance of $1,113 is expected to be fully utilized by the end of 1999.
4. Supplemental Balance Sheet Information
The composition of inventories is as follows:
December 27, December 26,
1997 1998
------------ ------------
Raw materials and supplies........................... $ 5,222 $ 4,932
Work in process...................................... 379 1,088
Finished products.................................... 23,303 24,711
----- -----
Inventories....................................... $28,904 $30,731
===== =====
F-12
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
The composition of property, plant and equipment is as follows:
December 27, December 26,
1997 1998
------------ ------------
Land................................................. $ 7,473 $ 7,783
Buildings............................................ 82,963 90,919
Machinery and equipment.............................. 63,192 74,876
Leasehold improvements............................... 1,033 3,063
Furniture and fixtures............................... 1,383 1,532
Vehicles............................................. 2,864 3,006
Construction in progress............................. 8,483 6,176
------- -------
167,391 187,355
Less accumulated depreciation........................ (90,502) (104,665)
------- -------
Net property, plant and equipment................. $ 76,889 $ 82,690
======= =======
5. Long-Term Debt
The Company has various debt instruments outstanding at its international
subsidiaries aggregating $253 and $450 at December 27, 1997 and December 26,
1998, respectively, with interest rates ranging from 3% to 15.2% and maturities
ranging from September 1999 through June 2003.
6. Leases
Capital Leases
The Company has one capital lease for a building and three capital leases
for equipment. These leases are capitalized using interest rates considered
appropriate at the inception of each lease. Following is an analysis of assets
under capital lease:
December 27, December 26,
1997 1998
------------ ------------
Building............................................. $2,001 $2,001
Equipment............................................ 179 179
Accumulated depreciation............................. (1,213) (1,457)
----- -----
$ 967 $ 723
===== =====
F-13
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
Capital lease obligations amounted to $1,110 and $1,132 at December 27,
1997 and December 26, 1998, respectively, with maturities through 2003 at
interest rates ranging from 8.6% to 9.3%. Future minimum lease payments under
capital lease obligations at December 26, 1998 are as follows:
1999.........................................................$ 282
2000......................................................... 282
2001......................................................... 282
2002......................................................... 282
2003......................................................... 534
-----
Total minimum lease payments................................. 1,662
Less amount representing interest............................ (530)
-----
Present value of net minimum lease payments..................$1,132
=====
Operating Leases
The Company has various operating leases for machinery and equipment,
automobiles, office equipment, land and office space. Rent expense for all
operating leases was $2,944 in 1996, $3,111 in 1997 and $3,273 in 1998. Future
minimum payments by year and in the aggregate, under noncancellable operating
leases with initial or remaining terms of one year or more consist of the
following at December 26, 1998:
1999.........................................................$3,182
2000......................................................... 2,932
2001......................................................... 1,994
2002......................................................... 1,088
2003......................................................... 488
Thereafter................................................... 1,690
------
$11,374
======
7. Income Taxes
An analysis of the components of income before income taxes and minority
interests and the related provision for income taxes is presented below:
<TABLE>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Income before equity in earnings of foreign subsidiaries,
income taxes and minority interests
U.S........................................................ $15,422 $13,497 $22,364
Non-U.S.................................................... 8,967 8,722 13,468
------ ------ ------
$24,389 $22,219 $35,832
====== ====== ======
F-14
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Income tax provision
Current:
Federal................................................. $ 5,506 $ 6,202 $ 7,730
Foreign................................................. 4,217 2,528 6,171
State and local......................................... 1,406 1,397 1,833
------ ------ ------
Total current......................................... 11,129 10,127 15,734
------ ------ ------
Deferred:
Federal................................................. (496) (1,867) (597)
Foreign................................................. 376 498 (887)
State................................................... (120) (259) (127)
------ ------ ------
Total deferred........................................ (240) (1,628) (1,611)
------ ------ ------
$10,889 $8,499 $14,123
====== ====== ======
</TABLE>
Deferred taxes, detailed below, recognize the impact of temporary
differences between the amounts of assets and liabilities recorded for financial
statement purposes and such amounts measured in accordance with tax laws.
Realization of benefit for net operating losses and foreign tax credit
carryforwards, which expire between 2002 and 2011, is contingent on future
taxable earnings. A valuation allowance has been recorded for foreign tax
credits, which may not be realized.
<TABLE>
December 27, 1997 December 26, 1998
-------------------- --------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Current:
Inventories........................................... $ 588 -- $ 827 --
Restructuring accruals................................ 1,584 -- 1,006 --
Employee benefits and compensation.................... 2,023 -- 3,077 --
Other accruals........................................ 556 -- 522 --
----- ----- ------ -----
4,751 -- 5,432 --
----- ----- ------ -----
Non-current:
Net operating loss and credit carryforwards........... 1,776 2,960
Depreciation and amortization......................... 3,326 1,723 3,672 836
Valuation allowance on foreign tax credits............ (1,776) (1,766)
Other.............................................. 654 -- 921 --
----- ----- ------ -----
3,980 1,723 5,787 836
----- ----- ====== =====
$8,731 $1,723 $11,219 $836
===== ===== ====== =====
</TABLE>
Reconciliations of the statutory U.S. federal income tax rate to effective
tax rates are as follows:
F-15
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
<TABLE>
Fiscal Year Ended
---------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory U.S. tax rate............................. 35.0% 35.0% 35.0%
Foreign tax rate differences............................... 6.0 (0.1) 1.6
Non-deductible goodwill amortization....................... 0.3 0.4 0.6
State income taxes, net of federal tax benefit............. 3.4 3.3 3.1
Other...................................................... (0.6) (0.4) (0.8)
---- ---- ----
44.1% 38.2% 39.5%
==== ==== ====
</TABLE>
The Company's foreign subsidiaries have undistributed earnings at December
26, 1998. Those earnings are considered to be indefinitely reinvested and,
accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
8. Employee Benefits
The Company sponsors one defined contribution plan and two defined benefit
plans. The Company's defined contribution plan ("Charles River Laboratories
Employee Savings Plan") qualifies under section 401(k) of the Internal Revenue
Code. It covers substantially all U.S. employees and contains a provision
whereby the Company matches two percent of employee contributions up to four
percent. The costs associated with the defined contribution plan totaled $395,
$416 and $498 in 1996, 1997, and 1998, respectively.
One of the Company-sponsored defined benefit plans (Charles River
Laboratories, Inc. Pension Plan) is a qualified, non-contributory plan that also
covers substantially all U.S. employees. Benefits are based on participants'
final average monthly compensation and years of service. Participants' rights
vest upon completion of five years of service.
Under another defined benefit plan, the Company provides some executives
with supplemental retirement benefits. This plan (Executive Supplemental Life
Insurance Retirement Plan or ESLIRP) is generally unfunded and non-qualified
under the provisions of the Employee Retirement Income Securities Act of 1974.
The following table provides reconciliations of the changes in benefit
obligations, fair value of plan assets and funded status of the two defined
benefit plans.
