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Filed Pursuant to Rule 424(b)(3)
Registration No. 333.-43005
PROSPECTUS
PARK OHIO LOGO
$150,000,000
PARK-OHIO INDUSTRIES, INC.
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
OFFER TO EXCHANGE ITS 9 1/4% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL OF ITS
OUTSTANDING 9 1/4% SENIOR SUBORDINATED NOTES DUE 2007 ISSUED ON NOVEMBER 25,
1997.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
FEBRUARY 17, 1998, UNLESS EXTENDED.
Park-Ohio Industries, Inc., an Ohio corporation (the "Company"), hereby
offers to exchange (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), up to $150,000,000 in aggregate
principal amount of the Company's new 9 1/4% Senior Subordinated Notes due 2007
(the "Exchange Notes"), for $150,000,000 in aggregate principal amount of the
Company's outstanding 9 1/4% Senior Subordinate Notes due 2007 (the "Original
Notes") originally issued on November 25, 1997. The Original Notes and the
Exchange Notes are sometimes collectively referred to herein as the "Notes."
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that (i) the Exchange Notes will be freely transferable by holders
thereof (other than as provided herein) and issued free of any covenant
restricting transfer absent registration and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders of the Original Notes under
the Registration Rights Agreement (as defined herein), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes (which they replace) and will be
entitled to the benefits of an Indenture dated as of November 25, 1997 governing
the Original Notes and the Exchange Notes (the "Indenture"). For a complete
description of the terms of the Exchange Notes, see "Description of the Notes."
There will be no cash proceeds to the Company from the Exchange Offer.
Interest on the Notes will be payable in cash semiannually on each June 1
and December 1, commencing June 1, 1998. The Notes will be redeemable at the
option of the Company, in whole or in part, at any time on or after December 1,
2002, at the redemption prices set forth herein, plus accrued and unpaid
interest to the redemption date. In addition, the Company, at its option, may
redeem at any time and from time to time prior to December 1, 2000, in the
aggregate up to 35% of the original principal amount of the Notes at a
redemption price equal to 109.25% of the aggregate principal amount so redeemed,
plus accrued and unpaid interest to the redemption date, with the Net Proceeds
(as defined herein) of one or more Public Equity Offerings (as defined herein),
provided that at least 65% of the principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of any such
redemption and that any such redemption occurs within 60 days following the
closing of any such Public Equity Offering. See "Description of the
Notes -- Optional Redemption."
Upon a Change of Control (as defined herein), each holder of the Notes will
be entitled to require the Company to purchase such holder's Notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the purchase date. See "Description of the Notes -- Change of
Control Offer." In addition, the Company will be obligated in certain instances
to make an offer to purchase the Notes at a purchase price in cash equal to 100%
of the principal amount thereof, plus accrued and unpaid interest to the
purchase date, with the Available Asset Sale Proceeds (as defined herein) of
certain asset sales. See "Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset Sales."
The Notes will be general unsecured obligations of the Company and will
rank subordinate in right of payment to all existing and future Senior
Indebtedness (as defined herein) of the Company, including indebtedness under
the New Credit Facility (as defined herein). The Notes will rank pari passu with
any senior subordinated indebtedness and senior in right of payment to any
subordinated indebtedness of the Company. As of September 30, 1997, on a pro
forma basis,
(continued on next page)
SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is January 14, 1998.
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(continued from prior page)
after giving effect to the Refinancing (as defined herein), the Company would
have had $12.8 million aggregate principal amount of Senior Indebtedness
outstanding. A majority of the Company's assets are held through Subsidiaries
(as defined herein). The Notes will be effectively subordinated to the
obligations of such Subsidiaries. As of September 30, 1997, the Subsidiaries of
the Company had $78.5 million of liabilities outstanding, consisting primarily
of trade payables and accrued expenses. The Indenture will permit the Company
and its Subsidiaries to incur additional indebtedness, subject to certain
limitations.
The Original Notes were sold on November 25, 1997, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon an exemption provided in the Securities Act. Accordingly, the
Original Notes may not be offered, resold or otherwise pledged, hypothecated or
transferred in the United States unless registered under the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered to satisfy the obligations of
the Company under the Registration Rights Agreement (as defined herein) relating
to the Original Notes. See "The Exchange Offer -- Purposes and Effects of the
Exchange Offer." Each holder receiving Exchange Notes, other than a
broker-dealer, will represent that the holder is not engaging in or intending to
engage in a distribution of such Exchange Notes. Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold or otherwise transferred by the holder thereof (other than any
holder that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by acknowledging 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. Despite this
acknowledgement, such broker-dealer may nonetheless be determined to be an
"underwriter" by the Securities and Exchange Commission (the "Commission"). See
"The Exchange Offer -- Purposes and Effects of the Exchange Offer" and "Plan of
Distribution." Broker-dealers may use this Prospectus, as amended or
supplemented, in connection with resales of the Exchange Notes received in
exchange for the Original Notes where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other such trading.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Company will accept
for exchange any and all validly tendered Original Notes not withdrawn prior to
5:00 P.M., New York City time, on February 17, 1998 unless extended (for a
maximum of an additional 20 business days) by the Company, in its sole
discretion (the "Expiration Date"). Tenders of Original Notes may be withdrawn
at any time prior to the Expiration Date. The Exchange Offer is subject to
certain customary conditions. See "The Exchange Offer -- Certain Conditions to
the Exchange Offer." Original Notes may be tendered only in integral multiples
of $1,000. The Company will pay all expenses incident to the Exchange Offer.
The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list the Exchange
Notes on any securities exchange. To the extent that any Original Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Notes would be adversely affected. No assurances can be
given as to the liquidity of the trading market for either the Original Notes or
the Exchange Notes.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates by writing the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site,
located at http://www.sec.gov., that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. While any Notes remain
outstanding, the Company will make available, upon request, to any holder and
any prospective purchaser of the Notes the information required by Rule
144A(d)(4) under the Securities Act during any period in which the Company is
not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Any such request should be mailed to Park-Ohio Industries,
Inc., 23000 Euclid Avenue, Cleveland, Ohio 44117. Telephone requests may be
directed to the Corporate Secretary at (216)692-7200. In addition, such reports
and other information concerning the Company may be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 000-03134).
2. The Company's Quarterly Reports on Form 10-Q for the periods ended March
31, 1997, June 30, 1997 and September 30, 1997 (File No. 000-03134).
3. The Company's Current Report on Form 8-K filed on August 11, 1997 (File
No. 000-03134).
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from their respective
dates of filing. Any statement contained herein or in any document incorporated
or deemed to be incorporated shall be deemed to be modified or superseded for
all purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
RONALD J. COZEAN, GENERAL COUNSEL AND SECRETARY, PARK-OHIO INDUSTRIES, INC.,
23000 EUCLID AVENUE, CLEVELAND, OHIO 44117, (216) 692-7200. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 5,
1998.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST
OF SUCH PERSON, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO THE
INFORMATION THAT ARE INCORPORATED BY REFERENCE UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS PROSPECTUS
INCORPORATES). PERSONS REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT WERE
NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED THE
COSTS OF REPRODUCTION AND MAILING.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Except where the context otherwise requires, as used herein, the Company refers
to Park-Ohio Industries, Inc. and its Subsidiaries. Except as otherwise
indicated herein, each reference to "pro forma" means that the financial results
for the stated period, or other information, have been adjusted to reflect the
consummation of the 1997 Acquisitions (as defined herein under "-- Recent
Developments") and the Refinancing as if such transactions had occurred at the
beginning of such period.
THE COMPANY
The Company operates diversified manufacturing and logistics businesses
which serve a wide variety of industrial markets. The Company's manufactured
products segment ("Manufactured Products") designs and manufactures a broad
range of high quality products engineered for specific customer applications.
The principal customers of Manufactured Products are original equipment
manufacturers ("OEMs") and end-users in the automotive, railroad, truck and
aerospace industries. The Company's logistics segment ("Logistics") is a leading
national supplier of fasteners (e.g., nuts, bolts and screws) and other
industrial products to OEMs, other manufacturers and distributors. In connection
with the supply of such industrial products, Logistics provides a variety of
value-added, cost-effective procurement solutions. The principal customers of
Logistics are in the transportation, industrial, electrical and lawn and garden
equipment industries. The Company's diversified operations moderate the effect
on the Company of downturns affecting individual operating units and industries
served. Between 1992 and 1996, the Company has grown significantly, both
internally and through acquisitions. Over this period, the Company's net sales
increased at a 50.8% compound annual growth rate ("CAGR"), from $67.2 million to
$347.7 million, income (loss) from continuing operations increased from ($8.8)
million to $9.7 million, and EBITDA (as defined herein) increased from ($4.5)
million to $28.1 million. The Company generated pro forma net sales, pro forma
income from continuing operations and pro forma EBITDA (as defined herein) of
$379.5 million, $7.4 million and $32.4 million, respectively for the nine months
ended September 30, 1997.
Manufactured Products. Manufactured Products operates through five groups
which capitalize on the Company's expertise in efficiently converting raw
materials into high quality finished products. The five groups include: Aluminum
Casting, Forged and Machined Products, Capital Equipment, Metal Forming and
Industrial Rubber Products. The Aluminum Casting Group manufactures aluminum
permanent mold castings, primarily for the automotive industry. The Forged and
Machined Products Group designs and manufactures crankshafts, camshafts and
other high strength, high performance structural parts, primarily for aircraft
and locomotive manufacturers. The Capital Equipment Group custom engineers and
manufactures induction heating systems, forging presses and heat processing and
curing systems, primarily for the packaging and automotive industries. The Metal
Forming Group manufactures standard and specialty engineered fasteners and
related hardware, bearings, plumbing fixtures and certain consumer products. The
Industrial Rubber Products Group manufactures molded rubber products for use in
automobiles, fluid and gas lines, steel mills, and food processing and
communications equipment.
Logistics. Logistics is a leading national supplier of over 90,000 standard
and specialty fasteners and other industrial products pursuant to either supply
chain management agreements or traditional wholesale supply arrangements. Supply
chain management, which is Logistics' primary focus for future growth, involves
offering customers procurement solutions and comprehensive, on-site management
for most of their fastener and related hardware needs. Supply chain management
customers receive value-added services, such as part usage and cost analysis,
product redesign recommendations, supplier selection, quality assurance, bar
coding, product packaging and tracking, just-in-time delivery, electronic
billing services and ongoing technical support. Supply chain management services
are typically provided to customer's facilities pursuant to exclusive,
multi-year total fastening service ("TFS") contracts. TFS contracts enable
Logistics' customers to both reduce procurement costs and better focus on their
company's core manufacturing competencies by: (i) significantly reducing the
administrative and labor costs associated with fastener procurement by
outsourcing
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certain internal purchasing, quality control and inventory fulfillment
responsibilities; (ii) reducing the amount of working capital invested in
inventory; (iii) achieving purchasing efficiencies as a result of vendor
consolidation; and (iv) receiving technical expertise in the selection of
fasteners and other components for certain manufacturing processes. Sales
pursuant to TFS contracts have increased significantly in recent years and
represented over 60% of Logistics' pro forma net sales for the nine months ended
September 30, 1997. Logistics' remaining sales are generated through the
wholesale supply of fasteners and other industrial products to OEMs, other
manufacturers and distributors. Logistics supplies standard and specialty
engineered fasteners as well as other items such as valves, fittings, clamps and
rubber products. Logistics operates out of 34 branches located throughout the
United States and branches in Mexico, Canada, Puerto Rico and England, and has a
central distribution center located in Dayton, Ohio.
COMPETITIVE STRENGTHS
The Company's manufacturing and logistics businesses generally have the
following competitive strengths:
LONG-TERM RELATIONSHIPS WITH MARKET-LEADING CUSTOMERS. The Company has been
successful in forming and developing customer relationships, certain of which
have been in place for over 50 years, with some of the largest companies in
their respective industries. In many cases, the Company's businesses have
achieved sole-source supply positions as a result of their reputation for
manufacturing high quality products, superior customer service,
applications-engineering expertise and commitment to partnering with their
customers. Manufactured Products' principal customers include BF Goodrich,
Boeing, Chrysler, Cooper Industries, Delphi, Ford, General Dynamics, General
Motors, Moen and United Technologies. Logistics has multi-year, exclusive TFS
contracts with plants of OEMs such as General Electric, Mack Truck, Navistar and
Polaris.
LEADERSHIP IN SEVERAL NICHE BUSINESSES. Several of the Company's products
hold leading positions in their respective business lines. For example, as
sole-source supplier to Ford and Chrysler, the Company is the leading domestic
manufacturer of aluminum permanent mold pump housings and pinion carriers for
automobile and light truck transmissions. In addition, the Company is the
sole-source supplier of crankshafts and camshafts to General Motors' North
American locomotive manufacturing operations. Logistics is one of the leading
providers of fasteners in the United States as a result of its national
coverage, broad product line and ability to offer value-added services to its
customers.
DIVERSE CUSTOMER BASE. The Company's products are sold to more than 7,000
customers in a wide variety of industries. With the exception of Ford, no single
customer represented more than 4.4% of the Company's pro forma net sales for the
nine months ended September 30, 1997. Ford, which in the aggregate represented
7.7% of such sales, purchases the Company's products through 17 distinct
purchasing centers, each of which maintains an independent relationship with the
Company. The Company plans to continue to expand its customer base by
introducing new products in both of its segments and adding new branches and TFS
contract customers at Logistics.
SOPHISTICATED LOGISTICS INFRASTRUCTURE. Since 1995, the Company has spent
over $5 million upgrading Logistics' management information and communication
systems to more efficiently distribute in excess of 150,000 SKUs to its
customers. Logistics' electronic data interchange ("EDI") capabilities provide
an interactive order system to a majority of its TFS contract
customers. Logistics' customized systems enable it to provide customers with
just-in-time delivery of bar coded packages labeled for delivery to specific
points of use. Such systems also enhance fill rates by automatically searching
alternative branches for products that are unavailable at a particular location
and routing those products for shipment. In addition, Logistics' advanced
communication systems enhance its ability to efficiently manage its inventory
and automatically replenish TFS customers' stocks.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. The
Company's senior operating team has an average of over 25 years of relevant
industry experience. Management also has significant experience in acquiring and
integrating businesses into the Company, and employs a disciplined approach to
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making such acquisitions. The Company's senior management team owns, in the
aggregate, approximately 33% of the fully diluted common stock of the Company.
BUSINESS STRATEGY
Management believes that the Company's growth in sales and profitability in
the future will result from the successful implementation of its business
strategy, the key elements of which include:
INCREASED INTERACTION BETWEEN MANUFACTURED PRODUCTS AND LOGISTICS. The
Company intends to continue to expand interaction between Manufactured Products
and Logistics by: (i) increasing the number of products supplied to Logistics by
Manufactured Products; (ii) cross-selling Logistics' services to Manufactured
Products' customers; and (iii) selectively acquiring companies that manufacture
Logistics' best-selling products. Management believes that these and other
initiatives will enable the Company to expand its product offerings and further
enhance Logistics' ability to control the entire supply chain management
process. In addition, the Company's expertise in manufacturing fasteners and
other industrial products enables Logistics to provide valuable technical advice
to its TFS customers, which reduces their production costs. Similarly,
Logistics' expertise in supply chain management can be transferred to
Manufactured Products' businesses to enhance the quality of customer service
currently provided by such businesses.
GROWTH THROUGH SELECTIVE ACQUISITIONS. The Company intends to continue to
make strategic acquisitions of complementary businesses to: (i) increase the
number of products made by Manufactured Products and sold by Logistics; (ii) add
customers and expand Logistics geographic coverage; (iii) take advantage of
consolidation in the logistics industry; and (iv) capitalize on management's
expertise in improving the operations of acquired companies.
Management has a proven track record of improving the financial results of
acquired companies, as evidenced by the material increases in sales, income from
continuing operations and EBITDA of the businesses acquired by the Company since
1992. Such improvements have been achieved through significant operating expense
reductions resulting from factors such as improved labor, supplier and customer
relations, increased purchasing power and more effective asset utilization and
management practices, as well as increased access to capital. Management
utilizes strict criteria to evaluate business acquisition possibilities,
including existing customer relationships, potential cost reductions, synergies
and return on investment parameters. The Company typically avoids auction
situations and exhibits discipline in declining specific transactions when the
price exceeds a level acceptable to the Company.
LEVERAGING EXISTING CUSTOMER RELATIONSHIPS. The Company seeks to enhance
customer relationships by, among other things: (i) providing high quality
products and services, as evidenced by the ISO 9000 and QS-9000 certifications
and numerous supplier awards obtained by certain of the Company's business
units; (ii) making capital investments in equipment and facilities pursuant to
new long-term supply arrangements such as the contract recently signed by
General Aluminum Mfg. Company ("GAMCO"), a part of the Aluminum Casting Group,
to produce cast aluminum transmission pump housings for Chrysler; (iii)
engineering new products in conjunction with customers to meet specific
application requirements; and (iv) obtaining additional TFS contracts for
existing customer facilities not currently served by Logistics.
STRENGTHENING OPERATING PERFORMANCE. The Company intends to make ongoing
capital investments in its Manufactured Products businesses to maintain the
historical growth in sales and EBITDA achieved by such units in recent years. In
addition, the Company intends to pursue enhanced operating efficiency through:
(i) increased purchasing power as a result of economies of scale, particularly
at Logistics; (ii) enhanced workforce productivity; (iii) increased sourcing of
Logistics' products off-shore; (iv) continued enhancement of management
information systems; (v) higher inventory turnover; and (vi) ongoing
re-engineering and total quality programs to improve process flow, reduce
re-work and improve cycle time.
DECENTRALIZED MANAGEMENT OF OPERATING UNITS. The Company's operating units
are managed on a decentralized basis by operating unit managers, while a
corporate management team provides strategic direction and support and
identifies and evaluates potential acquisition and divestiture opportunities.
Management believes that the Company's decentralized operating approach
eliminates many of the inefficien-
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cies that can result from a highly centralized corporate structure, while
providing individual operating units with greater access to capital, strategic
direction and certain administrative functions. Operating unit managers are
vested with decision-making authority and are compensated based on the
profitability of their respective business units. As a result of the discrete
nature of the Company's operating units, the Company is able to buy and sell
such units on an opportunistic basis. Management believes that the Company's
decentralized management philosophy results in better customer service by
allowing each operating unit the flexibility and autonomy to implement policies
and make decisions based on first-hand assessments of individual customer
requirements.
RECENT DEVELOPMENTS
In furtherance of its business strategy, the Company completed five
acquisitions for cash in 1997 (collectively, the "1997 Acquisitions"). In
January 1997, the Company acquired the assets of Green Ball Bearing Company
("Green Bearing"), a manufacturer of wheel, hub and clutch bearings for the
automotive aftermarket, for $0.7 million. In February 1997, the Company acquired
the assets of Feco Engineered Systems Limited ("Feco"), which produces complete
oven systems that combine heat processing and curing technologies with material
handling and conveying methods, for approximately $3 million. In May 1997, the
Company acquired the assets of The Delo Screw Products Company ("Delo"), a
manufacturer of screw machine products, for $9.2 million. These three
Manufactured Products acquisitions were supplemented by two recent acquisitions
of logistics businesses. In July 1997, the Company acquired Arden Industrial
Products, Inc. ("Arden") for approximately $44 million. In October 1997, the
Company acquired the assets of Arcon Fastener Corporation ("Arcon") for $5.6
million.
THE REFINANCING
At the time the Original Notes were issued, the Company amended its
existing revolving credit facility (the "Existing Credit Facility") in order to
provide an unsecured revolving credit facility with a commitment of $50.0
million. The amended Existing Credit Facility is referred to herein as the New
Credit Facility. Obligations under the New Credit Facility are guaranteed by the
Company's Subsidiaries. See "Description of Other Indebtedness -- New Credit
Facility." The Company used the net proceeds from the offering of the Original
Notes and borrowings under the New Credit Facility to refinance the Existing
Credit Facility and placed funds in escrow which will be used to redeem its
$21.1 million aggregate principal amount of 7 1/4% Convertible Senior
Subordinated Debentures due 2004 (the "Convertible Senior Subordinated
Debentures"). As of September 30, 1997, there were outstanding borrowings under
the Existing Credit Facility of $129.8 million. The Company repaid the amounts
outstanding under the Existing Credit Facility and gave irrevocable notice with
respect to the redemption of the Convertible Senior Subordinated Debentures (the
"Redemption") at the time of the offering of the Original Notes. The Redemption
is expected to occur on December 24, 1997. Failure to complete the Redemption by
December 26, 1997 will constitute an Event of Default under the Indenture
governing the Notes. The offering of the Original Notes, the New Credit
Facility, the repayment of the Existing Credit Facility and the Redemption are
collectively referred to herein as the "Refinancing." See "Use of Proceeds" and
"Capitalization." Subsequent to the offering of the Original Notes, the Company
entered into the Demand Master Promissory Note, dated December 3, 1997 (the
"Promissory Note") with KeyBank, National Association, which replaced the Credit
Agreement, dated April 11, 1995, as amended. The Promissory Note constitutes the
New Credit Facility for purposes of the Indenture.
The Company's principal executive offices are located at 23000 Euclid
Avenue, Cleveland, Ohio 44117, and its telephone number is (216) 692-7200.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer.... The Original Notes were sold in a
transaction exempt from the registration
requirements of the Securities Act by the
Company on November 25, 1997 to CIBC
Oppenheimer Securities Corp., Merrill Lynch
& Co. and Value Investing Partners, Inc.
(the "Initial Purchasers"). In connection
therewith, the Company executed and
delivered, for the benefit of the holders
of the Original Notes, the Registration
Rights Agreement dated November 25, 1997
(the "Registration Rights Agreement"),
which is incorporated by reference as an
exhibit to the Registration Statement of
which this Prospectus is a part, providing
for, among other things, the Exchange Offer
so that the Exchange Notes will be freely
transferable by the holders thereof without
registration or any prospectus delivery
requirements under the Securities Act,
except that a "dealer" or any of its
"affiliates" as such terms are defined
under the Securities Act, who exchanges
Original Notes held for its own account
will be required to deliver copies of this
Prospectus in connection with any resale of
the Exchange Notes issued in exchange for
such Original Notes. See "The Exchange
Offer -- Purposes and Effects of the
Exchange Offer" and "Plan of Distribution."
The Exchange Offer............... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Original Notes
that are properly tendered and accepted.
The Company will issue Exchange Notes on or
promptly after the Expiration Date. There
is $150,000,000 aggregate principal amount
of Original Notes outstanding. The Original
Notes and the Exchange Notes are
collectively referred to herein as the
"Notes." The terms of the Exchange Notes
are substantially identical in all respects
(including principal amount, interest rate
and maturity) to the terms of the Original
Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
(i) the Exchange Notes are freely
transferable by holders thereof (other than
as provided herein), and are not subject to
any covenant restricting transfer absent
registration under the Securities Act and
(ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of
the Original Notes under the Registration
Rights Agreement, which rights will
terminate upon the consummation of the
Exchange Offer. See "The Exchange Offer."
The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Original Notes being tendered for exchange.
Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, the
Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered
for resale, resold and otherwise
transferred by a holder thereof (other than
(i) a broker-dealer who purchases such
Exchange Notes directly from the Company to
resell
5
<PAGE> 10
pursuant to Rule 144A under the Securities
Act or any other available exemption under
the Securities Act or (ii) a person that is
an affiliate (as defined in Rule 405 under
the Securities Act) of the Company),
without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that the holder is
acquiring the Exchange Notes in the
ordinary course of its business and is not
participating, and has no arrangement or
understanding with any person to
participate, in the distribution of the
Exchange Notes. The Company has not sought,
and does not currently intend to seek a
no-action letter. There can be no assurance
that the staff of the Securities and
Exchange Commission would make a similar
determination with respect to the Exchange
Offer. Each broker-dealer that receives the
Exchange Notes for its own account in
exchange for the Original Notes, where such
Notes were acquired by such broker-dealer
as a result of market-making activities or
other trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of such Exchange
Notes.
Registration Rights Agreement.... The Original Notes were sold by the Company
on November 25, 1997 to the Initial
Purchasers pursuant to a Securities
Purchase Agreement dated as of November 19,
1997 by and between the Company and the
Initial Purchasers (the "Purchase
Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial
Purchasers entered into the Registration
Rights Agreement which grants the holders
of the Original Notes certain exchange and
registration rights. See "The Exchange
Offer -- Termination of Certain Rights."
This Exchange Offer is intended to satisfy
such rights, which terminate upon the
consummation of the Exchange Offer. The
holders of the Exchange Notes are not
entitled to any exchange of registration
rights with respect to the Exchange Notes.
Expiration Date.................. The Exchange Offer will expire at 5:00
p.m., New York City time, on February 17,
1998, unless the Exchange Offer is extended
(for a maximum of an additional 20 business
days) by the Company in its reasonable
discretion, in which case the term
"Expiration Date" shall mean the latest
date and time to which the Exchange Offer
is extended.
Accrued Interest on the Exchange
Notes and Original Notes......... Interest on the Exchange Notes will accrue
from November 25, 1997. Holders whose
Original Notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the
Original Notes.
Conditions to the
Exchange Offer................. The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange
Offer -- Certain Conditions to the Exchange
Offer." The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Original Notes being
tendered for exchange. The Company reserves
the right to
6
<PAGE> 11
terminate or amend the Exchange Offer at
any time prior to the Expiration Date upon
the occurrence of any such conditions.
Procedures for Tendering
Original Notes................. Each holder of Original Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with the Original Notes and any other
required documentation to the exchange
agent (the "Exchange Agent") at the address
set forth herein. Original Notes may be
physically delivered, but physical delivery
is not required if a confirmation of a
book-entry of such Original Notes to the
Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Depository")
is delivered in a timely fashion. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such
Exchange Notes, whether or not such person
is the holder, that neither the holder nor
any such other person is engaged in, or
intends to engage in, or has an arrangement
or understanding with any person to
participate in, the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. Each
broker or dealer that receives Exchange
Notes for its own account in exchange for
Original Notes, where such Original Notes
were acquired by such broker or dealer as a
result of market-making activities or other
trading activities, must acknowledge that
it will deliver a prospectus in connection
with any resale of such Exchange Notes. See
"The Exchange Offer -- Procedures for
Tendering" and "Plan of Distribution."
Special Procedures for
Beneficial Owners.............. Any beneficial owner whose Original Notes
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such
owner must, prior to completing and
executing the Letter of Transmittal and
delivering his Original Notes, either make
appropriate arrangements to register
ownership of the Original Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery Procedures... Holders of Original Notes who wish to
tender their Original Notes and whose
Original Notes are not immediately
7
<PAGE> 12
available or who cannot deliver their
Original Notes, the Letter of Transmittal
or any other documents required by the
Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender
their Original Notes in accordance with the
guaranteed delivery procedures set forth in
the "Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of the Original Notes
and Delivery of the Exchange
Notes.......................... Subject to the satisfaction or waiver of
the conditions to the Exchange Offer, the
Company will accept for exchange any and
all Original Notes which are properly
tendered in the Exchange Offer prior to the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer."
Withdrawal Rights................ Tenders of Original Notes may be withdrawn
at any time prior to the Expiration Date.
See "The Exchange Offer -- Withdrawal of
Tenders."
Exchange Agent................... Norwest Bank Minnesota, National
Association is serving as the Exchange
Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange
Agent."
Effect on Holders of
the Original Notes............. As a result of the making of, and upon
acceptance for exchange of all validly
tendered Original Notes pursuant to the
terms of this Exchange Offer, the Company
will have fulfilled one of the covenants
contained in the Registration Rights
Agreement and, accordingly, there will be
no increase in the interest rate on the
Original Notes pursuant to the applicable
terms of the Registration Rights Agreement
due to the Exchange Offer. Holders of the
Original Notes who do not tender their
Original Notes will be entitled to all the
rights and limitations applicable thereto
under the Indenture between the Company and
Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"),
relating to the Original Notes and the
Exchange Notes, except for any rights under
the Indenture or the Registration Rights
Agreement, which by their terms terminate
or cease to have further effectiveness as a
result of the making of, and the acceptance
for exchange of all validly tendered
Original Notes pursuant to, the Exchange
Offer. All untendered Original Notes will
continue to be subject to the restrictions
on transfer provided for in the Original
Notes and in the Indenture. To the extent
that Original Notes are tendered and
accepted in the Exchange Offer, the trading
market for untendered Original Notes could
be adversely affected.
Use of Proceeds.................. There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
8
<PAGE> 13
THE NOTES
The Exchange Notes......... The Exchange Offer applies to $150,000,000
aggregate principal amount of the Original Notes.
The form and terms of the Exchange Notes are the
same as the form and terms of the Original Notes
except that (i) the exchange will have been
registered under the Securities Act and, therefore,
the Exchange Notes will not bear legends
restricting their transfer pursuant to the
Securities Act, and (ii) holders of the Exchange
Notes will not be entitled to certain rights of
holders of the Original Notes under the
Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange Offer.
The Exchange Notes will evidence the same debt as
the Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the
Indenture. See "Description of the Notes" for
further information and for definition of certain
capitalized terms used below.
Issuer..................... Park-Ohio Industries, Inc.
Maturity Date.............. December 1, 2007.
Interest Rate.............. The Notes will bear interest at a rate of 9 1/4%
per annum.
Interest Payment Dates..... Interest will accrue on the Exchange Notes from the
date of issuance of the Original Notes (the "Issue
Date") and will be payable in cash semiannually on
each June 1 and December 1, commencing June 1,
1998. Interest on the Notes will be paid on the
basis of a 360-day year and twelve 30-day months.
Ranking.................... The Notes will be general unsecured obligations of
the Company and will rank subordinate in right of
payment to all existing and future Senior
Indebtedness of the Company, including indebtedness
under the New Credit Facility. The Company may
incur additional Senior Indebtedness if it meets
certain financial ratio tests set forth in the
Indenture. Except for such financial ratio tests,
there are no restrictions on the Company's ability
to incur additional debt or total debt that ranks
senior to or pari passu with the Notes. The Notes
will rank pari passu with any senior subordinated
indebtedness and senior in right of payment to any
subordinated indebtedness of the Company. As of
September 30, 1997, on a pro forma basis, after
giving effect to the Refinancing, the Company would
have had $12.8 million aggregate principal amount
of Senior Indebtedness outstanding. A majority of
the Company's assets are held through Subsidiaries.
The Notes will be effectively subordinated to the
obligations of such Subsidiaries. As of September
30, 1997, the Subsidiaries of the Company had $78.5
million of liabilities outstanding, consisting
primarily of trade payable and accrued expenses,
and were guarantors of the Company's obligations
under the Existing Credit Facility. The Indenture
will permit the Company and its Subsidiaries to
incur additional indebtedness, subject to certain
limitations. The Subsidiaries are guarantors of the
obligations under the New Credit Facility. Due to
such guarantees granted under the New Credit
Facility, the lenders thereunder have a senior
claim to the assets of such Subsidiaries.
Optional Redemption........ The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after December 1, 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the redemption date. In addition, the Company,
at its option, may redeem at any
9
<PAGE> 14
time and from time to time prior to December 1,
2000, in the aggregate up to 35% of the original
principal amount of the Notes at a redemption price
equal to 109.25% of the aggregate principal amount
so redeemed, plus accrued and unpaid interest to
the redemption date, with the Net Proceeds of one
or more Public Equity Offerings, provided that at
least 65% of the principal amount of the Notes
originally issued remains outstanding immediately
after the occurrence of any such redemption and
that any such redemption occurs within 60 days
following the closing of any such Public Equity
Offering.
Change of Control.......... Upon a Change of Control, each holder of the Notes
will be entitled to require the Company to purchase
such holder's Notes at a purchase price equal to
101% of the principal amount thereof, plus accrued
and unpaid interest to the purchase date. See
"Description of the Notes -- Change of Control
Offer."
Asset Sale Proceeds........ The Company will be obligated in certain instances
to make an offer to purchase the Notes at a
purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest to the purchase date with the Available
Asset Sale Proceeds of certain asset sales. See
"Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset Sales."
Certain Covenants.......... The Indenture will contain covenants for the
benefit of the holders of the Notes that, among
other things, restrict the ability of the Company
and its Subsidiaries to: (i) incur additional
Indebtedness (as defined herein); (ii) pay
dividends and make certain other distributions;
(iii) issue capital stock of Subsidiaries; (iv)
make certain investments; (v) repurchase stock;
(vi) create liens; (vii) enter into transactions
with affiliates; (viii) enter into sale and
lease-back transactions; (ix) create dividend or
other payment restrictions affecting Subsidiaries;
(x) merge or consolidate the Company or any
Subsidiaries; and (xi) transfer or sell assets.
These covenants are subject to a number of
important exceptions. See "Description of the
Notes -- Certain Covenants."
RISK FACTORS
Prospective investors in the Notes, should consider carefully the
information set forth under the caption "Risk Factors" and all other information
set forth in this Prospectus, before making an investment in the Notes.
