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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) JULY 30, 1997
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SAFETY 1ST, INC.
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(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS
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(State or Other Jurisdiction of Incorporation)
0-21404 04-2836423
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(Commission File No.) (I.R.S. Employer Identification No.)
210 BOYLSTON STREET, CHESTNUT HILL, MASSACHUSETTS 02167
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(Address of Principal Executive Offices) (Zip Code)
(617) 964-7744
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
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On July 30, 1997, the Company entered into a $55,000,000 refinancing of its
business that replaces the Company's previous credit facility with Goldman Sachs
Credit Partners LP. The refinancing is comprised of a $15,000,000 equity
investment and a $40,000,000 credit facility.
The equity investment is represented by a $15,000,000 private placement of
15,000 shares of Series A Redeemable Preferred Stock, $1.00 par value per share
(the "Preferred Shares"), and warrants to purchase 1,268,346 shares of the
Company's Common Stock (the "Warrants"). The investment was made 50% by BT
Capital Partners, Inc. ("BT Capital"), an affiliate of Bankers Trust New York
Corporation, and 50% by Bear, Stearns & Co. Inc. ("Bear Stearns"). BT Capital
and Bear Stearns are collectively herein called the "Investors".
Dividends on the Preferred Shares are payable, at the option of the
Company, either in cash at the annual rate of 10% compounded quarterly or in the
form of an increase of the liquidation value of the Preferred Shares at an
annual rate of 13.25% compounded quarterly; however, the Company is prohibited
by covenants in its credit facility from paying cash dividends so long as the
term loan under the credit facility is outstanding, and thereafter unless at
least $3 million of Unused Availability (as defined in the credit facility)
would remain after dividend payment. The Preferred Shares have a liquidation
preference of $1,000 per share plus all accrued but unpaid dividends. In
addition, the Preferred Shares are redeemable at the option of the Investors at
the earlier of: (i) six years from the closing date, (ii) six months after
repayment of the Company's term loan under the credit facility (but, in any
event, not earlier than the fifth anniversary of the closing), (iii) immediately
subsequent to certain changes in control of the Company or (iv) ninety days
after the occurrence of an event of default (as defined). In addition, the
Preferred Shares are redeemable at the option of the Company at any time after
the second anniversary of the closing or, prior to the second anniversary of the
closing, upon a merger or certain changes in control of the Company. The holders
of the Preferred Stock have no voting rights except as required by law.
The Warrants are exercisable through July 30, 2007 at an exercise price of
$.01 per share of Common Stock to be acquired, and contain provisions which
adjust the number of shares of Common Stock underlying the Warrants to protect
the Investors from dilution arising from certain events, as defined. Of the
Warrants for 634,173 shares of Common Stock issued to each Investor, Warrants
for 63,418 shares (subject to such adjustment) to each Investor will revert to
the Company if the Company's 1998 earnings before interest and taxes exceeds
$16 million (and if prior to the determination of such amount, there has not
been a change in control). Each Investor has been granted one demand
registration right for the Common Stock underlying the Warrants (subject to
customary timing limitations) as well as piggyback registration rights. Each
Investor is entitled to designate one person to be nominated to the Company's
Board of Directors so long as that Investor owns Common Stock (or Warrants to
purchase Common Stock) which in the aggregate represents 5% or more of the
Common Stock Equivalents (as defined) outstanding at closing. As long as any
Investor has a right to designate a person to the Board of Directors, the Board
of Directors shall not exceed 10 members. Michael Lerner and Michael Bernstein,
who collectively own approximately 52% of the Company's issued and outstanding
Common Stock, have entered into a Voting Agreement to vote in favor of the
persons designated by the Investor(s) to the extent such Investor is entitled
to designate a person.
The value of the Preferred Shares net of issuance costs of $472,000, was
determined to be $8,528,000 and the value of the Warrants, net of issuance
costs of $314,000, was determined to be $5,686,000 based on gross proceeds of
$15,000,000 relating to the equity investment.
Effective with the closing of the equity investment, the Company's Board
of Directors increased its size from six to eight members and added James M.
Dworkin and John D. Howard, designees of BT Capital and Bear Stearns,
respectively, as directors.
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The Company's new credit facility with BT Commercial Corporation ("BTCC"),
also an affiliate of Banker's Trust New York Corporation, consists of a
$27,500,000 revolving credit facility and a $12,500,000 term loan, both of which
expire on July 30, 2002. The annual rate of interest for the revolving credit
facility is, at the Company's option, either prime plus 1.75% or LIBOR plus
2.75%. The annual rate of interest for the term loan is, at the Company's
option, either prime plus 2.00% or LIBOR plus 3.00%. The credit facility is
secured primarily by all corporate assets of the Company and contains certain
financial covenants. Advances under the revolving credit facility, which
includes standby and documentary letters of credit, are calculated based on an
asset-based borrowing formula. The credit agreement requires the Company to pay
certain fees to BTCC, as Agent, including, without limitation, a monthly unused
line fee equal to 0.50% per annum of the average unused commitment during the
preceding month and letter of credit fees in an amount equal to 2.50% per annum
of the daily average amount of standby letter of credit obligations outstanding
during the previous month and 1.375% per annum of the daily average amount of
documentary letter of credit obligations outstanding during the previous month.