<TABLE>
Pension Benefit Plans
---------------------
1997 1998
------ ------
<S> <C> <C>
Reconciliation of benefit obligation
Benefit/obligation at beginning of year........................ $17,570 $20,531
Service cost................................................... 804 795
Interest cost.................................................. 1,413 1,588
Benefit payments............................................... (710) (742)
Actuarial loss................................................. 1,454 2,940
------ ------
Benefit/obligation at end of year.............................. $20,531 $25,112
====== ======
Reconciliation of fair value of plan assets
F-16
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
<CAPTION>
Pension Benefit Plans
---------------------
1997 1998
------ ------
<S> <C> <C>
Fair value of plan assets at beginning of year................. $17,394 $19,237
Actual return on plan assets................................... 2,328 7,773
Employer contributions......................................... 225 225
Benefit payments............................................... (710) (742)
------ ------
Fair value of plan assets at end of year....................... $19,237 $26,493
====== ======
Funded status
Funded status at beginning of year............................. $(1,294) $ 1,380
Unrecognized transition obligation............................. 705 564
Unrecognized prior-service cost................................ (31) (27)
Unrecognized gain.............................................. (4,331) (7,178)
------ ------
Accrued benefit (cost)......................................... $(4,951) $(5,261)
====== ======
Amounts recognized in the consolidated balance sheet
Accrued benefit cost........................................... $(6,945) $(7,849)
Intangible asset............................................... 358 286
Accumulated other comprehensive income......................... 982 1,381
------ ------
Net amount recognized.......................................... $(5,605) $(6,182)
====== ======
</TABLE>
Key weighted-average assumptions used in the measurement of the Company's
benefit obligations are shown in the following table:
Fiscal Year Ended
---------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
Discount rate........................... 7.75% 7.5% 7%
Expected return on plan assets.......... 10% 10% 10%
Rate of compensation increase........... 5.0% 4.75% 4.75%
The following table provides the components of net periodic benefit
cost for the two defined benefit plans for 1996, 1997 and 1998:
Defined Benefit Plans
---------------------------
1996 1997 1998
------ ------ ------
Components of net periodic benefit cost
Service cost...................................... $ 690 $ 804 $ 795
Interest cost..................................... 1,236 1,413 1,588
Expected return on plan assets.................... (1,463) (1,717) (1,901)
Amortization of transition obligation............. 141 141 141
Amortization of prior-service cost................ (3) (3) (3)
Amortization of net gain.......................... (189) (172) (85)
----- ----- -----
Net periodic benefit cost......................... $ 412 $ 466 $ 535
===== ===== =====
F-17
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $6,752, $6,409 and $0, respectively, as of
December 27, 1997, and $8,205, $7,745 and $0, respectively, as of December 26,
1998.
The Company had an adjusted minimum pension liability of $1,636 ($982, net
of tax) and $2,302 ($1,381, net of tax) as of December 27, 1997 and December 26,
1998, which represented the excess of the minimum accumulated net benefit
obligation over previously recorded pension liabilities.
9. Stock Compensation Plans
Stock Options
Bausch & Lomb sponsors several stock-based compensation plans in which the
Company's employees participate. Stock options vest ratably over three years and
expire ten years from the grant date. The exercise price on all options issued
has been equal to the fair market value of the underlying security on the date
of the grant. Vesting is contingent upon continued employment with Bausch &
Lomb. The total number of shares available for grant in each calendar year for
all plans combined excluding incentive stock options shall be no greater than
three percent of the total number of outstanding shares of common stock as of
the first day of each such year. No more than six million shares are available
for granting purposes as incentive stock options under Bausch & Lomb's current
plan. As of December 26, 1998, 2.5 million shares remain available for such
grants.
All of Bausch & Lomb's stock-based compensation plans are accounted for
under the provisions of APB 25. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method of that Statement.
For purposes of this disclosure, the fair value of each fixed option grant
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants outstanding in
1996, 1997 and 1998:
1996 1997 1998
------ ------ ------
Risk-free interest rate.......................... 6.11% 5.66% 4.69%
Dividend yield................................... 2.42% 2.54% 2.48%
Volatility factor................................ 24.87% 25.17% 25.67%
Weighted average expected life (years)........... 5 5 4
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Bausch & Lomb's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Had compensation expense for the Company's portion of fixed options been
determined consistent with FAS 123, the Company's net income would have been
reduced to the pro forma amounts indicated below:
F-18
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
Net Income
--------------------------
As Reported Pro Forma
----------- ---------
1998...................... $23,378 $22,859
1997...................... 15,340 15,021
1996...................... 15,245 15,042
A summary of the status of the Company's portion of fixed stock option
plans at year end 1996, 1997 and 1998 is presented below:
<TABLE>
1996 1997 1998
-------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Price Exercise Price Exercise Price
Shares (Per Share) Shares (Per Share) Shares (Per Share)
-------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.. 225,584 $40.84 294,162 $39.90 326,722 $41.00
Granted........................... 71,643 35.86 77,154 42.32 73,280 50.64
Exercised......................... (80) 27.40 (13,350) 30.34 (73,481) 39.45
Forfeited......................... (2,985) 43.60 (31,244) 41.99 (1,370) 41.48
------- ----- ------- ----- ------- -----
Outstanding at end of year........ 294,162 39.90 326,722 41.00 325,151 43.98
======= ===== ======= ===== ======= =====
Options exercisable at year end... 177,155 193,097 176,096
======= ======= =======
Weighted-average fair value of
options granted during the year... $ 9.34 $ 10.59 $ 10.93
======= ======= =======
</TABLE>
The following presents additional information about the Company's fixed
stock options outstanding at December 26, 1998:
<TABLE>
Options Outstanding Options Exercisable
---------------------------------------------- ------------------------------
Weighted
Average Weighted
Remaining Average Weighted
Number Contractual Exercise Price Number Average
Range of Exercise Prices Per Share Outstanding Life (Years) (Per Share) Exercisable Exercise Price
- ---------------------------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$26 to $35........................ 52,990 6.3 $34.78 39,726 $34.60
$36 to $45........................ 131,413 7.3 41.35 81,577 40.88
$46 to $55........................ 140,748 7.5 49.90 54,793 48.26
------- -------
$26 to $55........................ 325,151 7.2 43.98 176,096 41.76
======= =======
</TABLE>
Stock Awards
Bausch & Lomb issued restricted stock awards to directors, officers and
other key personnel. These awards have vesting periods up to three years with
vesting criteria based upon the attainment of particular Economic-Value-Added
(EVA) metrics and continued employment until applicable vesting dates. EVA is a
measure of capital utilization. It is not, nor is it intended to be, a measure
of operating performance in accordance with generally accepted accounting
principles. Compensation expense is recorded based on the applicable vesting
criteria and, for those awards with performance goals, as such goals are met. In
1996, 1997 and 1998, 2,484, 1,400 and 1,200 such
F-19
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
awards were granted to Company employees at weighted average market values of
$35.92, $42.25 and $51.63 per share, respectively. The compensation expense
relating to stock awards in 1996, 1997 and 1998 was $24, $84 and $333,
respectively.