10
<PAGE> 15
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The summary historical consolidated financial data set forth below for the
three years ended December 31, 1996 have been derived from the consolidated
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors. The summary historical consolidated financial data
for the nine-month periods ended September 30, 1996 and 1997 have been derived
from unaudited consolidated financial statements of the Company, which include
all adjustments (consisting of normal recurring accruals) that management
considers necessary for a fair presentation of the financial position and
results of operations for these periods. The data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Company and notes
thereto, and other financial information included elsewhere herein. The data for
the periods presented are not necessarily comparable because of acquisitions
made throughout such periods. The unaudited pro forma consolidated financial
information for the year ended December 31, 1996 and the nine-month period ended
September 30, 1997 has been derived from the unaudited pro forma consolidated
financial data included elsewhere herein. The unaudited pro forma consolidated
financial information and the results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of results that may be
expected for any annual or interim period or for the full year ending December
31, 1997.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------------- -----------------------------
NINE MONTHS ENDED NINE MONTHS
YEARS ENDED DECEMBER 31, SEPTEMBER 30, YEAR ENDED ENDED
------------------------------ ------------------------- DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1996 1997(a) 1996(b) 1997(b)
-------- -------- -------- ----------- ----------- ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Net sales................... $129,216 $289,501 $347,679 $ 261,297 $ 311,916 $476,693 $379,530
Cost of products sold....... 104,225 240,871 289,400 217,293 262,060 378,503 308,503
-------- -------- -------- -------- -------- -------- --------
Gross profit.............. 24,991 48,630 58,279 44,004 49,856 98,190 71,027
Selling, general and
administrative expenses... 16,838 30,020 38,131 28,314 31,613 71,499 48,159
Operating income(c)......... 8,153 18,610 17,496 15,690 18,243 24,039 22,868
Interest expense............ 1,501 5,911 6,947 5,478 6,078 15,480(d) 11,609(d)
OTHER FINANCIAL DATA:
EBITDA(e)................... $ 11,366 $ 24,888 $ 28,146 $ 21,202 $ 25,614 $ 38,264 $ 32,433
Depreciation and
amortization.............. 3,213 6,278 7,998 5,512 7,371 11,573 9,565
Capital expenditures........ 11,749 13,632 15,590 8,600 9,244 17,673 10,440
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------
ACTUAL PRO FORMA
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 3,786 $ 2,500
Working capital, as adjusted(f)....................................................... 135,303 138,049
Total assets.......................................................................... 388,782 401,003
Total debt............................................................................ 154,124 165,143
Shareholders' equity.................................................................. 128,015 126,623
</TABLE>
(see footnotes on following page)
11
<PAGE> 16
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Historical results for the nine months ended September 30, 1997 include the
results for the 1997 Acquisitions (excluding Arcon) from their respective
closing dates: (i) Green Bearing as of January 14, 1997; (ii) Feco as of
February 7, 1997; (iii) Delo as of May 27, 1997; and (iv) Arden as of July
25, 1997.
(b) Reflects the results of the 1997 Acquisitions, including Arcon, for the
periods prior to their respective closing dates and certain cost savings
that management believes would have been realized and amortization of
intangible assets that would have been incurred had the Company consummated
the 1997 Acquisitions as of the beginning of the periods presented. See
"Unaudited Pro Forma Consolidated Financial Data" for a detailed description
of the pro forma adjustments.
(c) Operating income is defined as net sales less cost of products sold,
selling, general and administrative expenses and a restructuring charge. In
1996, the Company incurred a restructuring charge of $2.7 million related to
the consolidation of three of the Company's consumer products manufacturing
facilities into one and the discontinuation of certain product lines.
(d) Reflects an interest rate of 9.25% on the Notes.
(e) EBITDA is defined as earnings from continuing operations before interest,
income taxes, depreciation, amortization, other income and non-recurring
items. Non-recurring items include a restructuring charge of $2.7 million in
the fourth quarter of 1996 related to the consolidation of three of the
Company's consumer products manufacturing facilities into one and the
discontinuation of certain product lines. EBITDA is not a measure of
performance under GAAP. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP or
as a measure of profitability or liquidity, management understands that
EBITDA is customarily used as an indication of a company's ability to incur
and service debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of other measures of
liquidity and operations that are covered by the audited financial
statements. EBITDA as defined herein may not be comparable to other
similarly titled measures of other companies.
(f) Working capital, as adjusted, is defined as total current assets excluding
cash and cash equivalents less total current liabilities excluding the
current portion of long-term debt.
12
<PAGE> 17
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
factors, as well as other information set forth in this Prospectus, before
making an investment in the Notes.
HIGH LEVEL OF INDEBTEDNESS; POTENTIAL INABILITY TO SERVICE DEBT
The Company has, and after giving effect to the Refinancing will continue
to have, substantial leverage. At September 30, 1997, on a pro forma basis after
giving effect to the offering of the Original Notes, the Company would have had
$165.1 million of indebtedness, representing approximately 56.6% of the
Company's total capitalization. See "Capitalization." Furthermore, subject to
certain restrictions in the Indenture, the Company and its subsidiaries may
incur additional indebtedness from time to time to finance acquisitions, provide
for working capital or capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including, but not limited to, the following: (i) the
ability of the Company to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes, if necessary, may be impaired
or such financing may not be on terms favorable to the Company; (ii) the Company
will have significant cash requirements for debt service; (iii) financial and
other covenants and operating restrictions imposed by the terms of the Indenture
and by the Company's Senior Indebtedness will limit, among other things, its
ability to borrow additional funds or to dispose of assets; (iv) the Company may
be at a competitive disadvantage because it will be more highly leveraged than
some of its competitors; (v) a downturn in the Company's businesses will have a
more significant impact on its results of operations; and (vi) the Company will
have and may increase indebtedness senior to the Notes immediately following the
issuance of the Notes.
The Company currently expects that it will be able to service the principal
obligations on its indebtedness out of cash flow from operations. The ability of
the Company to satisfy its obligations will be primarily dependent upon the
future financial and operating performance of the Company's Subsidiaries and
upon the Company's ability to renew or refinance borrowings or to raise
additional equity capital. Each of these alternatives is dependent upon
financial, business and other general economic factors affecting the Company and
its Subsidiaries and the Company's businesses in particular, many of which are
beyond the control of the Company and its Subsidiaries. If the Company and its
Subsidiaries are unable to generate sufficient cash flow to meet their debt
service obligations, they will have to pursue one or more alternatives, such as
reducing or delaying capital expenditures, refinancing debt, selling assets or
raising equity capital. There can be no assurance that any such alternatives
could be accomplished on satisfactory terms or that such actions would yield
sufficient funds to retire the Notes and the indebtedness senior to the Notes.
While management believes that cash flow from operations will provide an
adequate source of long-term liquidity, a significant drop in operating cash
flow resulting from economic conditions, competition or other uncertainties
beyond the Company's control would increase the need for alternative sources of
liquidity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
SUBORDINATION OF THE NOTES; NO GUARANTEES
The payment of principal, premium, if any, and interest on, and any other
amount owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Indebtedness of the Company, including
the New Credit Facility. As of September 30, 1997, on a pro forma basis, after
giving effect to the Refinancing, the Company would have had $12.8 million
aggregate principal amount of Senior Indebtedness outstanding and would have had
$38.1 million of undrawn commitments under the New Credit Facility. The
Indenture will limit, but not prohibit, the incurrence by the Company of
indebtedness which constitutes Senior Indebtedness. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of the
Company or its Subsidiaries, the assets of the Company or such Subsidiaries will
be available to pay obligations on the Notes only after all Senior Indebtedness
has been paid in full in cash, and there may not be sufficient assets remaining
to pay amounts due on any or all of the Notes. In addition, under certain
circumstances, the Company and its Subsidiaries may not pay principal, premium,
if any, or interest
13
<PAGE> 18
on, or any other amounts owing in respect of, the Notes, or purchase, redeem or
otherwise retire the Notes, if a payment default or a non-payment default exists
with respect to certain Senior Indebtedness, and, in the case of a non-payment
default, a payment blockage notice has been received by the Trustee (as defined
herein). Because the assets of the Company are and will be primarily held by
operating Subsidiaries, the claims of holders of the Notes will be structurally
subordinated to all existing and future liabilities and obligations (whether or
not for borrowed money), including trade payables, accrued expenses and
litigation costs. As of September 30, 1997, the Subsidiaries of the Company had
$78.5 million of liabilities outstanding, consisting primarily of trade payables
and accrued expenses, and were guarantors of the Company's obligations under the
Existing Credit Facility. The Notes are being issued solely by the Company, and
none of the Company's Subsidiaries are or will be a guarantor under the Notes.
The Indenture expressly provides that no person or entity other than the Company
will have any liability for any obligations of the Company under the Notes or
such Indenture or any claim based on, in respect of or by reason of such
obligations, and that by accepting the Notes, each holder of the Notes waives
and releases such liability, which waiver and release are part of the
consideration for the Notes. The Subsidiaries are guarantors of the obligations
under the New Credit Facility. Due to such guarantees granted under the New
Credit Facility, the lenders thereunder have a senior claim to the assets of
such Subsidiaries. See "Description of the Notes -- Subordination."
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES
A majority of the Company's income is generated by, and a majority of its
assets are held by, its operating Subsidiaries. As a result, the Company will be
dependent on the earnings and cash flow of, and dividends and distributions or
advances from, its Subsidiaries to provide the funds necessary to meet its debt
service obligations, including the payment of principal of and interest on the
Notes. There can be no assurance that the Company's Subsidiaries will generate
sufficient cash flow to dividend, distribute or advance funds to the Company.
DEPENDENCE ON AUTOMOTIVE INDUSTRY; INDUSTRY CYCLICALITY
The Company's sales to the automotive industry accounted for approximately
30% of the Company's pro forma net sales during the nine months ended September
30, 1997. The automotive industry is highly cyclical, is dependent on consumer
spending and is subject to, among other things, general economic conditions and
the impact of international trade. The Company also sells products to customers
in other industries that experience cyclicality in demand for products, such as
the construction, industrial equipment, truck, electrical equipment, plumbing
and lawn and garden equipment industries. Although the automotive industry
accounts for less than one-third of the Company's sales, a downturn in the
domestic automotive industry would have a material adverse effect on the
Company's financial condition, liquidity and results of operations. While the
Company's largest customer, Ford, accounted for 7.7% of the Company's pro forma
net sales for the nine months ended September 30, 1997, certain individual
operating businesses of the Company have a larger concentration of sales to
particular automotive or other customers. Although the Company considers its
relations with its customers to be good, the loss of certain automotive or other
customers could have a material adverse effect on the financial condition,
liquidity and results of operations of certain of the Company's operating units.
See "Business."
RESTRICTIVE DEBT COVENANTS
The Indenture contains covenants that, among other things, limit the
ability of the Company and its Subsidiaries to incur additional indebtedness,
incur liens, pay dividends and make certain other restricted payments, make
investments, repurchase stock, consummate certain asset sales, enter into
certain transactions with affiliates, issue capital stock of Subsidiaries,
create dividend or other payment restrictions affecting subsidiaries,
consolidate or merge with any person or transfer or sell all or substantially
all of the assets of the Company. See "Description of the Notes -- Certain
Covenants."
Although the New Credit Facility does not currently contain restrictive
covenants, future amendments to or replacements of the New Credit Facility could
include covenants that limit the Company's ability to incur additional
indebtedness, prepay subordinated indebtedness, dispose of certain assets,
create liens, make capital
14
<PAGE> 19
expenditures, make certain investments or acquisitions and otherwise restrict
corporate activities. Such amendment or replacement of the New Credit Facility
may also require the Company to comply with certain financial ratios and tests,
under which the Company would be required to achieve certain financial and
operating results. The ability of the Company to comply with such provisions may
be affected by events beyond its control. A breach of any of these covenants
would result in a default under such amendment or replacement of the New Credit
Facility. In the event of any such default, depending on the actions taken by
the lenders, the Company could be prohibited from making any payments on the
Notes. In addition, such lenders could elect to declare all amounts borrowed
under the New Credit Facility, as amended or replaced, together with accrued
interest thereon, to be due and payable, which would be an event of default
under the Indenture. As a result of the priority afforded the New Credit
Facility, there can be no assurance that the Company would have sufficient
assets to pay indebtedness then outstanding under the New Credit Facility, as
amended or replaced, and the Indenture. See "Description of Other
Indebtedness -- New Credit Facility."
POTENTIAL INABILITY TO EFFECT PURCHASE OF NOTES UPON A CHANGE OF CONTROL
In the event of a "Change of Control" of the Company, each holder of the
Notes will be entitled to require the Company to purchase such holder's Notes at
a purchase price equal to 101% of the principal amount thereof, plus any accrued
and unpaid interest, to the purchase date. A Change of Control under the
Indenture could result in a default under the New Credit Facility. The exercise
by the holders of the Notes of their right to require the Company to purchase
the Notes upon a Change of Control could also cause a default under other
indebtedness of the Company (including the New Credit Facility), even if the
Change of Control itself does not, because of the financial effect of such
purchase on the Company. The Company's ability to pay cash to the holders of the
Notes upon such a purchase may be limited by the Company's then existing
financial resources. There can be no assurance that in the event of a Change of
Control, the Company will have, or will have access to, sufficient funds or will
be contractually permitted under the terms of outstanding indebtedness to pay
the required purchase price for all Notes tendered by holders upon a Change of
Control. The obligations of the Company to offer to purchase the Notes are
subject to its obligations to repay amounts outstanding under the New Credit
Facility. Even if the Company can satisfy its obligations under the New Credit
Facility, there can be no assurance that it would be able to fund such purchase
of any Notes. See "Description of the Notes -- Change of Control Offer" and
"Description of Other Indebtedness -- New Credit Facility."
DEPENDENCE ON KEY MANAGEMENT
The success of the Company depends upon the efforts, abilities and
expertise of its executive officers and other senior managers, including Edward
F. Crawford, its Chairman, Chief Executive Officer and President, as well as the
president of each of the Company's operating units. The loss of the services of
such individuals and/or other key individuals could have a material adverse
effect on the Company's financial condition, liquidity and results of
operations. See "Management."
POTENTIAL INABILITY TO INTEGRATE THE 1997 ACQUISITIONS OR FUTURE ACQUISITIONS
The Company believes it will realize substantial benefits from the
successful integration of the 1997 Acquisitions. However, there can be no
assurance that the Company will be able to maintain or improve the operating
results of the 1997 Acquisitions or that the 1997 Acquisitions will be
successfully integrated into the operations of the Company. The Company
continually evaluates potential acquisitions and intends to actively pursue
acquisition opportunities, some of which could be material. Future acquisitions
may be financed by internally generated funds, bank borrowings, public offerings
or private placements of equity or debt securities, or a combination of the
foregoing. There can be no assurance that the Company will be able to make
acquisitions on terms favorable to the Company. If the Company completes any
such future acquisitions, it will encounter various associated risks, including
the possible inability to integrate an acquired business into the Company's
operations, increased goodwill amortization, diversion of management's attention
and unanticipated problems or liabilities, some or all of which could have a
material adverse effect on the Company's operations and financial performance.
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DEPENDENCE ON THIRD-PARTY SUPPLIERS AND MANUFACTURERS
Manufactured Products purchases substantially all of its raw materials,
principally metals and certain component parts incorporated into its products,
and Logistics purchases substantially all of its fasteners, from third-party
suppliers and manufacturers. Management believes that there are numerous
available sources of supply for required raw materials and component parts
incorporated into the Company's products other than certain specialty fasteners.
While the Company currently maintains alternative sources for raw materials and
such component parts, the Company's businesses are subject to the risk of price
fluctuations and periodic delays in the delivery of certain specialty fasteners,
raw materials and component parts. Failure by certain suppliers to continue to
supply the Company with raw materials or such component parts on commercially
reasonable terms, or at all, would have a material adverse effect on the
Company. The Company has subcontracted production of some component parts
incorporated into its products to third-party manufacturers and receives a
majority of the products sold by Logistics from third-party manufacturers.
Accordingly, the Company is dependent on the ability of such manufacturers,
among other things, to meet stringent performance and quality specifications and
to conform to delivery schedules. Failure by such third-party manufacturers to
comply with these and other requirements could have a material adverse effect on
the Company's financial condition, liquidity and results of operations. See
"Business -- Raw Materials and Suppliers."
COMPETITION
The markets for the Company's manufactured products are highly competitive.
Certain of the Company's competitors are large companies that have greater
financial resources than the Company. Management believes that the principal
competitive factors in Manufactured Products are product quality and conformity
to customer specifications, design and engineering capabilities, product
development, timeliness of delivery and price. The rapidly evolving nature of
the markets in which the Company competes may attract new entrants as they
perceive opportunities, and the Company's competitors may foresee the course of
market development more accurately than the Company. In addition, the Company's
competitors may develop products that are superior to the Company's products or
may adapt more quickly than the Company to new technologies or evolving customer
requirements. Logistics competes with over 2,500 domestic full-line industrial
fastener distributors and other domestic distributors that offer fasteners in
addition to other products, as well as a number of fastener manufacturers, who,
in certain circumstances, may sell directly to OEMs. Recent trends by OEMs to
limit their number of outside vendors and moderate growth in the industrial
fastener industry have resulted in increased competition as many manufacturers
and distributors have reduced prices to compete more effectively. Management
expects competitive pressures in the Company's markets to remain strong. Such
pressures arise from existing competitors, other companies that may enter the
Company's existing or future markets and, in certain cases, the Company's
customers, which may decide to move production in-house of certain items sold by
the Company. There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors. Failure to
compete successfully could have a material adverse effect on the Company's
financial condition, liquidity and results of operation. See "Business."
PRODUCT LIABILITY
The Company's businesses expose it to potential product liability risks
that are inherent in the design, manufacture and sale of its products and
products of third-party vendors that it uses or resells. While the Company
currently maintains what management believes to be suitable and adequate product
liability insurance, there can be no assurance that it will be able to maintain
such insurance on acceptable terms or that any such insurance will provide
adequate protection against potential liabilities. In the event of a claim
against the Company, a lack of sufficient insurance coverage could have a
material adverse effect on the Company's financial condition, liquidity and
results of operations. Moreover, even if the Company maintains adequate
insurance, any successful claim could have a material adverse effect on the
Company's financial condition, liquidity and results of operations. See
"Business -- Legal Matters."
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ENVIRONMENTAL COMPLIANCE
The Company is subject to a variety of environmental laws including those
which regulate the use, handling, treatment, storage, discharge and disposal of
substances and hazardous wastes used or generated in the Company's manufacturing
processes. A failure by the Company to comply with present and future
environmental laws could subject it to future liabilities or the suspension of
production. Such environmental laws could also restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses in connection with its manufacturing
processes. Remediation is currently required at the Company's Kent, Ohio
facility. Management believes compliance with existing laws and the cost of such
remediation efforts will not have a material adverse impact on the Company's
financial condition, liquidity and results of operations. However, material
future expenditures may be necessary if compliance standards change or material
unknown conditions are discovered. See "Business -- Environmental Regulations."
GOVERNMENT REGULATION; FASTENER QUALITY ACT
The Fastener Quality Act of 1991 (the "Fastener Act") regulates the
manufacture, importation and distribution of certain high-grade industrial
fasteners in the United States. Implementation of the Fastener Act, which is
scheduled for May 1998, will require certain testing, certification and
recordkeeping requirements by the manufacturers, importers and distributors of
such fasteners. As a result, the Company and other fastener suppliers will be
required to maintain records and product tracking systems and may be required to
comply with requirements imposed during the implementation of the Fastener Act.
The Company has tracking and traceability systems, which, to date, have not
materially increased expenses. However, there can be no assurance that future
regulations will not result in materially increased costs for the Company.
DEPENDENCE ON INFORMATION SYSTEMS
The Company believes that its computer systems are an integral part of its
Manufactured Products and Logistics businesses and certain growth strategies are
contingent upon the Company's computer systems. The Company depends on its
information systems to process orders, manage inventory and accounts receivable
collections, purchase products, maintain cost-effective operations, route and
reroute orders and provide superior service to its customers. There can be no
assurance that a disruption in the operation of the Company's information
systems used by Logistics, including the failure of the supply chain management
software to function properly, or those used by Manufactured Products will not
occur. Any such disruption could have a material adverse effect on the Company's
financial condition, liquidity and results of operations.
LABOR RELATIONS
The Company is a party to nine collective bargaining agreements with
various labor unions, five of which will expire in 1998. In the aggregate, under
those agreements the Company currently employs approximately 720 full-time
employees. The Company's inability to negotiate acceptable contracts with these
unions could result in, among other things, strikes, work stoppages or other
slowdowns by the affected workers and increased operating costs as a result of
higher wages or benefits paid to union members. In the last six years, the
Company has experienced labor strikes at two operating units of Manufactured
Products. While the Company considers its current relations with its employees
to be good, if the unionized workers were to engage in a strike, work stoppage
or other slowdown, or other employees were to become unionized, the Company
could experience a significant disruption of its operations and higher ongoing
labor costs, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON RESALE
There is no existing trading market for the Notes, and the Company does not
intend to list any Notes on any securities exchange; however, Notes will be
eligible for trading in the PORTAL Market of the National Association of
Securities Dealers, Inc. The Initial Purchasers have advised the Company that
they currently intend to make a market in the Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the Notes
may be discontinued at any time without notice. In addition, any market-making
activities in the Original Notes may be limited during the pending of the
Exchange Offering.
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<PAGE> 22
Therefore, there can be no assurance as to the liquidity of any trading market
for the Notes or that an active public market for the Notes will develop. See
"The Exchange Offer."
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes were offered and sold pursuant to exemptions from the
Securities Act. Accordingly, holders of Original Notes who do not exchange their
Original Notes for Exchange Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such Original Notes as set
forth in the legend thereon. In general, the Original Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act or
applicable state securities laws. The Company does not currently expect that it
will register the Original Notes under the Securities Act. Based on
interpretations by the staff of the Commission issued in no-action letters to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Original Notes may be offered for resale,
resold or otherwise transferred by the Holder thereof (other than any such
Holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), provided that such Exchange Notes are acquired in the
ordinary course of such Holder's business and such Holder has no arrangement
with any person to participate in the distribution of such Exchange Notes. Such
no-action letters are not binding interpretations of the law. The Company has
not sought, and does not currently intend to seek a no-action letter. There can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Any Holder of Original Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes would not be acting consistently with such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any Exchange Notes acquired by
such Holder will not be freely transferable except in compliance with the
Securities Act. Each Restricted Holder that receives Exchange Notes for its own
account in exchange for the Original Notes, where such Original Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
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<PAGE> 23
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on November 25, 1997 to the
Initial Purchasers pursuant to a Purchase Agreement dated as of November 19,
1997. As a condition to the sale of the Original Notes, the Company and the
Initial Purchasers entered into the Registration Rights Agreement on November
25, 1997. Pursuant to the Registration Rights Agreement, the Company agreed
that, unless the Exchange Offer is not permitted by applicable law or Commission
policy, it would (i) file with the Commission a Registration Statement under the
Securities Act with respect to the Exchange Notes within 45 days after the Issue
Date, (ii) use its best efforts to cause such Registration Statement to become
effective under the Securities Act within 130 days after the Issue Date and
(iii) upon effectiveness of the Registration Statement, commence the Exchange
Offer, keep the Exchange Offer open for at least 30 days (or a longer period if
required by law) and deliver to the Exchange Agent Exchange Notes in the same
aggregate principal amount as the Original Notes that were tendered by holders
thereof pursuant to the Exchange Offer. Under existing Commission
interpretations, the Exchange Notes would in general be freely transferable
after the Exchange Offer without further registration under the Securities Act;
provided, that in the case of broker-dealers, a prospectus meeting the
requirements of the Securities Act be delivered as required. The Company has
agreed to make available a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such
Exchange Notes acquired as described below for such period of 180 days after the
Expiration Date. A broker-dealer that delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act, and will be subject to the
Registration Rights Agreement (including certain indemnification rights and
obligations). A copy of the Registration Rights Agreements has been incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part. The Registration Statement of which this Prospectus is a
part is intended to satisfy certain of the Company's obligations under the
Registration Rights Agreement and the Purchase Agreement.
The Company is generally not required to file any registration statement to
register any outstanding Original Notes. Holders of Original Notes who do not
tender their Original Notes or whose Original Notes are tendered but not
accepted will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Original Notes.
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges Original Notes for Exchange Notes in
the ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. The Company has not
sought, and does not currently intend to seek a no-action letter. There can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. However, if any holder acquires the Exchange
Notes in the Exchange Offer for the purpose of distributing or participating in
the distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain
no-action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within
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<PAGE> 24
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make this Prospectus, as it may be amended
or supplemented from time to time, available to broker-dealers for use in
connection with any resale for a period of 180 days after the Expiration Date.
See "Plan of Distribution."
REGISTRATION RIGHTS; ADDITIONAL INTEREST
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Registration Rights Agreement, the Company will, at its own expense, (a) as
promptly as practicable, file a shelf registration statement covering resales of
the Notes (the "Shelf Registration Statement"), (b) use its best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act, and (c) use its best efforts to keep effective the Shelf
Registration Statement until three years after its effective date. The Company
will, in the event of the Shelf Registration Statement, provide to each holder
of the Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Notes. A holder of the Notes that sells such
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling securityholder in the related prospectus and to deliver
a prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Act in connection with such sales, and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification rights and obligations).
Although the Company intends to file one of the registration statements
described above, there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Company fails to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional interest shall become
payable in respect of the Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days after the Issue Date;
(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 130 days after the Issue Date;
or
(iii) either (A) the Company has not exchanged the Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 60 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of its effective date;
(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), then the sole remedy available to holders of the Notes
will be the immediate assessment of additional interest ("Additional Interest")
as follows: the per annum interest rate on the Notes will increase by 50 basis
points; and the per annum interest rate will increase by an additional 25 basis
points for each subsequent 90-day period during which the Registration Default
remains uncured, up to a maximum additional interest rate of 200 basis points
per annum in excess of the interest rate on the cover of this Prospectus. All
Additional Interest will be payable to holders of the Notes in cash on each June
1 and December 1, commencing with the first such date occurring after any such
Additional Interest commences to accrue, until such Registration Default is
cured. After the date on which such Registration Default is cured, the interest
rate on the Notes will revert to the interest rate originally borne by the Notes
(as shown on the cover of this Prospectus).
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<PAGE> 25
Although all material terms of the Registration Rights Agreement have been
described herein, the summary herein of certain provisions of the Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Registration Rights Agreement, which has been incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part, a copy
of which will be available upon request to the Company.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Original Notes validly tendered and not withdrawn prior to the Expiration
Date. The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Original Notes
surrendered pursuant to the Exchange Offer. Holders may tender some or all of
their Original Notes pursuant to the Exchange Offer; provided, however, that
Original Notes may be tendered only in integral multiples of $1,000. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Original Notes being tendered for exchange.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and (ii) holders of the Exchange Notes will not be entitled to the
certain rights of holders of Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Original Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture, which also authorized the issuance of the Original Notes,
such that all outstanding Notes will be treated as a single class of debt
securities under the Indenture.
Interest on the Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Original Notes surrendered in exchange
therefor or, if no interest has been paid, from November 25, 1997. Accordingly,
registered holders of Exchange Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the last interest payment date on which interest
was paid or, if no interest has been paid on the Notes, from November 25, 1997.
Original Notes accepted for exchange will cease to accrue interest from and
after the date of the consummation of the Exchange Offer. Holders whose Original
Notes are accepted for exchange will not receive any payment in respect of
interest on such Original Notes otherwise payable on any interest payment date,
the record date for which occurs on or after consummation of the Exchange Offer.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Original Notes are outstanding and registered in the name of Cede & Co.,
as nominee for the Depository Trust Company ("DTC"). Only a registered holder of
the Original Notes (or such holder's legal representative or attorney-in-fact)
as reflected on the records of the Trustee under the Indenture may participate
in the Exchange Offer. There will be no fixed record date for determining
registered holders of the Original Notes entitled to participate in the Exchange
Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Notes will be
returned without expense to the tendering holders thereof (or in the case of
Original Notes tendered by book-entry transfer, such Original Notes will be
credited to the account of such holder maintained at the DTC), as promptly as
practicable after the expiration or termination of the Exchange Offer.
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<PAGE> 26
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
February 17, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer (for a maximum of an additional 20 business days), in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date of the Exchange Offer. Without limiting the manner in which the Company may
choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if any
conditions set forth below under "-- Certain Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
Original Notes, and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to such registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "-- Certain Conditions to the Exchange
Offer."
If the Company extends the period of time during which the Exchange Offer
is open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Original Notes, or is unable to accept
for exchange of, or issue Exchange Notes for, any Original Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Company's rights
under the Exchange Offer, the Exchange Agent may, on behalf of the Company,
retain all Original Notes tendered, and such Original Notes may not be withdrawn
except as otherwise provided below in "-- Withdrawal of Tenders." The adoption
by the Company of the right to delay acceptance for exchange of, or the issuance
and the exchange of the Exchange Notes, for any Original Notes is subject to
applicable law, including Rule 14e-1(c) under the Exchange Act, which requires
that the Company pay the consideration offered or return the Original Notes
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of the Exchange Offer.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signature thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer of such
Notes, if such procedure is available, into the Exchange Agent's account at DTC
pursuant to the procedure for book-entry transfer described below, must be
received by the
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<PAGE> 27
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Original Notes by
causing DTC to transfer such Original Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Original
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses set forth under "-- Exchange Agent" below prior to 5:00 p.m., New York
City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Original Notes whose Original Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owners's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Notes in such owner's name (to the
extent permitted by the Indenture) or obtain a properly completed assignment
from the registered holder. The transfer of registered ownership may take
considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes (which term includes any participants in
DTC whose name appears on a security position listing as the owner of the
Original Notes) or if delivery of the Exchange Notes is to be made to a person
other than the registered holder, such Original Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature on the Original Notes or the bond power guaranteed by
an Eligible Institution (as defined below).
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution unless the Original Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or another "Eligible Guarantor Institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (any of the foregoing,
an "Eligible Institution").
23
<PAGE> 28
If the Letter of Transmittal or any Original Notes or assignments are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may utilize DTC's Automated Tender Offer
Program to tender Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes, the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Notes must be cured within such time as the Company shall determine.
Although the Company intends to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, if any of the conditions set forth below
under "-- Certain Conditions to the Exchange Offer" shall not have been
satisfied, to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Original Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, the holder is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
24
<PAGE> 29
RETURN OF NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below,
such Original Notes will be credited to an account maintained with DTC) as
promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus, and any financial institution
that is a participant in DTC's system may make book-entry delivery of Original
Notes by causing DTC to transfer such Original Notes into the Exchange Agent's
account at DTC in accordance with DTC's procedures for transfer. However,
although delivery of Original Notes may be effected through book-entry transfer
at DTC, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth below
under "-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes (or complete the procedures for book-entry transfer), the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Notes (if
available) and the principal amount of Original Notes tendered, stating
that the tender is being made thereby guaranteeing that, within five Nasdaq
National Market trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof) together with the certificate(s)
representing the Original Notes in proper form for transfer (or a
confirmation of a book-entry transfer into the Exchange Agent's account at
DTC of Original Notes delivered electronically), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Original
Notes in proper form for transfer (or a confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of Original Notes
delivered electronically), and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five Nasdaq
National Market trading days after the Expiration Date.
Upon request to the exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
25
<PAGE> 30
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number or numbers (if
applicable) and principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, whose determination shall be final and binding on all
parties. Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Original Notes so withdrawn are validly
retendered. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might impair the ability of the Company
to proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company or there shall have
occurred any material adverse development in any existing action or proceeding
with respect to the Company or any of its subsidiaries; or
(b) there shall have been any material change, or development involving a
prospective change, in the business or financial affairs of the Company or any
of its subsidiaries which, in the reasonable judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could reasonably be
expected to materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or
(d) any governmental approval which the Company shall, in its reasonable
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby shall not have been obtained.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Original Notes (see "-- Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Original Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the
26
<PAGE> 31
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the Company fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's reasonable discretion. The failure by the
Company at any time to exercise the foregoing rights shall not be deemed a
waiver 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.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Original Notes eligible to participate in this
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Original Notes pursuant to Rule 144A,
(iii) to use its best efforts to keep the Registration Statement effective to
the extent necessary to ensure that it is available for resales of transfer
restricted Notes by broker-dealers for a period of 180 days from the date on
which the Registration Statement is declared effective and (iv) to provide
copies of the latest version of the Prospectus to broker-dealers upon their
request for a period of 180 days from the date on which the Registration
Statement is declared effective. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. All questions and requests for assistance as well
as all correspondence in connection with the Exchange Offer and the Letter of
Transmittal should be addressed to the Exchange Agent, as follows:
By Registered or Certified Mail:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
P.O. Box 1517
Minneapolis, MN 55480-1517
By Hand:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
Northstar East, 12th Floor
608 2nd Avenue
Minneapolis, MN 55402
By Overnight Courier:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113
By Facsimile:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
(612) 667-4927
Confirm by telephone:
(612) 667-9764
Requests for additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery should be directed to the
Exchange Agent.
