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REGISTRATION NO. 333-19613
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CENTRAL TRACTOR FARM & COUNTRY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5200 42-1425562
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
3915 DELAWARE AVENUE
DES MOINES, IOWA 50316-0330
(515) 266-3101
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JAMES T. MCKITRICK
CENTRAL TRACTOR FARM & COUNTRY, INC.
3915 DELAWARE AVENUE
DES MOINES, IOWA 50316-0330
(515) 266-3101
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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ALEXANDER A. NOTOPOULOS, KIRK A. DAVENPORT, ESQ.
JR., ESQ. LATHAM & WATKINS
SULLIVAN & WORCESTER LLP 885 THIRD AVENUE
ONE POST OFFICE SQUARE NEW YORK, NEW YORK 10022
BOSTON, MASSACHUSETTS (212) 906-1200
02109
(617) 338-2800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT WILL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY STATE.
SUBJECT TO COMPLETION, DATED MARCH 3, 1997
PRELIMINARY PROSPECTUS
[CT FARM & COUNTRY LOGO]
$100,000,000
CENTRAL TRACTOR FARM & COUNTRY, INC.
% SENIOR NOTES DUE 2007
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The % Senior Notes due 2007 (the "Senior Notes") are being offered (the
"Offering") by Central Tractor Farm & Country, Inc., a Delaware corporation
("CT" or the "Company"). The net proceeds of the Offering, together with the net
proceeds of the other financing described herein, will be used to finance the
acquisition (the "Acquisition") of the Company by JWC Acquisition I, Inc.
("JWCAC"), an indirect subsidiary of J.W. Childs Equity Partners, L.P. The
Acquisition will be consummated pursuant to a merger agreement providing for the
merger (the "Merger") of the Company and JWCAC, with the Company surviving such
Merger. The consummation of the Offering, the Acquisition and the financing
thereof are conditioned upon each other.
The Senior Notes mature on , 2007, unless previously redeemed.
Interest on the Senior Notes is payable semiannually on and ,
commencing , 1997. The Senior Notes will be redeemable at the option
of the Company, in whole or in part, on or after , 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest thereon, to the
redemption date. Notwithstanding the foregoing, at any time on or before,
, 2000, the Company may redeem up to 35% of the original aggregate
principal amount of the Senior Notes with the net cash proceeds of a Public
Equity Offering (as defined herein) at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest thereon, to the
redemption date. Upon a Change of Control (as defined herein), the Company (i)
will be required to make an offer to repurchase all outstanding Senior Notes at
101% of the aggregate principal amount thereof plus accrued and unpaid interest
thereon to the date of repurchase and (ii) prior to , 2002, will have
the option to redeem the Senior Notes, in whole or in part, at a redemption
price equal to the outstanding principal amount thereof, plus accrued and unpaid
interest thereon to the redemption date plus the Applicable Premium (as defined
herein).
The Senior Notes will be general unsecured obligations of the Company and
will rank senior to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment to all unsubordinated indebtedness of
the Company, including indebtedness under the New Credit Facility (as defined
herein). Upon consummation of the Acquisition, the Company will have no
subsidiaries. However, the obligations of the Company under the New Credit
Facility will be secured by substantially all of the assets of the Company and
any of its future subsidiaries, and accordingly, such indebtedness will
effectively rank senior to the Senior Notes to the extent of such assets. The
Senior Notes will be unconditionally guaranteed (the "Subsidiary Guarantees") on
a joint and several basis by each of the Company's future subsidiaries (the
"Guarantors"), subject to certain exceptions. The Subsidiary Guarantees will
rank senior to all existing and future subordinated indebtedness of the
Guarantors and pari passu with all other unsubordinated indebtedness of the
Guarantors, including the guarantees of indebtedness under the New Credit
Facility. As of November 2, 1996, on a pro forma basis after giving effect to
the Acquisition, including the Offering and the application of the proceeds
therefrom, the Company would have had $18.1 million of secured indebtedness
which would have effectively ranked senior to the Senior Notes, current
liabilities aggregating $48.8 million which would have effectively ranked pari
passu with the Senior Notes and no indebtedness or other obligations ranking
junior to the Senior Notes.
There is no existing market for the Senior Notes, and the Company does not
intend to apply to list the Senior Notes on any securities exchange. See "Risk
Factors -- Absence of Public Market."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SENIOR NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- --------------------------------------------------------------------------------------------------------
Per Senior Note...................................... % % %
Total................................................ $100,000,000 $ $
- --------------------------------------------------------------------------------------------------------
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(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Underwriter (as defined herein)
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
The Senior Notes are being offered, subject to prior sale, by the
Underwriter when, as and if issued to and accepted by the Underwriter, and
subject to various prior conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Senior Notes will be made in New York, New
York on or about , 1997.
NATIONSBANC CAPITAL MARKETS, INC.
The date of this Prospectus is , 1997.
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[PHOTOGRAPHS OF SELECTED CT STORE SELLING AREAS]
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FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE % SENIOR NOTES DUE 2007 OF CENTRAL TRACTOR
FARM & COUNTRY, INC. BEING OFFERED HEREBY TO CALIFORNIA RESIDENTS, SUCH
SECURITIES MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (2) BANKS, SAVINGS
AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES, WHICH, TOGETHER WITH
SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES WHICH ARE UNDER COMMON CONTROL,
HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT
REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT
NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND
SUBSIDIARIES OF THE FOREGOING, (3) ANY PERSON (OTHER THAN A PERSON FORMED FOR
THE SOLE PURPOSE OF PURCHASING THE SECURITIES OFFERED HEREBY) WHO PURCHASES AT
LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, OR (4) ANY
NATURAL PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET WORTH OF $250,000, OR
(B) HAS A NET WORTH OF $500,000 (IN EACH CASE EXCLUDING HOME, HOME FURNISHINGS
AND PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT PURCHASING THE SECURITIES
OFFERED HERBY WILL NOT SELL OR OTHERWISE TRANSFER SUCH SECURITY TO A CALIFORNIA
RESIDENT UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES
AND THAT IT WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY
BECOMING SUCH, WILL BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
---------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
i
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the Financial Statements and related notes thereto, appearing
elsewhere in this Prospectus. As used herein, references to "CT" or the
"Company" are to Central Tractor Farm & Country, Inc. and its subsidiaries.
References to "Big Bear" are to Big Bear Farm Stores, Inc. Unless otherwise
stated herein, the pro forma information contained in this Prospectus gives
effect to (i) the acquisition of 31 retail stores and certain net operating
assets of Big Bear; (ii) the acquisition of the Company by JWC Acquisition I,
Inc. ("JWCAC"), an indirect subsidiary of J.W. Childs Equity Partners, L.P.
("Childs"), and the subsequent merger of the Company and JWCAC, with the Company
as surviving corporation; and (iii) the Offering and the application of the
estimated net proceeds therefrom, as if these events had occurred on October 29,
1995. References to "fiscal year" are to the Company's fiscal year, which ends
on the Saturday closest to October 31 in each year.
THE COMPANY
Central Tractor Farm & Country, Inc. is one of the largest agricultural
specialty retailers in the United States. As of December 31, 1996, the Company
operated 112 retail stores in 16 states in the Northeast and Midwest, primarily
under the "CT Farm & Country" name. CT specializes in meeting the farming,
gardening and related needs of rural consumers, especially part-time and
full-time farmers, hobby gardeners, skilled tradespersons and "do-it-yourself"
customers. Pro forma for the fiscal year ended November 2, 1996, the Company
generated sales of $307.8 million, EBITDA of $21.2 million and net income of
$1.2 million.
CT was founded in 1935 and has established itself as a leader in the
agricultural specialty market, having strong name recognition and a loyal
customer base. The Company obtained this position by (i) offering a full range
of agricultural and related products not typically found in general merchandise
retailers and home centers, (ii) merchandising high quality "CT" branded
products at competitive prices and (iii) providing superior in-store service to
its customers.
The Company's stores offer a wide selection of agricultural products such
as tractor parts and accessories, specialty hardware, lawn and garden items,
rural automotive products, workwear, pet supplies and general consumer products.
Management believes that products accounting for approximately 60% of CT's net
sales cannot be found at general merchandise retailers and home centers. In
addition, CT offers a high level of customer service, ranging from answering
technical questions about products to special ordering of hard to find items.
The Company believes that this merchandising and service strategy is a
significant competitive advantage, enabling CT to differentiate itself from
other retailers and generate attractive gross margins. The Company has also
established national visibility for its products and services through its
catalog operation, which has an annual circulation of approximately 550,000.
The Company's stores are located primarily in rural communities with
populations in each trading area ranging from 30,000 to 100,000 people (the
Company considers a trading area to be the 30-mile radius around a store). While
CT adjusts its store size and product mix to match the demographics of each
trading area, the stores generally contain from 10,000 to 25,000 square feet of
indoor selling space and carry approximately 18,000 to 24,000 stock keeping
units ("SKUs"). The average sales for the Company's stores open for the full
1996 fiscal year were $3.9 million. The Company's average customer transaction
in fiscal 1996 was approximately $27, reflecting the high frequency of customer
purchases and the replacement nature of CT's product line.
In 1992, the Company hired its current CEO, establishing a senior
management team with considerable retail experience. Management has since
initiated programs designed to increase sales and profitability, enhance
customer service and improve the efficiency of CT's operations. Further, the
Company initiated an aggressive expansion plan, opening 32 new stores (net of
three stores closed) and acquiring 33 stores since the beginning of fiscal 1993.
As a result of these efforts, CT's sales increased from $198.1 million in fiscal
1992 to $307.8 million in pro forma fiscal 1996, and EBITDA increased from $10.8
million in fiscal 1992 to $21.2
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million in pro forma fiscal 1996. The average annual comparable store sales
growth was 3.8% during this five-year period.
In May 1996, the Company acquired 31 retail stores and certain net
operating assets from Big Bear, a privately owned agricultural specialty
retailer, for $5.7 million. Management believes that it will significantly
improve sales and EBITDA in the acquired stores by converting them to the CT
format. Further, these stores were added to CT's operations without a
substantial increase in corporate selling, general and administrative or
distribution expenses. As of December 31, 1996, 14 locations have been converted
to the CT format at an approximate cost of $3.3 million (including inventory);
the 17 remaining locations will be converted by the Spring of 1997 at an
estimated cost of $3.0 million. With locations in Iowa, Minnesota, Missouri and
Wisconsin, the Big Bear stores provide additional geographic diversity to CT's
Northeastern focus.
BUSINESS STRATEGY
CT seeks to continue to increase its revenues and cash flows by
capitalizing on the programs it has implemented and by growing its store count.
Key elements of the Company's strategy include: (i) focused merchandising and
service; (ii) improved inventory management; (iii) Big Bear integration; (iv)
new store openings; and (v) selective acquisitions.
- - Focused Merchandising and Service: Since 1992, the Company has aggressively
expanded its in-store product offerings, increasing the range of agricultural
specialty products offered and reducing the number of products typically
carried by general merchandise retailers. Management also plans to expand the
breadth of the Company's profitable "CT" branded product line. In addition, CT
offers a high level of specialized customer service. This merchandising and
service strategy differentiates the Company from general merchandise retailers
and home centers, enabling it to achieve attractive gross margins (29.3% in
fiscal 1996). This strategy also allows the Company to locate stores near
general merchandise retailers and home centers to capitalize on their retail
traffic.
- - Improved Inventory Management: In June 1996, the Company implemented a
program to reduce inventory levels in each store and more efficiently utilize
the Company's inventory replenishment system. As a result, comparable store
inventory was reduced by 7.7% during fiscal 1996. Despite lower in-store
inventory levels, comparable store sales grew by approximately 1.0% in fiscal
1996. Management believes CT can reduce in-store inventory levels by an
additional 10% without adversely affecting revenues and margins. Further,
management believes that there are additional opportunities to improve the
Company's in-stock inventory position by more accurately matching inventory
levels to expected rates of sales.
- - Big Bear Integration: The acquired Big Bear stores averaged $0.8 million in
sales for the twelve months prior to CT's acquisition. In contrast, CT's
comparable Midwestern stores open for the full 1996 fiscal year averaged $2.2
million in sales, with a greater emphasis on agricultural and related product
sales. Management believes that by converting the Big Bear stores into the CT
store format, and by employing better merchandising and inventory management
strategies, the Company will significantly increase the operating performance
and cash flow at the acquired stores. The impact on sales is already being
demonstrated in the recently converted stores. Within two weeks of their
acquisition, all 31 Big Bear stores were operating on CT's point-of-sale
("POS") and central management information systems. Management expects to
continue to leverage its existing distribution and corporate administration
capabilities by consolidating the Big Bear stores into CT's operations without
a substantial increase in expenses.