10. Business Acquisitions
The Company acquired several businesses during the three-year period ended
December 26, 1998. All acquisitions have been accounted for under the purchase
method of accounting. The results of operations of the acquired business are
included in the consolidated financial statements from the date of acquisition.
Significant acquisitions include the following:
On March 30, 1998, the Company acquired 100% of the outstanding stock of
Tektagen, Inc. ("Tektagen") for $8,000 and assumed debt equal to approximately
$850. Tektagen provides quality control testing and consulting services to the
biotechnology and pharmaceutical industries. The purchase price exceeded the
fair value of the net assets acquired by approximately $6,600, which is being
amortized on a straight line basis over 15 years. In addition, during 1998 the
Company acquired an additional biomedical service business and one research
model business; the impact of each is considered immaterial to the Company's
financial statements taken as a whole.
On July 31, 1996, the Company reacquired the assets of two businesses it
previously owned for approximately $1,100 in cash plus the forgiveness of
approximately $5,800 in debt. These businesses represent substantially all of
the Company's primate operations. The purchase price was allocated to the fair
value of net assets acquired.
The following selected unaudited pro forma consolidated results of
operations are presented as if each of the acquisitions had occurred as of the
beginning of the period immediately preceding the period of acquisition after
giving effect to particular adjustments for the amortization of goodwill and
related income tax effects. The pro forma data is for informational purposes
only and does not necessarily reflect the results of operations had the
companies operated as one during the period. No effect has been given for
synergies, if any, that may have been realized through the acquisitions.
Fiscal Year Ended
------------------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
(Amounts unaudited)
Net sales................... $161,708 $179,513 $196,973
Operating income............ 25,497 21,830 35,154
Net income.................. 15,966 15,018 22,913
In addition, during 1997 and 1998 the Company made contingent payments of
$640 and $681, respectively, to the former owner of an acquired business in
connection with an additional purchase price commitment.
11. Joint Ventures
The Company holds investments in several joint ventures. These joint
ventures are separate legal entities whose purpose is consistent with the
overall operations of the Company and represent geographical expansions of
existing Company markets. The financial results of two of the joint ventures are
consolidated into the Company's results as the Company has the ability to
exercise control over these entities. The interests of the outside joint venture
partners in these two joint ventures has been recorded as minority interests
totaling $290 at December 27, 1997 and $306 at December 26, 1998.
F-20
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
The Company also has investments in two other joint ventures that are
accounted for on the equity method as the Company does not have the ability to
exercise control over the operations. Charles River Japan is a 50 /50 joint
venture with Ajinomoto Co., Inc. and is an extension of the Company's research
model business in Japan. Dividends received from Charles River Japan amounted to
$725 in 1996, $773 in 1997, and $681 in 1998. Charles River Mexico, a joint
venture which is an extension of the Company's avian (or bird) business in
Mexico, is not significant to the Company's operations.
Summarized financial statement information for the unconsolidated joint
ventures is as follows:
<TABLE>
Fiscal Year Ended
------------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
Condensed Combined Statements of Income
<S> <C> <C> <C>
Net sales................................ $43,978 $44,744 $39,798
Operating income......................... 7,712 7,484 6,756
Net income............................... 3,500 3,337 3,445
</TABLE>
December 27, December 26,
1997 1998
------------ ------------
Condensed Combined Balance Sheets
Current assets............................. $18,466 $19,388
Non-current assets......................... 34,774 36,376
------ ------
$53,240 $55,764
====== ======
Current liabilities........................ $17,105 $13,501
Non-current liabilities.................... 5,237 6,617
Shareholders' equity....................... 30,898 35,646
------ ------
$53,240 $55,764
====== ======
12. Commitments and Contingencies
Insurance
The Company maintains insurance for workers' compensation, auto liability
and general liability. The per claim loss limits are $250, with annual aggregate
loss limits of $1,500. Related accruals were $849 and $2,363 on December 27,
1997 and December 26, 1998, respectively. Separately, the Company has provided
three letters of credit in favor of the insurance carriers in the amount of
$825.
Litigation
Various lawsuits, claims and proceedings of a nature considered normal to
its business are pending against the Company. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially
affect the Company's consolidated financial statements. The most potentially
significant claim is described below.
As discussed in Note 3, the Company is currently under a court order
issued in June 1997 to remove its primate operations from two islands located in
the Florida Keys. The mandate asserts that the Company's operations have
F-21
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
contributed to the defoliation of some protected plant life. Reserves of $500
are included in the restructuring reserve recorded in the accompanying
consolidated financial statements to provide for relocation costs and any
exposures in connection with the refoliation.
13. Related Party Transactions
The Company historically has operated autonomously from Bausch & Lomb.
However, some costs and expenses including insurance, information technology
and other miscellaneous expenses were charged to the Company on a direct basis.
Management believes these charges are based upon assumptions that are reasonable
under the circumstances. However, these charges and estimates are not
necessarily indicative of the costs and expenses which would have resulted had
the Company incurred these costs as a separate entity. Charges of approximately
$460, $470 and $250 for these items are included in costs of products sold and
services rendered and selling, general and administrative expense in the
accompanying consolidated statements of income for the years ended 1996, 1997
and 1998, respectively. The Company does not expect the estimated stand alone
costs to be significantly different from the historical costs allocated by B&L
due to the autonomy with which the Company operates.
The accompanying financial statements include a line item "net activity
with Bausch and Lomb" which comprises the above referenced intercompany
allocations and the net distributions made by the Company to B&L.
14. Geographic and Business Segment Information
The Company is organized into geographic regions for management reporting
with operating income being the primary measure of regional profitability.
Some general and administrative expenses, including some centralized services
provided by regional offices, are allocated based on business segment sales. The
accounting policies used to generate geographic results are the same as the
Company's overall accounting policies.
The following table presents sales and other financial information by
geography for the years 1996, 1997 and 1998. Included in the other non-U.S.
category below are the Company's operations located in Canada, China, Germany,
Italy, Netherlands, United Kingdom, Australia, Belgium, Czech Republic, Hungary,
Spain and Sweden. Sales to unaffiliated customers represent net sales
originating in entities physically located in the identified geographic area.
Long-lived assets include property, plant and equipment, goodwill and
intangibles, other investments and other assets.
<TABLE>
Other
U.S. France Non U.S. Consolidated
------- ------ -------- ------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers..... $ 83,520 $28,892 $43,192 $155,604
Long-lived assets................... 65,594 12,790 18,952 96,336
1997
Sales to unaffiliated customers..... $100,314 $25,680 $44,719 $170,713
Long-lived assets................... 62,236 10,146 22,108 94,490
1998
Sales to unaffiliated customers..... $115,639 $26,177 $51,485 $193,301
Long-lived assets................... 76,289 12,751 23,745 112,785
</TABLE>
The Company's product line segments are research models and biomedical
products and services. The following table presents sales and other financial
information by product line segment for the fiscal years 1996, 1997 and 1998.