27
<PAGE> 32
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the offering of the
Original Notes and the Exchange Notes will be paid by the Company and are
estimated in the aggregate to be approximately $637,500. Such expenses include
fees and expenses of the Exchange Agent and Trustee, accounting and legal fees
and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or Original Notes for principal amounts not
tendered or acceptable for exchange, are to be delivered to, or are to be issued
in the name of, any person other than the registered holders of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder of Original
Notes.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Original Notes which are not exchanged for the Exchange Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such
Original Notes may be resold only (i) to a person whom the seller reasonably
believes is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (ii) in
a transaction meeting the requirements of Rule 144 under the Securities Act,
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
28
<PAGE> 33
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in like principal amount, the terms of which are substantially
identical to the Exchange Notes. All Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase in
the indebtedness of the Company.
The following table summarizes the sources and uses of funds in connection with
the Refinancing as of November 25, 1997 (dollars in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Original Notes.......................................... $150,000
New Credit Facility..................................... 16,184
--------
Total sources of funds.......................... $166,184
========
USES OF FUNDS:
Repayment of Existing Credit Facility(a)................ $138,413
Repayment of Convertible Senior Subordinated
Debentures(b)........................................ 23,196
Estimated fees and expenses............................. 4,575
--------
Total uses of funds............................. $166,184
========
</TABLE>
- ---------------
(a) The Existing Credit Facility bore interest at rate of 6.67% as of September
30, 1997. The amount shown above includes accrued interest of $0.7 million.
(b) The Convertible Senior Subordinated Debentures bear interest at a rate of
7.25% per annum and have a final maturity of June 15, 2004. The amount shown
above includes a redemption premium of $1.3 million and accrued interest of
$0.8 million. The Company mailed redemption notices to the holders of the
Convertible Senior Subordinated Debentures and the Convertible Senior
Subordinated Debentures will be redeemed on December 24, 1997. The indenture
governing the Convertible Senior Subordinated Debentures contains a covenant
prohibiting the issuance of the Notes. The issuance of the Notes will not
constitute an event of default under such indenture, as the Convertible
Senior Subordinated Debentures will be redeemed prior to the time an event
of default could occur thereunder. However, if there is a delay in the
redemption of the Convertible Senior Subordinated Debentures, the issuance
of the Notes may constitute an event of default under the indenture
governing the Convertible Senior Subordinated Debentures. In addition,
failure to redeem or retire the Convertible Senior Subordinated Debentures
by December 26, 1997 will constitute an Event of Default under the Indenture
governing the Notes.
29
<PAGE> 34
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company and its Subsidiaries at September 30, 1997, and the pro forma
consolidated capitalization as adjusted to reflect the Refinancing and the
acquisition of Arcon. This table should be read in conjunction with the
information contained in "Use of Proceeds," "Unaudited Pro Forma Consolidated
Financial Data," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as the Company's consolidated
financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------------------
COMPANY ARCON REFINANCING COMPANY
ACTUAL ACTUAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents...................... $ 3,786 $ (775) $ (511) $ 2,500
======== ======== ======== ========
Existing Credit Facility....................... $ 129,750 $ 4,810 $(134,560) $ --
New Credit Facility(a)......................... -- -- 11,894 11,894
Other debt(b).................................. 3,249 -- -- 3,249
Convertible Senior Subordinated Debentures..... 21,125 -- (21,125) --
Notes offered hereby........................... -- -- 150,000 150,000
-------- -------- -------- --------
Total debt................................... 154,124 4,810 6,209 165,143
Shareholders' equity........................... 128,015 -- (1,392) 126,623
-------- -------- -------- --------
Total capitalization......................... $ 282,139 $ 4,810 $ 4,817 $ 291,766
======== ======== ======== ========
</TABLE>
- ---------------
(a) The New Credit Facility is a $50.0 million senior unsecured revolving credit
facility. See "Description of Other Indebtedness -- New Credit Facility."
(b) Other debt is comprised primarily of state loans and capital leases. See
"Description of Other Indebtedness."
30
<PAGE> 35
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1997 and Unaudited Pro Forma Consolidated Income Statement Data
for the nine months ended September 30, 1997 and the year ended December 31,
1996 are based on the historical consolidated financial statements of the
Company. The Unaudited Pro Forma Consolidated Balance Sheet is adjusted to give
effect to the Refinancing and the acquisition of Arcon as if these events had
occurred on September 30, 1997. The Unaudited Pro Forma Consolidated Income
Statement Data are adjusted to give effect to the Refinancing and the 1997
Acquisitions as if these events occurred as of the beginning of the periods
presented. The Unaudited Pro Forma Consolidated Income Statement Data include
the historical operations of the 1997 Acquisitions prior to the dates the
Company made such acquisitions, using the purchase method of accounting. The pro
forma operating results are presented for informational purposes only and are
not necessarily indicative of the operating results that would have been
achieved had the 1997 Acquisitions actually occurred at the beginning of each
period presented, nor do they purport to indicate the results of future
operations.
The Unaudited Pro Forma Consolidated Financial Data are based on the
assumptions set forth in the notes to such statements and should be read in
conjunction with the consolidated financial statements and notes thereto of the
Company included elsewhere in this Prospectus.
31
<PAGE> 36
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ARCON
COMPANY ACQUISITION COMPANY REFINANCING COMPANY
ACTUAL ADJUSTMENTS(a) COMBINED ADJUSTMENTS PRO FORMA
-------- -------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 3,786 $ (775) $ 3,011 $ (511)(b) $ 2,500
Accounts receivable, net....... 82,234 558 82,792 -- 82,792
Inventories.................... 111,720 4,694 116,414 -- 116,414
Deferred taxes................. 4,640 -- 4,640 -- 4,640
Other current assets........... 11,222 88 11,310 -- 11,310
-------- ------ -------- ------- --------
Total current assets.... 213,602 4,565 218,167 (511) 217,656
Property, plant and equipment.... 126,716 716 127,432 -- 127,432
Less accumulated depreciation.... (58,719) -- (58,719) -- (58,719)
-------- ------ -------- ------- --------
67,997 716 68,713 -- 68,713
Other assets:
Excess purchase price over net
assets acquired, net......... 68,705 3,000 71,705 -- 71,705
Deferred taxes................. 13,100 -- 13,100 853(c) 13,953
Other.......................... 25,378 -- 25,378 4,575(d) 28,976
-- -- -- (977)(c) --
-------- ------ -------- ------- --------
$388,782 $8,281 $397,063 $ 3,940 $401,003
======== ====== ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable......... $ 41,161 $2,061 $ 43,222 $ -- $ 43,222
Accrued expenses............... 31,602 1,410 33,012 (877)(e) 32,135
Current portion of long-term
liabilities.................. 1,750 -- 1,750 -- 1,750
Current portion of long-term
debt......................... 5,415 -- 5,415 (5,000)(f) 415
-------- ------ -------- ------- --------
Total current
liabilities........... 79,928 3,471 83,399 (5,877) 77,522
Long-term liabilities:
Long-term debt................. 148,709 4,810 153,519 11,209(g) 164,728
Other postretirement
benefits..................... 27,416 -- 27,416 -- 27,416
Other liabilities.............. 4,714 -- 4,714 -- 4,714
-------- ------ -------- ------- --------
180,839 4,810 185,649 11,209 196,858
Shareholders' equity:
Common stock................... 10,960 -- 10,960 -- 10,960
Additional paid-in capital..... 53,481 -- 53,481 -- 53,481
Retained earnings.............. 65,506 -- 65,506 (1,392)(c) 64,114
Treasury stock, at cost........ (1,932) -- (1,932) -- (1,932)
-------- ------ -------- ------- --------
128,015 -- 128,015 (1,392) 126,623
-------- ------ -------- ------- --------
$388,782 $8,281 $397,063 $ 3,940 $401,003
======== ====== ======== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
32
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Reflects purchase accounting adjustments relating to the acquisition of Arcon as of
October 3, 1997.
(b) Reflects the portion of the Company's cash on hand used in connection with the
Refinancing. See "Use of Proceeds."
(c) Reflects the following adjustments related to the Refinancing:
Write-off of deferred financing costs -- existing indebtedness.............. $ (977)
Redemption premium -- Convertible Senior Subordinated Debentures............ (1,268)
Related income tax effect................................................... 853
--------
-
Total adjustment....................................................... $(1,392)
=========
(d) Reflects financing costs and expenses incurred in connection with the Refinancing.
(e) Reflects the accrued and unpaid interest on the Existing Credit Facility and Convertible
Senior Subordinated Debentures paid in connection with the Refinancing.
(f) Reflects the repayment of the portion of the Existing Credit Facility included in
current portion of long-term debt.
(g) Reflects the following adjustments to long-term debt resulting from the Refinancing:
Gross proceeds from the Original Notes....................................... $150,000
Borrowings under the New Credit Facility..................................... 11,894
Repayment of the Existing Credit Facility included in long-term debt......... (129,560)
Repayment of the Convertible Senior Subordinated Debentures.................. (21,125)
---------
Total adjustment........................................................ $ 11,209
=========
</TABLE>
33
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA
1997 ACQUISITION PRO FORMA REFINANCING AS
COMPANY(a) ACQUISITIONS(b) ADJUSTMENTS(c) COMPANY ADJUSTMENTS ADJUSTED
--------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales.......................... $311,916 $67,614 $ -- $379,530 $ -- $379,530
Cost of products sold.............. 262,060 48,645 (2,202)(d) 308,503 -- 308,503
-------- ------- ------- -------- ------- --------
Gross profit..................... 49,856 18,969 2,202 71,027 -- 71,027
Selling, general and
administrative expenses.......... 31,613 17,679 (1,788)(e) 48,159 -- 48,159
-- -- 655(f) -- -- --
-------- ------- ------- -------- ------- --------
Operating income................. 18,243 1,290 3,335 22,868 -- 22,868
Other income....................... (320) -- -- (320) -- (320)
Interest expense................... 6,078 525 -- 6,603 5,006(g) 11,609
-------- ------- ------- -------- ------- --------
Income from continuing
operations before income
taxes......................... 12,485 765 3,335 16,585 (5,006) 11,579
Income taxes....................... 4,682 92 1,267(h) 6,041 (1,902)(h) 4,139
-------- ------- ------- -------- ------- --------
Income from continuing
operations.................... $ 7,803 $ 673 $ 2,068 $ 10,544 $(3,104) $ 7,440
======== ======= ======= ======== ======= ========
OTHER FINANCIAL DATA:
Operating income................... $ 18,243 $ 1,290 $ 3,335 $ 22,868 -- $ 22,868
Plus: Depreciation and
amortization..................... 7,371 1,539 655(f) 9,565 -- 9,565
-------- ------- ------- -------- ------- --------
EBITDA(i).......................... $ 25,614 $ 2,829 $ 3,990 $ 32,433 $ -- $ 32,433
======== ======= ======= ======== ======= ========
Capital expenditures............... $ 9,244 $ 1,196 $ -- $ 10,440 $ -- $ 10,440
Interest expense................... 6,078 525 -- 6,603 5,006 11,609
Ratio of earnings to fixed
charges(j)....................... 2.6x -- -- -- -- 1.9x
See accompanying Notes to Unaudited Pro Forma Consolidated Income Statement Data.
</TABLE>
34
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(a) Historical results for the nine months ended September 30, 1997 include the
results for the 1997 Acquisitions (excluding Arcon) from their respective
closing dates: (i) Green Bearing as of January 14, 1997; (ii) Feco as of
February 7, 1997; (iii) Delo as of May 27, 1997; and (iv) Arden as of July
25, 1997.
(b) The following table reflects the historical operating results for the 1997
Acquisitions for the period from January 1, 1997 to the earlier of their
respective dates of acquisition by the Company or September 30, 1997:
<TABLE>
<CAPTION>
FECO
AND
GREEN
ARDEN ARCON DELO BEARING TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales.......................... $50,219 $10,719 $ 5,080 $ 1,596 $67,614
Cost of products sold.............. 36,592 7,294 3,597 1,162 48,645
------- ------- ------ ------ -------
Gross profit..................... 13,627 3,425 1,483 434 18,969
Selling, general and administrative
expenses......................... 13,392 3,393 586 308 17,679
------- ------- ------ ------ -------
Operating income................. 235 32 897 126 1,290
Interest expense................... -- 454 31 40 525
------- ------- ------ ------ -------
Income (loss) before income
taxes......................... 235 (422) 866 86 765
Income taxes....................... 92 -- -- -- 92
------- ------- ------ ------ -------
Net income (loss)................ $ 143 $ (422) $ 866 $ 86 $ 673
======= ======= ====== ====== =======
OTHER FINANCIAL DATA:
EBITDA............................. $ 1,288 $ 384 $ 1,016 $ 141 $ 2,829
Depreciation and amortization...... 1,053 352 119 15 1,539
Capital expenditures............... 304 553 336 3 1,196
</TABLE>
(c) Reflects adjustments for certain cost savings that management believes would
have been realized and amortization of intangible assets that would have
been incurred had the Company consummated the 1997 Acquisitions as of
January 1, 1997.
(d) Reflects the following cost saving adjustments to cost of products sold in
conjunction with the 1997 Acquisitions:
<TABLE>
<S> <C>
Elimination of operating personnel............................................. $(1,725)
Elimination of redundant branch facilities..................................... (477)
-------
Total adjustment..................................................... $(2,202)
=======
</TABLE>
(e) Reflects the following cost saving adjustments to selling, general and
administrative expenses in conjunction with the 1997 Acquisitions:
<TABLE>
<S> <C>
Elimination of corporate personnel............................................. $(1,331)
Elimination of redundant corporate facilities.................................. (457)
-------
Total adjustment..................................................... $(1,788)
=======
</TABLE>
(f) Reflects additional amortization of goodwill over 25 years as a result of
the 1997 Acquisitions.
35
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT DATA -- CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(g) Reflects the following adjustments to interest expense:
<TABLE>
<S> <C>
Interest expense -- Notes offered hereby(1).................................... $10,406
Interest expense -- New Credit Facility(2)..................................... 658
Interest expense -- other debt................................................. 160
Amortization of deferred financing costs....................................... 385
-------
Pro forma interest expense................................................... 11,609
Less: historical interest expense.............................................. (6,603)
-------
Total adjustment..................................................... $ 5,006
=======
</TABLE>
- ---------------
(1) Reflects an interest rate of 9.25%.
(2) Assumes an interest rate of 7.375%.
(h) Adjustment necessary to reflect income tax expense at the Company's
effective income tax rate of 38%.
(i) EBITDA is defined as earnings from continuing operations before interest,
income taxes, depreciation, amortization, other income and non-recurring
items. EBITDA is not a measure of performance under GAAP. While EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used as an
indication of a company's ability to incur and service debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of other measures of liquidity and operations
that are covered by the audited financial statements. EBITDA as defined
herein may not be comparable to other similarly titled measures of other
companies.
(j) Earnings are defined as income from continuing operations before income
taxes and fixed charges. Fixed charges are defined as interest expense and a
portion of rental expense representing the interest factor, which the
Company estimates to be one-third of rental expense, and amortization of
deferred financing costs.
36
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT DATA
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
1997 ACQUISITION PRO FORMA REFINANCING PRO FORMA
COMPANY ACQUISITIONS(a) ADJUSTMENTS(b) COMPANY ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales......................... $347,679 $ 129,014 $ -- $ 476,693 $ -- $ 476,693
Cost of products sold............. 289,400 93,356 (4,253)(c) 378,503 -- 378,503
-------- --------- -------- --------- ------- ---------
Gross profit.................... 58,279 35,658 4,253 98,190 -- 98,190
Selling, general and
administrative expenses......... 38,131 35,167 (2,926)(d) 71,499 -- 71,499
-- -- 1,127(e) -- -- --
Restructuring charge.............. 2,652 -- -- 2,652 -- 2,652
-------- --------- -------- --------- ------- ---------
Operating income................ 17,496 491 6,052 24,039 -- 24,039
Other income...................... (4,204) (109) -- (4,313) -- (4,313)
Interest expense.................. 6,947 914 -- 7,861 7,619(f) 15,480
-------- --------- -------- --------- ------- ---------
Income (loss) from continuing
operations before income
taxes........................ 14,753 (314) 6,052 20,491 (7,619) 12,872
Income taxes (benefit)............ 5,060 (370) 2,300(g) 6,990 (2,895)(g) 4,095
-------- --------- -------- --------- ------- ---------
Income from continuing
operations................... $ 9,693 $ 56 $ 3,752 $ 13,501 $(4,724) $ 8,777
======== ========= ======== ========= ======= =========
OTHER FINANCIAL DATA:
Operating income.................. $ 17,496 $ 491 $ 6,052 $ 24,039 $ -- $ 24,039
Plus: Depreciation and
amortization.................... 7,998 2,448 1,127(e) 11,573 -- 11,573
Restructuring charge.............. 2,652 -- -- 2,652 -- 2,652
-------- --------- -------- --------- ------- ---------
EBITDA(h)......................... $ 28,146 $ 2,939 $ 7,179 $ 38,264 $ -- $ 38,264
======== ========= ======== ========= ======= =========
Capital expenditures.............. $ 15,590 $ 2,083 $ -- $ 17,673 $ -- $ 17,673
Interest expense.................. 6,947 914 -- 7,861 7,619 15,480
Ratio of earnings to fixed
charges(i)...................... 2.7x -- -- -- -- 1.7x
See accompanying Notes to Unaudited Pro Forma Consolidated Income Statement Data.
</TABLE>
37
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT DATA
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(a) The following table reflects the 1996 historical operating results for the
1997 Acquisitions:
<TABLE>
<CAPTION>
FECO AND
ARDEN ARCON DELO GREEN BEARING TOTAL
------- ------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales.............................. $90,496 $16,728 $10,689 $11,101 $129,014
Cost of products sold.................. 65,475 12,134 7,701 8,046 93,356
------- ------- ------- ------- --------
Gross profit......................... 25,021 4,594 2,988 3,055 35,658
Selling, general and administrative
expenses............................. 25,956 4,497 1,157 3,557 35,167
------- ------- ------- ------- --------
Operating income (loss).............. (935) 97 1,831 (502) 491
Other (income) expense................. -- 229 (338) -- (109)
Interest (income) expense.............. -- 625 (139) 428 914
------- ------- ------- ------- --------
Income (loss) before income taxes.... (935) (757) 2,308 (930) (314)
Income taxes (benefit)................. (370) -- -- -- (370)
------- ------- ------- ------- --------
Net income (loss).................... $ (565) $ (757) $ 2,308 $ (930) $ 56
======= ======= ======= ======= ========
OTHER FINANCIAL DATA:
EBITDA................................. $ 842 $ 403 $ 2,074 $ (380) $ 2,939
Depreciation and amortization.......... 1,777 306 243 122 2,448
Capital expenditures................... 1,089 607 278 109 2,083
</TABLE>
(b) Reflects adjustments for certain cost savings that management believes would
have been realized and amortization of intangible assets that would have
been incurred had the Company consummated the 1997 Acquisitions as of
January 1, 1996.
(c) Reflects the following cost saving adjustments to cost of products sold in
conjunction with the 1997 Acquisitions:
<TABLE>
<S> <C>
Elimination of operating personnel............................................. $(3,542)
Elimination of redundant branch facilities..................................... (711)
-------
Total adjustment..................................................... $(4,253)
=======
</TABLE>
(d) Reflects the following cost saving adjustments to selling, general and
administrative expenses in conjunction with the 1997 Acquisitions:
<TABLE>
<S> <C>
Elimination of corporate personnel............................................. $(2,337)
Elimination of redundant corporate facilities.................................. (589)
-------
Total adjustment..................................................... $(2,926)
=======
</TABLE>
(e) Reflects additional amortization of goodwill over 25 years as a result of
the 1997 Acquisitions.
(f) Reflects the following adjustments to interest expense:
<TABLE>
<S> <C>
Interest expense -- Notes offered hereby(1).................................... $13,875
Interest expense -- New Credit Facility(2)..................................... 877
Interest expense -- other debt................................................. 215
Amortization of deferred financing costs....................................... 513
-------
Pro forma interest expense................................................... 15,480
Less: historical interest expense.............................................. (7,861)
-------
Total adjustment..................................................... $ 7,619
=======
</TABLE>
38
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT DATA -- CONTINUED
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
- ---------------
(1) Reflects an interest rate of 9.25%.
(2) Assumes an interest rate of 7.375%.
(g) Adjustment necessary to reflect income tax expense at the Company's
effective income tax rate of 38%.
(h) EBITDA is defined as earnings from continuing operations before interest,
income taxes, depreciation, amortization, other income and non-recurring
items. Non-recurring items include a restructuring charge of $2.7 million in
the fourth quarter of 1996 related to the consolidation of three of the
Company's consumer products manufacturing facilities into one and the
discontinuation of certain product lines. EBITDA is not a measure of
performance under GAAP. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP or
as a measure of profitability or liquidity, management understands that
EBITDA is customarily used as an indication of a company's ability to incur
and service debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of other measures of
liquidity and operations that are covered by the audited financial
statements. EBITDA as defined herein may not be comparable to other
similarly titled measures of other companies.
(i) Earnings are defined as income from continuing operations before income
taxes and fixed charges. Fixed charges are defined as interest expense and
a portion of rental expense representing the interest factor, which the
Company estimates to be one-third of rental expense, and amortization of
deferred financing costs.
39
<PAGE> 44
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The selected historical consolidated financial data set forth below for the
five years ended December 31, 1996 have been derived from the consolidated
financial statements of the Company. The consolidated financial statements for
the five years ended December 31, 1996 have been audited by Ernst & Young LLP,
independent auditors. The selected historical consolidated financial data for
the nine-month periods ended September 30, 1996 and 1997 have been derived from
unaudited consolidated financial statements of the Company, which include all
adjustments (consisting of normal recurring accruals) that management considers
necessary for a fair presentation of the financial position and results of
operations for these periods. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Company and notes
thereto, and other financial information included elsewhere herein. The data for
the periods presented are not necessarily comparable because of acquisitions
made throughout such periods. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of results that may be
expected for any other interim period or for the full year ending December 31,
1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS
DATA:
Net sales........................... $ 67,190 $ 94,472 $129,216 $289,501 $347,679 $ 261,297 $ 311,916
Cost of products sold............... 57,734 75,892 104,225 240,871 289,400 217,293 262,060
-------- -------- -------- -------- -------- -------- --------
Gross profit...................... 9,456 18,580 24,991 48,630 58,279 44,004 49,856
Selling, general and administrative
expenses.......................... 16,182 13,968 16,838 30,020 38,131 28,314 31,613
Restructuring charge................ -- -- -- -- 2,652 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)(a)........ (6,726) 4,612 8,153 18,610 17,496 15,690 18,243
Other (income) expense.............. 1,451 -- -- (214) (4,204)(b) (1,521) (320)
Interest expense.................... 504 683 1,501 5,911 6,947 5,478 6,078
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes........................... (8,681) 3,929 6,652 12,913 14,753 11,733 12,485
Income taxes (benefit).............. 137 242 (1,826) (6,900) 5,060 4,488 4,682
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations...................... $ (8,818) $ 3,687 $ 8,478 $ 19,813 $ 9,693 $ 7,245 $ 7,803
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)........................... $ (4,548) $ 7,239 $ 11,366 $ 24,888 $ 28,146 $ 21,202 $ 25,614
Capital expenditures................ 6,091 4,992 11,749 13,632 15,590 8,600 9,244
Ratio of earnings to fixed
charges(d)........................ -- 3.9x 3.8x 2.8x 2.7x 2.7x 2.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents........... $ 114 $ 133 $ 2,172 $ 2,662 $ 4,659 $ 2,232 $ 3,786
Working capital, as adjusted(e)..... 13,319 20,560 27,677 98,110 100,247 108,089 135,303
Total assets........................ 67,681 93,541 128,396 301,747 282,910 272,628 388,782
Total debt.......................... 12,008 25,054 32,001 118,738 82,989 77,263 154,124
Shareholders' equity................ 8,795 17,933 46,715 95,954 115,698 114,897 128,015
</TABLE>
See accompanying Notes to Selected Historical Consolidated Financial Data.
40
<PAGE> 45
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Operating income (loss) is defined as net sales less cost of products sold,
selling, general and administrative expenses and a restructuring charge. In
1996, the Company incurred a restructuring charge of $2.7 million related to
the consolidation of three of the Company's consumer products manufacturing
facilities into one and the discontinuation of certain product lines.
(b) In 1996, other income was comprised of (i) a gain of $2.7 million in
connection with the full settlement of subordinated notes receivable
resulting from the sale of two manufacturing facilities and (ii) a gain of
$1.5 million on the sale of certain securities by the Company in the third
quarter of 1996.
(c) EBITDA is defined as earnings from continuing operations before interest,
income taxes, depreciation, amortization, other income and non-recurring
items. Non-recurring items include a restructuring charge of $2.7 million in
the fourth quarter of 1996 related to the consolidation of three of the
Company's consumer products manufacturing facilities into one and the
discontinuation of certain product lines. EBITDA is not a measure of
performance under GAAP. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP or
as a measure of profitability or liquidity, management understands that
EBITDA is customarily used as an indication of a company's ability to incur
and service debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of other measures of
liquidity and operations that are covered by the audited financial
statements. EBITDA as defined herein may not be comparable to other
similarly titled measures of other companies.
(d) Earnings are defined as income from continuing operations before income
taxes and fixed charges. Fixed charges are defined as interest expense and a
portion of rental expense representing the interest factor, which the
Company estimates to be one-third of rental expense, and amortization of
deferred financing costs. For 1992, the Company's earnings were insufficient
to cover fixed charges by $8.7 million.
(e) Working capital, as adjusted, is defined as total current assets excluding
cash and cash equivalents less total current liabilities excluding current
portion of long-term debt.
41
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements of the Company include the accounts
of Park-Ohio Industries, Inc. and its subsidiaries after elimination of material
intercompany transactions and balances. The historical financial information of
the Company's continuing operations is not directly comparable on a nine-month
period to nine-month period basis due to the 1997 Acquisitions. The historical
financial information of the Company's continuing operations is not directly
comparable on a year-to-year basis due to (i) the 1997 Acquisitions and (ii) the
purchase by the Company in 1995 of RB&W Corporation ("RB&W"), The Ajax
Manufacturing Company ("Ajax"), Blue Falcon Forge, Inc. ("Blue Falcon"), Cicero
Flexible Products ("Cicero"), Geneva Rubber Company ("Geneva") and Advanced
Vehicles, Inc. ("Advanced Vehicles"). RB&W, Ajax, Blue Falcon, Cicero, Geneva
and Advanced Vehicles were acquired by the Company in accordance with its
strategy to acquire and improve the operations of underperforming and
complementary manufacturing companies. In addition, the acquisition of RB&W
provided the Company with an entry into the logistics business. The subsequent
acquisitions of Arden and Arcon expanded Logistics. In 1996, the Company sold
substantially all of the assets of Bennett Industries, Inc. ("Bennett"), a
manufacturer of plastic containers, in order to focus on its remaining
manufacturing and logistics businesses. Bennett generated net sales of $81.9
million in 1995. The operating results of Bennett have been classified as
discontinued operations. Except as otherwise indicated, the following discussion
relates to the Company on an historical basis without giving pro forma effect to
the acquisition of Arcon, which occurred on October 3, 1997.
OVERVIEW
The Company operates diversified manufacturing and logistics businesses
which serve a wide variety of industrial markets. Manufactured Products designs
and manufactures a broad range of high quality products engineered for specific
customer applications. The principal customers of Manufactured Products are OEMs
and end-users in the automotive, railroad, truck and aerospace industries.
Logistics is a leading national supplier of fasteners (e.g., nuts, bolts and
screws) and other industrial products to OEMs, other manufacturers and
distributors. In connection with the supply of such industrial products,
Logistics provides a variety of value-added, cost-effective procurement
solutions. The principal customers of Logistics are in the transportation,
industrial, electrical and lawn and garden equipment industries. The Company's
diversified operations moderate the effect on the Company of downturns affecting
individual operating units and industries served. Between 1992 and 1996, the
Company has grown significantly, both internally and through acquisitions. Over
this period, the Company's net sales increased at a 50.8% CAGR, from $67.2
million to $347.7 million, income (loss) from continuing operations increased
from ($8.8) million to $9.7 million, and EBITDA increased from ($4.5) million to
$28.1 million. The Company generated pro forma net sales, pro forma income from
continuing operations and pro forma EBITDA (as defined herein) of $379.5
million, $7.4 million and $32.4 million, respectively for the nine months ended
September 30, 1997.
Growth in the Company's net sales, income from continuing operations, and
EBITDA since 1992 has been primarily attributable to the Company's strategy of
making selective acquisitions in order to complement internal growth.
Historically, the Company has acquired underperforming businesses with potential
for: (i) significant cost reductions through improved labor, supplier and
customer relations and increased purchasing power and (ii) revenue enhancement
due to better asset utilization and management practices, as well as increased
access to capital. The Company's internal growth has been driven primarily by
the addition of Logistics customers under TFS contracts and by the leveraging of
existing customer relationships at Manufactured Products.
Between 1992 and September 30, 1997, the Company's continuing operations
incurred $39.4 million of capital expenditures, the majority of which was used
to expand and upgrade existing manufacturing facilities and enhance the
Company's management information systems. Management believes that the Company's
capital expenditures in 1998 will primarily fund planned maintenance, capacity
expansion and system upgrades. Management believes that annual maintenance
capital expenditures for its existing facilities will be approximately $3
million.
42
<PAGE> 47
RESTRUCTURING CHARGES AND OTHER INCOME
Restructuring Charges. During the fourth quarter of 1996, the Company
commenced the reorganization of its consumer products manufacturing operations
which resulted in the consolidation of three manufacturing facilities into one
and the discontinuation of certain product lines. As a result of these actions,
the Company recorded a non-cash charge of $2.7 million, primarily for the
writedown of certain property, equipment and inventory to their estimated
realizable value.
Other Income. In December 1996, the Company received a lump sum payment as
full settlement of subordinated notes receivable resulting from the sale of two
manufacturing facilities. The net proceeds of $2.7 million were recorded as
other income in the fourth quarter of 1996. In the third quarter of 1996, the
Company sold certain securities, which resulted in a gain of $1.5 million. Such
gains were recorded as other income in 1996. In 1995, other income was
attributable to gains on the sale of securities.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 versus Nine Months Ended September 30, 1996
On August 1, 1997, the Company acquired substantially all of the shares of
Arden for $44.0 million in cash. The transaction was accounted for as a
purchase. Arden is included in the Company's Logistics segment.
On July 31, 1996, the Company completed the sale for $50.8 million in cash
of substantially all of the assets of Bennett, a manufacturer of plastic
containers, which resulted in a pre-tax gain of $13.8 million recognized in the
third quarter of 1996. The results of operations and changes in cash flow of
Bennett for the nine months ended September 30, 1996 have been presented as
discontinued operations.
Net sales from continuing operations increased by $50.6 million, or 19.4%,
from $261.3 million for the nine months ended September 30, 1996 to $311.9
million for the nine months ended September 30, 1997. Approximately 51% of this
increase was attributable to internal growth and the remainder was a result of
the 1997 Acquisitions. Of the internal sales growth, approximately 67% was
primarily attributable to the addition of TFS customers and the remainder was
due to increased orders from Manufactured Products' customers. Approximately 49%
of the growth in net sales was due to the 1997 Acquisitions, a majority of which
was attributable to the acquisition of Arden.
Gross profit from continuing operations increased by $5.9 million, or
13.4%, from $44.0 million for the nine months ended September 30, 1996 to $49.9
million for the nine months ended September 30, 1997. Of this increase, 81.9%
was attributable to the 1997 Acquisitions and 18.1% was due to internal growth.
A majority of the increase attributable to the 1997 Acquisitions was related to
Arden. The Company's consolidated gross margin from continuing operations
decreased to 16.0% for the nine months ended September 30, 1997 from 16.8% for
the nine months ended September 30, 1996. This decrease in consolidated gross
margin was primarily due to a change in the Company's revenue mix and the timing
of certain large product shipments.
Selling, general and administrative expenses from continuing operations
increased by $3.3 million, or 11.7%, from $28.3 million for the nine months
ended September 30, 1996 to $31.6 million for the nine months ended September
30, 1997. Approximately 73% of such increase was related to the 1997
Acquisitions and the remainder was attributable to higher overhead costs to
support higher sales levels. Consolidated selling, general and administrative
expenses decreased as a percentage of net sales to 10.1% for the nine months
ended September 30, 1997 from 10.8% for the nine months ended September 30, 1996
due to economies of scale resulting from higher sales volume.
The Company had other income of $1.5 million for the nine months ended
September 30, 1996 as compared to $320,000 for the nine months ended September
30, 1997, primarily due to a gain on the sale of securities.