- - New Store Openings: CT increased its store count from 47 at the beginning of
fiscal 1993 to 112 as of December 31, 1996. Of the new stores, 32 were opened
(net of three closed) and 33 were acquired by the Company. CT plans to open 31
stores in the next three years (including one additional store in fiscal
1997). CT stores typically generate positive cash flow in their first full
year of operation. With two exceptions, all 66 stores which the Company
operated for the full 1996 fiscal year generate positive cash flow at the
store level. The Company believes that its existing infrastructure will
accommodate its planned expansion through fiscal 1999 without substantially
increasing its distribution and corporate-level expenses.
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- - Selective Acquisitions: The agricultural specialty retail market is highly
fragmented, with no retailer holding a dominant national position. Management
estimates this market to be approximately $6.0 billion. Management believes
that there are opportunities to further diversify CT's operations, achieve
additional operating efficiencies and increase purchasing power by acquiring
single store locations, small chains and larger regional chains. From time to
time the Company has had discussions with several agricultural specialty
retailers. There are no current agreements with respect to any such
acquisition and there can be no assurance that any such acquisition will be
consummated in the future.
THE ACQUISITION
The Offering is being conducted in connection with the acquisition of the
Company by JWCAC, an indirect subsidiary of Childs. Childs is a $462.6 million
institutional private equity fund managed by J.W. Childs Associates, L.P.
("Associates"), a Boston-based private investment firm. Childs acquires equity
positions primarily in established small and middle-market growth companies
through friendly, management-led acquisitions and recapitalizations.
On November 27, 1996, JWCAC and Childs entered into agreements (the
"Securities Purchase Agreements") with certain affiliates of Butler Capital
Corporation (collectively, "BCC") and with certain members of CT's management
(the "Management Shareholders") pursuant to which JWCAC agreed to purchase at a
price of $14.00 per share 100% of BCC's shares and approximately 36.4% of the
Management Shareholders' shares, representing approximately 64.0% and 1.4% of
the Company's outstanding common stock, respectively (collectively, the
"Securities Purchases"). JWCAC, its parent corporation CT Holding, Inc.
("Holding") and Childs concurrently entered into an agreement and plan of merger
(the "Merger Agreement") with the Company, pursuant to which JWCAC will be
merged with and into the Company (the "Merger") for merger consideration of
$14.25 per share (the "Merger Consideration"). Certain additional members of
management have subsequently agreed to exchange their equity securities in the
Company (valued on the basis of $14.00 per common share) for equity securities
of Holding and, in some cases, cash in connection with the consummation of the
Merger. The Merger and this Offering will be consummated simultaneously and are
each conditioned upon the consummation of the other.
As of January 2, 1997, JWCAC had consummated the Securities Purchases and
paid related expenses utilizing (i) $65.4 million of cash equity contributed to
JWCAC by Holding and (ii) $35.1 million of borrowings under an interim margin
loan facility (the "Margin Loan Facility") with NationsBank, N.A.
("NationsBank"), as Administrative Agent, and Fleet National Bank ("Fleet"), as
Co-Agent. Holding funded its equity contribution by issuing $10.0 million of
preferred stock (the "Preferred Stock") and $55.4 million of common stock, of
which $60.3 million was purchased by Childs and its affiliates and $5.0 million
was purchased by affiliates of Fleet. In connection with the Securities
Purchases, the Company entered into a new term loan (the "New Term Loan") and a
new revolving credit facility (the "New Revolving Credit Facility") with Fleet,
as Administrative Agent, and NationsBank, as Co-Agent (collectively, the "New
Credit Facility") and used a portion of such facility to refinance existing debt
of the Company, including a $16.0 million convertible note held by BCC. See
"Description of New Credit Facility." In connection with the Merger, (i) the
Company will become the wholly owned subsidiary of Holding, (ii) the Management
Shareholders will exchange $4.0 million in cash, notes and equity securities of
the Company for equity securities of Holding and (iii) the shareholders of the
Company (other than JWCAC, persons who perfect dissenters' appraisal rights and
the Management Shareholders) will receive the Merger Consideration. The proceeds
of the Offering will be used to pay the Merger Consideration, repay the Margin
Loan Facility, pay down a portion of the New Revolving Credit Facility and pay
related fees and expenses. See "Use of Proceeds." Upon consummation of the
Merger, the Company will have been capitalized with $69.2 million of equity (the
"Equity Investment") and $107.7 million of long-term debt (excluding $1.8
million of current maturities). On a fully diluted basis, immediately after
giving effect to the Merger, Holding will be owned approximately 85% by Childs
and its affiliates, approximately 7% by affiliates of Fleet and approximately 8%
by current members of the Company's management. Childs and the Fleet affiliates
presently expect to sell their respective interests in the Preferred Stock to
other investors shortly after consummation of the Merger.
3
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The Securities Purchases, the Merger and the related financing transactions are
collectively referred to herein as the "Acquisition."
RECENT RESULTS
Based upon preliminary unaudited results for the three months ending
February 1, 1997, the Company's net sales were $71.5 million, an increase of
$1.5 million, or 2.2%, as compared to the three months ending January 27, 1996.
This increase was primarily attributable to the addition of new stores and the
acquisition of the Big Bear stores (each of which occurred during the 1996
fiscal year), offset by a decline in comparable store sales. Revenue for the six
Big Bear stores that were converted to the CT format at the beginning of fiscal
1997 increased significantly during the three months ending February 1, 1997 as
compared to the same period for the prior fiscal year. For the three months
ending February 1, 1997 versus the same period for the prior fiscal year, the
Company's EBITDA grew from $3.5 million to $3.7 million, an increase of 5.0%.
Comparable store sales, which exclude the recently acquired Big Bear stores,
declined by 11.9% versus the same period for the prior fiscal year. Based upon
its analysis of sales by product line, management believes that the decrease in
comparable store sales was primarily attributable to mild Northeastern winter
weather conditions, where CT operated approximately two-thirds of its comparable
stores, compared to the previous fiscal year and the elimination of two
promotional events run during the first quarter of fiscal 1996. The majority of
the Company's sales occur in the second and third quarters of its fiscal year,
and management does not believe that comparable store sales for the three months
ending February 1, 1997 are necessarily indicative of results for the entire
1997 fiscal year. In the preparation of the unaudited financial data for the
three-month periods, all adjustments (consisting of normal recurring accruals)
have been made which are, in the opinion of management, necessary for the fair
and consistent presentation of such financial data.
4
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THE OFFERING
Securities Offered......... $100,000,000 aggregate principal amount of %
Senior Notes due 2007 of the Company (the "Senior
Notes").
Maturity Date.............. , 2007.
Interest Payment Dates..... and , commencing
, 1997.
Ranking.................... The Senior Notes will be general unsecured
obligations of the Company, senior to all existing
and future subordinated indebtedness of the
Company and pari passu in right of payment with
all other existing and future unsubordinated
indebtedness of the Company, including
indebtedness under the New Credit Facility.
However, the obligations of the Company under the
New Credit Facility will be secured by
substantially all of the assets of the Company and
its future subsidiaries, and the Indenture for the
Senior Notes (the "Indenture") restricts, but does
not prohibit, the Company from incurring
additional secured indebtedness. Accordingly, such
secured indebtedness will effectively rank senior
to the Senior Notes to the extent of such assets.
As of November 2, 1996, on a pro forma basis after
giving effect to the Acquisition, including the
Offering and the application of the net proceeds
therefrom, the Company would have had $18.1
million of secured indebtedness which would have
effectively ranked senior to the Senior Notes.
Optional Redemption........ On or after , 2002, the Company may
redeem the Senior Notes, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date
of redemption. Notwithstanding the foregoing, at
any time on or before , 2000, the
Company may redeem up to 35% of the original
aggregate principal amount of the Senior Notes
with the net cash proceeds of a Public Equity
Offering (as defined herein) at a redemption price
of % of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date
of redemption provided that at least 65% of the
original aggregate principal amount of Senior
Notes originally issued remain outstanding
immediately after redemption.
Guarantees................. Upon consummation of the Offering, the Company
will have no subsidiaries. However, the Senior
Notes will be unconditionally guaranteed on a
joint and several basis (the "Subsidiary
Guarantees") by any future subsidiaries of the
Company, subject to certain exceptions
(collectively, the "Guarantors"). The Subsidiary
Guarantees will rank senior to all existing and
future subordinated indebtedness of the Guarantors
and pari passu with all other unsubordinated
indebtedness of the Guarantors, including the
guarantees of indebtedness under the New Credit
Facility. Any Guarantor's obligations under the
New Credit Facility, however, will be secured by a
lien on substantially all of the assets of such
Guarantor, and the Indenture restricts, but does
not prohibit, the Guarantors from incurring
additional secured indebtedness. Accordingly, such
secured indebtedness will rank prior to the
Subsidiary Guarantees with respect to such assets.
Change of Control.......... Upon a Change of Control (as defined herein), the
Company (i) will be required to make an offer to
repurchase all outstanding Senior Notes at 101% of
the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of
repurchase and (ii) prior to ,
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2002 will have the option to redeem the Senior
Notes, in whole or in part, at a redemption price
equal to the principal amount thereof, plus
accrued and unpaid interest, if any, to the
redemption date plus the Applicable Premium (as
defined herein). There can be no assurance that
sufficient funds will be available to the Company
at the time of any Change of Control to make any
required repurchases of Senior Notes. See "Risk
Factors -- Potential Inability to Fund Change of
Control Offer," "Description of Senior
Notes -- Repurchase at the Option of
Holders -- Change of Control" and "-- Optional
Redemption upon Change of Control."
Covenants.................. The Indenture will restrict, among other things,
the Company's and its future subsidiaries' ability
to incur additional indebtedness, pay dividends or
make certain other restricted payments, incur
liens, engage in any sale and leaseback
transaction, sell stock of subsidiaries, apply net
proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign,
transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company or
enter into certain transactions with affiliates.
Use of Proceeds............ The proceeds of the Offering will be used to repay
borrowings under the Margin Loan Facility, pay the
Merger Consideration, temporarily repay a portion
of the New Revolving Credit Facility and pay fees
and expenses of the Offering and Acquisition. See
"Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Senior Notes.
6
<PAGE> 12
SUMMARY FINANCIAL DATA
Set forth below are selected historical and pro forma financial data and
other historical operating data of the Company. The historical Statement of
Operating Data of the Company for fiscal 1992 through fiscal 1996 and the
historical Balance Sheet Data as of November 2, 1996 have been derived from the
Company's audited financial statements for those periods. The information
presented below should be read in conjunction with "Capitalization," "Pro Forma
Condensed Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------------
PRO FORMA
1996
1992 1993 1994 1995 1996(1) (UNAUDITED)(2)
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS, EXCEPT RATIOS AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales................................... $198,055 $202,589 $231,064 $251,703 $293,020 $307,847
Cost of sales............................... 142,310 143,144 161,523 177,340 207,228 218,177
-------- -------- -------- -------- -------- --------
Gross profit................................ 55,745 59,445 69,541 74,363 85,792 89,670
Selling, general and administrative
expenses.................................. 46,986 47,529 54,548 58,294 68,197 71,638
Amortization of intangibles................. 881 869 841 862 938 2,159
-------- -------- -------- -------- -------- --------
Operating income............................ 7,878 11,047 14,152 15,207 16,657 15,873
Interest expense............................ 5,140 4,842 4,774 1,302(3) 1,663 12,739
-------- -------- -------- -------- -------- --------
Income before income taxes.................. 2,738 6,205 9,378 13,905 14,994 3,134
Income taxes................................ 1,274 2,935 4,197 5,720 6,250 1,963
-------- -------- -------- -------- -------- --------
Income from continuing operations........... $ 1,464 $ 3,270 $ 5,181 $ 8,185 $ 8,744 $ 1,171
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(4)....... 1.4x 2.0x 2.5x 5.8x 5.3x 1.2x
OTHER DATA:
Number of stores (at period end)............ 47 50 55 66 111(5)
Comparable store sales increase
(decrease)(6)............................. 5.4% 4.2% 10.0% (1.6)% 1.0%
Comparable store sales per square foot(7)... $ 210 $ 218 $ 240 $ 224 $ 222
Capital expenditures........................ 2,074 2,140 5,207 6,339 8,789
Depreciation and amortization............... 2,971 3,066 3,386 3,385 4,054 $ 5,304
Net cash provided by (used in):
Operating activities from continuing
operations............................ (1,233) 5,037 (3,571) (5,967) 4,961 (1,362)
Investing activities.................... (2,640) (2,550) (5,516) (6,813) (14,184) (14,184)
Financing activities.................... 4,249 1,303 6,312 11,964 (3,215) (3,215)
EBITDA(8)................................... $ 10,849 $ 14,113 $ 17,538 $ 18,592 $ 20,711 $ 21,177
EBITDA margin............................... 5.5% 7.0% 7.6% 7.4% 7.1% 6.9%
Ratio of EBITDA to interest(9).............. 1.8x
Ratio of net long-term debt to EBITDA(10)... 4.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 2, 1996
-------------------------
ACTUAL PRO FORMA(2)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................................................... $ 3,809 $ 3,809
Working capital........................................................................ 63,803 60,323
Total assets........................................................................... 159,238 237,305
Long-term debt, less current portion................................................... 17,341 107,741
Stockholders' equity................................................................... $ 90,063 $ 69,169(11)
</TABLE>
7
<PAGE> 13
- ---------------
(1) 53-week fiscal year. On May 31, 1996, the Company acquired 31 stores and
certain net operating assets of Big Bear. The Big Bear stores generated
$9.5 million of sales during the five months in which they were operated by
CT.