The Company and BTCC have also entered into a separate letter agreement that
requires the Company to pay to BTCC a one-time, up- front fee of $1,000,000, an
annual agent's fee of $75,000 and letter of credit facing fees equal to 0.25%
per annum on the undrawn amount of each letter of credit. The Company
capitalized deferred financing costs of $1,564,000 related to this $40,000,000
credit facility.
In conjunction with the termination of the Company's previous credit
facility, Michael Lerner's limited guaranty and related pledges of Company
Common Stock and other collateral were terminated and released.
The above descriptions of the equity investment and credit facility are
qualified in their entirety by reference to the definitive documents of such
transactions which are filed herewith as Exhibits 4.1 and 10.1 through 10.11 and
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed consolidated balance sheet and pro forma
condensed consolidated statements of operations are filed with this report:
Condensed Consolidated Balance Sheet as of August 30, 1997............ Page F-1
Pro Forma Condensed Consolidated Statements of Operations:
Year Ended December 31, 1996.................................. Page F-2
For the Period From January 1, 1997 through August 30, 1997... Page F-3
The Condensed Consolidated Balance Sheet as of August 30, 1997 reflects the
financial position of the Company and includes the refinancing of the credit
facility on July 30, 1997 as described in Item 5 above. The Pro Forma Condensed
Consolidated Statements of Operations for the year ended December 31, 1996 and
for the Period From January 1, 1997 through August 30, 1997 assume the
refinancing occurred on January 1, 1996 and are based on operations of the
Company for the year ended December 31, 1996 and the Period From January 1,
1997 through August 30, 1997.
The unaudited pro forma condensed statements of operations have been prepared
by the Company based upon assumptions deemed proper by it to reflect the
transaction. The unaudited pro forma condensed consolidated statements of
operations presented herein are shown for illustrative purposes only and are
not necessarily indicative of the future results of operations of the Company or
of the results of operations of the Company that would have actually occurred
had the transaction been in effect for the periods presented. In addition, the
Company's historical statement of operations reflects the refinancing only from
July 30, 1997, the closing date.
The unaudited condensed consolidated balance sheet and pro forma condensed
consolidated statements of operations should be read in conjunction with the
historical financial statements and related notes of the Company.
(c) The following Exhibits are filed as part of this Report.
EXHIBIT DESCRIPTION
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*4.1. Designation of Series A Preferred Stock of the Company
*10.1. Stock and Warrant Purchase Agreement dated as of July
30, 1997, among the Company and the Investors
*10.2. Warrant dated July 30, 1997, for 63,418 shares of the
Company's common stock issued to BT Capital
*10.3. Warrant dated July 30, 1997, for 63,418 shares of the
Company's common stock issued to Bear Stearns
*10.4. Warrant dated July 30, 1997, for 570,755 shares of the
Company's common stock issued to BT Capital
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* 10.5. Warrant dated July 30, 1997, for 570,755 shares of the
Company's common stock issued to Bear Stearns
* 10.6. Registration Rights Agreement dated as of July 30, 1997,
among the Company, the Investors and Michael Lerner
* 10.7. Voting Agreement dated as of July 30, 1997, among the
Company, Michael Lerner, Michael S. Bernstein and the
Investors
* 10.8. Letter dated July 30, 1997, from BT Capital to the
Company regarding compliance with certain regulations of
the United States Small Business Administration
* 10.9. Credit Agreement dated as of July 30, 1997, among the
Company and Safety 1st Home Products Canada Inc., as
Borrowers, BTCC, as Lender and Agent, and Bankers Trust
Company, as Issuing Bank
* 10.10. $27,500,000 Revolving Note dated July 30, 1997, executed
by the Company and Safety 1st Home Products Canada Inc.
in favor of BTCC
* 10.11. $12,500,000 Term Note dated July 30, 1997, executed by
the Company and Safety 1st Home Products Canada Inc. in
favor of BTCC
* Previously Filed
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Form 8-K/A
PRO FORMA FINANCIAL INFORMATION
SAFETY 1ST, INC.