Sales to unaffiliated customers represent net sales originating in entities
primarily engaged in either provision of research models or biomedical products
and services. Long-lived assets include property, plant and equipment, goodwill
and intangibles; other investments; and other assets.
F-22
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands)
1996 1997 1998
Research models ------ ------ ------
Net sales..................... $ 121,262 $ 125,214 $ 134,590
Operating income.............. 24,080 19,583 30,517
Total assets ................. 162,201 157,915 180,139
Depreciation and amortization 5,351 5,297 5,534
Capital expenditures ......... 6,119 6,178 8,127
Biomedical products and services
Net sales .................... $ 34,342 $ 45,499 $ 58,711
Operating income ............. 3,264 6,496 11,117
Total assets ................. 34,780 38,296 53,271
Depreciation and amortization. 4,177 4,406 5,361
Capital expenditures ......... 5,453 5,694 3,782
A reconciliation of segment operating income to consolidated operating
income is as follows:
Fiscal Year Ended
--------------------------------------------
December 28, December 27, December 26,
1996 1997 1998
------------ ------------ ------------
Total segment operating income... $27,344 $26,079 $41,634
Unallocated corporate overhead... (3,202) (4,003) (6,309)
------ ------ ------
Consolidated operating income.... $24,142 $22,076 $35,325
====== ====== ======
A summary of identifiable long-lived assets of each business segment at
year end is as follows:
December 27, December 26,
1997 1998
------------ ------------
Research Models...................... $65,144 $ 73,190
Biomedical Products and Services..... 29,346 39,595
------ -------
$94,490 $112,785
====== =======
F-23
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands)
<TABLE>
Nine Months Ended
-----------------------------
September 26, September 25,
1998 1999
------------- -------------
<S> <C> <C>
Net sales related to products...................................... $128,478 $139,269
Net sales related to services...................................... 17,041 21,827
-------- --------
Total net sales.................................................... 145,519 161,096
-------- --------
Costs and expenses
Cost of products sold........................................... 80,067 84,557
Cost of services provided....................................... 10,974 12,673
Selling general and administrative.............................. 25,202 29,414
Amortization of goodwill and intangibles........................ 1,036 1,114
------ ------
Operating income................................................... 28,240 33,338
Other income (expense)
Other income.................................................... -- 1,441
Interest income................................................. 659 496
Interest expense................................................ (311) (207)
Loss from foreign currency, net................................. (127) (143)
------ ------
Income before income taxes, minority interests and earnings
from equity investments......................................... 28,461 34,925
Provision for income taxes......................................... 11,280 16,903
Income before minority interests and earnings from equity
investments..................................................... 17,181 18,022
Minority interests................................................. (8) (10)
Earnings from equity investments................................... 1,286 1,940
------ ------
Net income......................................................... $18,459 $19,952
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-24
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(dollars in thousands)
<TABLE>
September 25,
1999
-------------
Assets
<S> <C>
Current assets
Cash and cash equivalents................................................... $ 3,457
Trade receivables, less allowances of $854.................................. 33,820
Inventories................................................................. 28,577
Deferred income taxes....................................................... 5,432
Due from affiliates......................................................... 966
Other current assets........................................................ 5,051
-------
Total current assets........................................................ 77,303
Property, plant and equipment, net.......................................... 79,349
Goodwill and other intangibles, less accumulated amortization of $6,960..... 16,212
Investments in affiliates................................................... 19,385
Other assets................................................................ 18,122
-------
Total assets.............................................................. $210,371
=======
Liabilities and shareholder's equity
Current liabilities
Current portion of long-term debt........................................... $ 166
Current portion of capital lease obligations................................ 167
Accounts payable............................................................ 5,992
Accrued compensation........................................................ 11,015
Accrued ESLIRP.............................................................. 5,845
Deferred income............................................................. 4,550
Accrued restructuring....................................................... 354
Accrued liabilities......................................................... 12,410
Accrued income taxes........................................................ 16,208
Total current liabilities................................................. 56,707
Long-term debt................................................................ --
Capital lease obligations..................................................... 700
Other long-term liabilities................................................... 3,706
-------
Total liabilities......................................................... 61,113
-------
Commitments and contingencies (Note 3)
Minority interests............................................................ 293
Shareholder's equity
Common stock, par value $1 per share, 1,000 shares issued..................... 1
Capital in excess of par value................................................ 17,836
Retained earnings............................................................. 142,422
Accumulated other comprehensive income........................................ (11,294)
-------
Total shareholder's equity.................................................. 148,965
-------
Total liabilities and shareholder's equity................................ $210,371
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-25
<PAGE>
CHARLES RIVER LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
Nine Months Ended
------------------------------
September 26, September 25,
1998 1999
------------- -------------
<S> <C> <C>
Cash flows relating to operating activities
Net income....................................................... $ 18,459 $ 19,952
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.................................. 7,932 8,701
Provision for doubtful accounts................................ 248 13
Gain from sale of facilities................................... (1,441)
Earnings from equity investments............................... (1,286) (1,940)
Minority interests............................................. 8 10
Deferred income taxes.......................................... (634) --
Stock compensation expense..................................... 159 124
Property, plant, and equipment write downs..................... -- 324
Change in assets and liabilities
Trade receivables.............................................. (3,298) (3,022)
Inventories.................................................... (683) 1,232
Due from affiliates............................................ 153 (264)
Other current assets........................................... (1,255) (2,115)
CVS of life insurance.......................................... (3,585) (439)
Other assets................................................... (464) (510)
Accounts payable............................................... 910 (4,767)
Accrued compensation........................................... 1,640 (605)
Accrued ESLIRP................................................. 519 688
Deferred income................................................ 671 1,130
Accrued restructuring.......................................... (1,425) (759)
Accrued liabilities............................................ 1,687 1,079
Accrued income taxes........................................... 4,259 2,211
Other long-term liabilities.................................... (529) (50)
------ ------
Net cash provided by operating activities.................... 23,486 19,552
------ ------
Cash flows relating to investing activities
Dividends received from equity investments....................... 681 815
Proceeds from sale of facilities -- 1,860
Capital expenditures............................................. (5,834) (7,426)
Cash paid for acquisition of businesses.......................... (9,114) 0
------ ------
Net cash used in investing activities............................ (14,267) (4,751)
------ ------
Cash flows relating to financing activities
Proceeds from long-term debt..................................... 171 --
Payments on long-term debt....................................... (1,120) (312)
Payments on capital lease obligations............................ (94) (90)
Net activity with Bausch & Lomb.................................. (1,369) (34,152)
------ ------
Net cash used in financing activities.......................... (2,412) (34,554)
------ ------
Effect of exchange rate changes on cash and cash equivalents........ 462 (1,601)
------ ------
Net change in cash and cash equivalents............................. 7,269 (21,354)
------ ------
Cash and cash equivalents, beginning of year........................ 17,915 24,811
------ ------
Cash and cash equivalents, end of year.............................. $25,184 $ 3,457
====== ======
Supplemental cash flow information
Cash paid for taxes.............................................. $ 2,202 $ 3,316
Cash paid for interest........................................... 161 207
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(dollars in thousands)
1. Basis of Presentation
The consolidated balance sheet at September 25, 1999 and the consolidated
statements of income and of cash flows for the nine months ended September 26,
1998 and September 25, 1999 are unaudited, and some information and footnote
disclosure related thereto normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, the accompanying unaudited consolidated financial
statements were prepared following the same policies and procedures used in the
preparation of the audited financial statements and reflect all adjustments
(consisting of normal recurring adjustments) considered necessary to present
fairly the financial position of the Company. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
2. Supplemental Balance Sheet Information
The composition of inventories is as follows:
September 25,
1999
-------------
Raw materials and supplies........................... $4,228
Work in process...................................... 988
Finished products.................................... 23,361
------
Net inventories...................................... $28,577
======
The composition of property, plant and equipment is as follows:
September 25,
1999
-------------
Land...................................................... $7,329
Buildings................................................. 89,014
Machinery and equipment................................... 76,648
Leasehold improvements.................................... 3,746
Furniture and fixtures.................................... 1,595
Vehicles.................................................. 2,843
Construction in progress.................................. 6,434
-------
187,609
Less accumulated depreciation............................. (108,260)
-------
Net property, plant and equipment......................... $ 79,349
=======
3. Commitments and Contingencies
Litigation
Various lawsuits, claims and proceedings of a nature considered normal to
its business are pending against the Company. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially
affect the Company's consolidated financial statements. The most potentially
significant claim is described below.