(2) The Pro Forma Statement of Operating Data and Other Data give effect to (i)
the acquisition of 31 stores and certain net operating assets from Big
Bear, (ii) the Acquisition and (iii) the Offering as though these
transactions had occurred on October 29, 1995. The Pro Forma Balance Sheet
Data gives effect to (i) the Acquisition and (ii) the Offering as though
these transactions had occurred on November 2, 1996. See "Pro Forma
Condensed Consolidated Financial Data."
(3) In fiscal 1994, the Company consummated an initial public offering of
common stock and applied the net proceeds to reduce long-term debt.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing cost and 20.0% of the rent expense from
operating leases which the Company believes is a reasonable approximation
of the interest factor included in the rent.
(5) As of December 31, 1996, CT had opened one additional store subsequent to
fiscal year-end 1996.
(6) Percentage change in store sales as compared to sales for the same stores
for the prior year for stores open and operated by CT for at least twelve
months in each year. The 1.0% increase in comparable store sales in 1996
has been adjusted to reflect a comparable 52-week fiscal year. Comparable
store sales grew 2.9% without such adjustment.
(7) Comparable store sales per square foot is calculated by dividing store
sales by total indoor selling square footage for stores open and operated
by CT at least twelve months in each period.
(8) Income from continuing operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation and
amortization of intangibles. EBITDA is presented because it is a widely
accepted financial indicator of a leveraged company's ability to service
and/or incur indebtedness and because management believes that EBITDA is a
relevant measure of the Company's ability to generate cash without regard
to the Company's capital structure or working capital needs. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating
EBITDA, investors should consider that EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities, such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with GAAP, (iii) should not be
construed as an alternative or substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be used as an
indicator of the Company's operating performance or as a measure of its
liquidity. EBITDA has been steadily increasing in the periods presented.
Management interprets this trend as showing stable cash flows for the
Company in the periods presented.
(9) Assumes pro forma cash interest expense of $12,099, consisting of $548 for
the New Revolving Credit Facility, $613 for the New Term Loan, $10,750 for
the Senior Notes and $188 for capitalized leases. Cash interest expense
differs from interest expense for GAAP accounting purposes by amortization
of deferred financing costs in the amount of $640. The ratio of EBITDA to
interest expense for GAAP accounting purposes is 1.7x. The ratio of EBITDA
to interest expense is presented because it is a widely accepted financial
indicator of a leveraged company's ability to service indebtedness. When
evaluating the ratio of EBITDA to interest expense, investors should
consider the matters relating to EBITDA described in note 8 above.
(10) For purposes of computing this ratio, net long-term debt excludes current
maturities of $1,770 and is net of cash. See "Capitalization."
(11) Pro forma stockholders' equity is computed as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
-------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled-over by senior
management (654)
-------
Adjusted contributed equity capital $69,169
=======
</TABLE>
8
<PAGE> 14
RISK FACTORS
Prospective investors should carefully consider the specific factors set
forth below, as well as the other information included in this Prospectus,
before deciding to purchase the Senior Notes offered hereby.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company has and will continue to have substantial indebtedness and
significant debt service obligations. On a pro forma basis, after giving effect
to the Acquisition, including this Offering and the application of the net
proceeds therefrom, the Company's total debt and stockholders' equity as of
November 2, 1996 would have been $118.1 million and $69.2 million, respectively.
Of such total debt, $18.1 million would have been secured indebtedness
effectively ranking senior to the Senior Notes, and other than current
liabilities aggregating $48.8 million, the Company would have had no
indebtedness or other obligations effectively ranking pari passu with the Senior
Notes. In addition, subject to the restrictions contained in the agreements
governing the Company's indebtedness, the Company may incur additional
indebtedness from time to time to finance acquisitions, for capital expenditures
and for other purposes. The restrictions imposed under the Indenture would have
permitted the Company to incur an additional $53.9 million in indebtedness
effectively ranking senior to the Senior Notes immediately after giving effect
to the Acquisition and the consummation of the Offering. See "Capitalization,"
"Pro Forma Condensed Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company's level of indebtedness will have several important effects on
its future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the New Credit Facility will require the Company to meet certain
financial tests, (iii) such covenants, the Indenture governing the Senior Notes
and certain other restrictions may limit the Company's ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities and (iv) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes may be impaired. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Senior Notes"
and "Description of New Credit Facility."
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to general economic conditions and to financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control. Based upon the current and anticipated level of operations,
the Company believes, however, that its cash flow from operations, together with
amounts available under the New Credit Facility, will be adequate to meet its
anticipated requirements in the foreseeable future for working capital, capital
expenditures, interest payments and scheduled principal payments. There can be
no assurance, however, that the Company's business will continue to generate
cash flow at or above current levels. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of its existing debt, including the
Senior Notes, or to obtain additional financing. There can be no assurance that
any such refinancing would be possible, that any additional financing could be
obtained or that any refinancing or additional financing would be on terms which
are favorable to the Company. The inability to obtain additional financing or
refinancing on favorable terms could have a material adverse effect on the
Company. For example, a default by the Company under the terms of the Indenture
would result in a default under the terms of the New Credit Facility.
EFFECTIVE SUBORDINATION
The Company has entered into the New Credit Facility pursuant to which,
upon consummation of the Acquisition, it will have term borrowings of $8.0
million. In addition, the Company will have the ability to borrow up to $30.0
million on a revolving credit basis under the New Credit Facility, subject to
borrowing base
9
<PAGE> 15
limitations (of which approximately $18.0 million is expected to be outstanding
following the Offering). The New Credit Facility will be secured by liens on
substantially all of the assets of the Company and the Subsidiary Guarantors.
Accordingly, the lenders under the New Credit Facility will have claims with
respect to the assets constituting collateral for any indebtedness thereunder
that will be satisfied prior to the unsecured claims of holders of the Senior
Notes. See "Description of New Credit Facility." In addition, the Indenture
restricts, but does not prohibit, the Company from incurring additional secured
indebtedness. See "Description of Senior Notes." The Senior Notes will be
effectively subordinated to the New Credit Facility and any other secured
indebtedness, to the extent of such security interests. In the event of a
default on the Senior Notes or a bankruptcy, liquidation or reorganization of
the Company, such assets will be available to satisfy obligations of the secured
debt before any payment could be made on the Senior Notes. Accordingly, there
may only be a limited amount of assets available to satisfy any claims of the
holders of Senior Notes upon an acceleration of the Senior Notes. To the extent
that the value of such collateral is insufficient to satisfy such secured
indebtedness, amounts remaining outstanding on such secured indebtedness would
be entitled to share pari passu with respect to any other assets of the Company.
At November 2, 1996, pro forma for the Acquisition and the related financings,
the Senior Notes would have been effectively subordinated to $18.1 million of
secured indebtedness.
NEW STORE GROWTH
The Company grew from 47 stores at the beginning of fiscal 1993 to 112
stores as of December 31, 1996. The Company plans to open one additional store
in fiscal 1997 and approximately 15 stores in each of fiscal 1998 and fiscal
1999. A significant portion of the Company's expansion plan may occur through
acquisitions as an alternative to direct investments in new store openings. In
addition, the Company's strategy of pursuing selective acquisitions could result
in acquisitions of medium or large agricultural specialty retail chains which
could substantially accelerate and exceed the Company's currently planned
growth. See "Business -- Business Strategy." The proposed expansion could be
more rapid than the Company's historical growth, and the continued growth of the
Company will depend, in large part, upon the Company's ability to open or
acquire new stores in a timely manner and to operate them profitably. However,
successful expansion is subject to various contingencies, many of which are
beyond the Company's control. These contingencies include, among others, (i) the
Company's ability to identify, finance and complete suitable acquisitions on
acceptable terms, (ii) the Company's ability to identify and secure suitable
store sites on a timely basis and on satisfactory terms, (iii) the Company's
ability to hire, train and retain qualified managers and other personnel and
(iv) the successful integration of new stores, or newly acquired store chains,
into CT's existing operations. Restrictions on additional indebtedness or
investments imposed under the Indenture or the New Credit Facility and
limitations on the availability of undrawn amounts under the New Credit Facility
may limit the Company's ability to finance expansion. In addition, a portion of
CT's future growth is expected to result from the conversion of all 31 Big Bear
stores to the CT format. However, the conversion process will require that the
remaining 17 unconverted stores be closed for approximately three weeks and
there can be no assurance that after reopening such stores will achieve targeted
operating levels. No assurance can be given that the Company will be able to
complete its expansion plans successfully. The Company's failure to achieve
results for new stores similar to those achieved with prior locations, or
continue to manage its growth effectively, could materially adversely affect its
business, financial condition and results of operations.
SEASONALITY
The Company's sales and operating income are highest in the second and
third quarters of each fiscal year (and the Company's working capital needs peak
in the second fiscal quarter) due to the farming industry's planting season and
the sale of seasonal products. Over the last five years, the second and third
fiscal quarters have accounted for approximately 54% of the Company's sales and
approximately 68% of its EBITDA. Consequently, an economic downturn during these
periods could adversely affect the Company to a greater extent than if such
downturn occurred at other times during the year. If the Company is affected by
such an economic downturn, its business, results of operations and financial
condition could be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality."
10
<PAGE> 16
EMPHASIS ON AGRICULTURAL PRODUCTS; REGIONAL CONCENTRATION
The Company's product mix is heavily targeted to the agricultural consumer.
Consequently, the Company's sales volume and income from operations depend
significantly upon agricultural activity, which may, in turn, be affected by
severe weather conditions, such as excessive rain, drought or early or late
frosts. There can be no assurance that agricultural conditions and severe
weather conditions will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The majority of the Company's stores are located in the Northeastern and
Midwestern United States, and the Company's expansion plan includes locating
additional stores in the Midwest and new stores in the Southeast United States.
In addition, most of the Company's stores are located in less populated areas
and rural environments that are substantially dependent upon the local economy.
As a result, the Company's sales and profitability are largely dependent on the
general strength of the economy in these regions, regional weather conditions,
regional demographic changes and other regional factors. A downturn in the
economies of these regions could have an adverse impact on the Company's
business, financial condition and results of operations and the ability of the
Company to implement its expansion plan.
COMPETITION
The Company faces competition primarily from other chain and single-store
agricultural specialty retailers, general merchandise retailers and home
centers. Some of these competitors have substantially greater financial and
other resources than the Company.
Currently, most of the Company's stores do not compete directly in the
trading areas of other agricultural specialty retail chains. However, the
Company's expansion plans will likely result in new stores being located in
trading areas currently served by one or more of these chains, and there can be
no assurance that these chains, certain of which have announced expansion plans,
will not expand into the Company's trading areas. Expansion by the Company into
trading areas currently served by its competitors or expansion by competitors
into the Company's trading areas could have a material adverse effect on the
Company's business, financial condition or results of operation.
In addition, the Company competes in over 90% of its trading areas with
general merchandise retailers and/or home centers and expects these retailers to
be in many of the trading areas targeted for expansion. The Company believes
that its merchandise mix and level of customer service successfully
differentiate it from general merchandise retailers and home centers, and as a
result the Company has to date been able to operate profitably despite
competition from general merchandise retailers and home centers. However, in the
past certain general merchandise retailers and home centers have modified their
product mix and marketing strategies in an apparent effort to compete more
effectively in the Company's product lines. There can be no assurances that
these efforts will not continue or that the Company will continue to be able to
compete successfully against current and future competition.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are largely dependent on the efforts of its senior
management, including James T. McKitrick, the Company's CEO. Although the
Company has employment agreements with certain of its key executives, there can
be no assurance that these individuals will continue to work for the Company.
Additionally, in order to successfully manage its growth strategy, the Company
must continue to attract and retain qualified personnel. The Company does not
currently maintain "key man" life insurance policies on any of its employees. If
certain of the current key personnel should cease to be employed by the Company
for any reason, or if the Company should be unable to continue to attract and
retain qualified management personnel, the Company's business, financial
condition and results of operations could suffer a material adverse effect. See
"Management."
11
<PAGE> 17
POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER
Upon a Change of Control (as defined in the Indenture), each holder will
have the right to require the Company to repurchase all or any part of such
holder's Senior Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of repurchase. However, there can be no
assurance that sufficient funds will be available to the Company at the time of
any Change of Control to make any required repurchases of Senior Notes tendered.