CONDENSED CONSOLIDATED BALANCE SHEET AT AUGUST 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash $ 1,114,008
Accounts receivable 26,564,124
Inventories 19,334,141
Other current assets 2,462,824
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Total Current Assets 49,475,097
Property and Equipment 19,286,118
Accumulated depreciation and amortization (6,844,848)
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Net property and equipment 12,441,270
Deposits 1,142,325
Software system in process 4,491,734
Goodwill 6,643,499
Deferred income taxes 3,398,334
Other assets 1,102,429
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$ 78,694,688
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Revolving credit facility $ 20,637,425
Accounts payable and accrued expenses 23,911,271
Notes payable 1,095,000
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Total Current Liabilities 45,643,696
Long term notes payable 12,813,745
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Total Liabilities 58,457,441
Series A Redeemable Preferred Stock 8,766,625
Total Stockholders' Equity 11,470,622
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$ 78,694,688
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</TABLE>
F-1
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Form 8-K/A
PRO FORMA FINANCIAL INFORMATION
SAFETY 1ST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
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<S> <C> <C> <C>
Net sales $105,751,954 $105,751,954
Cost of sales 88,978,995 88,978,995
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Gross profit 16,772,959 16,772,959
Selling, general and administrative expenses 54,385,019 54,385,019
Impairment of long-lived assets 11,596,126 11,596,126
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Operating loss (49,208,186) (49,208,186)
Interest expense 4,099,805 (578,486)(a) 3,521,319
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Loss before income taxes (53,307,991) (52,729,505)
Income tax benefit (8,458,779) 216,932 (b) (8,241,847)
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Net loss (44,849,212) 361,554 (44,487,658)
Dividends and accretion on redeemable
preferred stock -- 3,010,767 (c) 3,010,767
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Net loss available for common shareholders $(44,849,212) $(2,649,213) $(47,498,425)
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Net Loss per common share (d) $ (6.27) $ (6.64)
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Weighted average common shares outstanding 7,157,078 7,157,078
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</TABLE>
Notes to Pro Forma Condensed Consolidated Statement of Operations:
(a) To reduce amortization expense included in interest expenses to reflect the
loan acquisition fees of the refinanced credit facility
(b) To record the tax effect of the interest expense reduction
(c) To record accretion and dividends on the redeemable preferred stock issued
in connection with the refinancing
(d) Stock options and warrants are not included in the earnings per share
computation as their effect would be anti-dilutive
F-2
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FORM 8-K/A
PRO FORMA FINANCIAL INFORMATION
SAFETY 1ST, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH AUGUST 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
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<S> <C> <C> <C>
Net sales $71,239,081 $71,239,081
Cost of sales 42,759,941 42,759,941
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Gross profit 28,479,140 28,479,140
Selling, general and administrative expenses 22,470,499 22,470,499
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Operating income 6,008,641 6,008,641
Interest expense 3,097,451 (699,225)(a) 2,398,226
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Income before income taxes 2,911,190 3,610,415
Income tax expense (benefit) (922,916)(b) 262,209 (c) (660,707)
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Net income 3,834,106 437,016 4,271,122
Dividends and accretion on redeemable
preferred stock 238,625 1,935,668 (d) 2,174,293
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Net income available for common stockholders $ 3,595,481 $(1,498,652) $ 2,096,829
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Net income per common share $ 0.47 $ 0.24
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Weighted average common shares outstanding 7,600,000 8,700,000
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</TABLE>
Notes to Pro Forma Condensed Consolidated Statement of Operations:
(a) To reduce amortization expense included in interest expense to reflect the
loan acquisition fees of the refinanced credit facility and to reduce
interest expense based on the interest rates under the refinanced credit
facility.
(b) As of August 30, 1997, the deferred tax valuation allowance decreased by
$2,000,000.
(c) To record the tax effect of the interest expense reduction.
(d) To record accretion and dividends on the redeemable preferred stock issued
in connection with the refinancing.
F-3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SAFETY 1ST, INC.
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(Registrant)
Date September 16, 1997 By /s/ Michael Lerner
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Michael Lerner, Chief
Executive Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
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* 4.1. Designation of Series A Preferred Stock of the Company
* 10.1. Stock and Warrant Purchase Agreement dated as of
July 30, 1997, among the Company and the Investors
* 10.2. Warrant dated July 30, 1997, for 63,418 shares of
the Company's common stock issued to BT Capital
* 10.3. Warrant dated July 30, 1997, for 63,418 shares of
the Company's common stock issued to Bear Stearns
* 10.4. Warrant dated July 30, 1997, for 570,755 shares of
the Company's common stock issued to BT Capital
* 10.5. Warrant dated July 30, 1997, for 570,755 shares of
the Company's common stock issued to Bear Stearns
* 10.6. Registration Rights Agreement dated as of July 30, 1997,
among the Company, the Investors and Michael Lerner
* 10.7. Voting Agreement dated as of July 30, 1997, among
the Company, Michael Lerner, Michael S. Bernstein and
the Investors
* 10.8. Letter dated July 30, 1997, from BT Capital to the
Company regarding compliance with certain regulations
of the United States Small Business Administration
* 10.9. Credit Agreement dated as of July 30, 1997, among the
Company and Safety 1st Home Products Canada Inc., as
Borrowers, BTCC, as Lender and Agent, and Bankers Trust
Company, as Issuing Bank
* 10.10. $27,500,000 Revolving Note dated July 30, 1997,
executed by the Company and Safety 1st Home Products
Canada Inc. in favor of BTCC
* 10.11. $12,500,000 Term Note dated July 30, 1997, executed by
the Company and Safety 1st Home Products Canada Inc.
in favor of BTCC
* Previously Filed