F-27
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(dollars in thousands)
(continued)
3. Commitments and Contingencies (continued)
The Company is currently under a court order issued June 1997 to remove
its primate operations from two islands located in the Florida Keys. The
mandate asserts that the Company's operations have contributed to the
defoliation of some protected plant life. Reserves of $218 are included in
the restructuring reserve recorded in the accompanying consolidated financial
statements to provide for any exposures in connection with the relocation and
refoliation.
4. Business Segment Information
The following table presents sales and other financial information by
product line segment for the nine months ended September 26, 1998 and September
25, 1999. Sales to unaffiliated customers represent net sales originating in
entities primarily engaged in either provision of research models or biomedical
products and services.
1998 1999
------ ------
Research models
Net sales......................... $103,205 $109,177
Operating income.................. 26,281 27,977
Total assets...................... 182,761 157,284
Depreciation and amortization..... 5,738 6,044
Capital expenditures.............. 4,112 4,282
Biomedical products and services
Net sales......................... $ 42,314 $ 51,919
Operating income.................. 7,347 11,553
Total assets...................... 39,331 53,087
Depreciation and amortization..... 2,194 2,657
Capital expenditures.............. 1,722 3,144
A reconciliation of segment operating income to consolidated operating
income is as follows:
1998 1999
------ ------
Total segment operating income.... $33,628 $39,530
Unallocated corporate overhead.... (5,388) (6,192)
------ ------
Consolidated operating income..... $28,240 $33,338
====== ======
5. Comprehensive Income
The components of comprehensive income for the nine-month periods ended
September 26, 1998 and September 25, 1999 are set forth below:
1998 1999
------ ------
Net income $18,459 $19,952
Foreign currency translation 20 (4,940)
------ ------
Comprehensive income $18,479 $15,012
====== ======
F-28
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(dollars in thousands)
(continued)
6. Other Income
During the nine months ended September 25, 1999, the Company recorded a
gain of $1.4 million on the sale of some facilities located in Florida and
The Netherlands.
7. Restructuring Reserve
During the nine months ended September 25, 1999, the Company charged
approximately $759 against the restructuring reserve for costs previously
reserved for. As of September 25, 1999, the remaining restructuring reserve
amounted to $354, comprised primarily of scheduled severance payments and
relocation and refoliation costs. Such payments will be substantially complete
by the end of the year.
8. Subsequent Events
On September 29, 1999 CRL Acquisition LLC, an affiliate of DLJ Merchant
Banking Partners II, L.P., consummated a transaction in which it acquired 87.5%
of the common stock of Charles River Laboratories, Inc. from Bausch & Lomb for
approximately $443 million. This transaction was effected through Charles River
Laboratories Holdings, Inc. ("Holdings"), a holding company with no operations
or assets other than its ownership of 100% of the Company's outstanding stock.
This transaction will be accounted for as a leveraged recapitalization, which
will have no impact on the historical basis of the Company's assets and
liabilities. In addition, concurrent with the transaction, the Company purchased
all of the outstanding shares of common stock of SBI Holdings, Inc. ("Sierra"),
a pre-clinical biomedical services company, for $24.0 million. This acquisition
will be accounted for as a purchase business combination with the operating
results of Sierra being included in the Company's consolidated operating results
beginning on the effective date of the acquisition. These transactions are
hereafter referred to as the "Acquisitions".
The Acquisitions and related transaction fees and expenses were funded as
follows:
o issuance of 150,000 units, each consisting of a $1,000 principal amount
of 13.5% senior subordinated note (the Series A Note Offering) and one
warrant to purchase 3.942 shares of common stock of Holdings;
o borrowings by the Company of $162.0 million under a new senior secured
credit facility;
o an equity investment of $92.4 million in Holdings;
o senior discount debentures with warrants issued by Holdings for $37.6
million; and
o subordinated discount note issued by Holdings to Bausch & Lomb for
$43.0 million.
The Series A Note Offering (the "Notes") will mature on October 1, 2009.
The Notes will not be redeemable at the issuers' option prior to October 1,
2004. Thereafter, the Notes will be subject to redemption at any time at the
option of the issuer at redemption prices set forth in the Notes. Interest on
the Notes will accrue at the rate of 13.5% per annum and will be payable
semi-annually in arrears on October 1 and April 1 of each year, commencing on
April 1, 2000. The payment of principal and interest on the Notes will be
subordinated in right to the prior payment of all Senior Debt, as defined. The
senior secured credit facility includes a $40 million term loan A facility, a
$120 million term loan B facility and a $30 million revolving credit facility.