Interest expense from continuing operations increased by $0.6 million from
$5.5 million for the nine months ended September 30, 1996 to $6.1 million for
the nine months ended September 30, 1997. This increase was primarily due to the
reclassification of approximately $0.8 million of interest expense in 1996 to
43
<PAGE> 48
discontinued operations as a result of the sale of Bennett. The Company's
average debt outstanding and cost of borrowings were approximately the same in
both periods.
1996 versus 1995
On July 31, 1996, the Company completed the sale for $50.8 million in cash
of substantially all of the assets of Bennett, which resulted in a pre-tax gain
of $13.8 million. The results of operations and changes in cash flow of Bennett
have been classified as discontinued operations in the Company's consolidated
statements of income and cash flow for 1996 and 1995. The assets and liabilities
of Bennett were classified in the Company's consolidated balance sheet as net
assets of discontinued operations at December 31, 1995.
Net sales from continuing operations increased by $58.2 million, or 20.1%,
from $289.5 million in 1995 to $347.7 million in 1996. Of this increase,
approximately $57.5 million was due to the inclusion of the results of
acquisitions made in 1995 in the Company's consolidated results for a full year
in 1996 as compared to a partial year in 1995.
Gross profit from continuing operations increased by $9.7 million, or
20.0%, from $48.6 million in 1995 to $58.3 million in 1996. Of this increase,
$8.6 million was due to the inclusion of the results of acquisitions made in
1995 in the Company's consolidated results for a full year in 1996 as compared
to a partial year in 1995. The remaining $1.1 million increase was attributable
to gross profit improvements primarily related to Logistics' higher sales
volumes and the addition of TFS customers. The Company's consolidated gross
margin was 16.8% in 1996 and 1995.
Selling, general and administrative expenses from continuing operations
increased $8.1 million, or 27.0%, from $30.0 million in 1995 to $38.1 million in
1996. This increase was primarily a result of the inclusion of the acquisitions
made in 1995 in the Company's consolidated results for a full year in 1996 as
compared to a partial year in 1995 and higher overhead costs to support higher
sales levels. Consolidated selling, general and administrative expenses
increased as a percentage of net sales to 11.0% in 1996 from 10.4% in 1995
primarily as a result of the acquisitions consummated in 1995.
During the fourth quarter of 1996, the Company commenced the reorganization
of its consumer products manufacturing operations which resulted in the
consolidation of three manufacturing facilities into one and the discontinuation
of certain product lines. As a result of these actions, the Company recorded a
non-cash charge of $2.7 million, primarily for the writedown of certain
property, equipment and inventory to their estimated realizable value.
The Company had other income of $4.2 million in 1996 as compared to
$214,000 in 1995. In 1996, other income was comprised of (i) a gain of $2.7
million from the lump sum payment as full settlement of subordinated notes
receivable, resulting from the Company's sale of two manufacturing facilities
and (ii) a gain of $1.5 million on the sale of securities. In 1995, other income
was comprised of a gain on the sale of securities.
Interest expense from continuing operations increased $1.0 million from
$5.9 million in 1995 to $6.9 million in 1996, primarily due to higher levels of
bank debt outstanding during 1996 as compared to 1995. The Company's average
debt outstanding increased from $92.4 million in 1995 to $103.2 million in 1996.
The increase in average borrowings was caused by the acquisition of RB&W on
March 31, 1995 and higher levels of bank debt to support increased sales and
production as well as capital expenditures.
During the fourth quarter of 1995, the Company determined that utilization
of its net operating loss carryforwards was assured and therefore recorded
deferred tax assets of $8.1 million. Consequently, as of January 1, 1996, the
Company's financial statements included a provision for Federal income taxes.
Federal income tax expense from continuing operations for 1995 was reduced by
$3.7 million due to the utilization of net operating loss carryforwards. During
1996, as a result of the gain on the sale of Bennett, all net operating loss
carryforwards for tax purposes relating to the Company were fully utilized. At
December 31, 1996, subsidiaries of the Company had net operating loss
carryforwards for tax purposes of approximately $15 million, subject to certain
limitations that expire between 2001 and 2007.
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<PAGE> 49
1995 versus 1994
On March 31, 1995, the Company paid $31.0 million in cash and 2.0 million
shares of Common Stock (valued at $23.2 million) for all of the shares of RB&W,
which had indebtedness of approximately $30 million at the time of the
acquisition. The transaction was accounted for as a purchase and, accordingly,
the operations of RB&W have been included in the consolidated financial
statements of the Company since March 31, 1995. The metal forming business of
RB&W is included in the Company's Manufactured Products segment and the supply
chain management business of RB&W comprised the Company's Logistics segment in
1995.
Net sales from continuing operations increased by $160.3 million, or
124.1%, from $129.2 million in 1994 to $289.5 million in 1995. Of this increase,
$139.2 million was due to the inclusion of RB&W in the Company's consolidated
results from the date of acquisition. Of the sales increase attributable to
RB&W, $108.5 million was generated by its logistics business and $30.7 million
was generated by its metal forming business. The remainder of the sales increase
was primarily due to acquisitions of manufacturing operations made in 1995.
Gross profit from continuing operations increased $23.6 million, or 94.4%,
from $25.0 million in 1994 to $48.6 million in 1995. Substantially all of this
increase was attributable to the inclusion of RB&W in the Company's consolidated
results from the date of acquisition. The Company's consolidated gross margin
decreased to 16.8% in 1995 from 19.3% in 1994. This decrease was primarily due
to the inclusion of RB&W in the Company's consolidated results in 1995 from the
date of acquisition. In addition, gross margin in the Company's consumer
products business declined as a result of both increased raw material costs that
could not be passed through to customers and product mix changes.
Selling, general and administrative expenses from continuing operations
increased $13.2 million, or 78.6%, from $16.8 million in 1994 to $30.0 million
in 1995. This increase was primarily due to the inclusion of RB&W in the
Company's consolidated results in 1995 from the date of acquisition. The
Company's consolidated selling, general and administrative expenses as a
percentage of net sales decreased to 10.4% in 1995 as compared to 13.0% in 1994,
primarily due to economies of scale resulting from higher sales volume.
Interest expense from continuing operations increased by $4.4 million from
$1.5 million in 1994 to $5.9 million in 1995 due to higher levels of bank debt
outstanding in 1995. Average debt outstanding increased from $27.8 million in
1994 to $92.4 million in 1995. This increase in average borrowings was caused
by: (i) the acquisition of RB&W and other companies in 1995; (ii) higher levels
of bank debt to support increased sales; and (iii) the Convertible Senior
Subordinated Debentures, issued in May 1994, being outstanding for the full year
in 1995 as compared to a partial year in 1994.
The income tax benefit of $6.9 million in 1995 primarily resulted from
recording an $8.1 million reduction in the valuation allowance on deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for working capital and capital
expenditures. The Company's primary sources of liquidity have been funds
provided by operations, proceeds from financing activities and proceeds from the
sale of discontinued operations. On December 3, 1997, the Company executed a
$50.0 million Promissory Note which will be used for general corporate purposes.
The Promissory Note expires on the earlier of demand, or April 30, 1999. Amounts
borrowed under the Promissory Note may be requested by the Company at either (i)
the Lender's Base Rate less one percent or (ii) LIBOR plus 150 basis points. See
"Description of Other Indebtedness -- New Credit Facility."
The ratio of current assets (excluding cash and cash equivalents) to
current liabilities (excluding current portion of long-term debt) was 2.82 to 1
at September 30, 1997, as compared to 2.97 to 1 at December 31, 1996, 2.98 to 1
at December 31, 1995 and 2.35 to 1 at December 31, 1994. Working capital
(defined as current assets excluding cash and cash equivalents less current
liabilities excluding the current portion of long-term debt) increased by $35.1
million to $135.3 million as of September 30, 1997 from $100.2 million as of
December 31, 1996 primarily as a result of the inclusion of the current assets
and liabilities of Arden, which
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<PAGE> 50
was acquired in the third quarter of 1997. Working capital increased by $2.1
million from $98.1 million in 1995 to $100.2 million in 1996. Working capital
increased by $70.4 million from $27.7 million in 1994 to $98.1 million in 1995
primarily as a result of the acquisitions consummated in 1995.
Management believes that cash provided by operating activities supplemented
as necessary from time to time by borrowings under the New Credit Facility will
be sufficient to finance its operations, service the interest payments on its
debt and fund capital expenditures in 1998. Management believes that the annual
maintenance capital expenditures for its existing facilities will be
approximately $3 million. Capital expenditures are anticipated to be
approximately $12 million in 1998, which will be used to fund planned
maintenance, capacity expansion and system upgrades.
The Company does not have principal payment obligations under any of its
outstanding indebtedness in excess of $1.0 million in any year prior to maturity
of the Notes, except with respect to the New Credit Facility, which will expire
on April 11, 2001. The ability of the Company to satisfy its obligations under
existing indebtedness will be primarily dependent upon the future financial and
operating performance of its operating units and upon the Company's ability to
renew or refinance borrowings or to raise additional equity capital as
necessary.
In November 1997, the Company issued $150.0 million of 9 1/4% Senior
Subordinated Notes due 2007. The net proceeds of the issuance were approximately
$146.1 million, which were used in part to repay the Existing Credit Facility.
The Company also commenced the Redemption to purchase all of its Convertible
Senior Subordinated Debentures, plus accrued interest thereon using a portion of
the net proceeds from the Original Notes together with borrowings under the New
Credit Facility.
During the nine months ended September 30, 1997, the Company generated
$15.9 million from continuing operations before changes in operating assets and
liabilities. After giving effect to the use of $24.6 million in the operating
accounts, the Company used $8.7 million for operating activities. During the
period, the Company invested $9.2 million in capital expenditures and $53.9
million for acquisitions and investments, including the acquisition of Arden for
$44.0 million. The Company also bought 210,279 shares of its common stock in the
open market for $2.8 million during the period. In addition, 350,000 shares of
common stock were issued under stock option agreements for which the Company
received $2.8 million from the option holders. The Company also purchased $1.1
million principal amount of its Convertible Senior Subordinated Debentures in
the open market. These activities were funded by a net increase in bank
borrowings of $72.0 million and a decrease in cash balances of $0.9 million.
During 1996, the Company generated $20.6 million from continuing operations
before changes in operating assets and liabilities. After giving effect to the
use of $15.0 million in the operating accounts and $2.0 million provided from
discontinued operations, the Company provided $7.7 million from operating
activities. During 1996, the Company invested $15.6 million in capital
expenditures and purchased 126,225 shares of its common stock for $1.8 million,
all of which were funded by internally generated cash flow and bank borrowings.
During 1995, the Company generated $18.0 million from continuing operations
before changes in operating assets and liabilities. After giving effect to
changes in the operating accounts of $27.7 million and $5.7 million provided by
discontinued operations, the Company used $4.0 million in operating activities.
This amount and capital expenditures of $13.6 million were funded by an increase
in bank borrowings. In addition, the Company borrowed $68.6 million under its
bank facility to fund acquisitions, primarily RB&W, with an aggregate cash
purchase price of $35.8 million and to repay $32.8 million of acquired debt
related to the acquisitions.
During 1994, the Company generated $9.7 million from operations before
changes in operating assets and liabilities. After giving effect to changes in
the operating accounts of $6.4 million and the $5.7 million provided by
discontinued operations, the Company generated $9.0 million from operating
activities. During 1994, the Company borrowed $11.4 million under its bank
facility and received gross proceeds of $22.2 million from the issuance of the
Convertible Senior Subordinated Debentures and $4.2 million of its Common Stock.
The combined proceeds were used to fund capital expenditures of $11.7 million,
make acquisitions with an aggregate cash purchase price of $2.1 million, acquire
other capital assets of $2.9 million and repay $26.7 million of bank debt.
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<PAGE> 51
SEASONALITY; VARIABILITY OF OPERATING RESULTS
As a result of the significant growth in the Company's net sales, income
from continuing operations and EBITDA in recent years, seasonal fluctuations
have been substantially mitigated. The Company, however, performs scheduled
plant maintenance in the third quarter to coincide with customer plant shut
downs.
The timing of orders placed by the Company's customers has varied with,
among other factors, orders for customers' finished goods, customer production
schedules, competitive conditions and general economic conditions. The
variability of the level and timing of orders has, from time to time, resulted
in significant periodic and quarterly fluctuations in the operations of the
Company's business units. Such variability is particularly evident at the
businesses in the Capital Equipment Group, which typically ship a few large
systems per year. In addition, the Company experiences seasonality in the Kay
Home Products, Inc. ("Kay Home Products") operating unit of the Metal Forming
Group. Kay Home Products' goods are typically used by consumers in the spring
and summer and consequently its first two quarters of operating results are
typically the strongest.
FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain statements
that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Those statements include,
among other things, discussions of the Company's business strategy and
expectations concerning the Company's future operations, margins, profitability,
liquidity and capital resources, as well as statements concerning potential
acquisitions of certain complementary businesses and achievement of cost savings
and other efficiencies in connection therewith. Certain statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements, including without limitation,
discussion regarding the Company's anticipated levels of capital expenditures
and the sufficiency of cash flow from operations and certain borrowings to
finance operations, service interest payments on its debt and fund capital
expenditures. Investors in the Notes offered hereby are cautioned that reliance
on any forward-looking statement involves risks and uncertainties, and that
although the Company believes that the assumptions on which the forward-looking
statements contained herein are based are reasonable, any of those assumptions
could prove to be inaccurate, and as a result, the forward-looking statements
based on those assumptions also could be materially incorrect. The uncertainties
in this regard include, but are not limited to, those identified in "Risk
Factors." In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
47
<PAGE> 52
BUSINESS
THE COMPANY
The Company operates diversified manufacturing and logistics businesses
which serve a wide variety of industrial markets. Manufactured Products designs
and manufactures a broad range of high quality products engineered for specific
customer applications. The principal customers of Manufactured Products are OEMs
and end-users in the automotive, railroad, truck and aerospace industries.
Logistics is a leading national supplier of fasteners (e.g., nuts, bolts and
screws) and other industrial products to OEMs, other manufacturers and
distributors. In connection with the supply of such industrial products,
Logistics provides a variety of value-added, cost-effective procurement
solutions. The principal customers of Logistics are in the transportation,
industrial, electrical and lawn and garden equipment industries. The Company's
diversified operations moderate the effect on the Company of downturns affecting
individual operating units and industries served. Between 1992 and 1996, the
Company has grown significantly, both internally and through acquisitions. Over
this period, the Company's net sales increased at a 50.8% CAGR, from $67.2
million to $347.7 million, income (loss) from continuing operations increased
from ($18.8) million to $9.7 million, and EBITDA increased from ($4.5) million
to $28.1 million. The Company generated pro forma net sales, pro forma income
from continuing operations and pro forma EBITDA of $379.5 million, $7.4 million
and $32.4 million, respectively, for the nine months ended September 30, 1997.
COMPETITIVE STRENGTHS
The Company's manufacturing and logistics businesses generally have the
following competitive strengths:
LONG-TERM RELATIONSHIPS WITH MARKET-LEADING CUSTOMERS. The Company has been
successful in forming and developing customer relationships, certain of which
have been in place for over 50 years, with some of the largest companies in
their respective industries. In many cases, the Company's businesses have
achieved sole-source supply positions as a result of their reputation for
manufacturing high quality products, superior customer service,
applications-engineering expertise and commitment to partnering with their
customers. Manufactured Products' principal customers include BF Goodrich,
Boeing, Chrysler, Cooper Industries, Delphi, Ford, General Dynamics, General
Motors, Moen and United Technologies. Logistics has multi-year, exclusive TFS
contracts with plants of OEMs such as General Electric, Mack Truck, Navistar and
Polaris.
LEADERSHIP IN SEVERAL NICHE BUSINESSES. Several of the Company's products
hold leading positions in their respective business lines. For example, as
sole-source supplier to Ford and Chrysler, the Company is the leading domestic
manufacturer of aluminum permanent mold pump housings and pinion carriers for
automobile and light truck transmissions. In addition, the Company is the
sole-source supplier of crankshafts and camshafts to General Motors' North
American locomotive manufacturing operations. Logistics is one of the leading
providers of fasteners in the United States as a result of its national
coverage, broad product line and ability to offer value-added services to its
customers.
DIVERSE CUSTOMER BASE. The Company's products are sold to more than 7,000
customers in a wide variety of industries. With the exception of Ford, no single
customer represented more than 4.4% of the Company's pro forma net sales for the
nine months ended September 30, 1997. Ford, which in the aggregate represented
7.7% of such sales, purchases the Company's products through 17 distinct
purchasing centers, each of which maintains an independent relationship with the
Company. The Company plans to continue to expand its customer base by
introducing new products in both of its segments and adding new branches and TFS
contract customers at Logistics.
SOPHISTICATED LOGISTICS INFRASTRUCTURE. Since 1995, the Company has spent
over $5 million upgrading Logistics' management information and communication
systems to more efficiently distribute in excess of 150,000 SKUs to its
customers. Logistics' EDI capabilities provide an interactive order system to a
majority of its TFS contract customers. Logistics' customized systems enable it
to provide customers with just-in-time delivery of bar coded packages labeled
for delivery to specific points of use. Such systems also enhance fill rates by
automatically searching alternative branches for products that are unavailable
at a particular location
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<PAGE> 53
and routing those products for shipment. In addition, Logistics' advanced
communication systems enhance its ability to efficiently manage its inventory
and automatically replenish TFS customers' stocks.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. The
Company's senior operating team has an average of over 25 years of relevant
industry experience. Management also has significant experience in acquiring and
integrating businesses into the Company, and employs a disciplined approach to
making such acquisitions. The Company's senior management team owns, in the
aggregate, approximately 33% of the fully diluted common stock of the Company
(the "Common Stock").
BUSINESS STRATEGY
Management believes that the Company's growth in sales and profitability in
the future will result from the successful implementation of its business
strategy, the key elements of which include:
INCREASED INTERACTION BETWEEN MANUFACTURED PRODUCTS AND LOGISTICS. The
Company intends to continue to expand interaction between Manufactured Products
and Logistics by: (i) increasing the number of products supplied to Logistics by
Manufactured Products; (ii) cross-selling Logistics' services to Manufactured
Products' customers; and (iii) selectively acquiring companies that manufacture
Logistics' best-selling products. Management believes that these and other
initiatives will enable the Company to expand its product offerings and further
enhance Logistics' ability to control the entire supply chain management
process. In addition, the Company's expertise in manufacturing fasteners and
other industrial products enables Logistics to provide valuable technical advice
to its TFS customers, which reduces their production costs. Similarly,
Logistics' expertise in supply chain management can be transferred to
Manufactured Products' businesses to enhance the quality of customer service
currently provided by such businesses.
GROWTH THROUGH SELECTIVE ACQUISITIONS. The Company intends to continue to
make strategic acquisitions of complementary businesses to: (i) increase the
number of products made by Manufactured Products and sold by Logistics; (ii) add
customers and expand Logistics geographic coverage; (iii) take advantage of
consolidation in the logistics industry; and (iv) capitalize on management's
expertise in improving the operations of acquired companies.
Management has a proven track record of improving the financial results of
acquired companies, as evidenced by the material increases in sales, income from
continuing operations and EBITDA of the businesses acquired by the Company since
1992. Such improvements have been achieved through significant operating
expense reductions resulting from factors such as improved labor, supplier and
customer relations, increased purchasing power and more effective asset
utilization and management practices, as well as increased access to capital.
Management utilizes strict criteria to evaluate business acquisition
possibilities, including existing customer relationships, potential cost
reductions, synergies and return on investment parameters. The Company typically
avoids auction situations and exhibits discipline in declining specific
transactions when the price exceeds a level acceptable to the Company.
LEVERAGING EXISTING CUSTOMER RELATIONSHIPS. The Company seeks to enhance
customer relationships by, among other things: (i) providing high quality
products and services, as evidenced by the ISO 9000 and QS-9000 certifications
and numerous supplier awards obtained by certain of the Company's business
units; (ii) making capital investments in equipment and facilities pursuant to
new long-term supply arrangements such as the contract recently signed by GAMCO
to produce cast aluminum transmission pump housings for Chrysler; (iii)
engineering new products in conjunction with customers to meet specific
application requirements; and (iv) obtaining additional TFS contracts for
existing customer facilities not currently served by Logistics.
STRENGTHENING OPERATING PERFORMANCE. The Company intends to make ongoing
capital investments in its Manufactured Products businesses to maintain the
historical growth in sales and EBITDA achieved by such units in recent years. In
addition, the Company intends to pursue enhanced operating efficiency through:
(i) increased purchasing power as a result of economies of scale, particularly
at Logistics; (ii) enhanced workforce productivity; (iii) increased sourcing of
Logistics' products off-shore; (iv) continued enhancement
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<PAGE> 54
of management information systems; (v) higher inventory turnover; and (vi)
ongoing re-engineering and total quality programs to improve process flow,
reduce re-work and improve cycle time.
DECENTRALIZED MANAGEMENT OF OPERATING UNITS. The Company's operating units
are managed on a decentralized basis by operating unit managers, while a
corporate management team provides strategic direction and support and
identifies and evaluates potential acquisition and divestiture opportunities.
Management believes that the Company's decentralized operating approach
eliminates many of the inefficiencies that can result from a highly centralized
corporate structure, while providing individual operating units with greater
access to capital, strategic direction and certain administrative functions.
Operating unit managers are vested with decision-making authority and are
compensated based on the profitability of their respective business units. As a
result of the discrete nature of the Company's operating units, the Company is
able to buy and sell such units on an opportunistic basis. Management believes
that the Company's decentralized management philosophy results in better
customer service by allowing each operating unit the flexibility and autonomy to
implement policies and make decisions based on first-hand assessments of
individual customer requirements.
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OPERATIONS
The Company conducts its business through two segments: Manufactured
Products and Logistics. Manufactured Products consists of five groups, certain
of which are comprised of multiple businesses. Each of the Company's operating
units has its own management team and maintains its own independent market
identity. The following chart highlights the Company's two business segments,
the key products they sell and the primary industries they serve:
<TABLE>
<CAPTION>
PRO FORMA SALES FOR
THE
NINE MONTHS ENDED
SEGMENT PRIMARY INDUSTRIES SERVED SELECTED PRODUCTS/SERVICES SEPTEMBER 30, 1997(a)
- ------------------------------- --------------------------- --------------------------- ---------------------
(MILLIONS)
<S> <C> <C> <C>
MANUFACTURED PRODUCTS
ALUMINUM CASTING GROUP: $ 28.0
GAMCO Automotive Transmission pump housings,
pinion carriers, clutch
retainers
FORGED AND MACHINED PRODUCTS GROUP: 36.7
Park Drop Forge Railroad, aerospace Crankshafts, camshafts,
aircraft landing gears
Ohio Crankshaft Railroad, power generation, Crankshafts, camshafts
shipbuilding
Cleveland City Forge Construction Specialized hardware
Blue Falcon Forge Railroad Center plates, couplings
CAPITAL EQUIPMENT GROUP: 38.9
Tocco Automotive, truck Induction heating systems
Ajax Automotive, truck Forging presses
Feco Food and beverage Heat processing and curing
packaging, automotive systems/conveyance systems
Advanced Vehicles Paper, aluminum, steel, Specialty lift trucks
flooring
METAL FORMING GROUP: 57.4
RB&W Manufacturing Automotive, truck, railroad Nuts
Delo Plumbing Fixtures
Green Bearing Automotive Bearings
Kay Home Products Consumer products retailers Barbecue grills, screen
houses, television tables
INDUSTRIAL RUBBER PRODUCTS GROUP: 14.0
Castle Fluid and gas, steel Valve seals, power and
conveyor rolls, slitter
rings
Cicero Automotive, food Wire harnesses, spark plug
processing, consumer boots and nipples, general
appliance sealing gaskets
Geneva Automotive, Primary wire harnesses,
telecommunications, transoceanic cable boots,
funeral, truck casket gaskets, shock and
vibration mounts
LOGISTICS 207.2
RB&W Logistics, Arden and Transportation, industrial, Standard and specialty
Arcon electrical and lawn and fasteners and other
garden equipment, HVAC industrial products,
value-added services
</TABLE>
- ---------------
(a) Gives pro forma effect to the 1997 Acquisitions. Pro Forma sales for the
nine months ended September 30, 1997 do not reflect $2.7 million of
intercompany eliminations. See "Unaudited Pro Forma Consolidated Financial
Data."
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<PAGE> 56
MANUFACTURED PRODUCTS
Manufactured Products operates through five groups which capitalize on the
Company's expertise in efficiently converting raw materials into high quality
finished products. The five groups include: Aluminum Casting, Forged and
Machined Products, Capital Equipment, Metal Forming and Industrial Rubber
Products. Manufactured Products generated pro forma net sales, pro forma income
from continuing operations before income taxes and pro forma EBITDA of $172.3
million, $10.1 million and $16.0 million, respectively, or 45.8%, 44.1% and
49.5%, respectively, of the Company's pro forma net sales, pro forma income from
continuing operations and pro forma EBITDA for the nine months ended September
30, 1997.
ALUMINUM CASTING GROUP. The Aluminum Casting Group operates through GAMCO
and its wholly owned subsidiary. The Aluminum Casting Group, which manufactures
aluminum permanent mold castings primarily for the automotive industry,
generated pro forma net sales of $28.0 million for the nine months ended
September 30, 1997, which represented 7.4% of the Company's pro forma net sales
for such period.
Products and Services. GAMCO manufactures aluminum permanent mold castings
used primarily in automobile transmissions and engines. GAMCO's aluminum
castings are manufactured by transferring molten aluminum from a melting furnace
to a steel mold in which the aluminum then solidifies into the final product.
GAMCO's principal automotive products include: transmission pump housings,
planetary pinion carriers, clutch retainers, rotor castings and bearing cups. In
addition, GAMCO manufactures products for non-automotive end users such as
surgical table components, light housings and electrical meter housings. GAMCO
also provides value-added services such as secondary casting, machining,
drilling, tapping and part assembly.
GAMCO's cast aluminum parts are critical components manufactured primarily
for automotive OEMs. Although these parts are lightweight, they possess high
durability and integrity characteristics even under extreme pressure and
temperature conditions. Demand by automotive OEMs for aluminum permanent mold
products has increased in recent years as OEMs have sought lighter alternatives
to heavier steel and iron components. Lighter aluminum cast components increase
an automobile's fuel efficiency without decreasing its structural integrity.
Management believes this replacement trend will continue as government standards
regarding fuel efficiency become increasingly stringent.
Markets and Customers. GAMCO sells its products primarily to customers
located in North America. The market for aluminum permanent mold castings is
comprised of two segments: automotive and non-automotive. Management estimates
that the domestic aluminum permanent mold casting market represented over $1
billion of annual sales in 1996.
A significant portion of GAMCO's sales are to automotive OEMs or suppliers
pursuant to sole-source supply relationships. GAMCO's relationship with Ford,
which is GAMCO's largest customer, has existed for approximately 30 years. GAMCO
is the sole-source supplier of transmission pump housings used in Ford's F-150
truck, Lincoln Town Car and Econoline Van models. GAMCO also serves as the
sole-source supplier to Chrysler for transmission clutch retainers used in the
Jeep Grand Cherokee sport utility vehicle, as well as planetary pinion carriers
used in vans and trucks and bearing cups used in rear end differentials. GAMCO's
relationship with Chrysler, which is currently its second largest customer, has
existed for over 30 years. GAMCO recently expanded its relationship with
Chrysler by significantly increasing its manufacturing capacity in order to
produce three cast aluminum transmission clutch retainer parts, pursuant to a
new sole-source supply contract, to be used in the Jeep Grand Cherokee, Dodge
Dakota and Dodge Ram models. Sanden Corporation, a tier-1 supplier of air
conditioning compressors, is another significant GAMCO automotive
customer. Non-automotive customers include American Sterilizer and Air-Shields,
both of which are in the healthcare industry and purchase surgical table
components and incubator structures, respectively. GAMCO also supplies
electrical lug connectors to Homac and marine castings to Volvo/Penta.
Competition. The domestic aluminum permanent mold industry is highly
competitive and consists of several large participants. The Company's principal
competition comes from several large domestic companies such as Amcast, CMI
International, Stahl and Teksid, each of which provides a broad array of
products manufactured from a variety of metals, including aluminum. GAMCO
competes principally on the basis of its ability to: (i) engineer and
manufacture high quality, semi-machined castings in large volumes; (ii) provide
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<PAGE> 57
timely delivery; and (iii) retain the manufacturing flexibility necessary to
quickly adjust to the needs of its customers. Although there are a number of
smaller domestic companies with aluminum permanent mold casting capabilities,
the automotive industry's stringent quality and service standards enable only
large suppliers with the requisite quality certifications to compete
effectively. As one of these suppliers, GAMCO has benefited in recent years as
automotive OEMs have consolidated their supplier base. GAMCO, a well-established
name in the aluminum permanent mold industry, has achieved QS-9000 and ISO 9002
certifications and has been awarded numerous supplier quality awards, including
Ford's Q1 and Chrysler's Pentastar.
FORGED AND MACHINED PRODUCTS GROUP. The Forged and Machined Products Group
consists of four operating units: Park Drop Forge, Ohio Crankshaft, Cleveland
City Forge and Blue Falcon Forge. The Forged and Machined Products Group designs
and manufactures crankshafts, camshafts and other high strength, high
performance structural parts primarily for aircraft and locomotive
manufacturers. The Forged and Machined Products Group generated pro forma net
sales of $36.7 million for the nine months ended September 30, 1997, which
represented 9.7% of the Company's pro forma net sales for such period.
Products and Services. The Forged and Machined Products Group produces,
machines and finishes closed-die metal forgings for customers in the railroad,
aerospace, power generation, shipbuilding, construction and off-road vehicle
industries. The forging process enables metal to be shaped while generally
retaining higher structural integrity than metal shaped through other
processes. Ohio Crankshaft, one of the largest independent designers and
machiners of crankshafts and camshafts in the United States, machines, induction
hardens and surface finishes crankshafts and camshafts used primarily in
locomotives, power generators and ships. Park Drop Forge manufactures closed-die
metal forgings of up to 6,000 pounds, including crankshafts, camshafts and
aircraft landing gears, primarily for customers in the railroad and aerospace
industries. Park Drop Forge is able to produce large forged products as a result
of its 50,000 pound hammer, one of only three of its kind in North America.
Cleveland City Forge manufactures and machines specialized hardware such as
turnbuckles and clevises for the construction industry. Its products are
manufactured according to customers' specific dimensional and/or strength
requirements. Blue Falcon Forge produces large forged products for the railroad
industry, such as center plates and couplings, both of which are used in the
undercarriage of rail cars.
Markets and Customers. The Forged and Machined Products Group's goods are
sold to a wide variety of domestic and international OEMs and other
manufacturers in the transportation, power generation and construction
industries. Ohio Crankshaft's major customers in the railroad industry include
General Motors, for which the Company is the sole-source supplier of locomotive
camshafts and crankshafts, and Precision National Plating. Park Drop Forge's
products are sold primarily to machining companies and subassemblers who finish
the products for sale to OEMs in the railroad and aerospace industries. Park
Drop Forge's primary customers include machinists such as Cooper Energy
Services, General Dynamics and Ohio Crankshaft, and aircraft subassemblers who
assemble components such as complete landing gear units for aircraft OEMs such
as Airbus, Boeing and McDonnell Douglas. Cleveland City Forge's primary
customers include construction companies such as Babcock & Wilcox and Butler
Industries. Blue Falcon Forge's primary customers include major rail car
manufacturers such as National Steel Car, Thrall and Trinity Industries.
Competition. The Forged and Machined Products Group competes domestically
and internationally with other small to medium-sized businesses. Ohio Crankshaft
competes domestically with companies such as National Forge and internationally
with Alfing Kessler on the basis of product quality and precision. Park Drop
Forge competes domestically and internationally on the basis of product quality
and precision with approximately 20 forging manufacturers that are capable of
producing large forged components such as Canton Drop Forge, Krop Forge, Schultz
Forge and Alfing Kessler. Blue Falcon Forge and Cleveland City Forge compete
domestically on the basis of product quality, price and delivery time with
numerous small and medium-sized forging companies.
CAPITAL EQUIPMENT GROUP. The Capital Equipment Group consists of four
operating units: Tocco, Ajax, Feco and Advanced Vehicles. The Capital Equipment
Group custom engineers and manufactures induction heating systems, forging
presses and heat processing and curing systems, primarily for the automotive and
packaging industries. The Capital Equipment Group generated pro forma net sales
of $38.9 million for the
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<PAGE> 58
nine months ended September 30, 1997, which represented 10.3% of the Company's
pro forma net sales for such period.