Moreover, restrictions in the New Credit Facility prohibit the Company from
making such required repurchases; therefore, any such repurchases would
constitute an event of default under the New Credit Facility. See "Description
of New Credit Facility."
CONTROL BY INVESTORS
Upon completion of the Acquisition, 100% of the outstanding shares of the
Company's common stock will be owned by Holding. Holding has no business other
than holding the stock of the Company, which is the sole source of Holding's
financial resources. Following the Acquisition, Holding will be controlled by
Childs and its affiliates, which will beneficially own shares representing 85%
of the voting interest in Holding on a fully diluted basis and will have the
right to designate all of the directors of Holding other than Messrs. McKitrick
and Longnecker. Accordingly, Childs, through its control of Holding, will
control the Company and have the power to elect all of its directors, appoint
new management and approve any action requiring the approval of the holders of
the Company's common stock, including adopting amendments to the Company's
Certificate of Incorporation and approving mergers or sales of substantially all
of the Company's assets. John W. Childs is President of J.W. Childs Associates,
Inc., the general partner of J.W. Childs Associates, L.P., the general partner
of J.W. Childs Advisors, L.P., the general partner of Childs. The directors
elected by Holding will have the authority to make decisions affecting the
capital structure of the Company, including the issuance of additional
indebtedness. See "Management," "Certain Transactions" and "Security Ownership
of Certain Beneficial Owners and Management."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent conveyance law, if, among other things, the
Company or any of the Guarantors, at the time it incurred the indebtedness
evidenced by the Senior Notes or its Subsidiary Guarantee, as the case may be,
(i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or
(b) was or is engaged in a business or transaction for which the assets
remaining with the Company or such Guarantor constituted unreasonably small
capital or (c) intended or intends to incur, or believed or believes that it
would incur, debts beyond its ability to repay such debts as they mature, and
(ii) the Company or such Guarantor received or receives less than the reasonably
equivalent value of fair consideration for the incurrence of such indebtedness,
the Senior Notes and the Subsidiary Guarantees could be voided, or claims in
respect of the Senior Notes or such Subsidiary Guarantees could be subordinated
to all other debts of the Company or such Guarantors, as the case may be. The
voiding or subordination of any of such indebtedness could result in an Event of
Default (as defined in the Indenture) with respect to such indebtedness, which
could result in acceleration thereof. In addition, the payment of interest and
principal by the Company pursuant to the Senior Notes or the payment of amounts
by a Guarantor pursuant to a Subsidiary Guarantee could be voided and required
to be returned to the person making such payment, or to a fund for the benefit
of the creditors of the Company or such Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets at a fair valuation or
if the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
To the extent any Subsidiary Guarantees were voided as a fraudulent
conveyance or held unenforceable for any other reason, holders of Senior Notes
would cease to have any claim in respect of such Guarantor and
12
<PAGE> 18
would be creditors solely of the Company and any Guarantor whose Subsidiary
Guarantee was not avoided or held unenforceable. In such event, the claims of
holders of Senior Notes against the issuer of an invalid Subsidiary Guarantee
would be subject to the prior payment of all liabilities and preferred stock
claims of such Guarantor. There can be no assurance that, after providing for
all prior claims and preferred stock interests, if any, there would be
sufficient assets to satisfy the claims of holders of Senior Notes relating to
any voided portions of any Subsidiary Guarantees.
On the basis of its historical financial information, recent operating
history as discussed in "Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other factors, the Company believes that, after giving effect to
the indebtedness incurred in connection with the Offering, it (i) will not be
insolvent, will not have unreasonably small capital for the businesses in which
it is engaged and will not incur debts beyond its ability to pay such debts as
they mature and (ii) will have sufficient assets to satisfy any probable money
judgment against it in any pending action. There can be no assurance, however,
as to what standard a court would apply in making such determinations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation statements containing the words "believes," "anticipates," "intends,"
"expects," and words of similar import, constitute "forward-looking statements."
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Certain of these factors are discussed in more detail elsewhere in
this Prospectus, including, without limitation, under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
ABSENCE OF PUBLIC MARKET
There is no existing public market for the Senior Notes, and the Company
does not intend to list the Senior Notes on any national securities exchange.
Although the Underwriter has advised the Company that it currently intends to
make a market in the Senior Notes, the Underwriter is not obligated to do so and
may discontinue such market-making at any time. Accordingly, no assurance can be
given that an active public or other market will develop upon completion of this
Offering or, if developed, that such market will be sustained, or as to the
liquidity of or the trading market for the Senior Notes. The initial offering
price of the Senior Notes will be determined through negotiations between the
Company and the Underwriter, and may bear no relationship to the market price of
the Senior Notes after the Offering. Factors such as quarterly or cyclical
variations in the Company's financial condition and results of operations,
variations in interest rates, future announcements concerning the Company or its
competitors, government regulation, general economic and other conditions could
cause the market price of the Senior Notes to fluctuate substantially.
13
<PAGE> 19
USE OF PROCEEDS
The proceeds to the Company from the Offering will be $100.0 million before
deducting commissions and estimated expenses of the Offering. The proceeds from
the Offering will be used to repay borrowings under the Margin Loan Facility,
pay the Merger Consideration, temporarily repay revolving borrowings under the
New Credit Facility and pay fees and expenses of the Offering and the
Acquisition.
The following table sets forth the sources and uses of the gross proceeds
of the Offering, assuming the Merger and the Offering are consummated on
February 28, 1997 (in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Senior Notes offered hereby............................................. $100,000
--------
Total sources................................................... $100,000
========
USES OF FUNDS:
Refinance Margin Loan Facility(1)....................................... $ 35,649
Pay Merger Consideration(2)............................................. 51,827
Repay New Credit Facility(3)............................................ 1,923
Fees and expenses(4).................................................... 10,601
--------
Total uses...................................................... $100,000
========
</TABLE>
- ---------------
(1) The Margin Loan Facility consists of $32,620 of principal amount of term
debt due April 30, 1997 and $3,029 of principal amount of the revolving debt
due April 30, 1997. Indebtedness thereunder bears interest at 7-day or
30-day LIBOR plus 350 basis points (9.16% as of December 31, 1996). The
$35,649 of outstanding indebtedness was used to partially fund the purchase
of shares of CT from BCC and the Management Shareholders and to pay the fees
and interest associated with the facility.
(2) Pursuant to the Merger, (i) 3,606,138 shares of common stock of the Company
will each be converted into the right to receive $14.25 in cash and (ii)
options to purchase 50,409 shares common stock of the Company will be
converted into the right to receive $14.25 per share in cash less the
aggregate exercise price of $431. In connection with the Merger, certain
members of management will exchange (i) 2,102 shares of common stock for
$14.00 per share in cash, and (ii) options to purchase 67,190 shares of
common stock of the Company for $14.00 per share in cash less the aggregate
exercise price of $818.
(3) The New Credit Facility provides for an $8,000 term loan and a $30,000
revolving credit loan facility. The term loan and $17,250 of revolving loans
($25,250 in total) were borrowed on December 23, 1996 to repay existing debt
of the Company, of which $16,000 was incurred in connection with the
acquisition of the Company by BCC in 1988 and $9,250 was incurred for
working capital needs. Upon consummation of this Offering, approximately
$1,923 of such revolving loans will be repaid with the proceeds of the
Offering. Amounts so repaid will continue to be available to be borrowed
under the New Revolving Credit Facility. Borrowings under the New Credit
Facility bear interest on the basis of rates selected by the Company from
time to time. See "Description of New Credit Facility." As of December 31,
1996, the weighted average interest rate on borrowings under the New Credit
Facility was 7.85%.
(4) Includes discounts and commissions and estimated expenses to be incurred in
connection with the Offering and the application of the net proceeds
therefrom, and fees and expenses payable in connection with the Acquisition
and the financing thereof, including $3,000 in underwriting discounts and
commissions payable to the Underwriter, approximately $2,200 payable to CT's
investment bankers in connection with the Merger and approximately $1,700 as
an advisory and financing fee payable to Associates in connection with the
Merger.
14
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of November 2, 1996, (i) the
consolidated capitalization of the Company and (ii) the pro forma consolidated
capitalization of the Company after giving effect to the Acquisition and the
Offering and the application of the net proceeds therefrom as described in "Use
of Proceeds." This table should be read in conjunction with the Pro Forma
Condensed Consolidated Financial Data and the notes thereto and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 2, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................................... $ 3,809 $ 3,809
========= =========
Short-term bank debt........................................... $ 3,669 $ 8,597(1)
========= =========
Long-term debt:
New Term Loan(2)............................................. $ -- $ 8,000
Capital lease obligations(3)................................. 1,511 1,511
% Senior Notes due 2007.................................... -- 100,000
7% Convertible Notes......................................... 16,000 --
--------- ---------
Total long-term debt................................. 17,511 109,511
Total stockholders' equity (4)................................. 90,063 69,169
--------- ---------
Total capitalization................................. $ 107,574 $ 178,680
========= =========
</TABLE>
- ---------------
(1) Consists of borrowings under the $30,000 New Revolving Credit Facility. The
Company has historically classified borrowings under its revolving credit
facilities as short-term because it expects to temporarily repay all
outstanding borrowings at some time within the next twelve months.
(2) Includes current maturities of $1,600.
(3) Includes current maturities of $170.
(4) The adjustments to stockholders' equity are as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $ 60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
--------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled over by senior management (654)
--------
Adjusted contributed equity capital 69,169
Less historical stockholders' equity in the Company (90,063)
--------
Decrease in stockholders' equity $(20,894)
========
</TABLE>
15
<PAGE> 21
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial Data are
based on the historical audited consolidated financial statements of the Company
included elsewhere in this Prospectus, adjusted to give effect to the pro forma
adjustments described in the notes thereto. The Unaudited Pro Forma Condensed
Consolidated Statement of Income Data gives effect to: (i) the acquisition of 31
stores and certain net operating assets from Big Bear by the Company; (ii) the
Acquisition; and (iii) the Offering as though these transactions had occurred on
October 29, 1995. The Unaudited Pro Forma Condensed Consolidated Balance Sheet
Data gives effect to: (i) the Acquisition; and (ii) the Offering as though these
transactions had occurred on November 2, 1996.
The pro forma adjustments are based upon available data and certain
assumptions that the Company believes are reasonable. The Unaudited Pro Forma
Condensed Consolidated Financial Data are not necessarily indicative of the
Company's financial position or results of operations that might have occurred
had the aforementioned transactions been completed as of the dates indicated
above and do not purport to represent what the Company's consolidated financial
position or results of operations might be for any future period or date. The
Unaudited Pro Forma Condensed Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
The Acquisition will be accounted for using the purchase method of
accounting. The total purchase price will be allocated to the tangible and
intangible assets and the liabilities of the Company based upon their respective
fair values. The allocation of the aggregate purchase price included in the
Unaudited Pro Forma Condensed Consolidated Financial Data is preliminary.
However, the Company does not expect that the final allocation of the purchase
price will materially alter the pro forma financial position and results of
operations appearing in the following pages.
16
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA CT
HISTORICAL BIG BEAR FOR FOR YEAR ENDED
CT FOR YEAR PERIOD OF SEVEN NOVEMBER 2, THE PRO FORMA CT
ENDED MONTHS ENDED 1996 (GIVING ACQUISITION FOR YEAR ENDED
NOVEMBER 2, MAY 31, 1996 EFFECT TO BIG PRO FORMA NOVEMBER 2,
1996 (1) BEAR) ADJUSTMENTS 1996
----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales................... $ 293,020 $14,827 $307,847 $ -- $307,847
Cost of sales............... 207,228 10,949 218,177 -- 218,177
-------- ------- -------- ------- --------
Gross profit................ 85,792 3,878 89,670 -- 89,670
Selling, general and
administrative expenses... 68,197 3,201 71,398 240(4) 71,638
Amortization of
intangibles............... 938 78(2) 1,016 1,143(5) 2,159
-------- ------- -------- ------- --------
Operating income............ 16,657 599 17,256 (1,383) 15,873
Interest expense............ 1,663 -- 1,663 11,076(6) 12,739
-------- ------- -------- ------- --------
Income before income
taxes..................... 14,994 599 15,593 (12,459) 3,134
Income taxes................ 6,250 239(3) 6,489 (4,526)(7) 1,963
-------- ------- -------- ------- --------
Net income.................. $ 8,744 $ 360 $ 9,104 $(7,933) $ 1,171
======== ======= ======== ======= ========
Net income per share........ $ 0.80 $ 0.83 $ 0.11
Weighted average common and
common equivalent shares
outstanding............... 10,986 10,986 10,986
Ratio of earnings to fixed
charges(8)................ 5.3x 1.2x
</TABLE>
17
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME DATA
(1) The Company acquired 31 retail stores and certain net operating assets from
Big Bear as of May 31, 1996 for $5,700. Results of operations of these Big
Bear stores for the period of seven months ended May 31, 1996 represents (i)
historical store-level operating results for the acquired retail stores and
do not include any distribution, merchandising or general and administrative
costs and expenses of Big Bear which were accounted for at the Big Bear
corporate office level and not allocated to the stores; and (ii) the
following pro forma incremental costs which represent the estimated
additional costs to the Company to provide distribution, merchandising, and
general and administrative services to the 31 acquired Big Bear stores for
the seven-month period:
<TABLE>
<S> <C>
Cost of sales -- distribution costs $227
Selling, general and administrative expenses 200
----
$427
====
</TABLE>
Actual results of operations of the Big Bear stores for the period of five
months ended November 2, 1996 since the date of acquisition are included in
the consolidated results of operations of the Company for the year ended
November 2, 1996.