The term loan A facility will mature on October 1, 2005, the term loan B
facility will mature on October 1, 2007 and the revolving credit facility will
mature on October 1, 2005. Interest on the term loan A, term loan B and
revolving credit facility will accrue at
F-29
<PAGE>
CHARLES RIVER LABORATORIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
(dollars in thousands)
(continued)
either a base rate plus 1.75% or LIBOR plus 3.0%, at the Company's option (8.5%,
9.25% and 8.5%, respectively, at September 29, 1999) per annum and will be paid
quarterly in arrears commencing on December 30, 1999. A commitment fee in an
amount equal to 0.50% per annum on the daily average unused portion of the
revolving credit facility will be paid quarterly in arrears. Upon the occurrence
of a change in control, as defined, the issuer will be obligated to make an
offer to each holder of the Notes to repurchase all or any part of such holders'
Notes at an offer price in cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest. Restrictions under the Notes include some
sales of assets, some payments of dividends and incurrence of debt, and
limitations on some mergers and transactions with affiliates. With respect to
the Notes and the senior secured credit facility, the Company will be required
to maintain some financial ratios and covenants. The senior discount debentures
accrete from their original issue price of $37.6 million to $82.3 million by
October 1, 2004. Thereafter, interest is payable in cash. The senior discount
debentures mature on April 1, 2010. The senior discount debentures contain
covenants and events of default substantially similar to those contained in the
Notes. The subordinated discount note accretes at the rate of 12% prior to
October 1, 2004 and thereafter at 15% to an aggregate principal amount of $175.3
million at maturity on October 1, 2010. The subordinated discount notes are
subject to mandatory redemption upon a change of control at the option of the
holder thereof and are subject to redemption at Holding's option at any time.
As previously discussed, Holdings is a holding company with no operations
or assets other than its ownership of 100% of Charles River's outstanding common
stock. The Company neither guarantees nor pledges its assets as collateral for
the senior discount debenture or the subordinated discount note, which Holdings
issued. Holdings has no source of liquidity to meet its cash requirements. As
such, repayment of the obligations as outlined above will be dependent upon
either dividends from the Company, which are restricted by terms contained in
the indenture governing the Notes and the new senior secured credit facility, or
through a refinancing or equity transaction at the Holdings level.
9. Dividends from Foreign Subsidiaries
During the nine months ended September 25, 1999, cash dividends totaling
$20,662 were remitted to the Company from several of its foreign subsidiaries.
Under the terms of the transaction more fully described in Note 8, such
dividends were, in turn, remitted by the Company to B&L. As the related amounts
had previously been considered permanently reinvested in the foreign
jurisdictions, the Company was required to provide additional taxes upon their
repatriation to the United States. In addition, during the nine months ended
September 25, 1999, an election was made by B&L to treat some foreign
entities as branches for United States income tax purposes. As a result, all
previously untaxed accumulated earnings of such entities became immediately
subject to tax in the United States. The receipt of the cash dividends from the
foreign subsidiaries and the foreign tax elections made resulted in incremental
United States taxes of $1,974, net of foreign tax credits, during the nine
months ended September 25, 1999.
F-30
<PAGE>
================================================================================
Offer to Exchange
All Outstanding
13 1/2% Series A Senior Subordinated Notes Due 2009
for
13 1/2% Series B Senior Subordinated Notes Due 2009
Charles River Laboratories, Inc.
--------------------
PROSPECTUS
--------------------
February 8, 2000
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED FEBRUARY , 2000
Charles River Laboratories, Inc.
$150,000,000
13 1/2% Series B Senior Subordinated Notes Due 2009
PROSPECTUS
- --------------------------------------------------------------------------------
The Company:
o We are a global market leader in the commercial production and supply of
animal research models for use in the discovery, development and testing of
new pharmaceuticals. We are also a supplier of related biomedical products
and services.
o Charles River Laboratories, Inc.
251 Ballardvale Street
Wilmington, MA 01887
(978) 658-6000
o We were acquired in September 1999 by a group of investors including DLJ
Merchant Banking Partners II, L.P.
The Offering:
o We issued the notes in , 2000, in an exchange offer registered under
the Securities Act of 1933 in which the notes were exchanged for
substantially identical notes originally issued in a private offering on
September 23, 1999.
o We used the net proceeds of the private offering, together with an equity
investment of $105.6 million, to fund our recapitalization, our acquisition
of SBI Holdings, Inc. and to pay fees and expenses related to the
recapitalization and acquisition. The remaining net proceeds were used for
general corporate purposes and initially were temporarily invested in
short-term securities.
The Senior Subordinated Notes:
o Maturity: October 1, 2009.
o Interest Payments: semi-annually in cash in arrears on October 1 and April 1,
commencing on April 1, 2000.
o Redemption: we can redeem the notes on or after October 1, 2004. In addition,
we can redeem up to 35% of the notes prior to October 1, 2002, with the net
proceeds of a public equity offering. Holders of the notes may also require
us to redeem all or part of such holder's notes upon a change of control.
o Ranking: the notes will be general unsecured obligations, junior in right of
payment to $163.3 million of senior indebtedness and secured indebtedness,
including any borrowings and reimbursement obligations under our new credit
facility, and the liabilities of our subsidiaries.
This investment involves risk. See Risk Factors beginning on page 12.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus will be used by Donaldson, Lufkin & Jenrette Securities
Corporation in connection with offers and sales in market-making transactions at
negotiated prices related to prevailing market prices. There is currently no
public market for the notes. This prospectus may also be used by DLJ Investment
Partners, L.P., DLJ Investment Funding, Inc., and DLJ ESC II L.P. to comply with
their prospectus delivery requirements of the Securities Act in connection with
any resale transaction. We do not intend to list the notes on any securities
exchange or to seek admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Donaldson, Lufkin & Jenrette
Securities Corporation has advised us that it is currently making a market in
the notes; however, it is not obligated to do so and may stop at any time.
Donaldson, Lufkin & Jenrette Securities Corporation may act as principal or
agent in any such transaction. We will not receive the proceeds of the sale of
the notes but will bear the expenses of registration.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Securities Corporation
The date of this Prospectus is , 2000.
<PAGE>
[ALTERNATE SECTIONS FOR MARKET-MAKING PROSPECTUS]
No public trading market for the notes exists
There is no existing trading market for the notes, and we cannot assure you
about the future development of a market for the notes or your ability to sell
the notes or the price at which you may be able to sell your notes. If such
market were to develop, the notes could trade at prices that may be higher or
lower than the initial offering price of the notes depending on many factors,
including prevailing interest rates, our operating results and the market for
similar securities. Although it is not obligated to do so, Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") intends to make a market in the notes.
Any such market-making activity may be discontinued at any time, for any reason,
without notice at the sole discretion of DLJSC. We do not intend to list the
notes on any securities exchange or to seek admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. No
assurance can be given as to the liquidity of or the trading market for the
notes.
DLJSC may be deemed to be our "affiliate" (as defined in the Securities
Act) and, as such, may be required to deliver a prospectus in connection with
its market-making activities in the notes. Under the registration rights
agreement that we signed with DLJSC in connection with the initial sale of the
new notes, we have agreed to use our best efforts to file and maintain a
registration statement that would allow DLJSC to engage in market-making
transactions in the notes for a period ending no sooner than the date on which
DLJSC is no longer deemed to be such an "affiliate." We have agreed to bear
substantially all the costs and expenses related to registration.
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes by
DLJSC in market-making transactions. This prospectus may also be used by DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc., and DLJ ESC II L.P. to
comply with their prospectus delivery requirements of the Securities Act in
connection with any resale transaction. We will not receive any of the proceeds
from such transactions.