Products and Services. The Capital Equipment Group manufactures large
industrial equipment for a variety of industries including automotive, truck and
packaging. Tocco specializes in the engineering and construction of induction
heating systems primarily for the automotive and truck industries. Tocco's
induction heating systems are engineered and built to customer specifications
and are used primarily by OEMs for surface hardening. Ajax engineers,
manufactures and services mechanical forging presses ranging in size from 500 to
8,000 tons that are used worldwide in the automotive and truck manufacturing
industries. Feco produces complete oven systems that combine heat processing and
curing technologies with material handling and conveying methods. Feco's
principal products include industrial drying and curing ovens for automotive
components, metal can curing ovens, specialized conveyor and automation systems
for lightweight containers, and plastic and glass bottle coating and finishing
systems. Advanced Vehicles specializes in the design and production of specialty
lift trucks used by customers in the paper, aluminum, steel and flooring
industries.
Markets and Customers. The Capital Equipment Group's products are sold
domestically and internationally to a wide variety of heavy industrial
manufacturers in the automotive, truck and packaging industries. Tocco's
products are sold primarily to domestic manufacturers of automotive components
including Ford, GKN, GM and Torrington. Ajax sells its products worldwide
primarily to Chrysler, Delphi, Isuzu and Presrite. Feco's products are sold
primarily to manufacturers including Chrysler, Corning Glass, Crown Cork & Seal,
Ford, GM, PepsiCo and Reynolds Aluminum. Advanced Vehicles' products are sold
primarily to non-exclusive lift truck dealers and end users, including AK Steel,
Alcoa, Formica and John Deere.
Competition. The Capital Equipment Group competes domestically and
internationally with large equipment manufacturers on the basis of service
capability, ability to meet customer specifications, delivery performance and
engineering expertise. Tocco's domestic competitors include Inductotherm and
Ajax Magna-thermic, and its international competitors include Elva-FDF GmbH and
Ema GmbH. Ajax competes with four private companies worldwide who manufacture
mechanical forging presses: Erie Press Systems, National Machine Company,
Eumoco-Hasenclever and Sumitomo. Feco's primary domestic competitors include
Moco, and its international competitors include LTG and Oven Systems. Advanced
Vehicles' primary competition comes from manufacturers of standard lift trucks,
although it also competes against manufacturers of specialty lift trucks
including CWF-RICO and Elwell-Parker.
METAL FORMING GROUP. The Metal Forming Group consists of four operating
units: RB&W Manufacturing, Delo, Green Bearing and Kay Home Products. The Metal
Forming Group manufactures standard and specialty engineered fasteners and
related hardware, bearings, plumbing fixtures and certain consumer products. The
Metal Forming Group generated pro forma net sales of $57.4 million for the nine
months ended September 30, 1997, which represented 15.1% of the Company's pro
forma net sales for such period.
Products and Services. The Metal Forming Group engineers and manufactures
precision cold formed and cold extruded products, which are manufactured by
shaping cold raw materials, for the automotive, truck and railroad industries.
In addition, the Metal Forming Group screw-machines plumbing fixtures and
manufactures bearings and certain consumer products. RB&W Manufacturing produces
certain standard and specialty nuts to customer specifications, which are used
in large volumes by customers in the automobile, truck and railroad industries.
RB&W Manufacturing's products include lock nuts, spac nuts and wheel hardware,
which are principally used in applications where controlled tightening is
required due to high vibration. RB&W Manufacturing currently sells approximately
$4 million of product through Logistics. The Company intends to increase the
number of products supplied to Logistics by Manufactured Products, primarily
fasteners and rubber products. Delo screw-machines products for OEMs in the
plumbing industry and produces knobs and internal plumbing fixtures. Green
Bearing produces wheel, hub and clutch bearings, primarily for sale to the
automotive aftermarket. Kay Home Products, which manufactures products for sale
to consumers through various retail outlets, produces barbecue grills, screen
houses, television tray tables, plant stands and patio tables.
Markets and Customers. The Metal Forming Group's products are sold to a
diverse set of industrial and retail customers. RB&W sells its products to OEMs
and distributors in the automotive, truck and railroad
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<PAGE> 59
industries. Delo sells its products to OEMs, primarily in the plumbing industry.
Green Bearing sells its products to distributors in the automotive aftermarket.
Major customers of RB&W Manufacturing include Cooper Industries, Ford, GM,
Navistar and TRW. Delo's major customers include Moen and T&S Brass. Kay Home
Products sells its goods in North America through a network of mass merchandise
retailers, grocery chains, drug stores and hardware stores. Kay Home Products'
primary customers include Cotter, K-Mart, Lowes, Menards and Wal-Mart.
Competition. The Metal Forming Group's operating units compete against
other domestic and international, small to medium-sized manufacturers. Due to
the fragmented nature of the markets in which RB&W Manufacturing and Delo
compete and the substantial purchasing power of the large OEMs served, these
companies compete primarily on the basis of price, product quality, engineering
expertise and delivery reliability. Green Bearing competes primarily on the
basis of product quality and delivery reliability. Kay Home Products competes
primarily on the basis of price. RB&W Manufacturing's domestic competitors
include Captive Capacity, Decker, Federal Screw, Gripco, MacLean Fogg, Masco,
Pal Nut and its international competitors include San Shing. Delo and Green
Bearing compete domestically against numerous small, regional companies. Major
competitors of Kay Home Products include Precision, Sunbeam and Weber-Stevens.
INDUSTRIAL RUBBER PRODUCTS GROUP. The Industrial Rubber Products Group
consists of three operating units: Castle Rubber Company ("Castle"), Cicero and
Geneva. The Industrial Rubber Products Group manufactures molded rubber products
for use in automobiles, fluid and gas lines, steel mills, and food processing
and communications equipment. The Industrial Rubber Products Group generated pro
forma net sales of $14.0 million for the nine months ended September 30, 1997,
which represented 3.7% of the Company's pro forma net sales for such period.
Products and Services. The Industrial Rubber Products Group manufactures
injection and transfer molded products, lathe-cut goods, roll coverings and
various items requiring rubber to metal bonding for use in industrial
applications. Castle manufactures valve seals, power and conveyor rolls and
slitter rings. Cicero is a developer and manufacturer of injection molded
silicone rubber products for customers in the automotive, food processing and
consumer appliance industries, such as wire harnesses, spark plug boots and
nipples and general sealing gaskets. Geneva is a manufacturer of injection
molded rubber products for customers in the automotive, telecommunications,
funeral and heavy truck industries. Its products include primary wire harnesses,
transoceanic cable boots, casket gaskets and shock and vibration mounts.
Markets and Customers. The Industrial Rubber Products Group supplies the
fluid and gas, steel, food processing, consumer appliance, heavy truck,
telecommunications, funeral and aerospace industries, both domestically and
internationally. The Industrial Rubber Products Group's major customers include
AT&T, Cooper Industries, Delphi, Dresser, Mueller and Sunbeam.
Competition. The Industrial Rubber Products Group competes primarily on the
basis of price and product quality with other domestic small to medium-sized
manufacturers of rubber products. The Industrial Rubber Products Group's main
competitors include Geauga Carlisle, Goshen Rubber, Johnson Rubber, LCI,
National Rubber, Robin Industries and Western Rubber.
LOGISTICS
Logistics is a leading national supplier of over 90,000 standard and
specialty fasteners and other industrial products pursuant to either supply
chain management agreements or traditional wholesale supply arrangements.
Logistics operates out of 34 branches located throughout the United States, two
branches in Mexico and branches in Canada, Puerto Rico and England, and has a
central distribution center located in Dayton, Ohio. Logistics generated pro
forma net sales, pro forma income from continuing operations before income taxes
and pro forma EBITDA of $207.2 million, $12.8 million and $16.4 million,
respectively, or 54.2%, 55.9% and 50.5%, respectively, of the Company's pro
forma net sales, pro forma income from continuing operations and pro forma
EBITDA for the nine months ended September 30, 1997.
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<PAGE> 60
Products and Services. Supply chain management, which is Logistics' primary
focus for future growth, involves offering customers procurement solutions and
comprehensive, on-site management for most of their fastener and related
hardware needs. Supply chain management customers receive value-added services,
such as part usage and cost analysis, product redesign recommendations, supplier
selection, quality assurance, bar coding, product packaging and tracking,
just-in-time delivery, electronic billing services and ongoing technical
support. Supply chain management services are typically provided to customers'
facilities pursuant to exclusive, multi-year TFS contracts. TFS contracts enable
Logistics' customers to both reduce procurement costs and better focus on their
company's core manufacturing competencies by: (i) significantly reducing the
administrative and labor costs associated with fastener procurement by
outsourcing certain internal purchasing, quality control and inventory
fulfillment responsibilities; (ii) reducing the amount of working capital
invested in inventory; (iii) achieving purchasing efficiencies as a result of
vendor consolidation; and (iv) receiving technical expertise in the selection of
fastener and other components for certain manufacturing processes. Management
believes that TFS contracts foster longer-lasting supply relationships with
customers, who increasingly rely on the Company for their fastener needs, as
compared to traditional buy/sell distribution customers. Sales pursuant to TFS
contracts have increased significantly in recent years and represented over 60%
of Logistics' pro forma net sales for the nine months ended September 30,
1997. Logistics' remaining sales are generated through the wholesale supply of
fasteners and other industrial products to OEMs, other manufacturers and
distributors pursuant to master or authorized distributor relationships.
Logistics supplies standard and specialty engineered fasteners such as
nuts, bolts, screws and washers. In addition to fasteners, Logistics supplies,
among other things, valves, fittings, clamps and rubber products, which
currently represent approximately 10% of Logistics' net sales. Logistics also
provides engineering and design services to its customers.
Applications-engineering specialists and the direct sales force work closely
with the engineering staff of OEM customers to recommend the appropriate
fasteners for a new product or to suggest alternative fasteners that reduce
overall production costs, streamline assembly or enhance the appearance or
performance of the end product.
Markets and Customers. In 1996, more than 95% of Logistics' net sales were
to domestic customers. The domestic industrial fastener market is estimated by
industry sources to have generated over $7 billion in annual sales in 1996 at
the wholesale level. Fasteners are used extensively by OEMs in a variety of
industries, and demand is generally related to the state of the economy and to
the overall level of manufacturing activity.
Logistics markets and sells fasteners and other industrial products to over
7,000 customers domestically and internationally. The principal markets served
by Logistics are transportation equipment, including manufacturers of heavy
trucks, recreational vehicles and automotive parts and accessories (Dana
Corporation, Eaton, E-Z-GO (Textron), Mack Truck, Navistar, Paccar, Polaris and
U-Haul), industrial equipment (Caterpillar and Ingersoll-Rand), electrical
equipment, including manufacturers of electrical controls, appliances and motors
(Amana, Emerson Electric, Federal Signal, Frigidaire, General Electric and
Maytag), lawn and garden equipment (American Yard Products, MTD, Murray Outdoor,
Snapper and Toro) and HVAC (Carrier and Thermo-King).
In recent years, OEMs have made it a priority to reduce their total cost of
purchasing and handling fasteners. Due to the low unit cost and the large number
of different fasteners used to manufacture or assemble a single product,
administrative and overhead costs comprise a substantial portion of an OEM's
fastener-related costs. As a result, management believes that the number of
industrial fastener suppliers are consolidating as OEMs rely on fewer suppliers
to achieve purchasing efficiencies. Larger suppliers such as the Company that
provide a wide array of value-added services and are reliable sources for
just-in-time delivery are best positioned to capitalize on these trends. In
addition, OEMs are increasingly relying on fastener suppliers to provide design
and applications engineering support, enabling more efficient use of internal
engineering resources. Management believes that these developments will allow
Logistics to increase the amount of low unit cost fastener and non-fastener
items supplied to OEMs.
Competition. The industrial fastener supply industry is highly competitive
and fragmented, with over 2,500 domestic full-line, industrial fastener
suppliers and other domestic suppliers that offer a limited number of fasteners
in addition to other industrial products. Management believes that substantially
all of Logistics'
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competitors operate on a regional basis and do not provide customers with the
wide array of value-added services offered by larger suppliers such as the
Company.
Management considers Bamal, C-Tech, Endries International, Flexalloy,
General Fasteners and Purchase Parts Group to be Logistics' principal domestic
competitors for national inventory management programs with OEM customers.
Logistics competes primarily on the basis of its value-added services, extensive
product selection and price.
SALES AND MARKETING
Each of the operating units within Manufactured Products markets and sells
its products through both internal sales personnel and independent sales
representatives. In some instances, the internal engineering staff assists in
the sales and marketing effort through joint design and applications-engineering
efforts with major customers. In addition, some Manufactured Products operating
units market certain of their products through various regional and national
trade shows.
Logistics markets its products and services in the United States, Mexico,
Canada and Europe, primarily through its direct sales force, which is assisted
by applications engineers who provide the technical expertise necessary to
assist the engineering staff of OEM customers in designing new products and
improving existing products. Logistics often obtains new customers as a result
of referrals from existing customers. In addition, management expects to
significantly grow Logistics' customer base as a result of the Company's
strategy to offer Logistics' services to customers of its Manufactured Products
businesses.
RAW MATERIALS AND SUPPLIERS
Manufactured Products purchases substantially all of its raw materials,
principally metals and certain component parts incorporated into its products,
and Logistics purchases substantially all of its fasteners, from third-party
suppliers and manufacturers. Management believes that raw materials and
component parts other than certain specialty fasteners are available from
alternative sources. Most raw materials required by Manufactured Products are
commodity products available from several domestic suppliers. Park Drop Forge
supplies approximately 75% of the closed-die steel forgings used in the
production of crankshafts and camshafts by Ohio Crankshaft. Logistics has
multiple sources of supply for standard products, but has limited supply sources
for certain specialty products. Approximately 10% of Logistics' fasteners are
purchased from suppliers in foreign countries, primarily Taiwan, Japan and
Korea. The Company is dependent upon the ability of such suppliers to meet
stringent quality and performance standards and to conform to delivery
schedules. In addition, operating units of Manufactured Products supply
approximately $4 million of products to Logistics. The Company intends to
increase the number of products supplied to Logistics by Manufactured Products,
primarily fasteners and rubber products.
EMPLOYEES
As of September 30, 1997, after giving effect to the Arcon acquisition, the
Company had a total of 2,536 employees, of whom 2,515 were employed by the
Company's operating units. Approximately 720 employees are subject to collective
bargaining agreements that expire between February 1998 and June 2001. The
Company believes that its collective bargaining agreements will be renegotiated
and extended in the ordinary course of business. The Company considers its
relations with its employees to be good. In the last six years, the Company has
experienced labor strikes at two operating units of Manufactured Products. The
following
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table provides information relating to the employees of the Company's operating
units as of September 30, 1997:
<TABLE>
<CAPTION>
OPERATING UNIT EMPLOYEES
------------------------------------------ ---------
<S> <C>
Aluminum Casting.......................... 320
Forged and Machined Products.............. 380
Capital Equipment......................... 308
Metal Forming............................. 397
Industrial Rubber Products................ 331
Logistics................................. 779
-----
Total operating unit
employees..................... 2,515
=====
</TABLE>
PROPERTIES
The following are the principal operating facilities of the Company's
Manufactured Products businesses, listed by operating unit, each of which also
has limited general office and administrative space:
<TABLE>
<CAPTION>
APPROXIMATE
OPERATING UNIT LOCATION SQUARE FOOTAGE OWNED/LEASED
- ---------------------------------- ---------------------------------- ------------------ ------------
<S> <C> <C> <C>
Aluminum Casting.................. Conneaut, Ohio (three locations) 211,500 Leased
Conneaut, Ohio 110,000 Owned
Hartsville, Tennessee 39,000 Leased
Forged and Machined Products...... Cuyahoga Heights, Ohio 427,000 Owned
Cleveland, Ohio 391,000 Owned
Berwick, Pennsylvania 180,000 Leased
Wellington, Ohio 50,000 Owned
Capital Equipment................. Cleveland, Ohio 167,000 Leased
Cleveland, Ohio 116,000 Owned
Boaz, Alabama 100,000 Leased
Madison Heights, Michigan 26,000 Leased
West Midland, England 11,500 Leased
Indianapolis, Indiana 10,000 Leased
Quatero, Mexico 10,000 Leased
Metal Forming..................... Antioch, Illinois 333,500 Owned
Kent, Ohio 225,000 Owned
Coraopolis, Pennsylvania 133,000 Owned
Cleveland, Ohio 72,000 Owned
Delaware, Ohio 44,500 Owned
Mississauga, Ontario 37,000 Leased
Mississauga, Ontario 19,500 Leased
Industrial Rubber Products........ East Butler, Pennsylvania 136,000 Owned
Geneva, Ohio 81,000 Leased
Cicero, Illinois 17,000 Owned
</TABLE>
Logistics leases 34 branch locations domestically in 20 states, and leases
two branches in Mexico and one in each of Canada, Puerto Rico and England. In
addition, Logistics leases its central distribution facility in Dayton, Ohio.
The Company leases its executive offices in Cleveland, Ohio.
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BACKLOG
Manufactured Products' backlog was as follows as of September 30, 1997
(dollars in millions):
<TABLE>
<CAPTION>
PERCENTAGE
OPERATING UNIT AMOUNT OF TOTAL
------------------------------------------------- ------ ----------
<S> <C> <C>
Aluminum Casting................................. $ 5.3 6.9%
Forged and Machined Products..................... 31.4 40.6
Capital Equipment................................ 21.5 27.8
Metal Forming.................................... 15.9 20.6
Industrial Rubber Products....................... 3.2 4.1
------ ----------
Total.................................. $77.3 100.0%
====== ========
</TABLE>
Management believes that Manufactured Products' backlog as of any
particular date may not be indicative of sales for any future period. The
Company expects that approximately 60% of Manufactured Products' backlog as of
September 30, 1997 will be shipped by December 31, 1997. Management believes
that backlog is not a meaningful measure for the Company's Logistics operating
units, as a majority of Logistics' customers require just-in-time delivery of
fasteners and other industrial products.
RESEARCH AND DEVELOPMENT
Research and development activities are conducted separately by each
operating unit. The Company's operating units focus on engineering products to
meet specific customer application requirements. Teams representing different
functional areas within an operating unit work closely with customers early in
the product design process to ensure that products meet customer specifications
and are designed for ease of manufacturing. As a general matter, the Company's
operating units have not required substantial research and development
expenditures.
ENVIRONMENTAL REGULATIONS
The Company is subject to numerous federal, state and local laws and
regulations designed to protect public health and the environment
("Environmental Laws"), particularly with regard to discharges and emissions, as
well as handling, storage, treatment and disposal, of various substances and
wastes. Pursuant to certain Environmental Laws, owners or operators of
facilities may be liable for the costs of response or other corrective actions
for contamination identified at or emanating from current or former locations,
without regard to whether the owner or operator knew of, or was responsible for,
the presence of any such contamination, and for related damages to natural
resources. Additionally, persons who arrange for the disposal or treatment of
hazardous substances or materials may be liable for costs of response at sites
where they are located, whether or not the site is owned or operated by such
person.
The Company believes that it is currently in material compliance with
applicable Environmental Laws. In general, the Company has not experienced
difficulty in complying with Environmental Laws in the past, and compliance with
Environmental Laws has not had a material adverse effect on the Company's
financial condition, liquidity and results of operations. The Company's capital
expenditures on environmental control facilities were not material during the
past five years and such expenditures are not expected to be material to the
Company in the foreseeable future.
The Company has been identified as a potentially responsible party at
certain third-party sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or comparable state laws
which provided for strict and, under certain circumstances, joint and several
liability. The Company is participating in the cost of certain clean-up efforts
at several of these sites. However, the Company's share of such costs has not
been material and based on available information, the Company does not expect
its exposure at any of these locations to have a material adverse effect on its
results of operations, liquidity or financial condition.
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At its facility in Kent, Ohio, the Company is conducting remediation of
groundwater impacted by operations and disposal activities. Contaminants known
to be present in the groundwater at the facility and to have migrated off-site
include oil and certain volatile organic compounds. In addition, the Company is
conducting soil and groundwater investigations in connection with a closure
under the Resource Conservation and Recovery Act of 1976, as amended, of
hazardous waste storage areas associated with former metal plating operations.
To date, the approximately $2 million cost associated with all of these efforts
at the Kent facility has been shared equally between the Company and the former
owner of the facility under a cost-sharing agreement. Allocation of
responsibilities for future costs is being negotiated. The availability of
third-party payments or insurance for environmental remediation activities is
subject to risks associated with the willingness and ability of the third party
to make payments. The Company does not believe that future costs to address the
currently identified environmental issues at its facilities will be material.
LEGAL MATTERS
The Company is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from currently pending or threatened
litigation will not have a material adverse effect on the Company's financial
condition, liquidity and results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, SENIOR MANAGERS AND DIRECTORS
The following table sets forth certain information with respect to the
Company's executive officers, certain other senior managers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS
Edward F. Crawford.................... 57 Chairman of the Board, Chief Executive Officer
and President
James S. Walker....................... 55 Vice President and Chief Financial Officer
Felix J. Tarorick..................... 55 Vice President of Operations, President of Metal
Forming Group
Ronald J. Cozean...................... 34 Secretary and General Counsel
Matthew V. Crawford................... 28 Assistant Secretary, Corporate Counsel and Director
Patrick W. Fogarty.................... 36 Director of Finance
SENIOR MANAGERS
Andrew A. Arena....................... 50 President of Logistics
Richard G. McLaughlin................. 55 President of Aluminum Casting Group
Sterling J. Parks..................... 55 President of Forged and Machined Products, Capital
Equipment and Industrial Rubber Products Groups
DIRECTORS
Lewis E. Hatch, Jr.................... 71 Director
Thomas E. McGinty..................... 68 Director
Lawrence O. Selhorst.................. 64 Director
James W. Wert......................... 51 Director
</TABLE>
Edward F. Crawford has been Chairman of the Board and Chief Executive
Officer of the Company since 1992. Mr. E. Crawford has also served as Chairman
of the Board, Chief Executive Officer and President of The Crawford Group, Inc.,
which operates a diversified group of manufacturing companies, since 1964. Mr.
E. Crawford served as a director of the Company from 1989 to 1991. Mr. E.
Crawford has over 30 years of entrepreneurial experience in buying, selling and
operating manufacturing companies. Mr. E. Crawford also serves as a director of
Continental Global Group, Inc., a manufacturer of conveyor equipment for use in
the coal mining industry.
James S. Walker has served as Vice President and Chief Financial Officer of
the Company since 1991. Mr. Walker has significant experience in evaluating
acquisitions and integrating acquired companies. Mr. Walker has been with the
Company for over 19 years and has served in several capacities, including
Corporate Controller and Assistant Treasurer.
Felix J. Tarorick became Vice President of Operations in 1996 and has been
President of the Metal Forming Group since 1995. From 1992 to 1995, Mr. Tarorick
served as President of Kay Home Products, Inc. Mr. Tarorick joined the Company
in 1992. Mr. Tarorick has over 30 years of relevant industry experience.
Ronald J. Cozean has served as Secretary and General Counsel since joining
the Company in 1994. Mr. Cozean was an associate at the law firm of Squires,
Sanders & Dempsey L.L.P. from 1991 to 1994.
Matthew V. Crawford has served as Assistant Secretary and Corporate Counsel
since joining the Company in February 1995 and has served as President of
Crawford Container Company since 1991. Mr. M. Crawford became a director of the
Company in August 1997. Prior to joining the Company, Mr. M. Crawford worked as
a Corporate Finance Analyst at McDonald & Co. Securities, Inc. Mr. E. Crawford
is the father of Mr. M. Crawford.
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<PAGE> 66
Patrick W. Fogarty has been Director of Finance since joining the Company
in 1995. Prior thereto, Mr. Fogarty held various positions, including Senior
Manager, at Ernst & Young LLP from 1983 to 1995.
Andrew A. Arena has served as President of Logistics since March 1995.
Prior thereto, he served the Company in various capacities, including Vice
President and General Manager of the Company's distribution division. Mr. Arena
joined the Company in 1971. Mr. Arena has over 25 years of relevant industry
experience.
Richard G. McLaughlin has served as President of the Aluminum Casting Group
since the acquisition of GAMCO by the Company in October 1993. Since 1985, he
has served in various capacities at GAMCO, including President from 1991 to
1995. Mr. McLaughlin has over 25 years of relevant industry experience.
Sterling J. Parks has been President of the Forged and Machined Products,
Capital Equipment and Industrial Rubber Products Groups since joining the
Company in October 1992. From 1979 to 1992, Mr. Parks operated a business
consulting firm. Mr. Parks has over 25 years of relevant industry experience.
Lewis E. Hatch, Jr. has been a director of the Company since 1992. Mr.
Hatch is retired and was the Chairman and Chief Operating Officer of Rusch
International, an international medical device company, from 1986 to 1992 and
has served as a director of Teleflex, Inc. since 1976.
Thomas E. McGinty has been a director of the Company since 1986, and served
as the Interim Chairman of the Board and Chief Executive Officer of the Company
from November 1991 to June 1992. Since 1983, Mr. McGinty has been the President
of a management consulting firm, Belvoir Consultants, Inc.
Lawrence O. Selhorst has been a director of the Company since 1995. Mr.
Selhorst is also the Chairman of the Board and Chief Executive Officer of
American Spring Wire Corp. (spring wire manufacturer) and a director of Lincoln
Electric Company. Mr. Selhorst served as Chairman of the Board of RB&W
Corporation from 1992 to 1995.
James W. Wert has been a director of the Company since 1992. Mr. Wert is
retired and served as Senior Executive Vice President, Chief Investment Officer
and Chief Financial Officer of KeyCorp (financial services company) from 1994 to
1996 and as Vice Chairman and Chief Financial Officer of Society Corporation
(financial services company) from 1990 to 1994. Mr. Wert also serves as a
director of Continental Global Group, Inc., a manufacturer of conveyor equipment
for use in the coal mining industry.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee, an Audit
Committee, a Compensation and Stock Option Committee and an Outside Directors
Committee.
The Executive Committee has all powers and rights necessary to exercise the
full authority of the Board of Directors in the management of the business and
affairs of the Company when necessary in between meetings of the Board of
Directors. The members of the Executive Committee are Messrs. E. Crawford,
McGinty and Wert.
The Audit Committee is primarily concerned with the effectiveness of the
Company's accounting policies and practices, financial reporting and internal
controls. The Audit Committee is authorized to: (i) make recommendations to the
Board of Directors regarding the engagement of the Company's independent
accountants; (ii) review the plan, scope and results of the annual audit, the
independent auditors' letter of comments and management's response thereto, and
the scope of any non-audit services which may be performed by the independent
auditors; (iii) manage the Company's policies and procedures with respect to
internal accounting and financial controls; and (iv) review any changes in
accounting policy. The members of the Audit Committee are Messrs. Hatch, McGinty
and Selhorst.
The Compensation and Stock Option Committee is authorized and directed to:
(i) review and approve the compensation and benefits of the executive officers;
(ii) review and approve the annual salary plans; (iii) review management
organization and development; (iv) review and advise management regarding the
benefits, including bonuses, and other terms and conditions of employment of
other employees; and
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<PAGE> 67
(v) administer any stock option plans which may be adopted and the granting of
options under such plans. The members of the Compensation and Stock Option
Committee are Messrs. Hatch, Selhorst and Wert.
The Outside Directors Committee is authorized to review corporate
governance matters, including any potential conflict of interest that may arise
involving certain, if any, employee directors. The members of the Outside
Directors Committee are Messrs. Hatch, McGinty, Selhorst and Wert.
COMPENSATION OF THE BOARD OF DIRECTORS
The Company compensates non-employee directors for serving on the Board of
Directors and reimburses them for any expenses incurred as a result of Board of
Directors meetings. Non-employee directors receive compensation in the form of
option grants in accordance with the Company's 1996 Non-employee Director Stock
Option Plan approved by the shareholders of the Company at the 1996 Annual
Meeting. During 1996, Messrs. Hatch, McGinty, Selhorst and Wert each received a
non-statutory stock option to purchase 6,000 shares of Common Stock and $6,250
for the first quarter of 1996, prior to the approval of the Non-employee
Director Stock Option Plan. Commencing with the second quarter of 1996,
non-employee directors ceased receiving annual cash retainers for their service
to the Company.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
the Company or any of its subsidiaries, as well as certain other compensation
paid or accrued, during the years ended December 31, 1996, 1995 and 1994 to the
Chairman of the Board and Chief Executive Officer and the other highest paid
executive officers of the Company whose compensation was at least $100,000 for
the year ended December 31, 1996 (collectively, the "Named Executive Officers")
in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION SECURITIES
NAME AND --------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SAR(a) COMPENSATION(b)
- ------------------------------ ---- -------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Edward F. Crawford 1996 $225,000 $ 2,000 500,000 $ 164
Chairman of the Board and 1995 225,000 -- -- 164
Chief Executive Officer 1994 225,000 -- -- 181
James S. Walker 1996 $140,000 $ 30,000 10,000 $ 3,164
Vice President and 1995 140,000 20,000 10,000 3,164
Chief Financial Officer 1994 140,000 10,000 5,000 3,181
Felix J. Tarorick(c) 1996 $150,000 $ 25,000 10,000 $ 3,164
Vice President of Operations
Ronald J. Cozean(c) 1996 $100,000 $ 25,000 7,000 $ 2,664
Secretary and 1995 90,000 20,000 10,000 1,464
General Counsel 1994 45,000 -- 20,000 91
John J. Murray(c) 1996 $250,000 $100,000 23,000 $ 4,725
President and Chief 1995 250,000 50,000 150,000 1,725
Operating Officer
</TABLE>
- ---------------
(a) Reflects the number of shares of Common Stock covered by stock options
granted during the years shown. No stock appreciation rights ("SARs") were
granted to the Named Executive Officers during the years shown.
(b) For the year ended December 31, 1996, all other compensation includes
contributions made by the Company under: (i) the Company's Supplemental
Defined Contribution Plan as follows: Mr. Walker $3,000, Mr. Tarorick $3,000
and Mr. Murray $3,000; (ii) the Individual Account Retirement Plan: Mr.
Cozean $2,500; and (iii) insurance premiums paid by the Company as follows:
Mr. E. Crawford $164, Mr. Walker $164, Mr. Tarorick $164, Mr. Cozean $164
and Mr. Murray $1,725.
(c) Mr. Tarorick became an executive officer of the Company in 1996. Mr. Cozean
joined the Company as Secretary and General Counsel of the Company on July
1, 1994. Mr. Murray resigned from the
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<PAGE> 68
Company on May 15, 1997 in order to pursue other business interests. Mr.
Murray joined the Company as President and Chief Operating Officer on
January 1, 1995.
STOCK OPTION PLANS
The Company has in effect an Amended and Restated 1992 Stock Option Plan
(the "Plan") that permits the granting of "non-statutory stock options" and
"incentive stock options." The Plan is administered by the Compensation and
Stock Option Committee of the Board of Directors, which has authority to select
officers and key employees to be participants and to determine the type and
number of awards to be granted.
The number of shares currently available for grant under the Plan shall not
exceed 850,000, subject to certain adjustments. The option price for stock
options granted under the Plan is fixed by the Compensation and Stock Option
Committee, but in no event will it be less than the fair market value of the
Common Stock on the date of grant. The Plan provides that the fair market value
of the Common Stock shall be the Nasdaq closing price on the trading day
immediately preceding the date on which the option is granted. Options may be
granted under the Plan at any time on or prior to February 18, 2002.
At the 1996 Annual Meeting, the shareholders of the Company approved a one
time grant to Mr. E. Crawford of a non-statutory stock option to purchase
500,000 shares of Common Stock.
The following tables set forth information regarding grants of stock
options with respect to the Named Executive Officers during 1996.
OPTION/SAR GRANTS IN FISCAL 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS/SARS EXERCISE OR TERM(c)
OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION ------------------------
NAME GRANTED(a) EMPLOYEES PER SHARE(b) DATE 5% 10%
- ------------------------- ------------ ----------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Crawford....... 500,000 74.8% $ 13.625 2/22/11 $7,350,688 $21,643,312
James S. Walker.......... 10,000 1.5% 13.625 2/22/06 85,701 217,183
Felix J. Tarorick........ 10,000 1.5% 13.625 2/22/06 85,701 217,183
Ronald J. Cozean......... 7,000 1.0% 13.625 2/22/06 59,991 152,028
John J. Murray........... 23,000 3.4% 13.625 2/22/06 197,113 499,520
</TABLE>
- ---------------
(a) Options become exercisable to the extent of 33 1/3% of the subject shares
after one year from the date of grant, 66 2/3% after two years from the date
of grant, and 100% after three years from the date of grant, except Mr. E.
Crawford's, which vest over a five-year period in 20% increments.
(b) Represents the Nasdaq National Market closing price of the Common Stock on
the day prior to grant.
(c) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Commission and do not represent the Company's estimate or
projection of the future Common Stock price.