(2) Represents pro forma amount of goodwill amortization relating to the Big
Bear acquisition for the seven months ended May 31, 1996.
(3) Represents pro forma income taxes relating to the pro forma to income before
income taxes of the acquired Big Bear stores for the seven-month period
ended May 31, 1996, computed using a marginal tax rate of 40.0%.
(4) Represents an annual management fee charged by Associates.
(5) Represents the incremental amount of goodwill amortization (over a period of
40 years) as a result of the increase in goodwill attributable to the
acquisition of the Company by JWCAC and the subsequent merger of JWCAC into
the Company.
(6) Represents the incremental amount of interest expense relating to the
Acquisition computed as follows:
<TABLE>
<S> <C>
Interest expense related to new debt:
New Revolving Credit Facility $ 548
New Term Loan 613
Senior Notes offered hereby 10,750
Amortization of deferred financing charges 640
Interest on capital leases 188
-------
Subtotal 12,739
Less: interest expense relating to repaid debt (1,663)
-------
Pro forma adjustment $11,076
=======
</TABLE>
Interest expense related to the New Revolving Credit Facility is determined
based on an annual average of approximately $7,150 of borrowings
outstanding. Interest expense was calculated using the following average
rates: (a) New Revolving Credit Facility: 7.66% (b) New Term Loan: 7.66% and
(c) Senior Notes: 10.75%.
(7) Represents the reduction in income tax to record the income tax benefit
related to pro forma adjustments for the Associates management fee and
incremental interest expense, computed using an effective income tax rate of
40.0%. No tax benefit was provided relating to the pro forma adjustment for
the incremental amount of goodwill amortization relating to the acquisition
of the Company, since such amounts will not be deductible for income tax
purposes.
(8) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance costs and 20.0% of the rent expense from
operating leases, which the Company believes is a reasonable approximation
of the interest factor included in the rent.
18
<PAGE> 24
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AS OF NOVEMBER 2, 1996
-------------------------------------------------
PRO FORMA
HISTORICAL CT ADJUSTMENTS(1) PRO FORMA CT
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,809 $ -- $ 3,809
Inventory........................................ 107,203 5,081(2) 112,284
Other current assets............................. 3,360 -- 3,360
--------- -------- --------
Total current assets.......................... 114,372 5,081 119,453
Property, improvements and equipment, net........ 24,457 -- 24,457
Goodwill and other intangible assets............. 20,034 66,286(3) 86,320
Deferred financing costs......................... -- 6,700(4) 6,700
Other assets....................................... 375 -- 375
--------- -------- --------
Total assets............................. $ 159,238 $ 78,067 $237,305
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit.............................. $ 3,669 $ 4,928(5) $ 8,597
Accounts payable................................. 41,081 -- 41,081
Other accrued expenses........................... 4,736 -- 4,736
Deferred income taxes............................ 913 2,033(6) 2,946
Current portion of long-term debt and capital
leases........................................ 170 1,600(7) 1,770
--------- -------- --------
Total current liabilities..................... 50,569 8,561 59,130
Noncurrent portion of long-term debt and capital
lease obligations............................. 17,341 90,400(7) 107,741
Deferred income taxes............................ 1,265 -- 1,265
--------- -------- --------
Total liabilities............................. 69,175 98,961 168,136
Stockholders' equity.......................... 90,063 (20,894)(8) 69,169
--------- -------- --------
Total liabilities and stockholders'
equity................................. $ 159,238 $ 78,067 $237,305
========= ======== ========
</TABLE>
19
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(1) Pro Forma Adjustments represent adjustments necessary to reflect the
Acquisition. Sources and uses of cash for the Acquisition are as follows:
<TABLE>
<S> <C>
Cash Sources:
Capital contributions from shareholders (net of $3,430 non-cash contributions rolled over
from senior management) $ 65,739
Exercise of stock options by officer 252
New Revolving Credit Facility 8,597
New Term Loan 8,000
Senior Notes offered hereby 100,000
--------
Total cash sources $182,588
========
Cash Uses:
Payments in respect of outstanding common stock, stock warrant and stock options from
existing shareholders $151,919
Repayment of existing Company long-term debt 16,000
Repayment of existing Company short-term debt 3,669
Payment of debt issuance costs 6,700
Other estimated fees and expenses 4,300
--------
Total cash uses $182,588
========
</TABLE>
(2) Increase to record merchandise inventories at estimated selling prices less
the cost of disposal and a reasonable profit allowance.
(3) Excess of cost of acquisition over the allocated fair value of the
underlying tangible net assets as follows:
<TABLE>
<S> <C>
Estimated purchase price $159,649
Fair value of underlying tangible net assets acquired (73,329)
--------
Excess of cost of acquisition over the allocated fair value of the underlying tangible
net assets 86,320
Historical goodwill and other intangible assets of the Company 20,034
--------
Pro forma adjustment to goodwill $ 66,286
========
</TABLE>
(4) Deferred financing costs consist primarily of the underwriting discounts
relating to the Offering and fees relating to the New Credit Facility.
(5) The adjustments to short-term bank line of credit are as follows:
<TABLE>
<S> <C>
Proceeds from New Revolving Credit Facility $ 8,597
Repayment of existing notes payable to bank (3,669)
--------
Increase in short-term bank line of credit $ 4,928
========
</TABLE>
(6) Increase in deferred income taxes relating to inventory adjustment under the
liability method of accounting using a marginal tax rate of 40.0%.
(7) The adjustments to the noncurrent portion of long-term debt are as follows:
<TABLE>
<S> <C>
Proceeds from issuance of new long-term debt:
New Term Loan $ 8,000
Senior Notes offered hereby 100,000
--------
108,000
Less: current portion (1,600)
--------
Subtotal 106,400
Repayment of old long-term debt:
7% convertible notes (16,000)
--------
Increase in long-term debt $ 90,400
========
</TABLE>
(8) The adjustments to stockholders' equity are as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $ 60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
--------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled over by senior management (654)
--------
Adjusted contributed equity capital 69,169
Less: historical stockholders' equity of the Company (90,063)
--------
Decrease in stockholders' equity $(20,894)
========
</TABLE>
20
<PAGE> 26
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are selected historical and pro forma financial data and
other historical operating data of the Company. The historical Statement of
Operating Data of the Company for fiscal 1992 through fiscal 1996 and the
historical Balance Sheet Data as of November 2, 1996 have been derived from the
Company's audited financial statements for those periods. The information
presented below should be read in conjunction with "Capitalization," "Pro Forma
Condensed Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------------
PRO FORMA
1996
1992 1993 1994 1995 1996(1) (UNAUDITED)(2)
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS, EXCEPT RATIOS AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales........................................ $198,055 $202,589 $231,064 $251,703 $293,020 $307,847
Cost of sales.................................... 142,310 143,144 161,523 177,340 207,228 218,177
-------- -------- -------- -------- -------- --------
Gross profit..................................... 55,745 59,445 69,541 74,363 85,792 89,670
Selling, general and administrative expenses..... 46,986 47,529 54,548 58,294 68,197 71,638
Amortization of intangibles...................... 881 869 841 862 938 2,159
-------- -------- -------- -------- -------- --------
Operating income................................. 7,878 11,047 14,152 15,207 16,657 15,873
Interest expense................................. 5,140 4,842 4,774 1,302(3) 1,663 12,739
-------- -------- -------- -------- -------- --------
Income before income taxes....................... 2,738 6,205 9,378 13,905 14,994 3,134
Income taxes..................................... 1,274 2,935 4,197 5,720 6,250 1,963
-------- -------- -------- -------- -------- --------
Income from continuing operations................ $ 1,464 $ 3,270 $ 5,181 $ 8,185 $ 8,744 $ 1,171
======== ======== ======== ======== ======== ========
Income per share from continuing operations...... $ 0.19 $ 0.42 $ 0.66 $ 0.74 $ 0.80 $ 0.11
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(4)............ 1.4x 2.0x 2.5x 5.8x 5.3x 1.2x
OTHER DATA:
Number of stores (at period end)................. 47 50 55 66 111(5)
Comparable store sales increase (decrease)(6).... 5.4% 4.2% 10.0% (1.6)% 1.0%
Comparable store sales per square foot(7)........ $ 210 $ 218 $ 240 $ 224 $ 222
Capital expenditures............................. 2,074 2,140 5,207 6,339 8,789
Depreciation and amortization.................... 2,971 3,066 3,386 3,385 4,054 $ 5,304
Net cash provided by (used in):
Operating activities from continuing
operations................................... (1,233) 5,037 (3,571) (5,967) 4,961 (1,362)
Investing activities........................... (2,640) (2,550) (5,516) (6,813) (14,184) (14,184)
Financing activities........................... 4,249 1,303 6,312 11,964 (3,215) (3,215)
EBITDA(8)........................................ $ 10,849 $ 14,113 $ 17,538 $ 18,592 $ 20,711 $ 21,177
EBITDA margin.................................... 5.5% 7.0% 7.6% 7.4% 7.1% 6.9%
Ratio of EBITDA to interest expense(9)........... 1.8x
Ratio of net long-term debt to EBITDA(10)........ 4.9x
BALANCE SHEET DATA:
Cash............................................. $ 4,498 $ 9,115 $ 2,582 $ 3,094 $ 3,809 $ 3,809
Working capital.................................. 34,167 37,055 50,442 62,496 63,803 60,323
Total assets..................................... 111,446 113,241 139,416 149,977 159,238 237,305
Long-term debt, less current portion............. 37,881 37,536 16,959 16,862 17,341 107,741
Stockholders' equity(11)......................... $ 22,840 $ 24,287 $ 75,735 $ 81,277 $ 90,063 $ 69,169(12)
</TABLE>
21
<PAGE> 27
- ---------------
(1) 53-week fiscal year. On May 31, 1996, the Company acquired 31 stores and
certain net operating assets of Big Bear. The Big Bear stores generated
$9.5 million of sales during the five months in which they were operated by
CT.
(2) The Pro Forma Statement of Operating Data and Other Data give effect to (i)
the acquisition of 31 stores and certain net operating assets from Big
Bear, (ii) the Acquisition and (iii) the Offering as though these
transactions had occurred on October 29, 1995. The Pro Forma Balance Sheet
Data gives effect to (i) the Acquisition and (ii) the Offering as though
these transactions had occurred on November 2, 1996. See "Pro Forma
Condensed Consolidated Financial Data."
(3) In fiscal 1994, the Company consummated an initial public offering of
common stock and applied the net proceeds to reduce long-term debt.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and 20.0% of the rent expense from
operating leases which the Company believes is a reasonable approximation
of the interest factor included in the rent.
(5) As of December 31, 1996, CT had opened one additional store subsequent to
fiscal year-end 1996.
(6) Percentage change in store sales as compared to sales for the same stores
for the prior year for stores open and operated by CT for at least twelve
months in each year. The 1.0% increase in comparable store sales in 1996
has been adjusted to reflect a comparable 52-week fiscal year. Comparable
store sales grew 2.9% without such adjustment.
(7) Comparable store sales per square foot is calculated by dividing store
sales by total indoor selling square footage for stores open and operated
by CT at least twelve months in each period.
(8) Income from continuing operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation and
amortization of intangibles. EBITDA is presented because it is a widely
accepted financial indicator of a leveraged company's ability to service
and/or incur indebtedness and because management believes that EBITDA is a
relevant measure of the Company's ability to generate cash without regard
to the Company's capital structure or working capital needs. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating
EBITDA, investors should consider that EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities, such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with GAAP, (iii) should not be
construed as an alternative or substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be used as an
indicator of the Company's operating performance or as a measure of its
liquidity. EBITDA has been steadily increasing in the periods presented.
Management interprets this trend as showing stable cash flows for the
Company in the periods presented.
(9) Assumes pro forma cash interest expense of $12,099, consisting of $548 for
the New Revolving Credit Facility, $613 for the New Term Loan, $10,750 for
the Senior Notes and $188 for capitalized leases. Cash interest expense
differs from interest expense for GAAP accounting purposes by amortization
of deferred financing costs in the amount of $640. The ratio of EBITDA to
interest expense for GAAP accounting purposes is 1.7x. The ratio of EBITDA
to interest expense is presented because it is a widely accepted financial
indicator of a leveraged company's ability to service indebtedness. When
evaluating the ratio of EBITDA to interest expense, investors should
consider the matters relating to EBITDA described in note 8 above.