PLAN OF DISTRIBUTION
This prospectus is to be used by DLJSC in connection with offers and sales
of the new notes in market-making transactions effected from time to time. DLJSC
may act as a principal or agent in such transactions, including as agent for the
counterparty when acting as principal or as agent for both counterparties, and
may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both. Such sales will be made
at prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices. This prospectus may also be used by DLJ Investment Partners,
L.P., DLJ Investment Funding, Inc., and DLJ ESC II L.P. to comply with their
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
DLJ Merchant Banking, an affiliate of DLJSC, and some of its affiliates
beneficially own approximately 71.9% of the common stock of Charles River. DLJSC
acted as financial advisor to Charles River in the acquisition, and as an
initial purchaser of the old notes. Charles River paid customary fees to DLJSC
as compensation for its services as financial advisor and initial purchaser. The
aggregate amount of all fees paid to DLJSC in connection with the acquisition
and the related financing was approximately $3.6 million plus
out-of-pocket-expenses. Charles River has agreed to engage DLJSC as its
exclusive financial advisor for a period of five years beginning upon the
closing of the merger. Charles River and its subsidiaries may from time to time
enter into financial advisory or other investment banking relationships with
DLJSC or one of its affiliates under which DLJSC or its affiliates will
receive customary fees and will be entitled to reimbursement for all reasonable
disbursements and out-of-pocket expenses incurred in connection therewith.
Charles River expects that any such arrangement will include provisions for the
indemnification of DLJSC against some liabilities, including liabilities under
the federal securities laws. See "Relationships and Related Party Transactions."
<PAGE>
DLJSC has informed Charles River that it does not intend to confirm sales
of the new notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
Charles River has been advised by DLJSC that, subject to applicable laws
and regulations, DLJSC currently intends to make a market in the new notes
following completion of the exchange offer. However, DLJSC is not obligated to
do so and any such market-making may be interrupted or discontinued at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained. See "Risk
Factors--No public market for the new notes exists."
DLJSC and Charles River have entered into the Registration Rights Agreement
with respect to the use by DLJSC of this prospectus. Under such agreement,
Charles River agreed to bear all registration expenses incurred under such
agreement, and Charles River agreed to indemnify DLJSC against some liabilities,
including liabilities under the Securities Act.
<PAGE>
[BACK COVER FOR MARKET-MAKING PROSPECTUS]
================================================================================
13 1/2% Series B Senior Subordinated Notes Due 2009
Charles River Laboratories, Inc.
--------------------
PROSPECTUS
--------------------
Donaldson, Lufkin & Jenrette Securities Corporation
, 2000
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Charles
River have not changed since the date hereof.
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
Item Amount
- ---- --------
SEC Registration Fee.......................... $ 41,700.00
Printing and Engraving Costs.................. 100,000.00
Trustee Fees.................................. 50,000.00
Legal Fees and Expenses....................... 100,000.00
Accounting Fees and Expenses.................. 50,000.00
Miscellaneous................................. 50,000.00
----------
Total....................................... $391,700.00
==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The certificate of incorporation of Charles River contains a provision
eliminating or limiting director liability to the company and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. This provision may not, however, eliminate or limit the personal
liability of a director:
o for any breach of such director's duty of loyalty to the company or its
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under the Delaware statutory provision making directors personally
liable, under a negligence standard, for unlawful dividends or unlawful
stock purchases or redemptions; or
o for any transaction from which the director derived an improper personal
benefit.
As a result of this provision, the ability of the company, or a stockholder
thereof, to successfully prosecute an action against a director for breach of
his duty of care is limited. However, the provision does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The SEC has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
In addition, the certificate of incorporation of Charles River provides for
mandatory indemnification rights, subject to limited exceptions, to any director
or executive officer of the company who (because of the fact that he or she is
a director or officer) is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director or officer in advance of the final disposition of such proceeding in
accordance with the applicable corporate law.
Charles River provides insurance from commercial carriers against some
liabilities incurred by the directors and officers of Charles River.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 29, 1999, the Registrant sold 150,000 units consisting of
13 1/2% notes due 2009 (the "old notes") and warrants to purchase 591,366 shares
of common stock of Charles River Laboratories Holdings, Inc. for an aggregate
principal amount of $150,000,000 to Donaldson, Lufkin & Jenrette Securities
Corporation (the "initial purchaser") in
<PAGE>
a private placement in reliance on Section 4(2) under the Securities Act, at an
offering price of $1,000 per unit. The old notes were immediately resold by the
initial purchaser in transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit
Number
-------
1.1* Registration Rights Agreement, dated as of September 29, 1999,
between Charles River and Donaldson, Lufkin & Jenrette Securities
Corporation, as Initial Purchaser.
2.1* Recapitalization Agreement, dated as of July 25, 1999, among
Charles River, Bausch & Lomb Incorporated, and other parties
listed therein.
2.2* Amendment No. 1 to Recapitalization Agreement, dated as of
September 29, 1999 by Bausch & Lomb Incorporated and CRL
Acquisition LLC.
3.1.1* Certificate of Incorporation of Charles River Laboratories, Inc.
3.1.2* By-laws of Charles River Laboratories, Inc.
4.1* Investors' Agreement, dated as of September 29, 1999, among
Charles River Laboratories Holdings, Inc. and the shareholders
named therein.
4.2* Indenture, dated as of September 29, 1999 among Charles River, and
the Trustee.
4.3* Form of new note (included in Exhibit 4.2)
5.1* Opinion of Davis Polk & Wardwell with respect to the new notes.
10.3* Credit Agreement, dated as of September 29, 1999, among Charles
River, the various financial institutions that are or may become
parties as lenders thereto, DLJ Capital Funding, Inc., as lead
arranger, sole book runner and syndication agent for the lenders,
Union Bank of California, N.A., as administrative agent for the
lenders, and National City Bank, as documentation agent for the
lenders.
10.5* Purchase Agreement between Charles River and Donaldson, Lufkin &
Jenrette Securities Corporation as Initial Purchaser.
10.6* Joint Venture Agreement between Ajinomoto Co., Inc. and Charles
River Breeding Laboratories, Inc. dated June 24, 1981, and
ancillary agreements, amendments and addendums. June 15, 1987
Amendment Agreement, Amending the Joint Venture Agreement. January
17, 1994 Letter Amendment of Joint Venture Agreement. August 30,
1996 Addendum to the Joint Venture Agreement. License and
Technical Assistance Agreement CRL Breeding Labs and Ajinomoto
Co., Inc. Amendment Agreement, dated March 24, 1978.
10.7* Merck Primate Supply Agreement between Merck & Co., Inc. and
Charles River Laboratories, Inc. dated September 30, 1994.
10.8* Amended and Restated Stock Purchase Agreement among Charles River
Laboratories, Inc. and SBI Holdings, Inc. and its stockholders
dated September 4, 1999.