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<PAGE> 69
AGGREGATE OPTION/SAR EXERCISES DURING MOST RECENTLY COMPLETED FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES AGGREGATE FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(a)
- ----------------------------------------- ----------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Edward F. Crawford....................... None N/A 100,000/500,000 $775,000/0
James S. Walker.......................... None N/A 46,666/18,334 257,500/15,000
Felix J. Tarorick........................ None N/A 46,666/18,334 257,500/15,000
Ronald J. Cozean......................... None N/A 16,666/20,334 7,500/15,000
John J. Murray........................... None N/A 50,000/123,000 112,500/225,000
</TABLE>
- ---------------
(a) The "Value of Unexercised In-the-Money Options/SARs at December 31, 1996"
was calculated by determining the difference between the fair market value
of the underlying Common Stock at December 31, 1996 (the Nasdaq National
Market closing price of the Company's Common Stock on December 31, 1996 was
$12.875) and the exercise price of the option. An option is "In-the-Money"
when the fair market value of the underlying Common Stock exceeds the
exercise price of the option.
CERTAIN TRANSACTIONS
Mr. Wert, a director of the Company, was the Chief Investment Officer of
KeyCorp, the parent of KeyBank, National Association ("KeyBank"), until July 31,
1996. As of September 30, 1997, the Company was indebted to KeyBank and four
other banks in the amount of $129.8 million under a revolving credit facility
and term loan. KeyBank is also the trustee and investment advisor for the
Company's Individual Account Retirement Plan and for two defined benefit plans
covering certain hourly employees. The Company maintains checking accounts at
KeyBank, and KeyBank is the registrar and transfer agent for the Company's
Common Stock.
GAMCO, a wholly owned subsidiary of the Company, leases space in three
buildings in Conneaut, Ohio: (i) a 91,500 square-foot facility owned by a
company owned by Mr. M. Crawford, at a monthly rent of $26,833; (ii) an
additional 70,000 square-foot attached facility owned by Mr. E. Crawford, at a
monthly rate of $9,000; and (iii) a separate 50,000 square-foot facility owned
by Mrs. E. Crawford, at a monthly rent of $3,000. Ajax leases a facility in
Cleveland, Ohio at a monthly rent of $20,833. This facility is owned by a
corporation whose shareholders are Mr. E. Crawford and his son, Mr. M. Crawford.
The Company believes that the foregoing transactions are all on terms at
least as favorable to the Company as if negotiated on an arms-length basis with
unrelated third parties.
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<PAGE> 70
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock by: (i) each person (or group
of affiliated persons) known to the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock; (ii) each director of the
Company; (iii) each Named Executive Officer individually; and (iv) all directors
and executive officers of the Company as a group. Unless otherwise indicated,
the information is as of October 1, 1997 and the nature of beneficial ownership
consists of sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT
NAME OF SHARES OF OF
BENEFICIAL OWNER COMMON STOCK CLASS
-------------------------------------------------- ------------ -------
<S> <C> <C>
Edward F. Crawford................................ 2,807,000(a) 25.0%
Matthew V. Crawford............................... 310,655(b) 2.8%
Thomas E. McGinty................................. 123,700(c) 1.1%
Felix J. Tarorick................................. 82,500(d) *
James S. Walker................................... 55,600(e) *
James W. Wert..................................... 47,000(f) *
Lawrence O. Selhorst.............................. 43,701(g) *
Lewis E. Hatch, Jr. .............................. 32,060(h) *
Ronald J. Cozean.................................. 29,000(i) *
Pioneering Management Corporation................. 1,095,000(j) 9.8%
Kennedy Capital Management, Inc................... 703,228(k) 6.1%
Dimensional Fund Advisors, Inc.................... 658,161(l) 5.9%
Directors and executive officers as a group (10
persons)........................................ 3,545,883 31.1%
</TABLE>
- ---------------
* Less than one percent.
(a) The total includes 2,112,500 shares over which Mr. E. Crawford has sole
voting and investment power, 22,500 shares owned by L'Accent de Provence of
which Mr. E. Crawford is President and owner of 25% of its capital stock and
over which Mr. E. Crawford shares voting and investment power, 9,500 shares
owned by Mr. E. Crawford's wife as to which Mr. E. Crawford disclaims
beneficial ownership, 100,000 shares subject to stock options currently
exercisable, and 562,500 shares held by The Huntington Trust Company NA over
which Mr. E. Crawford has sole voting power. The address of Mr. E. Crawford
is the business address of the Company.
(b) Includes 5,000 shares of Common Stock issuable pursuant to currently
exercisable stock options.
(c) Includes 12,000 shares of Common Stock issuable pursuant to currently
exercisable stock options or options that will become exercisable within 60
days.
(d) Includes 30,000 shares of Common Stock issuable pursuant to currently
exercisable stock options.
(e) Includes 30,000 shares of Common Stock issuable pursuant to currently
exercisable stock options.
(f) Includes 12,000 shares of Common Stock issuable pursuant to currently
exercisable stock options or options that will become exercisable within 60
days.
(g) Includes 12,000 shares of Common Stock issuable pursuant to currently
exercisable stock options or options that will become exercisable within 60
days.
(h) Includes 2,165 shares owned by Mr. Hatch's wife as to which Mr. Hatch
disclaims beneficial ownership and 12,000 shares of Common Stock issuable
pursuant to currently exercisable stock options or options that will become
exercisable within 60 days.
(i) Includes 29,000 shares of Common Stock issuable pursuant to currently
exercisable stock options.
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<PAGE> 71
(j) Based on information set forth on Amendment No. 2 to Schedule 13G dated
January 20, 1997. Pioneering Management Corporation ("PMC"), a registered
investment advisor, reported sole voting power over the 1,095,000 shares
beneficially owned as of December 31, 1996, sole investment power over
10,000 shares, and shared investment power over 1,085,000 shares. The
address for PMC is 60 State Street, Boston, Massachusetts 02109.
(k) Based on information set forth on Schedule 13G dated February 10, 1997.
Included in the 703,228 shares beneficially owned as of December 31, 1996
are 415,528 shares which Kennedy Capital Management, Inc. ("Kennedy
Capital") reports it has the right to acquire. Kennedy Capital reported sole
voting and investment power over all the shares. The address of Kennedy
Capital is 10829 Olive Blvd., St. Louis, Missouri 63141.
(l) Based on information set forth on Schedule 13G dated February 5, 1997.
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, reported beneficial ownership of 658,161 shares of Common Stock as
of December 31, 1996, all of which shares were held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company,
or in series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, for all of which Dimensional
serves as investment manager. Dimensional reported sole voting and
investment power with respect to all of such shares, but disclaims
beneficial ownership of all such shares. The address for Dimensional is 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401.
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<PAGE> 72
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
Subsequent to the offering of the Original Notes, the Company entered into
the Promissory Note with KeyBank, National Association, which replaced the
Credit Agreement, dated April 11, 1995, as amended. The Promissory Note
constitutes the New Credit Facility for purposes of the Indenture. The
Promissory Note expires at the earlier of demand, or April 30, 1999.
Advances pursuant to the Promissory Note will be used for general corporate
purposes. Advances may be, at the option of the Company, Prime Rate Advances or
LIBOR Advances. Prime Rate Advances bear interest at the Lender's Base Rate less
one percent, and LIBOR Advances bear interest at 150 basis points in excess of
the LIBOR Rate.
The Promissory Note contains customary representations, warranties and
events of default for facilities of this type.
INDUSTRIAL REVENUE BONDS
The Company is the guarantor of certain First Mortgage Industrial Bonds
(the "Bonds") which were issued in June 1975 in connection with a construction
project to expand the facilities of Tocco. The Bonds bear interest at a rate of
9 1/4% per annum and will mature in 2000. As of September 30, 1997, $1.2 million
aggregate principal amount of Bonds were outstanding.
STATE LOANS
The Company is a borrower pursuant to a State of Ohio Department of
Development loan, which was issued in April 1997 in connection with the
refurbishment of the Company's corporate headquarters. This loan bears interest
at a rate of 5% per annum and will mature in 2002. As of September 30, 1997,
$0.9 million aggregate principal amount was outstanding under this loan.
GAMCO is a borrower pursuant to a State of Ohio Department of Development
loan, which was issued in October 1993 in connection with the expansion of
GAMCO's facility and the purchase of certain equipment. This loan bears interest
at a rate of 3% per annum and will mature in 1998. As of September 30, 1997,
$0.6 million aggregate principal amount was outstanding under this loan.
OTHER INDEBTEDNESS
In addition, as of September 30, 1997, the Company had $0.5 million of
other indebtedness outstanding, which was comprised of certain capital leases.
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<PAGE> 73
DESCRIPTION OF THE NOTES
The Original Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of November 25, 1997 (the "Indenture") by and between the
Company and Norwest Bank Minnesota, N.A., as trustee (the "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
"Trust Indenture Act") as in effect on the date of the Indenture. The Notes are
subject to all such terms, and holders of the Notes are referred to the
Indenture and the Trust Indenture Act for a statement of them. The following is
a summary of all material terms and provisions of the Notes. This summary does
not purport to be a complete description of the Notes and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the Notes
and the Indenture (including the definitions contained therein). A copy of the
form of Indenture may be obtained from the Company by any holder or prospective
investor upon request. Definitions relating to certain capitalized terms are set
forth under "-- Certain Definitions". Capitalized terms that are used but not
otherwise defined herein have the meanings ascribed to them in the Indenture and
such definitions are incorporated herein by reference.
GENERAL
The Notes will be limited in aggregate principal amount to $150,000,000.
The Notes will be general unsecured obligations of the Company and will rank
subordinate in right of payment to any Senior Indebtedness of the Company, pari
passu with any senior subordinated indebtedness, and senior in right of payment
to any existing or future subordinated Indebtedness of the Company.
A majority of the operations of the Company are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
The Notes will be effectively subordinated to all Indebtedness and other
liabilities (including trade payables) of the Company's Subsidiaries. Any right
of the Company to receive assets of any of its Subsidiaries upon a Subsidiary's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of that Subsidiary's creditors.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on December 1, 2007. The Notes will bear interest at
a rate of 9 1/4% per annum from the Issue Date until maturity. Interest is
payable semiannually in arrears on each June 1 and December 1 commencing June 1,
1998, to holders of record of the Notes at the close of business on the
immediately preceding May 15 and November 15, respectively. The interest rate on
the Notes is subject to increase, and such Additional Interest will be payable
on the payment dates set forth above, in certain circumstances, if the Notes (or
other securities substantially similar to the Notes) are not registered with the
Commission within the prescribed time periods. See "Exchange Offer; Registration
Rights."
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole at any
time or in part from time to time on or after December 1, 2002, at the following
redemption prices (expressed as percentages of the principal amount thereof),
together, in each case, with accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period beginning on
December 1 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------- ----------
<S> <C>
2002.............................. 104.625%
2003.............................. 103.083%
2004.............................. 101.542%
2005 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 35% of the original principal amount of Notes at any time and from time to
time prior to December 1, 2000 at a redemption price
69
<PAGE> 74
equal to 109.25% of the aggregate principal amount so redeemed plus accrued and
unpaid interest, if any, to the redemption date with the Net Proceeds of one or
more Public Equity Offerings' provided that at least 65% of the principal amount
of Notes originally issued remains outstanding immediately after the occurrence
of any such redemption and that any such redemption occurs within 60 days
following the closing of any such Public Equity Offering.
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, or while such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee shall deem fair and
equitable. The Notes will be redeemable in whole or in part upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Registrar of the Notes. On and after any redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless the Company
shall fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Company. As of September 30, 1997, after giving pro
forma effect to the Refinancing, the principal amount of outstanding Senior
Indebtedness of the Company, on a consolidated basis, would have been $12.8
million.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, arrangement, reorganization, liquidation, dissolution or other
winding-up or other similar case or proceeding in connection therewith whether
or not involving insolvency or bankruptcy, relative to the Company or to its
creditors, as such, or to the Company's assets, whether voluntary or
involuntary, or any general assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Company (except in connection with
the merger or consolidation of the Company or its liquidation or dissolution
following the transfer of all or substantially all of its assets, upon the terms
and conditions permitted under the circumstances described under "-- Merger,
Consolidation or Sale of Assets" below) (all of the foregoing referred to herein
individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness of the Company will be
entitled to receive payment and satisfaction in full in cash of all amounts due
on or in respect of all Senior Indebtedness of the Company before the holders of
the Notes are entitled to receive or retain any payment or distribution of any
kind on account of the Notes. In the event that, notwithstanding the foregoing,
the Trustee or any holder of Notes receives any payment or distribution of
assets of the Company of any kind, whether in cash, property or securities,
including, without limitation, by way of set-off or otherwise, in respect of the
Notes before all Senior Indebtedness of the Company is paid and satisfied in
full in cash, then such payment or distribution will be held by the recipient in
trust for the benefit of holders of Senior Indebtedness and will be immediately
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Indebtedness. By reason of such subordination, in the event of any
such Bankruptcy Proceeding, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than other creditors of the Company,
including holders of the Notes.
Upon the occurrence of a Payment Default on Designated Senior Indebtedness,
no payment or distribution of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Notes by the Company) may be made by or
on behalf of the Company or any Subsidiary of the Company, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase, redemption or other acquisition of any Notes,
and neither the Trustee nor any holder or owner of any Notes shall take or
receive from the Company or any Subsidiary of the Company, directly or
indirectly in any manner, payment in respect of all or any portion of Notes
commencing on the date of receipt by the Trustee of written notice from the
representative of
70
<PAGE> 75
the holders of Designated Senior Indebtedness (the "Representative") of the
occurrence of such Payment Default, and in any such event, such prohibition
shall continue until such Payment Default is cured, waived in writing or
otherwise ceases to exist. At such time as the prohibition set forth in the
preceding sentence shall no longer be in effect, subject to the provisions of
the following paragraph, the Company shall resume making any and all required
payments in respect of the Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any kind or character (including,
without limitation, cash, property and any payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company being subordinated to the payment of the Notes by the Company) may be
made by the Company or any Subsidiary of the Company, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase, redemption or other acquisition of any Notes,
and neither the Trustee nor any holder or owner of any Notes shall take or
receive from the Company or any Subsidiary of the Company, directly or
indirectly in any manner, payment in respect of all or any portion of the Notes
for a period (a "Payment Blockage Period") commencing on the date of receipt by
the Trustee of written notice from the Representative of such Non-Payment Event
of Default unless and until (subject to any blockage of payments that may then
be in effect under the preceding paragraph) the earliest of (x) more than 179
days shall have elapsed since receipt of such written notice by the Trustee, (y)
such Non-Payment Event of Default shall have been cured or waived in writing or
otherwise shall have ceased to exist or such Designated Senior Indebtedness
shall have been paid in full or (z) such Payment Blockage Period shall have been
terminated by written notice to the Company or the Trustee from such
Representative, after which, in the case of clause (x), (y) or (z), the Company
shall resume making any and all required payments in respect of the Notes,
including any missed payments. Notwithstanding any other provision of the
Indenture, in no event shall a Payment Blockage Period commenced in accordance
with the provisions of the Indenture described in this paragraph extend beyond
179 days from the date of the receipt by the Trustee of the notice referred to
above (the "Initial Blockage Period"). Any number of additional Payment Blockage
Periods may be commenced during the Initial Blockage Period; provided, however,
that no such additional Payment Blockage Period shall extend beyond the Initial
Blockage Period. After the expiration of the Initial Blockage Period, no Payment
Blockage Period may be commenced until at least 180 consecutive days have
elapsed from the last day of the Initial Blockage Period. Notwithstanding any
other provision of the Indenture, no Non-Payment Event of Default with respect
to Designated Senior Indebtedness which existed or was continuing on the date of
the commencement of any Payment Blockage Period initiated by the Representative
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by the Representative, whether or not within the
Initial Blockage Period, unless such Non-Payment Event of Default shall have
been cured or waived for a period of not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of payment blockage
provisions, such failure would constitute an Event of Default under the
Indenture and would enable the holders of the Notes to accelerate the maturity
thereof. See "-- Events of Default."
A holder of Notes by its acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on its behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee its
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Additional Indebtedness
The Company will not, directly or indirectly, incur (as defined) any
Indebtedness (including Acquired Indebtedness); provided that if no Default or
Event of Default shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness, the Company may incur
Indebtedness (including Acquired Indebtedness) if after giving effect to the
incurrence of such Indebtedness and the receipt
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and application of the proceeds thereof, the Company's Consolidated Fixed Charge
Coverage Ratio is at least 2.25 to 1. In addition, none of the Subsidiaries of
the Company will, directly or indirectly, incur any Subsidiary Indebtedness;
provided that if no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such Subsidiary
Indebtedness, any of the Company's Subsidiaries may incur Subsidiary
Indebtedness if, after giving effect to the incurrence of such Subsidiary
Indebtedness and the receipt and application of the proceeds thereof, such
Subsidiary's Consolidated Fixed Charge Coverage Ratio is at least 2.50 to 1.
Notwithstanding the foregoing, the Company and its Subsidiaries may incur
Permitted Indebtedness; provided that the Company will not incur any Permitted
Indebtedness that ranks junior in right of payment to the Notes that has a
maturity or mandatory sinking fund payment prior to the maturity of the Notes.
Limitation on Other Senior Subordinated Indebtedness
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, incur, contingently or otherwise, any Indebtedness that
is both (i) subordinated in right of payment to any Senior Indebtedness of the
Company or any of its Subsidiaries, as the case may be, and (ii) senior in right
of payment to the Notes. For purposes of this covenant, Indebtedness is deemed
to be senior in right of payment to the Notes, if it is not explicitly
subordinated in right of payment to Senior Indebtedness at least to the same
extent as the Notes are subordinated to such Senior Indebtedness.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under "-- Limitation on Additional
Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the Company's cumulative Consolidated
Net Income (or minus 100% of any cumulative deficit in Consolidated Net
Income during such period) plus (2) 100% of the aggregate Net Proceeds
received by the Company from the issue or sale after the Issue Date of
Capital Stock (other than Disqualified Capital Stock or Capital Stock of
the Company issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which has been so converted, exercised or
exchanged, as the case may be plus (3) without duplication of any amounts
included in clause (c)(2) above, 100% of the aggregate Net Proceeds
received by the Company of any equity contribution from a holder of the
Company's Capital Stock, plus (4) $5.0 million, excluding in the case of
clauses (c)(2) and (3), any Net Proceeds from a Public Equity Offering to
the extent used to redeem the Notes. For purposes of determining under this
clause (c) the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture; (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock of
the Company (other than Disqualified Capital Stock) or out of the Net Proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Capital Stock of the Company (other than Disqualified Capital
Stock); (iii) the redemption or retirement of Indebtedness of the Company
subordinated to the Notes in exchange for, by conversion into, or out of the Net
Proceeds of,
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a substantially concurrent sale or incurrence of Indebtedness of the Company
(other than any Indebtedness owed to a Subsidiary) that is contractually
subordinated in right of payment to the Notes to at least the same extent as the
Indebtedness being redeemed or retired; (iv) the retirement of any shares of
Disqualified Capital Stock of the Company by conversion into, or by exchange
for, shares of Disqualified Capital Stock of the Company, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Disqualified Capital Stock of the Company; (v) so
long as no Default or Event of Default shall have occurred and be continuing,
payments made with respect to extinguishment of fractional shares or odd-lot
shares not to exceed $250,000 in the aggregate; (vi) payments to a holding
company that, directly or indirectly, owns all of the outstanding Capital Stock
of the Company, in amounts sufficient to pay: (w) franchise taxes and other fees
required to maintain its corporate existence, (x) costs associated with
preparation of required documents for filing with the Securities and Exchange
Commission and with any exchange on which such company's securities are traded,
(y) federal, state, foreign and local taxes to the extent that such taxes are
attributable to the ownership of the Company and its Subsidiaries, and (z) other
operating or administrative costs of up to $200,000 per year; or (vii) so long
as no Default or Event of Default shall have occurred and be continuing,
payments, directly or indirectly, to employees to repurchase Capital Stock or
other securities of the Company or of a holding company that, directly or
indirectly, owns all of the outstanding Capital Stock of the Company upon the
death, disability or termination of employment of such employees, in amounts not
to exceed, in the aggregate, $1.5 million per year; provided that in calculating
the aggregate amount of Restricted Payments made subsequent to the Issue Date
for purposes of clause (c) of the immediately preceding paragraph, amounts
expended pursuant to clauses (i), (v) and (vii) shall be included in such
calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Company's latest available financial statements, and that no
Default or Event of Default has occurred and is continuing and no Default or
Event of Default will occur immediately after giving effect to any such
Restricted Payments.
Limitation on Liens
The Company will not, and will not permit any of its Subsidiaries to,
create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens) upon any property or asset of the
Company or any of its Subsidiaries or any shares of Capital Stock or
Indebtedness of any Subsidiary of the Company which owns property or assets, now
owned or hereafter acquired, unless (i) if such Lien secures Indebtedness which
is pari passu with the Notes, then the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to the Lien
granted to the holders of the Notes to the same extent as such Indebtedness is
subordinated to the Notes.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (each an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Subsidiary, as the case may be, and the terms
of such Affiliate Transaction are at least as favorable as the terms which could
be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $2.0 million which is not permitted
under clause (i) above, the Company must obtain a resolution of the Board of
Directors of the Company certifying that such Affiliate
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Transaction complies with clause (ii) above. In any Affiliate Transaction (or
any series of related Affiliate Transactions which are similar or part of a
common plan) involving an amount or having a fair market value in excess of
$10.0 million which is not permitted under clause (i) above, the Company must
obtain a favorable written opinion as to the fairness of such transaction or
transactions, as the case may be, from an Independent Financial Advisor.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "-- Limitation on Restricted
Payments" above or (ii) reasonable fees and compensation paid to and indemnity
provided on behalf of, officers, directors or employees of the Company or any
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless (i) the Company or such applicable Subsidiary,
as the case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Board of Directors of
the Company, and evidenced by a board resolution); (ii) not less than 80% of the
consideration received by the Company or such applicable Subsidiary, as the case
may be, is in the form of cash or Cash Equivalents; and (iii) the Asset Sale
Proceeds received by the Company or such Subsidiary are applied (a) first, to
the extent the Company or any such Subsidiary, as the case may be, elects, or is
required, to prepay, repay or purchase indebtedness under any then existing
Senior Indebtedness of the Company or any such Subsidiary within 12 months
following the receipt of the Asset Sale Proceeds from any Asset Sale; provided
that any such repayment shall result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; (b) second, to
the extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another Person) used or useful in businesses
similar or ancillary to the business of the Company or any such Subsidiary as
conducted on the Issue Date; provided that such investment occurs on or prior to
the 365th day following receipt of such Asset Sale Proceeds (the "Reinvestment
Date") and (c) third, if on the Reinvestment Date the Available Asset Sale
Proceeds exceed $10.0 million, the Company shall apply an amount equal to such
Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date (an "Excess Proceeds Offer"). If
an Excess Proceeds Offer is not fully subscribed, the Company may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders stating, among other things: (1) that such holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the purchase date; (2) the
purchase date, which shall be no earlier than 30 days and not later than 45 days
from the date such notice is mailed; (3) the instructions that each holder must
follow in order to have such Notes purchased; and (4) the calculations used in
determining the amount of Available Asset Sale Proceeds to be applied to the
purchase of such Notes.
In the event of the transfer of substantially all of the property and
assets of the Company and its Subsidiaries as an entirety to a Person in a
transaction permitted under "-- Merger, Consolidation or Sale of Assets" below,
the successor Person shall be deemed to have sold the properties and assets of
the Company and its Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any
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securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Preferred Stock of Subsidiaries
The Company will not permit any of its Subsidiaries to issue any Preferred
Stock (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary
of the Company) or permit any Person (other than the Company or a Wholly Owned
Subsidiary of the Company) to hold any such Preferred Stock unless the Company
or such Subsidiary would be entitled to incur or assume Indebtedness under
"-- Limitation on Additional Indebtedness" above (other than Permitted
Indebtedness) in the aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary of the Company or (ii) permit any
of its Subsidiaries to issue any Capital Stock, other than to the Company or a
Wholly Owned Subsidiary of the Company. The foregoing restrictions shall not
apply to an Asset Sale made in compliance with " -- Limitation on Certain Asset
Sales" above or the issuance of Preferred Stock in compliance with
" -- Limitation on Preferred Stock of Subsidiaries" above.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its 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 Subsidiary of the
Company to (a)(i) pay dividends or make any other distributions to the Company
or any Subsidiary of the Company (A) on its Capital Stock or (B) with respect to
any other interest or participation in, or measured by, its profits or (ii)
repay any Indebtedness or any other obligation owed to the Company or any
Subsidiary of the Company, (b) make loans or advances or capital contributions
to the Company or any of its Subsidiaries or (c) transfer any of its properties
or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of: (i) encumbrances or
restrictions existing on the Issue Date to the extent and in the manner such
encumbrances and restrictions are in effect on the Issue Date; (ii) applicable
law; (iii) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person
(including any Subsidiary of the Person), so acquired; (iv) customary
non-assignment provisions in leases or other agreements entered in the ordinary
course of business and consistent with past practices; (v) Refinancing
Indebtedness; provided that such restrictions are no more restrictive than those
contained in the agreements governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; or (vi) customary
restrictions in security agreements or mortgages securing Indebtedness of the
Company or a Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements and mortgages.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any of its Subsidiaries to, enter
into any Sale and Lease-Back Transaction unless (i) the consideration received
in such Sale and Lease-Back Transaction is at least equal to the fair market
value of the property sold, as determined in good faith by the Board of
Directors of the Company and evidenced by a board resolution and (ii) the
Company could incur the Attributable Indebtedness in respect of such Sale and
Lease-Back Transaction in compliance with " -- Limitation on Additional
Indebtedness" above.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
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inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Payment Date (as defined) in accordance with
the procedures set forth below.
Within 20 days of the occurrence of a Change of Control, the Company shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 45 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
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The Indenture requires that if the New Credit Facility is in effect, or any
amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the second preceding paragraph, but in any event within 20 days
following any Change of Control, the Company covenants to (i) repay in full all
obligations and terminate all commitments under or in respect of the New Credit
Facility and all other Senior Indebtedness the terms of which require repayment
upon a Change of Control or offer to repay in full all obligations and terminate
all commitments under or in respect of the New Credit Facility and all such
Senior Indebtedness and repay the Indebtedness owed to each such lender who has
accepted such offer or (ii) obtain the requisite consents under the New Credit
Facility and all such other Senior Indebtedness to permit the repurchase of the
Notes as described above. The Company must first comply with the covenant
described in the preceding sentence before it shall be required to purchase
Notes in the event of a Change of Control; provided that the Company's failure
to comply with the covenant described in the preceding sentence constitutes an
Event of Default described in clause (iii) under "-- Events of Default" below if
not cured within 30 days after the notice required by such clause. As a result
of the foregoing, a holder of the Notes may not be able to compel the Company to
purchase the Notes unless the Company is able at the time to refinance all of
the obligations under or in respect of the New Credit Facility and all such
other Senior Indebtedness or obtain requisite consents under the New Credit
Facility and all such other Senior Indebtedness.
The Indenture will further provide that, (A) if the Company or any
Subsidiary thereof has issued any outstanding (i) indebtedness that is
subordinated in right of payment to the Notes or (ii) Preferred Stock, and the
Company or such Subsidiary is required to make a Change of Control Offer or to
make a distribution with respect to such subordinated indebtedness or Preferred
Stock in the event of a Change of Control, the Company shall not consummate any
such offer or distribution with respect to such subordinated indebtedness or
Preferred Stock until such time as the Company shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Company's Change of Control Offer and shall otherwise have consummated the
Change of Control Offer made to holders of the Notes and (B) the Company will
not issue Indebtedness that is subordinated in right of payment to the Notes or
Preferred Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under the Indenture.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any of its Subsidiaries to
consolidate with, merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of the assets of the Company
(as an entirety or substantially as an entirety in one transaction or a series
of related transactions), to any Person unless: (i) the Company or such
Subsidiary, as the case may be, shall be the continuing Person, or the Person
(if other than the Company or such Subsidiary) formed by such consolidation or
into which the Company or such Subsidiary, as the case may be, is merged or to
which the properties and assets of the Company or such Subsidiary, as the case
may be, are sold, assigned, transferred, leased, conveyed or otherwise disposed
of shall be a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all of the obligations of the Company or such
Subsidiary, as the case may be, under the Indenture, the Notes and the
obligations thereunder shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and (iii) immediately
after giving effect to such transaction on a pro forma basis the Company or such
Person could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under " -- Certain Covenants -- Limitation on Additional
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Indebtedness" above provided, however that this provision will not prevent the
Company from merging into an Affiliate of the Company for the sole purpose of
creating a holding company whose sole asset will be all of the outstanding
capital stock of the Company or shares of a shell corporation whose only assets
are all of the outstanding capital stock of the Company.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon redemption or otherwise (whether or not
such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Subsidiary in the observance or
performance of any other covenant in the Notes or the Indenture for 30 days
after written notice from the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding (except in the
case of a default with respect to the "Change of Control" or "Merger,
Consolidation or Sale of Assets" covenants which shall constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $5.0 million or more with respect to any Indebtedness
of the Company or any Subsidiary thereof, or the acceleration of any such
Indebtedness aggregating $3.0 million or more which default shall not be
cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within
20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5.0 million shall be rendered
against the Company or any Subsidiary thereof, and shall not be discharged
for any period of 60 consecutive days during which a stay of enforcement
shall not be in effect;
(vi) failure to redeem or otherwise retire the Convertible Senior
Subordinated Debentures by the end of the thirtieth day following the Issue
Date; provided that if such thirtieth day is not a Business Day (as defined
in the indenture relating to the Convertible Senior Subordinated
Debentures), such period shall extend to the end of the next Business Day;
and
(vii) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization or a failure to redeem the Convertible Senior
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Subordinated Debentures) shall have occurred and be continuing, then the Trustee
or the holders of not less than 25% in aggregate principal amount of the Notes
then outstanding may declare to be immediately due and payable the entire
principal amount of all the Notes then outstanding plus accrued interest to the
date of acceleration and (i) such amounts shall become immediately due and
payable or (ii) if there are any amounts outstanding under the New Credit
Facility, such amounts shall become immediately due and payable upon the first
to occur of an acceleration under the New Credit Facility or five business days
after receipt by the Company and the representative under the New Credit
Facility of a notice of acceleration; provided, however, that after such
acceleration but before a judgment or decree based on acceleration is obtained
by the Trustee, the holders of a majority in aggregate principal amount of
outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if (i) all Events of Default, other than nonpayment of principal,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in the Indenture; (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid; and (iii) in the event
of the cure or waiver of an Event of Default of the type described in clause
(vii) of the above Events of Default, the Trustee shall have received an
officers' certificate and an opinion of counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto. In case an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization shall occur, the
principal, premium and interest amount with respect to all of the Notes shall be
due and payable immediately without any declaration or other act on the part of
the Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations provided for in the Indenture and under the Trust Indenture
Act.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee, and unless the
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may elect either (a) to defease and
be discharged from any and all of its obligations with respect to the Notes
(except for the obligations to register the transfer or exchange of such Notes,
to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain
an office or agency in respect of the Notes and to hold monies for payment in
trust) ("defeasance") or (b) to be released from its obligations with respect to
the Notes under certain covenants contained in the Indenture ("covenant
defeasance") upon the deposit with the Trustee (or other qualifying trustee), in
trust for such purpose, of money and/or non-callable U.S. government obligations
which through the payment of principal and interest in accordance with their
terms will provide money, in an amount sufficient to pay the principal of,
premium, if any, and interest on the Notes, on the scheduled due dates therefor
or on a selected date of redemption in accordance with the terms of the
Indenture. Such a trust may only be established if, among other things, (i) the
Company has delivered to the Trustee an opinion of counsel (as specified in the
Indenture) (A) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (B) describing either a private ruling concerning the
Notes or a published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount and in the same manner and at the same times, as would have been the case
if such deposit, defeasance and
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discharge had not occurred; (ii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy, insolvency or reorganization events are concerned, at
any time in the period ending on the 91st day after the date of deposit; (iii)
such defeasance or covenant defeasance shall not result in a breach or violation
of, or constitute a default under the Indenture or any other material agreement
or instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any or its Subsidiaries is bound; (iv) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the holders of the
Notes over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
(v) the Company shall have delivered to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
or relating to the defeasance or the covenant defeasance have been complied
with; (vi) the Company shall have delivered to the Trustee an opinion of counsel
to the effect that (A) the trust funds will not be subject to any rights of
holders of Senior Indebtedness, including, without limitation, those arising
under the Indenture and (B) after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (vii) certain other customary conditions precedent are satisfied.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without the consent of
holders of the Notes, amend or supplement the Indenture for certain specified
purposes, including providing for uncertificated Notes in addition to
certificated Notes, and curing any ambiguity, defect or inconsistency, or making
any other change that does not, in the opinion of the Trustee, materially and
adversely affect the rights of any holder. The Indenture contains provisions
permitting the Company and the Trustee, with the consent of holders of at least
a majority in principal amount of the outstanding Notes, to modify or supplement
the Indenture, except that no such modification shall, without the consent of
each holder affected thereby, (i) reduce the amount of Notes whose holders must
consent to an amendment, supplement, or waiver to the Indenture; (ii) reduce the
rate of or change the time for payment of interest, including defaulted
interest, on any Note; (iii) reduce the principal of or premium on or change the
stated maturity of any Note or change the date on which any Notes may be subject
to redemption or repurchase or reduce the redemption or repurchase price
therefor; (iv) make any Note payable in money other than that stated in the Note
or change the place of payment from New York, New York; (v) waive a default on
the payment of the principal of, interest on, or redemption payment with respect
to any Note; (vi) make any change in provisions of the Indenture protecting the
right of each holder of Notes to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount of Notes to
waive Defaults or Events of Default; (vii) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate an
Asset Sale Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; or (viii)
modify or change any provision of the Indenture or the related definitions
affecting the subordination or ranking of the Notes in a manner which adversely
affects the holders of Notes.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, it will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 90 days after the end
of the Company's fiscal year and on or before 45 days after the end of each of
the first, second and third fiscal quarters in each year an
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Officers' Certificate stating whether or not the signers know of any Default or
Event of Default that has occurred. If they do, the certificate will describe
the Default or Event of Default, its status and the intended method of cure, if
any.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions on transfer described in "Notice
to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or is merged into or consolidated with any
other Person or which is assumed in connection with the acquisition of assets
from such Person and, in each case, not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Subsidiary
or such merger, consolidation or acquisition.