(10) For purposes of computing this ratio, net long-term debt excludes current
maturities of $1,770 and is net of cash. See "Capitalization."
(11) The Company has not paid or declared any cash dividends during the periods
presented and is restricted in paying cash dividends under the terms of its
borrowing agreements, including the Indenture.
(12) Pro forma stockholders' equity is computed as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
-------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled-over by senior management (654)
-------
Adjusted contributed equity capital $69,169
=======
</TABLE>
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the selected consolidated
financial data and the consolidated financial statements of the Company and
related notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's Statement of Income expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0%
Gross profit..................................... 30.1 29.5 29.3
Selling, general and administrative expenses..... 23.6 23.2 23.3
Amortization of intangibles...................... 0.4 0.3 0.3
----- ----- -----
Operating income................................. 6.1 6.0 5.7
Interest expense................................. 2.1 0.5 0.6
----- ----- -----
Income before income taxes....................... 4.0 5.5 5.1
Income taxes..................................... 1.8 2.3 2.1
----- ----- -----
Income from continuing operations................ 2.2% 3.2% 3.0%
===== ===== =====
</TABLE>
COMPARISON OF THE YEAR ENDED NOVEMBER 2, 1996 TO THE YEAR ENDED OCTOBER 28, 1995
Net Sales for the fiscal year ended November 2, 1996 were $293.0 million,
an increase of $41.3 million, or 16.4%, as compared to net sales for the fiscal
year ended October 28, 1995 of $251.7 million. This increase was due to a
comparable store sales increase of approximately 1.0% (net of sales attributable
to an extra (53rd) week in fiscal 1996), sales during such extra week, the
opening of 14 new stores in fiscal 1996, a full year of operations for the
eleven new stores opened in fiscal 1995 as compared to a partial year for those
stores during fiscal 1995 and the acquisition of the Big Bear stores in May
1996. The increase in comparable store sales was primarily due to a comparable
store sales increase of 13.8% during the fourth quarter of fiscal 1996 as
compared to the fourth quarter of fiscal 1995. This increase in comparable store
sales during the fourth quarter was the result of normal weather conditions
during fiscal 1996 as compared to unusual and severe drought conditions during
fiscal 1995.
Gross profit for fiscal 1996 was $85.8 million, an increase of $11.4
million, or 15.4%, as compared to $74.4 million for fiscal 1995. Gross profit as
a percentage of sales was 29.3% for fiscal 1996, as compared to 29.5% for fiscal
1995. This decrease is primarily attributable to the sale of lower margin
products in the Big Bear stores prior to their conversion to the CT store
format. Management expects that the completion of the conversion of the Big Bear
stores to the CT store format will improve gross margins as a percentage of
sales.
Selling, general, and administrative expenses for fiscal 1996 were $68.2
million, an increase of $9.9 million, or 17.0%, from $58.3 million for fiscal
1995. This increase was due primarily to costs related to new store openings and
costs related to stores acquired and operated in the Big Bear acquisition.
Selling, general, and administrative expenses as a percentage of sales increased
to 23.3% in fiscal 1996 as compared to 23.2% in fiscal 1995. This increase is
attributable to higher selling, general and administrative expenses as a
percentage of sales at the Big Bear stores, partially offset by a decrease in
selling, general and administrative expenses as a percentage of sales at CT's
existing stores. Management expects that the completion of the conversion of the
Big Bear stores to the CT store format will decrease selling, general and
administrative expenses as a percentage of sales.
Amortization of intangibles was $0.9 million for fiscal 1996 and $0.9
million for fiscal 1995.
23
<PAGE> 29
Operating income for fiscal 1996 was $16.7 million, an increase of $1.5
million, or 9.5%, as compared to $15.2 million for fiscal 1995. Operating income
as a percentage of sales decreased to 5.7% in fiscal 1996 from 6.0% in fiscal
1995. The decrease resulted from the factors affecting sales, gross profit and
selling, general and administrative expenses discussed above.
Interest expense for fiscal 1996 was $1.7 million, an increase of $0.4
million, or 27.7%, as compared to $1.3 million for fiscal 1995. This increase
was primarily due to an increase in interest related to short-term borrowings
under the Company's credit agreement.
Income tax expense related to continuing operations for fiscal 1996 was
$6.2 million, an increase of $0.5 million, or 8.8%, as compared to $5.7 million
for fiscal 1995. Income taxes as a percentage of pretax earnings were 41.7% in
fiscal 1996 as compared to 41.1% in fiscal 1995. This increase was primarily due
to the effect of a reduction of a prior year over-accrual in fiscal 1995.
RECENT RESULTS
Based upon preliminary unaudited results for the three months ending
February 1, 1997, the Company's net sales were $71.5 million, an increase of
$1.5 million, or 2.2%, as compared to the three months ending January 27, 1996.
This increase was primarily attributable to the addition of new stores and the
acquisition of the Big Bear stores (each of which occurred during the 1996
fiscal year), offset by a decline in comparable store sales. Revenue for the six
Big Bear stores that were converted to the CT format at the beginning of fiscal
1997 increased significantly during the three months ending February 1, 1997 as
compared to the same period for the prior fiscal year. For the three months
ending February 1, 1997 versus the same period for the prior fiscal year, the
Company's EBITDA grew from $3.5 million to $3.7 million, an increase of 5.0%.
Comparable store sales, which exclude the recently acquired Big Bear stores,
declined by 11.9% versus the same period for the prior fiscal year. Based upon
its analysis of sales by product line, management believes that the decrease in
comparable store sales was primarily attributable to mild Northeastern winter
weather conditions, where CT operated approximately two-thirds of its comparable
stores, compared to the previous fiscal year and the elimination of two
promotional events run during the first quarter of fiscal 1996. The majority of
the Company's sales occur in the second and third quarters of its fiscal year,
and management does not believe that comparable store sales for the three months
ending February 1, 1997 are necessarily indicative of results for the entire
1997 fiscal year. In the preparation of the unaudited financial data for the
three-month periods, all adjustments (consisting of normal recurring accruals)
have been made which are, in the opinion of management, necessary for the fair
and consistent presentation of such financial data.
COMPARISON OF THE YEAR ENDED OCTOBER 28, 1995 TO THE YEAR ENDED OCTOBER 29, 1994
Net Sales for the fiscal year ended October 28, 1995 were $251.7 million,
an increase of $20.6 million, or 8.9%, as compared to net sales for the fiscal
year ended October 29, 1994 of $231.1 million. This increase was due to the
opening of eleven new stores in fiscal 1995 and a full year of operations for
the eight new stores opened in fiscal 1994, partially offset by a comparable
store sales decrease of 1.6% and the closing of three stores during the latter
part of fiscal 1994. The 1.6% decrease in comparable store sales was primarily a
result of unusual and severe drought conditions throughout fiscal 1995 and
generally unfavorable economic conditions in the Northeast where most of the
Company's retail stores were located.
Gross profit for fiscal 1995 was $74.4 million, an increase of $4.9
million, or 6.9%, as compared to $69.5 million for fiscal 1994. Gross profit as
a percentage of sales was 29.5% for fiscal 1995, as compared to 30.1% for fiscal
1994. The decrease in gross profit percentage was primarily the result of
increased promotional sales in fiscal 1995 at lower gross margins, partially
offset by improvements in distribution costs.
Selling, general and administrative expenses for fiscal 1995 were $58.3
million, an increase of $3.8 million, or 6.9%, as compared to $54.5 for fiscal
1994. This increase was due primarily to increased costs related to new store
openings, partially offset by a reduction in costs due to the closing of three
stores in fiscal 1994 and a reduction in incentive compensation costs. Selling,
general and administrative expenses as a percentage of sales decreased to 23.2%
in fiscal 1995, as compared to 23.6% in fiscal 1994, reflecting the decrease in
incentive compensation expenses as a percentage of sales, partially offset by
higher selling, general and administrative expenses as a percentage of sales in
new stores.
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<PAGE> 30
Amortization of intangibles was $0.9 million for fiscal 1995 and $0.8
million for fiscal 1994.
Operating income for fiscal 1995 was $15.2 million, an increase of $1.0
million, or 7.5%, as compared to $14.2 for fiscal 1994. Operating income as a
percentage of sales decreased to 6.0% in fiscal 1995 from 6.1% in fiscal 1994.
The decrease resulted from the factors affecting sales, gross profit and
selling, general and administrative expenses discussed above.
Interest expense for fiscal 1995 was $1.3 million, a decrease of $3.5
million, or 72.7%, as compared to $4.8 million for fiscal 1994. This was
primarily due to the reduction in long-term debt resulting from the debt prepaid
with the proceeds from the initial public offering of the Company completed in
October 1994.
Income tax expense related to continuing operations for fiscal 1995 was
$5.7 million, an increase of $1.5 million, or 36.3%, as compared to $4.2 million
for fiscal 1994. Income taxes as a percentage of pretax earnings were 41.1% in
fiscal 1995, as compared to 44.8% in fiscal 1994. This decrease was primarily
due to the effect of a proportionately lower amount of non-deductible goodwill
amortization and a reduction of a prior year over-accrual.
Discontinued operations represent the results of operations of the
Company's former subsidiary, Herschel Corporation ("Herschel"), a manufacturer
and distributor of non-original equipment sickle bar cutting parts, tractor
parts, tillage and other agricultural componentry. Discontinued operations
generated net income of $0.8 million in fiscal 1995, as compared to a net loss
of $0.7 million in fiscal 1994. The sale of Herschel, which was completed on
December 6, 1995, resulted in an estimated net loss on the sale of $3.4 million,
net of an income tax benefit of $0.7 million, which was reflected in the
Company's financial statements for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash to fund operations, CT's primary on-going cash
requirements are those necessary for the Company's expansion programs, including
inventory purchases and capital expenditures, and debt service, including
payment of interest on the Senior Notes. The Company's primary sources of
liquidity are funds provided from operations, borrowings pursuant to the
Company's revolving credit facilities and short-term trade credit.
On November 2, 1996, the Company had working capital of $63.8 million, an
increase of $1.3 million, as compared to working capital of $62.5 million on
October 28, 1995. This increase resulted primarily from an increase in inventory
and a decrease in borrowings under the Company's revolving credit facility,
partially offset by a decrease in the net assets of Herschel and an increase in
accounts payable. On November 2, 1996, the Company's inventories were $107.2
million, an increase of $13.3 million, as compared to $93.9 million at October
28, 1995. This increase reflected inventory for new stores and inventory for the
stores acquired in the Big Bear acquisition. The increase in inventory was
funded with cash from operations, short-term trade credit and proceeds of
approximately $13.5 million from the sale of the net assets of Herschel,
including the repayment of approximately $2.1 million in advances.
Continuing operations of the Company (before payment of income taxes)
generated $10.3 million of net cash in fiscal 1996, used $1.1 million of net
cash in fiscal 1995 and generated $0.6 million of net cash in fiscal 1994. The
increase in net cash generated in fiscal 1996, as compared to fiscal 1995,
resulted primarily from a smaller increase in inventory and an increase in
income from continuing operations before income taxes, partially offset by a
reduction in accounts payable in fiscal 1996, as compared to an increase in
fiscal 1995. The decrease in net cash generated in fiscal 1995, as compared to
fiscal 1994, resulted primarily from an increase in inventory exceeding the
increase in accounts payable, partially offset by an increase in income from
continuing operations before income taxes.
The Company's capital expenditures were $8.8 million and $6.3 million for
fiscal 1996 and 1995, respectively. The majority of capital expenditures were
for store fixtures, equipment and leasehold improvements for new and existing
stores. The Company expects its capital expenditures for fiscal 1997 to be
approximately $5.3 million in connection with renewal and replacement costs at
existing stores and distribution centers, conversion of the Big Bear stores and
the opening of two new stores.
25
<PAGE> 31
The Company completed the acquisition of 31 store locations and certain net
operating assets of Big Bear on May 31, 1996. These stores average 11,000 square
feet and are being converted to the CT format with a projected completion of
Spring of 1997. The total investment in the 31 stores, including acquisition
cost, additional capital investments and working capital needs and conversion
costs is expected to be approximately $12.0 million. In addition, the conversion
process requires each store to be closed for approximately three weeks. The
acquisition and the additional investments made to date were funded with cash
from operations and borrowings under the Company's revolving credit facility.
The Company anticipates utilizing the New Credit Facility and cash from
operations to fund the additional investments.
On November 27, 1996, the Board of Directors of the Company approved, and
the Company entered into, a merger agreement (the "Merger Agreement") with J.W.