10.9* Ground Lease between HIC Associates (Lessor) and Charles
River Laboratories, Inc. (Lessee) dated June 5, 1992; and
Assignment and Assumption Agreement between Charles River
Partners, L.P. (Assignor) and Wilmington Partners L.P.
(Assignees) dated December 22, 1993.
10.10* Amended and Restated Distribution Agreement between Charles
River BRF, Inc., Charles River Laboratories, Inc., Bioculture
Mauritius Ltd. and Mary Ann and Owen Griffiths, dated December
23, 1997.
10.11* Supply Agreement for non-human primates among Sierra Biomedical,
Inc. and Scientific Resources International, Ltd., dated March
18, 1997.
12.1* Computation of Ratio of Earnings to Fixed Charges
12.2* Computation of Ratio of Total Debt to Adjusted EBITDA
12.3* Computation of Ratio of Adjusted EBITDA to Cash Interest Expense
21.1* Subsidiaries of Charles River
23.1* Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1* Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
25.1* Statement of Eligibility of State Street Bank and Trust Company on
Form T-1.
27.1* Financial Data Schedule for Charles River Laboratories, Inc.
99.1* Form of Letter of Transmittal
<PAGE>
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Clients
99.4* Form of Letter to Nominees
99.5* Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- ------------
* Previously filed.
(b) Financial Statement Schedules.
Schedule II Valuation and Qualifying Accounts
Other schedules are omitted because they are not applicable.
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(x) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(y) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
(z) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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
the time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant under the provisions described in Item
510 of Regulation S-K, 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 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 Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wilmington, State of Massachusetts,
on February 8, 2000.
CHARLES RIVER LABORATORIES, INC.
By: /s/ Thomas F. Ackerman
---------------------------
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer (Principal February 8, 2000
- -------------------------- Executive Officer) and Director
James C. Foster
/s/ Thomas F. Ackerman Chief Financial Officer (Principal Financial February 8, 2000
- -------------------------- Officer) and Vice President, Finance and
Thomas F. Ackerman Administration (Principal Accounting Officer)
* Director February 8, 2000
- --------------------------
Reid S. Perper
* Director February 8, 2000
- --------------------------
Thompson Dean
* Director February 8, 2000
- --------------------------
Robert Cawthorn
* Director February 8, 2000
- --------------------------
Douglas E. Rogers
*By /s/ Thomas F. Ackerman
- --------------------------
Thomas F. Ackerman
Attorney-in-fact
</TABLE>
<PAGE>
Allowance for Doubtful Accounts
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Charged to Charged to Balance at
beginning costs and other end of
of period expenses accounts Describe Deductions Describe period
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------
For the year ended
December 26, 1998
Allowance for
Doubtful Recoveries/
Accounts......... $ 688 $ 265 Provision $ (55) Write-offs $ 898
- ----------------------------------------------------------------------------------------------------------------------
For the year ended
December 27, 1997
Allowance for
Doubtful Recoveries/
Accounts......... $ 568 $ 192 Provision $ (72) Write-offs $ 688
- ----------------------------------------------------------------------------------------------------------------------
For the year ended
December 28, 1996
Allowance for
Doubtful Recoveries/
Accounts......... $ 490 $ 101 Provision $ (23) Write-offs $ 568
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Index to Exhibits
Exhibit
Number
-------
1.1* Registration Rights Agreement, dated as of September 29, 1999,
between Charles River and Donaldson, Lufkin & Jenrette Securities
Corporation, as Initial Purchaser.
2.1* Recapitalization Agreement, dated as of July 25, 1999, among
Charles River, Bausch & Lomb
Incorporated, and other parties listed therein.
2.2* Amendment No. 1 to Recapitalization Agreement, dated as of
September 29, 1999 by Bausch & Lomb Incorporated and CRL
Acquisition LLC.
3.1.1* Certificate of Incorporation of Charles River Laboratories, Inc.
3.1.2* By laws of Charles River Laboratories, Inc.
4.1* Investors' Agreement, dated as of September 29, 1999, among
Charles River Laboratories Holdings, Inc. and the shareholders
named therein.
4.2* Indenture, dated as of September 29, 1999 among Charles River, and
the Trustee.
4.3* Form of new note (included in Exhibit 4.2)
5.1* Opinion of Davis Polk & Wardwell with respect to the new notes.
10.3* Credit Agreement, dated as of September 29, 1999, among Charles
River, the various financial institutions that are or may become
parties as lenders thereto, DLJ Capital Funding, Inc., as lead
arranger, sole book runner and syndication agent for the lenders,
Union Bank of California, N.A., as administrative agent for the
lenders, and National City Bank, as documentation agent for the
lenders.
10.5* Purchase Agreement between Charles River and Donaldson, Lufkin &
Jenrette Securities Corporation as Initial Purchaser.
10.6* Joint Venture Agreement between Ajinomoto Co., Inc. and Charles
River Breeding Laboratories, Inc. dated June 24, 1981, and
ancillary agreements, amendments and addendums. June 15, 1987
Amendment Agreement, Amending the Joint Venture Agreement. January
17, 1994 Letter Amendment of Joint Venture Agreement. August 30,
1996 Addendum to the Joint Venture Agreement. License and
Technical Assistance Agreement CRL Breeding Labs and Ajinomoto
Co., Inc. Amendment Agreement, dated March 24, 1978.
10.7* Merck Primate Supply Agreement between Merck & Co., Inc. and
Charles River Laboratories, Inc. dated September 30, 1994.
10.8* Amended and Restated Stock Purchase Agreement among Charles River
Laboratories, Inc. and SBI Holdings, Inc. and its stockholders
dated September 4, 1999.
10.9* Ground Lease between HIC Associates (Lessor) and Charles
River Laboratories, Inc. (Lessee) dated June 5, 1992; and
Assignment and Assumption Agreement between Charles River
Partners, L.P. (Assignor) and Wilmington Partners L.P.
(Assignees) dated December 22, 1993.
10.10* Amended and Restated Distribution Agreement between Charles
River BRF, Inc., Charles River Laboratories, Inc., Bioculture
Mauritius Ltd. and Mary Ann and Owen Griffiths, dated December
23, 1997.
10.11* Supply Agreement for non-human primates among Sierra Biomedical,
Inc. and Scientific Resources International, Ltd., dated March
18, 1997.
12.1* Computation of Ratio of Earnings to Fixed Charges
12.2* Computation of Ratio of Total Debt to Adjusted EBITDA
12.3* Computation of Ratio of Adjusted EBITDA to Cash Interest Expense
21.1* Subsidiaries of Charles River
23.1* Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers LLP.
24.1* Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
25.1* Statement of Eligibility of State Street Bank and Trust Company on
Form T-1.
27.1* Financial Data Schedule for Charles River Laboratories, Inc.
99.1* Form of Letter of Transmittal
<PAGE>
Exhibit
Number
-------
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Clients
99.4* Form of Letter to Nominees
99.5* Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- ------------
* Previously filed.