"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any Subsidiary of the Company, or
shall be merged with or into the Company or any Subsidiary of the Company or (b)
the acquisition by the Company or any Subsidiary of the Company of the assets of
any Person (other than a Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprise any division or line
of business of such Person or any other properties or assets of such Person or
any other properties or assets of such Person other than in the ordinary course
of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and
Lease-Back Transaction), other than to the Company or any of its Wholly Owned
Subsidiaries, in any single transaction or series of related transactions of (a)
any Capital Stock of or other equity interest in any Subsidiary of the Company
or (b) any other property or assets of the Company or
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of any Subsidiary thereof; provided that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Subsidiaries receive aggregate consideration of less than $2.0 million; (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted under "-- Merger, Consolidation or
Sale of Assets;" (iii) a disposition of inventory in the ordinary course of
business; (iv) an exchange of property for other similar property structured on
a tax-free, like-kind basis; or (v) the issuance of shares of a wholly owned
Subsidiary of the Company solely to the shareholders of the Company in a
transaction pursuant to which the Company becomes a Wholly Owned direct or
indirect subsidiary of such Subsidiary.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Subsidiary of the Company from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Subsidiary of the Company as a result of such Asset Sale, (d) repayment
of Indebtedness that is required to be repaid in connection with such Asset Sale
and (e) deduction of appropriate amounts to be provided by the Company or a
Subsidiary of the Company as a reserve, in accordance with GAAP, against any
liabilities associated with the assets sold or disposed of in such Asset Sale
and retained by the Company or a Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale,
and (ii) promissory notes and other noncash consideration received by the
Company or any Subsidiary of the Company from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or noncash
consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement and (ii) the present value (discounted at
the rate of 10%, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b) of "-- Certain
Covenants -- Limitations on Certain Asset Sales," and which have not yet been
the basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of "-- Certain Covenants -- Limitation on Certain Asset Sales."
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership interests or any other
participation, right or other interest in the nature of an equity interest in
such Person including, without limitation, Common Stock and Preferred Stock of
such Person, or any option, warrant or other security convertible into any of
the foregoing.
"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; and (iv)
certificates of deposit or bankers' acceptances maturing
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within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting or economic power of the Company's
Common Stock; (ii) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner of more than 33 1/3%
of the total voting power of the Company's Common Stock and the Permitted
Holders beneficially own, in the aggregate, a lesser percentage of the total
voting power of the Common Stock of the Company than such other Person and do
not have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company;
(iii) there shall be consummated any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which the Common Stock of the Company would be converted into cash, securities
or other property, other than (x) a merger or consolidation of the Company in
which the holders of the Common Stock of the Company outstanding immediately
prior to the consolidation or merger hold, directly or indirectly, at least a
majority of the Common Stock of the surviving corporation immediately after such
consolidation or merger or (y) a merger of the Company with an Affiliate of the
Company (or a shell corporation with no shareholders formed solely for the
purpose of creating a holding company) for the sole purpose of creating a
holding company whose sole asset, directly or indirectly, will be all of the
outstanding capital stock of the Company; or (iv) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company has been approved by 66 2/3% of the directors then
still in office who either were directors at the beginning of such period or
whose election or recommendation for election was previously so approved) cease
to constitute a majority of the Board of Directors of the Company.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for
the Four Quarter Period. In addition to and without limitation of the foregoing,
for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to (i) the incurrence (and the application of the
proceeds thereof) or repayment of any Indebtedness of such Person or any of its
Subsidiaries giving rise to the need to make such calculation and any incurrence
(and the application of the proceeds thereof) or repayment of other
Indebtedness, other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence (and the application of the proceeds
thereof) or repayment, as the case may be, occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any EBITDA (provided that such EBITDA shall be included only to the extent
includable pursuant to the definition of "Consolidated Net Income") attributable
to the assets which are the subject of the Asset Acquisition or Asset Sale
during the Four Quarter Period) occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition
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(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Subsidiaries directly or indirectly guarantees Indebtedness
of a third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Subsidiary of such Person
had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by one or more Interest Rate Agreements, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Capital Stock
(other than Disqualified Capital Stock)) paid, accrued or scheduled to be paid
or accrued during such period times (y) a fraction, the numerator of which is
one and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to (i) Redeemable Dividends, whether paid or
accrued; (ii) imputed interest included in Capitalized Lease Obligations; (iii)
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing; (iv) the net costs
associated with Interest Rate Agreements and other hedging obligations; (v) the
interest portion of any deferred payment obligation; (vi) amortization of
discount or premium, if any; and (vii) all other non-cash interest expense
(other than interest amortized to cost of sales)) plus, without duplication, all
net capitalized interest for such period and all interest incurred or paid under
any guarantee of Indebtedness (including a guarantee of principal, interest or
any combination thereof) of any Person, plus the amount of all dividends or
distributions paid on Disqualified Capital Stock (other than dividends paid or
payable in shares of Capital Stock of the Company) minus amortization of
deferred financing costs and expenses.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the Net Income of such other Person to
be consolidated into the Net Income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary; (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions shall be excluded to the extent of such restriction or limitation;
(c)(i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (ii) any
net gain (but not loss) resulting from an Asset Sale by the Person in question
or any of its Subsidiaries other than in the ordinary course of business shall
be excluded; (d) extraordinary or unusual and non-recurring gains and losses
shall be excluded; (e) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued) shall be
excluded; and (f) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets shall be excluded.
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"Designated Senior Indebtedness," means (a) any Senior Indebtedness under
the New Credit Facility and (b) any other Senior Indebtedness which at the time
of determination exceeds $25.0 million in aggregate principal amount (or
accreted value in the case of Indebtedness issued at a discount) outstanding or
available under a committed facility, which is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by such Person and as to which the Trustee has been given written
notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Subsidiary thereof which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness.
Without limitation of the foregoing, Disqualified Capital Stock shall be deemed
to include any Preferred Stock of a Person or a Subsidiary of such Person, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Person or Subsidiary is obligated to pay current
dividends or distributions in cash during the period prior to the maturity date
of the Notes; provided, however, that Preferred Stock of a Person or any
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
change of control of such Person or Subsidiary which provisions have
substantially the same effect as the provisions of the Indenture described under
"Change of Control," shall not be deemed to be Disqualified Capital Stock solely
by virtue of such provisions.
"EBITDA" means, with respect to any Person and its Subsidiaries, for any
period, an amount equal to (a) the sum of (i) Consolidated Net Income for such
period, plus (ii) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in computing net
loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such
period (but only including Redeemable Dividends in the calculation of such
Consolidated Interest Expense to the extent that such Redeemable Dividends have
not been excluded in the calculation of Consolidated Net Income), plus (iv)
depreciation for such period on a consolidated basis, plus (v) amortization of
intangibles for such period on a consolidated basis, plus (vi) any other
non-cash items reducing Consolidated Net Income for such period, minus (b) all
non-cash items increasing Consolidated Net Income for such period, all for such
Person and its Subsidiaries determined on a consolidated basis in accordance
with GAAP; and provided, however, that, for purposes of calculating EBITDA
during any fiscal quarter, cash income from a particular Investment of such
Person shall be included only (x) if cash income has been received by such
Person with respect to such Investment during each of the previous four fiscal
quarters, or (y) if the cash income derived from such Investment is attributable
to Cash Equivalents.
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations of the Commission promulgated thereunder.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time, except that with respect to
changes in generally accepted accounting principles that become effective
following the Issue Date with respect to non-cash items, such changes shall not
be given effect if the Company and its lenders under the New Credit Facility
agree not to give effect to such changes for the purpose of evaluating the
Company and its Subsidiaries' financial condition or performance under the New
Credit Facility.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such
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Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred," "incurrable," and "incurring"
shall have meanings correlative to the foregoing); provided that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations of such Person; (ii) obligations secured by a lien
to which the property or assets owned or held by such Person is subject, whether
or not the obligation or obligations secured thereby shall have been assumed;
(iii) guarantees of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor); (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction; (v) Disqualified Capital Stock of such Person or any Subsidiary
thereof; and (vi) obligations of any such Person under any currency agreement or
any Interest Rate Agreement applicable to any of the foregoing (if and to the
extent such currency agreement or Interest Rate Agreement obligations would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP). The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided that
(i) the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, (ii) Indebtedness shall not include
any liability for federal, state, local or other taxes and (iii) Indebtedness
shall not include interest on, and any and all other fees, expense reimbursement
obligations and other amounts due pursuant to any Indebtedness.
"Independent Financial Advisor" means an investment banking firm of
national reputation in the United States (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investments" means, with respect of any Person, directly or indirectly,
any advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person and
(ii) the repurchase of securities of any Person by such Person. For the purposes
of the "Limitation on Restricted Payments" covenant, the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of dividends
or distributions in connection with such Investment or any other amounts
received in respect of such Investment; provided that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce
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the amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If the
Company or any Subsidiary of the Company sells or otherwise disposes of any
Common Stock of any direct or indirect Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Common Stock of such
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means in the case of any sale of Capital Stock by or equity
contribution to any Person, the aggregate net cash proceeds received by such
Person, after payment of expenses, commissions and the like incurred in
connection therewith.
"New Credit Facility" means the Credit Agreement dated as of April 11,
1995, between the Company, the lenders party thereto in their capacities as
lenders thereunder and KeyBank, National Association, as agent, together with
the related documents thereto (including, without limitation, any guarantee
agreements and, to the extent entered into, any security documents), in each
case as such agreements have been and may be amended (including any amendment
and restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by the
"Limitation on Additional Indebtedness" covenant) or adding Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer, Treasurer or any Corporate Controller of such
Person that shall comply with applicable provisions of the Indenture.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of or premium, if any, or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Holders" means (i) a holding company formed for the sole purpose
of owning, directly or indirectly all of the outstanding capital stock of the
Company; (ii) Edward F. Crawford, his children or other lineal descendants,
probate estate of any such individual, and any trust, so long as one or more of
the foregoing individuals is the beneficiary thereunder, and any other
corporation, partnership or other entity all of the shareholders, partners,
members or owners of which are any of the foregoing; or (iii) any employee stock
ownership plan, or any "group" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) in which employees of the Company or its Subsidiaries beneficially
own at least 33 1/3% of the Common Stock of the
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Company or of a holding company that directly or indirectly owns all of the
outstanding Capital Stock of the Company.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Subsidiary solely for working
capital purposes and not for acquisitions arising under or in connection
with the New Credit Facility in an aggregate principal amount not to exceed
the greater of (x) $50.0 million or (y) the sum of (A) 45% of the book
value of the accounts receivable of the Company and its Subsidiaries on a
consolidated basis and (B) 25% of the book value of the inventory of the
Company and its Subsidiaries on a consolidated basis outstanding at any
time, less any mandatory prepayment actually made thereunder (to the
extent, in the case of payments of revolving credit borrowings, that the
corresponding commitments have been permanently reduced below $50.0
million) or scheduled payments actually made thereunder;
(ii) Indebtedness under the Notes;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(iv) Indebtedness of the Company to any Wholly Owned Subsidiary and
Indebtedness of any Wholly Owned Subsidiary to the Company or another
Wholly Owned Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Purchase Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed 5% of the Company's tangible consolidated total assets;
(vi) Interest Rate Agreements;
(vii) Refinancing Indebtedness; and
(viii) additional Indebtedness of the Company and its Subsidiaries not
to exceed $10.0 million in aggregate principal amount at any one time
outstanding.
"Permitted Investments" means Investments made on or after the Issue Date
consisting of:
(i) Investments by the Company, or by a Subsidiary thereof, in the
Company or a Wholly Owned Subsidiary;
(ii) Investments by the Company, or by a Subsidiary thereof, in a
Person, if as a result of such Investment (a) such Person becomes a Wholly
Owned Subsidiary of the Company or (b) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of
its assets to, or is liquidated into, the Company or a Wholly Owned
Subsidiary thereof;
(iii) Investments in cash and Cash Equivalents;
(iv) reasonable and customary loans made to employees in connection
with their relocation not to exceed $1.0 million in the aggregate at any
one time outstanding;
(v) an Investment that is made by the Company or a Subsidiary thereof
in the form of any Capital Stock, bonds, notes, debentures, partnership or
joint venture interests or other securities that are issued by a third
party to the Company or such Subsidiary solely as partial consideration for
the consummation of an Asset Sale that is otherwise permitted under
"-- Certain Covenants -- Limitation on Certain Asset Sales" above;
(vi) Interest Rate Agreements entered into in the ordinary course of
the Company's or its Subsidiaries' business; and
(vii) additional Investments not to exceed $10.0 million in the
aggregate at any one time outstanding.
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of Capital Stock of or secured indebtedness of, any corporation existing at the
time such corporation becomes a Subsidiary of the Company
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or at the time such corporation is merged into the Company or any of its
Subsidiaries; provided that such Liens are not incurred in connection with, or
in contemplation of, such corporation becoming a Subsidiary of the Company or
merging into the Company or any of its Subsidiaries; (ii) Liens securing
Refinancing Indebtedness; provided that any such Lien does not extend to or
cover any Property, Capital Stock or Indebtedness other than the Property,
shares or debt securing the Indebtedness so refunded, refinanced or extended;
(iii) Liens in favor of the Company or any of its Subsidiaries; (iv) Liens
securing industrial revenue bonds; (v) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture; provided that (a)
any such Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, such purchase
or construction) of such Property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs, and (c) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item; (vi) statutory liens or landlords', carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (vii) other Liens securing obligations incurred in the ordinary
course of business which obligations do not exceed $3.0 million in the aggregate
at any one time outstanding; (viii) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings; (ix)
Liens securing Capitalized Lease Obligations permitted to be incurred under
clause (v) of the definition of "Permitted Indebtedness"; provided that such
Lien does not extend to any property other than that subject to the underlying
lease; (x) liens to secure the New Credit Facility; (xi) Liens securing Interest
Rate Agreements; (xii) easements or other minor defect or irregularities in
title and other charges and encumbrances on property not interfering in any
material respect with the use of such property in the business of the Company or
the applicable Subsidiary; and (xiii) any extensions, substitutions,
replacements or renewals of the foregoing.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company or by a
holding company which owns, directly or indirectly, all of the outstanding
capital stock of the Company of shares of its Common Stock (however designated
and whether voting or non-voting) and any and all rights, warrants or options to
acquire such Common Stock.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Subsidiaries
pursuant to the terms of the Indenture, but only to the extent that (i) the
Refinancing
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Indebtedness is subordinated to the Notes to at least the same extent as the
Indebtedness being refunded, refinanced or extended, if at all; (ii) the
Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refunded, refinanced or extended, or (b) after the maturity
date of the Notes; (iii) the portion, if any, of the Refinancing Indebtedness
that is scheduled to mature on or prior to the maturity date of the Notes has a
weighted average life to maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the weighted average life to maturity
of the portion of the Indebtedness being refunded, refinanced or extended that
is scheduled to mature on or prior to the maturity date of the Notes; (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded, refinanced or extended, (b) the amount of
accrued and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness; and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Subsidiary of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) or in options, warrants or other rights to purchase such Capital Stock
(other than Disqualified Capital Stock), and (y) in the case of Subsidiaries of
the Company, dividends or distributions payable to the Company or to a Wholly
Owned Subsidiary of the Company); (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company or any
of its Subsidiaries (other than Capital Stock owned by the Company or a Wholly
Owned Subsidiary of the Company, excluding Disqualified Capital Stock) or any
option, warrants or other rights to purchase such Capital Stock; (iii) the
making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment of any
Indebtedness which is subordinated in right of payment to the Notes other than
subordinated Indebtedness acquired in anticipation of satisfying a scheduled
sinking fund obligation, principal installment or final maturity (in each case
due within one year of the date of acquisition); (iv) the making of any
Investment or guarantee of any Investment in any Person other than a Permitted
Investment; and (v) forgiveness of any Indebtedness of an Affiliate of the
Company to the Company or a Subsidiary of the Company. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on, and any and all other fees, expense reimbursement obligations and
other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with (a) all Indebtedness of the Company owed to lenders
under the New Credit Facility; (b) all obligations of the Company with respect
to any Interest Rate Agreement; (c) all obligations of the Company to reimburse
any bank or other person in respect of amounts paid under letters of credit,
acceptances or other similar instruments; (d) all other Indebtedness of the
Company which does not provide that it is to rank pari passu with or subordinate
to the Notes; and (e) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior Indebtedness
described above. Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness will not include (i) Indebtedness of the Company to any of
its Subsidiaries, or to any Affiliate of the Company or any of such Affiliate's
Subsidiaries; (ii) Indebtedness represented by the Notes; (iii) any Indebtedness
which by the express terms of the agreement or instrument creating, evidencing
or governing the same is junior or subordinate in right of
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payment to any item of Senior Indebtedness; (iv) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business; (v) Indebtedness incurred in violation of the Indenture;
(vi) Indebtedness represented by Disqualified Capital Stock; and (vii) any
Indebtedness to or guaranteed on behalf of, any shareholders, director, officer
or employee of the Company or any Subsidiary of the Company.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries, or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
"Subsidiary Indebtedness" means any Indebtedness other than (i)
Indebtedness in the form of, or represented by, bonds or other securities or any
guarantee thereof and (ii) Indebtedness which is, or may be, quoted, listed or
ordinarily purchased and sold on any stock exchange, automated trading system or
over-the-counter or other securities market (including, without prejudice to the
generality of the foregoing, the market for securities eligible for resale
pursuant to Rule 144A under the Securities Act).
"Wholly Owned Subsidiary" means any Subsidiary, all of the outstanding
voting securities (other than directors' qualifying shares) of which are owned,
directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
The Original Notes were issued in the form of a Note certificate (the
"Original Global Note"). The Original Global Note was deposited on the date of
the closing of the sale of the Original Notes offered hereby (the "Closing
Date") with, or on behalf of, DTC and registered in the name of a nominee of
DTC. Except for Exchange Notes issued to Non-Global Purchasers (as defined
below), the Exchange Notes will initially be issued in the form of a Global Note
(the "Exchange Global Note"). The Exchange Global Note will be deposited on the
date of closing of the Exchange Offer, with, or on behalf of DTC and registered
in the name of a nominee of DTC. "Global Notes" means the Original Global Notes
or the Exchange Global Notes, as the case may be.
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon deposit of the Global Note, DTC will credit the
accounts of persons who have accounts with DTC ("participants") or persons who
hold interests through participants designated by such person with portions of
the Global Note and (ii) ownership of the Notes 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). QIBs may hold their interests in the Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
that are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee will be considered the sole owner or holder of the
Notes represented by the Global Note for all purposes under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer such
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent 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 Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note, as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of the Original Global Note, in registered form,
without interest coupons ("Certificated Security") for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Note in accordance with the normal procedures of DTC and including
the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Indenture, DTC will exchange the Global Note for
Certificated Securities, which it will distribute to its participants.
DTC has advised the Company 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 pursuant to 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 certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company 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 Securities. If DTC is at any time unwilling or unable to
continue as a depository for the Global Note and a successor depository is not
appointed by the Company within 90 days, the Company will issue Certificated
Securities in exchange for the Company's Global Note.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will use reasonable
efforts to make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale; provided that such
broker-dealer indicates in the Letter of Transmittal that it is a broker-dealer.
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The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at 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 and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act, and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation 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 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it shall extend the 180-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers have received copies of the
supplement or amended Prospectus necessary to permit resales of Exchange Notes.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1996, and for each of the three years in the period ended December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
93
<PAGE> 98
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Consolidated Condensed Balance Sheet -- September 30, 1997 (Unaudited)............ F-2
Consolidated Condensed Statements of Income -- Nine Months Ended September 30, F-3
1996 and September 30, 1997 (Unaudited).........................................
Consolidated Condensed Statement of Shareholders' Equity -- Nine Months Ended F-4
September 30, 1997 (Unaudited)..................................................
Consolidated Condensed Statements of Cash Flows -- Nine Months Ended September 30, F-5
1996 and September 30, 1997 (Unaudited).........................................
Notes to Consolidated Condensed Financial Statements (Unaudited).................. F-6
Report of Ernst & Young LLP, Independent Auditors................................. F-9
Consolidated Balance Sheets -- December 31, 1995 and December 31, 1996............ F-10
Consolidated Statements of Income -- Years Ended December 31, 1994, 1995 and F-11
1996............................................................................
Consolidated Statements of Shareholders' Equity -- Years Ended December 31, 1994, F-12
1995 and 1996...................................................................
Consolidated Statements of Cash Flows -- Years Ended December 31, 1994, 1995 and F-13
1996............................................................................
Notes to Consolidated Financial Statements........................................ F-14
</TABLE>
F-1
<PAGE> 99
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30
1997
-------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 3,786
Accounts receivable, less allowances for doubtful accounts of $1,335 at
September 30, 1997......................................................... 82,234
Inventories................................................................... 111,720
Deferred taxes................................................................ 4,640
Other current assets.......................................................... 11,222
--------
Total Current Assets....................................................... 213,602
Property, Plant and Equipment................................................... 126,716
Less accumulated depreciation................................................. 58,719
--------
67,997
Other Assets:
Excess purchase price over net assets acquired, net........................... 68,705
Deferred taxes................................................................ 13,100
Other......................................................................... 25,378
--------
$ 388,782
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable........................................................ $ 41,161
Accrued expenses.............................................................. 31,602
Current portion of long-term liabilities...................................... 7,165
--------
Total Current Liabilities.................................................. 79,928
Long-Term Liabilities, less current portion:
Long-term debt................................................................ 127,584
Other postretirement benefits................................................. 27,416
Other......................................................................... 4,714
--------
159,714
Convertible Senior Subordinated Debentures...................................... 21,125
Shareholders' Equity:
Capital stock, par value $1 a share:
Serial preferred stock..................................................... -0-
Common stock............................................................... 10,960
Additional paid-in capital.................................................... 53,481
Retained earnings............................................................. 65,506
Treasury stock, at cost....................................................... (1,932)
--------
128,015
--------
$ 388,782
========
</TABLE>
See notes to consolidated condensed financial statements.
F-2
<PAGE> 100
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands -- except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------
1996 1997
-------- --------
<S> <C> <C>
Net sales............................................................... $261,297 $311,916
Cost of products sold................................................... 217,293 262,060
--------- ---------
Gross profit.......................................................... 44,004 49,856
Selling, general and administrative expenses............................ 28,314 31,613
--------- ---------
Operating income...................................................... 15,690 18,243
Other income............................................................ (1,521) (320)
Interest expense........................................................ 5,478 6,078
--------- ---------
Income from continuing operations before income taxes................. 11,733 12,485
Income taxes............................................................ 4,488 4,682
--------- ---------
Income from continuing operations..................................... 7,245 7,803
Income from discontinued operations, net of tax......................... 11,642 -0-
--------- ---------
Net income............................................................ $ 18,887 $ 7,803
========= =========
Per common share:
Continuing operations................................................. $ .66 $ .70
Discontinued operations............................................... 1.06 -0-
--------- ---------
Net income............................................................ $ 1.72 $ .70
========= =========
Common shares used in the computation................................... 10,977 11,021
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
F-3
<PAGE> 101
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997....................... $10,433 $ 49,337 $ 57,703 ($ 1,775) $ 115,698
Issuance of General Aluminum Mfg. Company
earnout shares.............................. 375 3,600 3,975
Exercise of stock options..................... 152 544 2,658 3,354
Purchase of treasury stock.................... (2,815) (2,815)
Net income.................................... 7,803 7,803
------- -------- -------- -------- ---------
Balance September 30, 1997.................... $10,960 $ 53,481 $ 65,506 ($ 1,932) $ 128,015
======= ======== ======== ======== =========
</TABLE>
See notes to consolidated condensed financial statements.
F-4
<PAGE> 102
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1996 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $18,887 $ 7,803
Adjustments to reconcile net income to net cash provided (used) by
continuing operations:
Discontinued operations............................................... (11,642) -0-
Depreciation and amortization......................................... 5,512 7,371
Deferred taxes........................................................ 4,500 1,000
Gain on sales of investments.......................................... (1,521) (320)
-------- --------
15,736 15,854
Changes in operating assets and liabilities of continuing operations
excluding acquisitions of businesses:
Accounts receivable................................................... (1,524) (10,013)
Inventories and other current assets.................................. (346) (12,245)
Accounts payable and accrued expenses................................. (8,820) 4,528
Other................................................................. (6,755) (6,830)
-------- --------
Net Cash Used by Continuing Operations.............................. (1,709) (8,706)
Net Cash Provided by Discontinued Operations........................ 1,474 -0-
-------- --------
Net Cash Used by Operations......................................... (235) (8,706)
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net.......................... (8,600) (9,244)
Cost of acquisitions, net of cash acquired............................... -0- (53,933)
Investments.............................................................. (4,763) (419)
Proceeds from sales of investments....................................... 6,065 551
Proceeds from sale of discontinued operation............................. 48,522 -0-
-------- --------
Net Cash Provided (Used) by Investing Activities.................... 41,224 (63,045)
FINANCING ACTIVITIES
Proceeds from bank arrangements for acquisitions......................... -0- 54,000
Proceeds from bank arrangements for operations........................... 9,500 22,000
Payments on debt......................................................... (50,976) (5,096)
Purchase of treasury stock............................................... -0- (2,815)
Issuance of common stock under stock option plan......................... 57 2,789
-------- --------
Net Cash Provided (Used) by Financing Activities.................... (41,419) 70,878
Increase (Decrease) in Cash and Cash Equivalents......................... (430) (873)
Cash and Cash Equivalents at Beginning of Period......................... 2,662 4,659
-------- --------
Cash and Cash Equivalents at End of Period............................... $ 2,232 $ 3,786
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
F-5
<PAGE> 103
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
(Dollars in thousands--except per share data)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. Certain prior year
amounts have been reclassified to conform to the 1997 presentation.
NOTE B -- SALE OF BENNETT INDUSTRIES
On July 31, 1996, the Company completed the sale of substantially all of
the assets of Bennett Industries, Inc. ("Bennett"), a wholly owned subsidiary of
the Company which manufactures plastic containers, to North American Packaging
Corporation, a wholly owned subsidiary of Southcorp Holdings Limited, an
Australian company, for $50.8 million in cash, resulting in a pretax gain of
$13.8 million recognized in the third quarter of 1996. The results of operations
and changes in cash flows for Bennett for the nine months ended September 30,
1996, have been presented as discontinued operations. Interest expense has been
allocated to discontinued operations based on the ratio of net assets
discontinued to the total net assets of the consolidated entity plus
consolidated debt.
Summary operating results of the discontinued operations, excluding the
above gain on sale of assets, for the nine months ended September 30, 1996 were
as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
SEPTEMBER 30
1996
------------
<S> <C>
Net sales............................................................. $ 49,448
Costs and expenses.................................................... 44,502
--------
Income from discontinued operations before income taxes............... 4,946
Income taxes.......................................................... 1,820
--------
Net income from discontinued operations............................... $ 3,126
========
</TABLE>
NOTE C -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1997
-------------
<S> <C>
In-process and finished goods......................................... $ 86,904
Raw materials and supplies............................................ 24,816
---------
$ 111,720
=========
</TABLE>
F-6
<PAGE> 104
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) -- CONTINUED
NOTE D -- FINANCING ARRANGEMENTS
In June 1997 the Company amended its credit agreement with a group of five
banks increasing its credit availability by $50 million to $170 million and
extending its maturity date to April 11, 2001.
NOTE E -- SHAREHOLDERS' EQUITY
At September 30, 1997, capital stock consists of (i) Serial Preferred Stock
of which 632,470 shares were authorized and none were issued and (ii) Common
Stock of which 20,000,000 shares were authorized and 11,147,462 shares were
issued and outstanding, including 187,500 shares held in escrow.
NOTE F -- NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of
common shares outstanding and assumes the exercise of outstanding dilutive stock
options and the issuance of certain additional shares subject to earn-out
provisions. On a fully diluted basis, both net income and common shares
outstanding are adjusted to assume the conversion of the convertible senior
subordinated debentures. Fully diluted earnings per share were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1996 1997
------- -------
<S> <C> <C>
Continuing operations............................................ $ .66 $ .69
Discontinued operations.......................................... .96 -0-
------- -------
Net income....................................................... $ 1.62 $ .69
======= =======
Common shares used in the computation............................ 12,128 12,211
======= =======
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary earnings per share and fully diluted earnings per share
for the nine months ended September 30, 1997 and September 30, 1996 is not
expected to be material.
NOTE G -- ACQUISITIONS
On August 1, 1997, the Company acquired substantially all of the shares of
Arden Industrial Products, Inc. ("Arden") for cash of approximately $44 million.
The transaction has been accounted for as a purchase. Arden is headquartered in
Vadnais Heights, Minnesota and is a national distributor of specialty and
standard fasteners to the industrial market. Arden is included in the Company's
Logistics segment.
F-7
<PAGE> 105
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) -- CONTINUED
NOTE G -- ACQUISITIONS -- CONTINUED
The following is the estimated value of the net assets of Arden as of
August 1, 1997:
<TABLE>
<S> <C>
Cash...................................................................... $ 2,711
Accounts receivable....................................................... 11,503
Inventories............................................................... 17,764
Property, plant and equipment............................................. 4,468
Excess purchase price over net assets acquired............................ 20,955
Other assets.............................................................. 2,222
Trade accounts payable.................................................... (6,437)
Accrued expenses.......................................................... (2,828)
Long-term liabilities..................................................... (6,358)
--------
Total estimated cost of acquisition....................................... $44,000
========
</TABLE>
During the nine months ended September 30, 1997, the Company acquired three
other businesses for an aggregate purchase price of approximately $13 million.
On October 3, 1997 the Company acquired Arcon Fastener Corporation for $5.6
million. The following unaudited pro forma results of operations assume the
acquisitions of Arden and the other businesses discussed above occurred on
January 1, 1996. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------
1996 1997
-------- --------
<S> <C> <C>
Net sales.................................................. $360,656 $379,530
Gross profit............................................... 74,739 71,027
Income from continuing operations.......................... 8,083 8,961
Income from continuing operations per common share......... $ .74 $ .81
========= =========
</TABLE>
F-8
<PAGE> 106
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Park-Ohio Industries, Inc.