Childs Equity Partners, L.P. and two of its affiliates (collectively, "Childs")
that provides for the acquisition of the Company by Childs in a two-stage
transaction (the "Acquisition"). The Merger Agreement provides that following
the acquisition by Childs of all of the Company shares held by affiliates of
Butler Capital Corporation (collectively, "BCC"), an affiliate of Childs will
merge with and into the Company, and Childs will acquire the remaining shares of
the Company held by public stockholders (other than those who perfect
dissenters' appraisal rights) for $14.25 per share in cash (the "Merger").
Certain members of management have agreed to exchange their equity securities in
the Company (valued on the basis of $14.00 per common share) for equity
securities of one of the Childs affiliates and, in some cases, cash in
connection with the consummation of the Merger. The consummation of the Merger
is subject to the satisfaction of certain conditions including, among other
things the availability of sufficient funds to consummate the Merger.
Pursuant to an agreement executed contemporaneously with the Merger
Agreement between Childs and BCC, which owned 64.5% of the Company's outstanding
common stock, BCC sold 1,048,214 shares of the Company's common stock
(representing 9.9% of the outstanding shares) to Childs for a cash consideration
of $14.00 per share, and agreed to sell their remaining shares to Childs for
$14.00 per share in cash. The agreement also provided that BCC would agree,
immediately following the conclusion of the stock sale, to the prepayment by the
Company (without payment of any prepayment premium) of the Company's 7%
convertible notes with a face amount of $16 million. In connection with the
purchase of the balance of BCC's shares, certain members of management agreed to
sell 146,299 shares to Childs for a cash consideration of $14.00 per share
(together with the purchases from BCC, the "Securities Purchase"). The second
purchase of BCC shares and prepayment were consummated on December 23, 1996 and
the purchase of management shares was consummated on January 2, 1997.
The Company's former revolving credit facility contained a commitment,
expiring February 1, 1998, to provide revolving loans of $25.0 million from
November 1 through May 31 of each year and $12.0 million from June 1 through
October 31 of each year. At November 2, 1996 and October 28, 1995, the Company
had $3.7 million and $6.8 million, respectively, of borrowings outstanding under
such revolving credit facility. The maximum amount of borrowings outstanding
during fiscal 1996 and 1995 was $11.9 million and $15.6 million, respectively.
On December 23, 1996, such revolving credit facility was replaced by the New
Credit Facility, which consists of an $8.0 million, five-year term facility,
which was fully funded, and a $30.0 million revolving credit facility, under
which $17.3 million was outstanding as of December 23, 1996. The Company
anticipates that approximately $1.9 million of the proceeds of the Offering will
be used to repay revolving borrowings under the New Credit Facility.
The New Credit Facility will mature on December 31, 2001. Borrowings under
the New Credit Facility will bear interest at rates based upon prime or
Eurodollar rates plus an applicable margin. Loans under the New Credit Facility
will be guaranteed by any and all future subsidiaries of the Company and will be
secured by security interests in substantially all of the assets of the Company
and its subsidiaries, as well as the capital stock of the Company. As of
December 31, 1996, the interest rate on the New Term Loan was 7.89% and the
interest rate on the New Revolving Credit Facility was 7.85%. For a more
complete description of the New Credit Facility, see "Description of New Credit
Facility."
The Company anticipates, assuming that the Merger is consummated on
February 28, 1997, that funds of up to $179.0 million will be required in
connection with the Acquisition and related transactions for (i) the
26
<PAGE> 32
consummation of the Securities Purchase, (ii) the consummation of the Merger,
(iii) the repayment of the existing long-term debt of the Company and (iv) the
payment of fees and expenses associated with the Acquisition. The Company
expects to obtain the necessary funds from (i) the Equity Investment, (ii) the
issuance and sale of the Senior Notes in the Offering and (iii) borrowings under
the New Credit Facility. See "Prospectus Summary -- The Acquisition," "Use of
Proceeds" and "Description of New Credit Facility."
After the Acquisition, the Company will be a wholly owned subsidiary of
Holding. Holding is a holding company with no significant assets or operations
other than its investment in the Company. After the closing, Holding's primary
source of funds will be dividends and other advances and transfers of funds from
the Company. The Company's ability to make dividends and other advances and
transfer of funds will be subject to the terms of the New Credit Facility, the
Indenture and other agreements to which the Company becomes a party from time to
time. The Indenture and the New Credit Facility permit the Company (subject to
certain conditions) to pay cash dividends to Holding in an amount sufficient to
permit Holding to fund certain expenses incurred in the ordinary course of
business. While Holding's obligations to pay cash in respect of dividends, or to
redeem, its Preferred Stock are generally limited by their own terms based upon
the amount of cash which the Company may permissibly make available to Holding,
on the fifth anniversary of the exchange of the Preferred Stock for Exchange
Notes, Holding shall redeem in cash, all of the Exchange Notes issued as
payment-in-kind interest payments on any of the Exchange Notes prior to such
fifth anniversary of such exchange, at a redemption price equal to the
outstanding principal amount of such Exchange Notes plus all accrued and unpaid
interest on such Exchange Notes. In the event of a default in Holding's
obligation to make such a redemption, the remedies available to holders of the
Exchange Notes are limited to legal action to compel a redemption in an amount
equal to the cash which the Company may permissibly make available to Holding.
See "Description of Holding Preferred Stock -- Exchange Notes -- Redemption."
The Company anticipates that its principal uses of cash following the
Acquisition will be working capital requirements, debt service requirements and
capital expenditures, as well as expenditures relating to acquisitions. Based
upon current and anticipated levels of operations, the Company believes that its
cash flow from operations, together with amounts available under the New Credit
Facility, will be adequate to meet its anticipated requirements in the
foreseeable future for working capital, capital expenditures and interest
payments. The Company expects that if it were to pursue a significant
acquisition, it would arrange prior to the acquisition any additional debt or
equity financing required to fund the acquisition. No discussions with respect
to any significant acquisition are ongoing.
There can be no assurance, however, that CT will continue to generate
sufficient cash flow from operations in the future to service its debt, and the
Company may be required to refinance all or a portion of its debt, obtain
additional financing or reduce its capital spending. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained. The inability to obtain additional financing could have a
material adverse effect on the Company. See "Risk Factors -- Significant
Leverage and Debt Service."
SEASONALITY
Unlike many specialty retailers, the Company has historically generated
positive operating income in each of its four fiscal quarters. However, because
the Company is an agricultural specialty retailer, its sales necessarily
fluctuate with the seasonal needs of the agricultural community. The Company
responds to this seasonality by attempting to manage inventory levels (and the
associated working capital requirements) to meet expected demand, and by varying
its use of part-time employees. Historically, the Company's sales and operating
income have been highest in the third quarter of each fiscal year due to the
farming industry's planting season and the sale of seasonal products. Working
capital needs are highest during the second quarter. The Company expects these
trends to continue for the foreseeable future.
INFLATION
Management does not believe its operations have been materially affected by
inflation.
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<PAGE> 33
BUSINESS
OVERVIEW
Central Tractor Farm & Country, Inc. is one of the largest agricultural
specialty retailers in the United States. As of December 31, 1996, the Company
operated 112 retail stores in 16 states in the Northeast and Midwest, primarily
under the "CT Farm & Country" name. CT specializes in meeting the farming,
gardening and related needs of rural consumers, especially part-time and
full-time farmers, hobby gardeners, skilled tradespersons and "do-it-yourself"
customers. Pro forma for the fiscal year ended November 2, 1996, the Company
generated sales of $307.8 million, EBITDA of $21.2 million and net income of
$1.2 million.
CT was founded in 1935 and has established itself as a leader in the
agricultural specialty market, having strong name recognition and a loyal
customer base. The Company obtained this position by (i) offering a full range
of agricultural and related products not typically found in general merchandise
retailers and home centers, (ii) merchandising high quality "CT" branded
products at competitive prices, and (iii) providing superior in-store service to
its customers.
The Company's stores offer a wide selection of agricultural products such
as tractor parts and accessories, specialty hardware, lawn and garden items,
rural automotive products, workwear, pet supplies and general consumer products.
Management believes that products accounting for approximately 60% of CT's net
sales cannot be found at general merchandise retailers and home centers. In
addition, CT offers a high level of customer service, ranging from answering
technical questions about products to special ordering of hard to find items.
The Company believes that this merchandising and service strategy is a
significant competitive advantage, enabling CT to differentiate itself from
other retailers and generate attractive gross margins. The Company has also
established national visibility for its products and services through its
catalog operation, which has an annual circulation of approximately 550,000.
The Company's stores are located primarily in rural communities with
populations in each trading area ranging from 30,000 to 100,000 people (the
Company considers a trading area to be the 30-mile radius around a store). While
CT adjusts its store size and product mix to match the demographics of each
trading area, the stores generally contain from 10,000 to 25,000 square feet of
indoor selling space and carry approximately 18,000 to 24,000 SKUs. The average
sales for the Company's stores open for the full 1996 fiscal year were $3.9
million. The Company's average customer transaction in fiscal 1996 was
approximately $27, reflecting the high frequency of customer purchases and the
replacement nature of CT's product line.
In 1992, the Company hired its current CEO, establishing a senior
management team with considerable retail experience. Management has since
initiated programs designed to increase sales and profitability, enhance
customer service and improve the efficiency of CT's operations. Further, the
Company initiated an aggressive expansion plan, opening 32 new stores (net of
three stores closed) and acquiring 33 stores since the beginning of fiscal 1993.
As a result of these efforts, CT's sales increased from $198.1 million in fiscal
1992 to $307.8 million in pro forma fiscal 1996, and EBITDA increased from $10.8
million in fiscal 1992 to $21.2 million in pro forma fiscal 1996. The average
annual comparable store sales growth was 3.8% during this five-year period.
In May 1996, the Company acquired 31 retail stores and certain net
operating assets from Big Bear, a privately owned agricultural specialty
retailer, for $5.7 million. Management believes that it will significantly
improve sales and EBITDA in the acquired stores by converting them to the CT
format. Further, these stores were added to CT's operations without a
substantial increase in corporate selling, general and administrative or
distribution expenses. As of December 31, 1996, 14 locations have been converted
to the CT format at an approximate cost of $3.3 million (including inventory);
the 17 remaining locations will be converted by the Spring of 1997 at an
estimated cost of $3.0 million. With locations in Iowa, Minnesota, Missouri and
Wisconsin, the Big Bear stores provide additional geographic diversity to CT's
Northeastern focus.
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<PAGE> 34
BUSINESS STRATEGY
CT seeks to continue to increase its revenues and cash flows by
capitalizing on the programs it has implemented and by growing its store count.
Key elements of the Company's strategy include: (i) focused merchandising and
service; (ii) improved inventory management; (iii) Big Bear integration; (iv)
new store openings; and (v) selective acquisitions.
- - Focused Merchandising and Service: Since 1992, the Company has aggressively
expanded its in-store product offerings, increasing the range of agricultural
specialty products offered and reducing the number of products typically
carried by general merchandise retailers. Management also plans to expand the
breadth of the Company's profitable "CT" branded product line. In addition, CT
offers a high level of specialized customer service. This merchandising and
service strategy differentiates the Company from general merchandise retailers
and home centers, enabling it to achieve attractive gross margins (29.3% in
fiscal 1996). This strategy also allows the Company to locate stores near
general merchandise retailers and home centers to capitalize on their retail
traffic.
- - Improved Inventory Management: In June, 1996 the Company implemented a
program to reduce inventory levels in each store and more efficiently utilize
the Company's inventory replenishment system. As a result, comparable store
inventory was reduced by 7.7% during fiscal 1996. Despite lower in-store
inventory levels, comparable store sales grew by approximately 1.0% in fiscal
1996. Management believes CT can reduce in-store inventory levels by an
additional 10% without adversely affecting revenues and margins. Further,
management believes that there are additional opportunities to improve the
Company's in-stock inventory position by more accurately matching inventory
levels to expected rates of sales.
- - Big Bear Integration: The acquired Big Bear stores averaged $0.8 million in
sales for the twelve months prior to CT's acquisition. In contrast, CT's
comparable Midwestern stores open for the full 1996 fiscal year averaged $2.2
million in sales, with a greater emphasis on agricultural and related product
sales. Management believes that by converting the Big Bear stores into the CT
store format, and by employing better merchandising and inventory management
strategies, the Company will significantly increase the operating performance
and cash flow at the acquired stores. The impact on sales is already being
demonstrated in the recently converted stores. Within two weeks of their
acquisition, all 31 Big Bear stores were operating on CT's point-of-sale
("POS") and central management information systems. Management expects to
continue to leverage its existing distribution and corporate administration
capabilities by consolidating the Big Bear stores into CT's operations without
a substantial increase in expenses.