We have audited the accompanying consolidated balance sheets of Park-Ohio
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Park-Ohio
Industries, Inc. and subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 17, 1997
F-9
<PAGE> 107
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................................. $ 2,662 $ 4,659
Accounts receivable, less allowances for doubtful accounts of $787 in
1995 and $1,048 in 1996............................................ 55,121 58,764
Inventories........................................................... 80,702 83,758
Deferred tax assets................................................... 8,000 3,000
Other current assets.................................................. 3,935 5,718
-------- --------
Total Current Assets.......................................... 150,420 155,899
Property, Plant and Equipment
Land and land improvements............................................ 2,401 2,599
Buildings............................................................. 20,800 21,520
Machinery and equipment............................................... 70,916 82,743
-------- --------
94,117 106,862
Less accumulated depreciation......................................... 49,691 53,054
-------- --------
44,426 53,808
Other Assets
Excess purchase price over net assets acquired, net................... 41,991 40,305
Net assets of discontinued operations................................. 33,694 -0-
Deferred taxes........................................................ 15,400 14,100
Other................................................................. 15,816 18,798
-------- --------
$301,747 $282,910
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable................................................ $ 30,859 $ 28,545
Accrued expenses...................................................... 17,013 20,695
Current portion of long-term liabilities.............................. 5,829 6,936
-------- --------
Total Current Liabilities..................................... 53,701 56,176
Long-Term Liabilities, less current portion
Long-term debt........................................................ 92,450 55,571
Other postretirement benefits......................................... 30,562 28,442
Other................................................................. 6,845 4,788
-------- --------
129,857 88,801
Convertible Senior Subordinated Debentures.............................. 22,235 22,235
Shareholders' Equity
Capital stock, par value $1 a share
Serial preferred stock:
Authorized -- 632,470 shares; Issued -- none..................... -0- -0-
Common stock:
Authorized -- 20,000,000 shares
Issued and outstanding -- 10,401,881 shares in 1995 and
10,432,998 in 1996.............................................. 10,402 10,433
Additional paid-in capital............................................ 49,184 49,337
Retained earnings..................................................... 36,368 57,703
Treasury stock, at cost, 126,225 shares in 1996....................... -0- (1,775)
-------- --------
95,954 115,698
-------- --------
$301,747 $282,910
======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 108
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands -- except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $129,216 $289,501 $347,679
Costs and expenses:
Cost of products sold..................................... 104,225 240,871 289,400
Selling, general and administrative expenses.............. 16,838 30,020 38,131
Restructuring charge...................................... -0- -0- 2,652
Other income.............................................. -0- (214) (4,204)
Interest expense.......................................... 1,501 5,911 6,947
-------- -------- --------
Income from continuing operations before income
taxes................................................ 6,652 12,913 14,753
Income taxes (benefit)...................................... (1,826) (6,900) 5,060
-------- -------- --------
Income from continuing operations...................... 8,478 19,813 9,693
Discontinued operations:
Income from operation of Bennett Industries............... 4,006 4,221 3,126
Gain on disposal of Bennett Industries, net of income
taxes.................................................. -0- -0- 8,516
-------- -------- --------
Income from discontinued operations.................... 4,006 4,221 11,642
-------- -------- --------
Net income........................................... $ 12,484 $ 24,034 $ 21,335
======== ======== ========
Net income per common share:
Continuing operations..................................... $ 1.00 $ 1.93 $ .88
Discontinued operations................................... .49 .41 1.06
-------- -------- --------
Net income................................................ $ 1.49 $ 2.34 $ 1.94
======== ======== ========
Common shares used in the computation....................... 8,092 10,257 10,960
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 109
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994................. $ 6,771 $ 11,312 $ (150) $ -0- $ 17,933
Net income................................. 12,484 12,484
Issuance of Kay Home Products earn-out
shares................................... 1,150 10,925 12,075
Sale of common stock....................... 271 3,952 4,223
------- ------- ------- ------- --------
Balance at December 31, 1994............... 8,192 26,189 12,334 -0- 46,715
Net income................................. 24,034 24,034
Acquisition of RB&W Corporation............ 2,023 21,251 23,274
Issuance of General Aluminum Mfg. Company
earn-out shares.......................... 187 1,744 1,931
------- ------- ------- ------- --------
Balance at December 31, 1995............... 10,402 49,184 36,368 -0- 95,954
Exercise of stock options.................. 31 153 184
Purchase of treasury stock................. (1,775) (1,775)
Net Income................................. 21,335 21,335
------- ------- ------- ------- --------
Balance at December 31, 1996............... $10,433 $ 49,337 $ 57,703 $ (1,775) $115,698
======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 110
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income................................................ $ 12,484 $ 24,034 $ 21,335
Adjustments to reconcile net income to net cash provided
(used) by continuing operations:
Discontinued operations.............................. (4,006) (4,221) (11,642)
Gain on sale of investments.......................... -0- -0- (1,552)
Depreciation and amortization........................ 3,213 6,278 7,998
Tax benefit resulting from reduction of valuation
allowance on deferred tax assets.................. (2,000) (8,100) -0-
Deferred income taxes................................ -0- -0- 4,500
--------- --------- ---------
9,691 17,991 20,639
Changes in operating assets and liabilities excluding
acquisitions of businesses:
Accounts receivable.................................... (192) (2,479) (3,643)
Inventories............................................ (5,766) (14,914) (3,056)
Accounts payable and accrued expenses.................. 424 (5,473) (1,214)
Other.................................................. (819) (4,855) (7,040)
--------- --------- ---------
Net Cash Provided (Used) by Continuing Operations.... 3,338 (9,730) 5,686
Net Cash Provided by Discontinued Operations......... 5,689 5,738 2,040
--------- --------- ---------
Net Cash Provided (Used) by Operating Activities..... 9,027 (3,992) 7,726
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net........... (11,749) (13,632) (15,590)
Costs of acquisitions..................................... (2,114) (35,793) -0-
Investments............................................... -0- -0- (5,427)
Proceeds from sales of investments........................ -0- -0- 6,315
Proceeds from sale of discontinued operations, net of
$4,500 of income taxes................................. -0- -0- 46,313
Other..................................................... (2,909) -0- -0-
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities..... (16,772) (49,425) 31,611
FINANCING ACTIVITIES
Proceeds from bank arrangements........................... 11,350 86,969 9,500
Payments on long-term debt................................ (26,661) (33,062) (45,249)
Proceeds from convertible senior subordinated debentures,
net.................................................... 20,872 -0- -0-
Issuance of common stock.................................. 4,223 -0- 184
Purchase of treasury stock................................ -0- -0- (1,775)
--------- --------- ---------
Net Cash (Used)Provided by Financing Activities...... 9,784 53,907 (37,340)
--------- --------- ---------
Increase in Cash and Cash Equivalents................ 2,039 490 1,997
Cash and Cash Equivalents at Beginning of Year....... 133 2,172 2,662
--------- --------- ---------
Cash and Cash Equivalents at End of Year............. $ 2,172 $ 2,662 $ 4,659
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 111
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS -- EXCEPT PER SHARE DATA)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated upon consolidation.
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (principally the
first-in, first-out method) or market value. If the first-in, first-out method
of inventory accounting had been used exclusively by the Company, inventories
would have been approximately $4,928 and $4,921 higher than reported at December
31, 1995 and 1996, respectively.
Major Classes of Inventories
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
In-process and finished goods......................... $58,215 $60,587
Raw materials and supplies............................ 22,487 23,171
------- -------
$80,702 $83,758
======= =======
</TABLE>
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Major additions are capitalized and betterments are charged to accumulated
depreciation; expenditures for repairs and maintenance are charged to
operations. Depreciation of fixed assets is computed principally by the
straight-line method based on the estimated useful lives of the assets.
Excess Purchase Price Over Net Assets Acquired: The Company records
amortization of excess purchase price over the fair value of net assets acquired
(see Note B) over twenty-five years using the straight-line method. Management
periodically evaluates for possible impairment the current value of these
intangibles through cash flow and income analyses of the acquired businesses.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Statement No. 121
establishes accounting standards for determining the impairment of long-lived
assets to be held and used, certain identifiable intangibles, and goodwill
related to those assets and for long-lived assets and certain identifiable
intangibles to be disposed of. The company adopted Statement No. 121 during the
first quarter of 1996. The financial statement effect of adoption was not
material.
Pensions: The Company and its subsidiaries have pension plans, principally
noncontributory defined benefit or noncontributory defined contribution plans,
covering substantially all employees. For the defined benefit plans, benefits
are based on the employee's years of service and the Company's policy is to fund
that amount recommended by its independent actuaries. For the defined
contribution plans, the costs charged to operations and the amount funded are
based upon a percentage of the covered employees' compensation.
F-14
<PAGE> 112
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Stock-Based Compensation: The Company has elected to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations. 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.
Income Taxes: The Company accounts for income taxes under the liability
method whereby deferred tax assets and liabilities are determined based on
temporary differences between the financial reporting and the tax bases of
assets and liabilities and are measured using the current enacted tax rates.
Net Income Per Common Share: Net income per common share is based on the
weighted average number of common shares outstanding and assumes the exercise of
outstanding dilutive stock options and the issuance of certain additional shares
subject to earn-out provisions. On a fully-diluted basis, both net income and
common shares outstanding are adjusted to assume the conversion of the
convertible senior subordinated debentures issued in 1994. Fully diluted
earnings per share were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Continuing operations............................. $ 1.04 $ 1.86 $ .88
Discontinued operations........................... .45 .37 .96
------ ------ ------
Net income........................................ $ 1.49 $ 2.23 $ 1.84
====== ====== ======
Common shares used in the computation............. 8,815 11,467 12,111
====== ====== ======
</TABLE>
During 1994 and 1995, the Company's utilization of net operating loss
carryforwards and reduction in valuation allowances for deferred tax assets (See
Note F) had the effect of increasing income per common share from continuing
operations by $.53 in 1994 and $1.18 in 1995. Accordingly, income per common
share from continuing operations on a fully taxable basis is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Pro forma income per common share from continuing
operations on a fully taxable basis............. $ .47 $ .75 $ .88
====== ====== ======
</TABLE>
Interest Rate Swap Agreements: The Company enters into interest rate swap
agreements to modify the interest characteristics of its outstanding debt. Each
interest rate swap agreement is designated with a portion of the principal
balance and term of a specific debt obligation. These agreements involve the
exchange of amounts based on a fixed interest rate for amounts based on variable
interest rates of the life of the agreement without an exchange of the notional
amount upon which the payments are based. The differential to be paid or
received as interest rates change is accrued and recognized as an adjustment of
interest expense related to the debt.
Revenue Recognition: For the majority of its operations, the Company
recognizes revenues upon shipment of its product. Revenues on long-term
contracts are recognized using the percentage of completion method of
accounting, under which the sales value of performance is recognized on the
basis of the percentage each contract's cost to date bears to the total
estimated cost. The recognition of profit, based upon anticipated final costs,
is made only after evaluation of the contract status at critical milestones. The
Company's contracts generally provide for billing of customers. Revenues earned
on contracts in process in excess of billings are classified in other current
assets in the accompanying balance sheet.
Environmental: The Company accrues environmental costs related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernible. Costs which extend the life of the related
property or mitigate or prevent future environmental contamination are
capitalized. The
F-15
<PAGE> 113
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company records a liability when environmental assessments and/or remedial
efforts are probable and can be reasonably estimated. The estimated liability of
the Company is not discounted or reduced for possible recoveries from insurance
carriers.
Concentration of Credit Risk: The Company sells its products to customers
in diversified industries. The Company performs ongoing credit evaluations of
its customers' financial condition but does not require collateral to support
customer receivables. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. As of December 31, 1996 the Company had
uncollateralized receivables with six customers in the automotive and truck
industry each with several locations approximating $19,988 which represents 34%
of the Company's trade accounts receivable. During 1996, sales to these
customers amounted to approximately $103,028 which represents 30% of the
Company's net sales.
Reclassifications: Certain prior year amounts have been reclassified to
conform to the 1996 presentation.
NOTE B -- ACQUISITIONS
On March 31, 1995, the Company acquired all of the shares of RB&W
Corporation (RB&W) in exchange for 2,023,000 shares of the Company's common
stock ($11.50 market value as of March 31, 1995) and cash of $30,968. The
transaction has been accounted for as a purchase.
The table below reflects the current value of the net assets acquired of
RB&W:
<TABLE>
<S> <C>
Cash................................................ $ 510
Accounts receivable................................. 29,551
Inventories......................................... 36,131
Property, plant and equipment....................... 5,591
Excess purchase price over net assets acquired...... 25,596
Deferred tax assets................................. 13,300
Other assets........................................ 12,620
Notes payable....................................... (28,739)
Trade accounts payable.............................. (21,524)
Accrued expenses.................................... (9,172)
Long-term liabilities............................... (9,622)
--------
$ 54,242
========
</TABLE>
The following unaudited pro forma results of operations assume the
acquisition occurred on January 1, 1995. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of continuing operations which actually would have resulted had the
acquisition occurred on the date indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Net sales.................................................... $ 336,533
Gross profit................................................. 47,255
Income from continuing operations............................ 18,797
Income from continuing operations per common share........... $ 1.74
</TABLE>
During 1995, the Company also purchased certain assets of four companies
for a total cost of $6,400 which includes $1,500 for The Ajax Manufacturing
Company, purchased from a related party. The operations of these businesses
prior to the dates of acquisition were not material to the Company.
F-16
<PAGE> 114
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
On October 15, 1993, the Company acquired General Aluminum Mfg. Company
(GAMCO), by issuing 250,000 shares of its common stock valued at $3,127 in
exchange for the outstanding shares of GAMCO. An additional 187,500 shares of
common stock valued at $1,931 which represents purchase price in excess of net
assets acquired, were issued in March, 1995 and an additional 375,000 shares of
common stock will be issued at a value to be determined at the date of issuance
during 1997 as a result of GAMCO achieving certain income levels during 1996 as
specified in the purchase agreement. Up to an additional 187,500 shares of
common stock may be issued in 1998 if GAMCO achieves certain income levels
during the year ending December 31, 1997. Throughout 1996, the 375,000 shares to
be issued in 1997 were included in the earnings per share calculation on a
weighted average basis when it appeared likely such shares would be issued
pursuant to this agreement.
NOTE C -- SALE OF BENNETT INDUSTRIES
On July 31, 1996, the Company completed the sale of substantially all of
the assets of Bennett Industries, Inc. ("Bennett"), a wholly-owned subsidiary
which manufactures plastic containers, to North America Packaging Corporation, a
wholly-owned subsidiary of Southcorp Holdings Limited, an Australian company,
for $50.8 million in cash, resulting in a pre-tax gain of $13.8 million. The
results of operations and changes in cash flows for Bennett have been classified
as discontinued operations for all periods presented in the related consolidated
statements of income and consolidated statements of cash flows, respectively.
Interest expense has been allocated to discontinued operations based on the
ratio of net assets discontinued to the total net assets of the consolidated
entity plus consolidated debt. The assets and liabilities of Bennett have been
classified in the consolidated balance sheets as net assets of discontinued
operations at December 31, 1995.
Summary operating results of the discontinued operations, excluding the
above gain on sale, for the years ended December 31, 1994, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Sales......................................................... $62,311 $81,929 $49,448
Costs and expenses............................................ 58,305 77,708 44,502
------- ------- -------
Income from discontinued operations before income taxes....... 4,006 4,221 4,946
Income taxes.................................................. -0- -0- 1,820
------- ------- -------
Net income from discontinued operations....................... $ 4,006 $ 4,221 $ 3,126
======= ======= =======
</TABLE>
NOTE D -- ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Self-insured liabilities................................................. $ 1,959 $ 2,521
Warranty and installation accruals....................................... 2,060 2,752
Accrued payroll and payroll-related items................................ 2,977 3,112
State and local taxes.................................................... 1,136 2,422
Advance billings......................................................... 1,301 1,646
Restructuring reserve (see Note M)....................................... -0- 2,653
Acquisition liabilities.................................................. 2,196 -0-
Interest payable......................................................... 780 248
Sundry................................................................... 4,604 5,341
------- -------
Totals......................................................... $17,013 $20,695
======= =======
</TABLE>
F-17
<PAGE> 115
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE E -- FINANCING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Term loan, payable in quarterly installments of $1,250 through December
31, 2001, final payment due March 31, 2002............................. $35,000 $32,500
Revolving credit maturing on March 31, 1999.............................. 59,000 26,000
Other.................................................................... 2,503 2,254
------- -------
96,503 60,754
Less current maturities.................................................. 4,053 5,183
------- -------
Total.......................................................... $92,450 $55,571
======= =======
</TABLE>
Maturities of long-term debt during each of the five years following
December 31, 1996 are approximately $5,183 in 1997, $5,325 in 1998, $31,523 in
1999, $5,526 in 2000 and $5,132 in 2001.
The Company has a credit agreement with a group of banks under which it may
borrow up to $125 million ($35 million term loan and $90 million revolving
credit commitments, respectively)on an unsecured basis. Interest is payable
quarterly at the prime lending rate (8.25% at December 31, 1996)or at the
Company's election, at LIBOR plus a percentage which fluctuates based on
specific financial ratios (which aggregated 6.6% at December 31, 1996). The
weighted average rate on borrowings was 6.6% at December 31, 1996. The credit
agreement expires on March 31, 1999.
The Company has agreements on which up to $3 million in standby letters of
credit and commercial letters of credit may be issued. In addition to the bank's
customary letter of credit fees, a 1% fee is assessed on standby letters of
credit on an annual basis. As of December 31, 1996, in addition to amounts
borrowed under the revolving credit agreement, there is $2.2 million outstanding
primarily for standby letters of credit. A fee of 1/4% is imposed by the bank
on the unused portion of available borrowings.
The credit agreement contains limitations on borrowings, investments, lease
rentals, capital expenditures and acquisitions or mergers, and requires
maintenance of specific financial ratios and a minimum net worth.
As of December 31, 1996, the Company has interest rate swap agreements for
notional borrowings of $50 million in which the Company pays a fixed rate and
receives a floating rate equal to the three month LIBOR rate. The weighted
average pay rate and receive rate under these agreements is 5.83% and 5.55%,
respectively. These agreements mature during 2000.
During 1994, the Company sold $22,235 of its 7 1/4% convertible senior
subordinated debentures and $4,200 of its common stock at $15.75 a share. The
debentures are convertible into shares of the Company's common stock at a price
of $19.32 per share or a rate of 51.76 shares per $1 thousand principal amount
of debentures and are subordinated to all senior indebtedness of the Company.
Subsequent to December 15, 1996, the debentures may be redeemed at the option of
the Company, in whole or in part, initially at 107% and thereafter at prices
declining to 100% on and after December 15, 2003 together with accrued interest.
Sinking fund payments begin in 2000 in an amount sufficient to retire annually
20% of the aggregate principal amount of debentures issued, calculated to retire
80% of the debentures prior to maturity. Interest is payable semi-annually.
F-18
<PAGE> 116
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F -- INCOME TAXES
Significant components of the Company's net deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefit obligation...................................... $11,200 $10,600
Tax net operating loss carryforwards................................... 9,000 5,100
Inventory.............................................................. 4,300 4,500
Tax credits............................................................ 1,200 600
Other -- net........................................................... 5,600 3,400
------- -------
Total deferred tax assets...................................... 31,300 24,200
Deferred tax liabilities:
Tax over book depreciation............................................. 5,700 4,400
Pension................................................................ 2,200 2,700
------- -------
Total deferred tax liabilities................................. 7,900 7,100
------- -------
Net deferred tax assets.................................................. $23,400 $17,100
======= =======
</TABLE>
As of December 31, 1995, the Company reduced by $8,100 the remaining
valuation allowance on deferred tax assets relating to anticipated future income
tax benefits from utilization of net operating loss carryforwards as full
realization of these assets is expected.
The reasons for the difference between income taxes (benefit) and the
amount computed by applying the statutory Federal income tax rate to income from
continuing operations before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Computed statutory amount..................................... $ 2,262 $ 4,400 $ 5,000
Effect of state income taxes payable.......................... -0- 500 600
Other......................................................... -0- -0- (540)
Utilization of net operating loss carryforwards............... (2,088) (3,700) -0-
Reduction in valuation allowance for deferred tax assets...... (2,000) (8,100) -0-
------- ------- -------
Income taxes (benefit).............................. $(1,826) $(6,900) $ 5,060
======= ======= =======
</TABLE>
At December 31, 1996, subsidiaries of the Company have net operating loss
carryforwards for income tax purposes of approximately $15 million subject to
certain limitations, which expire in 2001 to 2007.
NOTE G -- STOCK OPTIONS
Under the provisions of the Company's Amended and Restated 1992 Stock
Option Plan, incentive stock options or non-statutory options to purchase
850,000 shares of the Company's stock may be granted to officers and other key
employees at the market price on the respective date of grant. The option rights
are exercisable only if and after the employee shall have remained in the employ
of the Company for one year from the date the option is granted. At December 31,
1996, there were a total of 676,000 options outstanding under the Plan; 175,000
of such options became 100% exercisable after two years from the date of grant
at option prices ranging from $3.813 -- $5.125 a share and terminate five years
from the option date; 501,000 of such options become 100% exercisable after
three years from the date of grant at option prices ranging from $9.125 --
$14.25 a share and terminate ten years from the option date. During 1996, 31,167
options under this Plan were
F-19
<PAGE> 117
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
exercised at prices ranging from $5.125 -- $10.625 a share. At December 31,
1996, there were 348,992 options exercisable at option prices ranging from
$3.813 -- $14.25 a share.
The 1996 Non-Employee Director Stock Option Plan authorized the granting of
options on 250,000 shares of common stock to directors who are not employees of
the Company. Annually, each non-employee director will automatically receive
options to acquire 6,000 shares at the market price on the date of grant.
Options under this plan are exercisable six months from the date of grant. At
December 31, 1996 there were 30,000 options outstanding and exercisable under
this plan at an exercise price of $13.625. Also during 1996 the Chairman and
Chief Executive Officer of the Company was granted a non-statutory stock option
to purchase 500,000 shares of common stock at $13.625 per share which was the
market price at the date of grant. The options become 100% exercisable after
five years and shall terminate fifteen years from the option date.
Had the compensation cost for the stock options granted in 1995 and 1996
been determined based on the fair value method of FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced by $223
($.02 per share) in 1995 and $1,290 ($.12 per share) in 1996. The effects on
1995 and 1996 net earnings may not be representative of the effect on future
years net earnings amounts as the compensation cost on each year's grant is
recognized over the vesting period.
Fair value was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1995 and 1996,
respectively: risk-free interest rates of 6.34% and 5.25%; zero dividend yield;
expected volatility of 43% and expected option lives of 6 years for 1995 and 6
to 10 years for 1996.
NOTE H -- LEGAL PROCEEDINGS
The Company becomes involved in litigation arising out of its normal
business activities. In the opinion of management, the Company's liability, if
any, under any pending litigation would not have a material effect on its
financial position or results of operations.
NOTE I -- PENSIONS
A summary of the components of net periodic pension credit for the defined
benefit plans and the total contributions charged to pension expense for the
defined contribution plans is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Defined benefit plans:
Service cost............................................... $ 128 $ 287 $ 296
Interest cost.............................................. 1,469 3,362 3,249
Actual return on assets.................................... 66 (10,719) (7,499)
Net amortization and deferral.............................. (1,961) 6,315 2,795
------- -------- -------
Net periodic pension credit of defined benefit plans....... (298) (755) (1,159)
Defined contribution plans................................... 508 680 796
------- -------- -------
Total pension (credit) expense..................... $ 210 $ (75) $ (363)
======= ======== =======
</TABLE>
Assumptions used in the accounting for the defined benefit pension plans
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate......................................... 8.5 % 7.5% 7.5%
Expected long-term rate of return on assets............................ 9.5 % 8.5% 8.5%
</TABLE>
F-20
<PAGE> 118
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31, 1995 and 1996 for the Company's
defined benefit pension plans.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................................. $44,223 $42,863
======= =======
Accumulated benefit obligation......................................... $45,872 $44,671
======= =======
Plan assets at fair value................................................ $58,563 $63,139
Projected benefit obligation............................................. 46,308 45,049
------- -------
Plan assets in excess of projected benefit obligation.................... 12,255 18,090
Unrecognized net gain.................................................... (2,956) (6,959)
Unrecognized prior service cost.......................................... 1,436 1,442
Unrecognized net asset at January 1, 1987 net of amortization............ (231) (203)
------- -------
Net pension asset included in other assets............................... $10,504 $12,370
======= =======
</TABLE>
The plans' assets at December 31, 1995 and 1996 are invested in listed
stocks, bonds and unallocated insurance contracts.
NOTE J -- OTHER POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries provide health care and life
insurance benefits for retired employees. Employees may become eligible for
benefits if they qualify for retirement while working for the Company.
The following table presents the plan's funded status and amounts
recognized in the consolidated balance sheets at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................... $18,460 $17,555
Fully eligible active plan participants................................ 445 479
Other active plan participants......................................... 1,626 1,854
------- -------
Accumulated Postretirement Benefit Obligations................. 20,531 19,888
Unrecognized net gain.................................................. 10,851 10,307
------- -------
Accrued Postretirement Benefit Obligations..................... $31,382 $30,195
======= =======
</TABLE>
Net periodic benefit cost includes the following components for the years
ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost..................................................... $ 58 $ 92 $ 106
Interest cost.................................................... 1,476 1,559 1,458
Net amortization and deferral.................................... (620) (819) (544)
------ ------ ------
Net Periodic Postretirement Benefit Cost............... $ 914 $ 832 $1,020
====== ====== ======
</TABLE>
F-21
<PAGE> 119
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The accumulated postretirement benefit obligation ("APBO") was determined
using an assumed discount rate of 8.5%, 7.5% and 7.5% for 1994, 1995 and 1996,
respectively. The assumed annual health care trend rate for retirees younger
than 65 was 9.0% in 1996 (10% in 1994 and 9.5% in 1995) decreasing to 6.0% in
2004. The assumed annual health care trend rate for retirees aged 65 and over
will decrease to 5.5% in 2004. A 1% change in the trend rate would increase the
APBO by 4.2% and annual expense by 11%.
NOTE K -- LEASES
Rental expense for 1994, 1995 and 1996 was $931, $3,527 and $4,751,
respectively. Future minimum lease commitments during each of the five years
following December 31, 1996 are as follows: $3,295 in 1997, $2,630 in 1998,
$2,184 in 1999, $2,044 in 2000 and $1,735 in 2001.
NOTE L -- INDUSTRY SEGMENTS
The Company operates in two industry segments: Manufactured Products and
Logistics. The Manufactured Products segment manufactures industrial products
for the airline, automotive, locomotive, trucking and housewares industries and
includes forged and machined products, metal forming, capital equipment,
permanent mold castings, industrial rubber products and consumer products.
Forged and machined products include the production, machining and finishing of
closed die forgings produced by the Company and others. Metal forming includes
the engineering and manufacturing of fasteners, cold formed parts and related
hardware. Capital equipment includes the engineering and manufacturing of
capital equipment consisting of forging presses, specialty lift trucks and
induction heating systems. Permanent mold castings include the production and
machining of permanent mold aluminum parts. Industrial rubber products include
custom made molded and lathe-cut goods and items requiring rubber-to-metal
bonding. Consumer products include molded plastic and metal indoor and outdoor
products. The Logistics segment provides supply chain management of various
commodity products including fasteners, primarily to original equipment
manufacturers.
The Company's sales are made through its own sales organization,
distributors and representatives. Intersegment metal forming sales to the
Logistics segment are eliminated in consolidation and are not included in the
figures presented. Intersegment sales are accounted for at values based on
market prices. Income allocated to segments excludes interest expense and
amortization of excess purchase price over net assets acquired. Identifiable
assets by industry segment include assets directly identified with those
operations.
F-22
<PAGE> 120
PARK-OHIO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Corporate assets generally consist of cash and cash equivalents, deferred
tax assets, and other assets.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales
Manufactured products................................. $129,216 $181,000 $196,327
Logistics............................................. -0- 108,501 151,352
-------- -------- --------
$129,216 $289,501 $347,679
======== ======== ========
Income from continuing operations before income taxes
Manufactured products................................. $ 11,011 $ 14,525 $ 16,263
Logistics............................................. -0- 8,217 9,276
-------- -------- --------
11,011 22,742 25,539
Amortization of excess purchase price over net assets
acquired............................................ (223) (1,504) (1,902)
Corporate costs....................................... (2,635) (2,414) (1,937)
Interest expense...................................... (1,501) (5,911) (6,947)
-------- -------- --------
$ 6,652 $ 12,913 $ 14,753
======== ======== ========
Identifiable assets
Manufactured products................................. $ 90,851 $162,114 $177,946
Logistics............................................. -0- 93,876 92,862
General corporate..................................... 10,520 12,063 12,102
Discontinued operations............................... 27,025 33,694 -0-
-------- -------- --------
$128,396 $301,747 $282,910
======== ======== ========
Depreciation and amortization expense
Manufactured products................................. $ 3,213 $ 5,544 $ 6,644
Logistics............................................. -0- 734 1,354
-------- -------- --------
$ 3,213 $ 6,278 $ 7,998
======== ======== ========
Capital expenditures
Manufactured products................................. $ 3,557 $ 4,974 $ 10,272
Logistics............................................. -0- 1,099 4,152
General corporate..................................... 260 237 1,054
Discontinued operations............................... 7,932 7,322 112
-------- -------- --------
$ 11,749 $ 13,632 $ 15,590
======== ======== ========
</TABLE>
The Company's manufactured products segment had sales of $28,000 in 1994,
$32,200 in 1995, and $33,728 in 1996 to Ford Motor Company (21.7%, 11.1% and
9.7% of consolidated net sales, respectively).
NOTE M -- RESTRUCTURING CHARGES AND OTHER INCOME
During the fourth quarter of 1996, the Company commenced the reorganization
of its consumer products manufacturing operations which will result in the
realignment of two manufacturing facilities and the discontinuance of certain
products lines. As a result of these actions, the Company recorded a charge of
$2,700 primarily for the writedown of certain property and equipment and
inventory to estimated net realizable value.
In December 1996, the Company negotiated full settlement of subordinated
notes receivable, resulting from the sale of two manufacturing facilities, which
were fully reserved at the date of sale. The net proceeds received of $2,700
were recorded in income in the fourth quarter. In the third quarter of 1996, the
Company sold certain securities purchased during 1996 for $6,315 which resulted
in a gain of $1,500.
F-23
<PAGE> 121
SUPPLEMENTARY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
1995 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 42,331 $ 88,311 $ 77,164 $ 81,695
Gross profit................................. 8,208 14,947 11,548 13,927
Income from continuing operations............ 2,696 4,221 2,059 10,837
Income from discontinued operations.......... 1,044 600 956 1,621
Net Income................................... $ 3,740 $ 4,821 $ 3,015 $ 12,458
======= ======= ======= =======
Primary Earnings Per Share:
Continuing Operations...................... $ .31 $ .39 $ .19 $ 1.00
Discontinued Operations.................... .12 .06 .09 .15
------- ------- ------- -------
Net Income................................. $ .43 $ .45 $ .28 $ 1.15
======= ======= ======= =======
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
1996 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 90,854 $ 90,693 $ 79,750 $ 86,382
Gross profit................................. 15,530 15,431 13,044 14,274
Income from continuing operations............ 2,582 2,550 2,113 2,448
Income from discontinued operations.......... 1,499 1,326 8,817 -0-
Net Income................................... $ 4,081 $ 3,876 $ 10,930 $ 2,448
======= ======= ======= =======
Primary Earnings Per Share:
Continuing Operations...................... $ .24 $ .23 $ .19 $ .22
Discontinued Operations.................... .14 .12 .81 -0-
------- ------- ------- -------
Net Income................................. $ .38 $ .35 $ 1.00 $ .22
======= ======= ======= =======
</TABLE>
NOTE 1 -- On July 31, 1996, the Company completed the sale of substantially all
of the assets of Bennett Industries, Inc., a wholly-owned subsidiary
which manufactures plastic containers, for $50.8 million in cash,
resulting in a pretax gain of $13.8 million recognized in the third
quarter of 1996. The results of operations for Bennett have been
classified as discontinued operations for all periods presented. The
assets and liabilities of Bennett have been classified in the
consolidated balance sheets as net assets of discontinued operations
at December 31, 1995.
NOTE 2 -- On March 31, 1995, the Company acquired all of the shares of RB&W
Corporation in exchange for 2,023,000 shares of the Company's common
stock and cash. The transaction has been accounted for as a purchase
and, accordingly, the operations of RB&W have been included since that
date.
NOTE 3 -- Effective December 31, 1995, the Company recorded the deferred tax
assets relating to anticipated future income tax benefits from
utilization of net operating loss carryforwards, resulting in a credit
of $8.1 million for the year ended December 31, 1995. Therefore, as of
January 1, 1996, the Company began to fully provide Federal income
taxes.
NOTE 4 -- Included in income from continuing operations for the quarter ended
September 30, 1996, is a gain on the sale of securities of $1.0
million, net of income taxes.
F-24
<PAGE> 122
===============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information......................... i
Incorporation of Certain Documents by
Reference................................... i
Prospectus Summary............................ 1
Risk Factors.................................. 13
The Exchange Offer............................ 19
Use of Proceeds............................... 29
Capitalization................................ 30
Unaudited Pro Forma Consolidated Financial
Data........................................ 31
Selected Historical Consolidated Financial
Data........................................ 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 42
Business...................................... 48
Management.................................... 61
Principal Shareholders........................ 66
Description of Other Indebtedness............. 68
Description of the Notes...................... 69
Plan of Distribution.......................... 92
Legal Matters................................. 93
Experts....................................... 93
Index to Consolidated Financial Statements.... F-1
</TABLE>
===============================================================
===============================================================
$150,000,000
PARK OHIO LOGO
OFFER TO EXCHANGE ITS
9 1/4% SENIOR SUBORDINATED
NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND
ALL OUTSTANDING 9 1/4% SENIOR
SUBORDINATED NOTES DUE 2007
-----------------
PROSPECTUS
-----------------
JANUARY 14, 1998
===============================================================