- - New Store Openings: CT increased its store count from 47 at the beginning of
fiscal 1993 to 112 as of December 31, 1996. Of the new stores, 32 were opened
(net of three closed) and 33 were acquired by the Company. CT plans to open 31
stores in the next three years (including one additional store in fiscal
1997). CT stores typically generate positive cash flow in their first full
year of operation. With two exceptions, all 66 stores which the Company
operated for the full 1996 fiscal year generate positive cash flow at the
store level. The Company believes that its existing infrastructure will
accommodate its planned expansion through fiscal 1999 without substantially
increasing its distribution and corporate-level expenses.
- - Selective Acquisitions: The agricultural specialty retail market is highly
fragmented, with no retailer holding a dominant national position. Management
estimates this market to be approximately $6.0 billion. Management believes
that there are opportunities to further diversify CT's operations, achieve
additional operating efficiencies and increase purchasing power by acquiring
single store locations, small chains and larger regional chains. From time to
time the Company has had discussions with several agricultural specialty
retailers. There are no current agreements with respect to any such
acquisition and there can be no assurance that any such acquisition will be
consummated in the future.
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<PAGE> 35
EXPANSION PLAN
Since the beginning of fiscal 1993, the Company has increased the number of
its retail stores from 47 to 112. From fiscal 1993 through fiscal 1994, the
Company opened ten new stores, acquired one store and closed three stores. In
fiscal 1995, the Company opened 10 new stores and acquired one store. In fiscal
1996, the Company opened 14 new stores and acquired 31 stores from Big Bear.
Subsequent to fiscal 1996, the Company has opened one new store.
The Company plans to open an additional 31 stores in the next three years
through further penetration of the Northeastern and Midwestern United States
markets and through expansion into the Southeastern United States. Management
intends to achieve this growth through new store openings and selective
acquisitions. The Company expects to open one additional store in fiscal 1997
and complete the conversion of the remaining 17 Big Bear stores to the CT format
by the Spring of 1997. On a preliminary basis, the Company has identified
potential new markets outside of its existing markets that management believes
are attractive candidates for one or more new CT stores. The number of actual
new CT store openings in the next three years may differ materially from the
Company's current projections if the Company makes a major acquisition or is
unable to find attractive store locations to rent at reasonable prices,
negotiate acceptable lease terms or acquire small regional farm store chains at
reasonable prices. See "Risk Factors -- New Store Growth."
The Company seeks to locate stores in high traffic shopping districts
whenever possible in order to attract customers who prefer to do much of their
shopping at one time and place. As with its existing stores, the Company intends
to lease its new stores. The estimated cash required to open a new, leased,
large prototype store is $850,000 and the estimated cash required to open a new,
leased, small prototype store averages $600,000 (in each case, including
inventory net of accounts payable and excluding an average of approximately
$125,000 in pre-opening expenses). Of these estimated cash expenditures,
approximately half is used for initial inventory (net of accounts payable), and
the balance is used for capital expenditures, principally leasehold
improvements, fixtures and equipment. CT stores typically generate positive cash
flow in their first full year of operation.
The Company also intends to continue to opportunistically relocate existing
CT stores. These relocations reflect, in most cases, the expiration of an
existing lease coupled with an opportunity to move to a more demographically
and/or physically attractive site. The Company relocated two stores during
fiscal 1996.
RETAIL STORES
CT stores focus on agricultural and agricultural related products. The
Company segments its merchandising mix into seven key product categories:
agricultural products (including tractor parts and accessories), specialty
hardware, lawn and garden products, rural automotive products, workwear, pet
supplies and general consumer products. The Company's "CT" branded products,
which are available in several product categories, represent approximately 8% of
total store sales. Sale of agricultural and related products represent
approximately 60% of CT's total net sales. The growth and percentage of total
store sales for each retail product category for fiscal 1994, fiscal 1995 and
fiscal 1996, and a description of each product category, are set forth below:
<TABLE>
<CAPTION>
ANNUAL STORE SALES PERCENTAGE OF
GROWTH TOTAL STORE SALES
-------------------- -----------------------
PRODUCT CATEGORIES 1994 1995 1996 1994 1995 1996
------------------ ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Agricultural (including tractor parts and
accessories).................................. 14.8% 18.5% 20.4% 21.6% 23.2% 24.0%
Specialty Hardware.............................. 15.3 12.0 11.4 21.2 21.6 20.6
Lawn and Garden................................. 22.2 4.7 18.4 20.2 19.3 19.6
Rural Automotive................................ 9.4 5.1 7.7 16.8 16.0 14.8
Workwear........................................ 17.5 4.9 33.2 7.7 7.3 8.4
Pet Supplies.................................... 23.1 22.5 36.5 4.9 5.4 6.3
General Consumer................................ 22.7 3.7 3.4 7.6 7.2 6.3
---- ---- ---- ----- ----- -----
Total................................. 16.5% 10.1% 16.6% 100.0% 100.0% 100.0%
==== ==== ==== ===== ===== =====
</TABLE>
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<PAGE> 36
Agricultural Products. CT's agricultural product line consists of
approximately 6,000 SKUs supplying the needs of the part-time and full-time
farmer, including tractor parts, tillage and harvesting parts, fencing materials
and animal health supplies, including feed. This product line accounted for
$47.1 million, $55.9 million and $67.3 million of the Company's net store sales
in fiscal years 1994, 1995 and 1996, respectively. CT emphasizes consumable
products and other items requiring replacement on a regular basis and does not
sell heavy equipment such as tractors or combines.
Specialty Hardware. CT's specialty hardware line consists of approximately
9,000 SKUs, with an emphasis on products with agricultural applications. These
products accounted for $46.4 million, $51.9 million and $57.9 million of the
Company's net store sales in fiscal years 1994, 1995 and 1996, respectively. CT
stores carry a broad range of high-quality hardware with an emphasis on
recognized branded professional products, including air compressors and air
tools, welders and accessories, generators, well system plumbing supplies,
tractor and barn paint, hand tools, power tools and electrical products
including outdoor security lighting and motors.
Lawn and Garden Products. CT's lawn and garden products consist of
approximately 2,000 SKUs, including lawn and garden tools, nursery stock,
fertilizers, lawn fencing and weed killers. These products accounted for $44.2
million, $46.3 million and $54.8 million of the Company's net store sales in
fiscal years 1994, 1995 and 1996, respectively. To differentiate itself from
other retailers, CT also stocks a wide selection of lawn mowers, including large
horse-powered, full-featured riding mowers. CT assembles, tests and delivers the
lawn mowers and sells a full assortment of parts for follow-up service needs. CT
stores also offer seasonal bedding plants, trees and shrubs and lawn chemicals
and fertilizer in large product sizes.
Rural Automotive Products. CT's rural automotive products consist of
approximately 3,000 SKUs, including a selection of maintenance items, batteries
and accessories, primarily for tractors and pick-up trucks, as well as farm
equipment oil and lubricants. These products accounted for $36.6 million, $38.4
million, and $41.4 million of the Company's net store sales in fiscal years
1994, 1995 and 1996, respectively. Although CT generally stocks larger product
sizes, it also stocks an assortment of general automotive items as a convenience
to its customers, including oil and lubrication products and anti-freeze.
Workwear. CT's workwear consists of approximately 2,000 SKUs, including
premium quality insulated outerwear, footwear, overalls, flannel shirts and work
jeans. These products accounted for $16.8 million, $17.6 million and $23.5
million of the Company's net store sales in fiscal years 1994, 1995 and 1996,
respectively. Workwear products are targeted at the specialized needs of CT's
outdoor-oriented customers who require high quality functional apparel which is
generally not available from general merchandise retailers. The Company has been
expanding its workwear line to include quality non-insulated workwear, bib
overalls, twill pants and hunting clothing.
Pet Supplies. CT's pet supplies consist of approximately 1,000 SKUs,
including dog and cat foods, wild bird feed and rabbit supplies. These products
accounted for $10.6 million, $13.0 million and $17.7 million of the Company's
net store sales in fiscal years 1994, 1995 and 1996, respectively. Pet supplies
sold by CT include economically priced large sizes, such as 50-pound bags of dog
food. CT has been expanding its pet supplies product category.
General Consumer Products. CT's general consumer products line consists of
approximately 1,000 SKUs, including hunting accessories, camping items and
outdoor living needs. These products accounted for $16.6 million, $17.2 million
and $17.8 million of the Company's net store sales in fiscal years 1994, 1995
and 1996, respectively. CT stores also offer seasonal merchandise such as
charcoal grills and coolers in the summer. Management expects that this category
will represent a declining percentage of total store sales due to the Company's
continuing emphasis on agricultural and related product sales.
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<PAGE> 37
CT's merchandising strategy differentiates the Company from general
merchandise retailers and home centers and has enabled CT to (i) maintain high
gross margins (approximately 29%) and (ii) defend itself against competition,
resulting in a track record of comparable store sales growth since 1989 (when CT
had 34 comparable stores), as set forth below:
<TABLE>
<CAPTION>
COMPARABLE COMPARABLE COMPARABLE
FISCAL STORE SALES FISCAL STORE SALES FISCAL STORE SALES
YEAR GROWTH(1) YEAR GROWTH(1) YEAR GROWTH(1)
- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
1989 5.8% 1992 5.4% 1995 (1.6)%(3)
1990(2) 6.9 1993 4.2 1996(2) 1.0
1991 4.2 1994 10.0
</TABLE>
- ---------------
(1) This data is derived from the Company's historical operating results and
does not purport to represent what the Company's results of operations might
be for any future period. See "Risk Factors."
(2) Includes a 53rd week in the fiscal year. For purposes of the growth rates
shown in this table, comparable store sales for this period have been
reduced by 1/53 to facilitate comparison with 52-week years.
(3) Reflects unusual weather conditions which resulted in severe drought
conditions during fiscal 1995.
TARGET MARKET
CT's stores are designed primarily to meet the agricultural needs of
farmers operating small to medium-sized farms (i.e., farms typically under 250
acres) as well as hobby gardeners and do-it-yourself customers. While CT's
product line is also potentially applicable to large commercial farming
operations, the Company does not actively service certain aspects of this
market. For example, CT does not sell large, heavy duty farm equipment and
machinery nor commodities (e.g., feed) by the truckload or drop-shipped pallet.
Further, CT does not sell its products on a long-term credit basis, which is
typical in the large commercial farm market.
CT is also focused on capturing sales attributable to growth in rural
populations. From 1990 to 1994 (the most recent year for which government
statistics are currently available), population growth in this target market
exceeded population growth in metropolitan areas. Management believes this
population growth will continue to lead to increased interest in part-time
farming, expanding the customer base and traffic of its stores.
STORE OPERATIONS
The Company utilizes large and small store formats in order to enable
management to enhance CT's return on investment in light of varying population
density. The Company's small stores average 11,000 square feet of indoor selling
space and had average comparable store sales of $2.5 million in fiscal 1996. The
large stores average 22,000 square feet of indoor selling space and had average
comparable store sales of $4.4 million in fiscal 1996. Small stores generally
carry a smaller selection of workwear and seasonal and other general consumer
products than large stores. In addition, the Company looks for store sites that
have 15,000 to 20,000 square feet of outdoor selling space. This outdoor selling
space is primarily used for displaying lawn and garden products, fencing,
tractor accessories and livestock watering and feeding equipment.
Both store prototypes are designed to provide CT's customers with ease in
locating desired products and are clean and colorful in order to provide an
overall enjoyable shopping environment. The use of informative directional signs
adds to the ease of the customer's shopping experience. Plan-o-grams are
utilized to set merchandise assortments in the seven core product categories to
ensure uniformity of presentation, ease of shopping for the customer and to
facilitate inventory management and replenishment.
The agricultural products department is prominently featured in each store
and is identified by the parts desks. The parts desk is the focal point for CT's
new and used tractor parts program. In addition, the parts desk enables CT to
offer a high level of customer service, ranging from answering technical
questions regarding various products to the special ordering of hard to find
parts. Each parts desk is managed by the store's agricultural product specialist
who has access to the CT catalog and other inventory sources to quickly obtain
needed parts.
32
<PAGE> 38
Each store is managed by a store manager who is responsible for all aspects
of the store's operations, including the hiring and training of store
associates, work scheduling, inventory control, expense control, customer
service and associate morale. Typically, the store manager is supported by an
assistant manager and core department heads, along with an average of 18 sales
associates. Store operations are coordinated through nine district managers,
each of whom is currently responsible for eleven to fifteen retail stores. In
addition, the Company has developed and implemented consistent store standards,
processes and best practices for the chain.
The Company has established an internal store management training program
which focuses training on store operations, systems, financial matters, human
resources and sales. To support the Company's planned expansion and its
management training programs, the Company has implemented a long-range personnel
plan that provides for internal promotions, coupled with recruitment of college
graduates and hiring of individuals with previous retail and agricultural
experience. Store associates receive training which emphasizes customer service,
sales, product knowledge and store procedures. District managers, store managers
and assistant managers are compensated based on job performance, and participate
in an incentive program, which is based on the store/district exceeding a
targeted level of profitability. The Company also has established an incentive
program for all store associates that focuses on sales and profitability.
OTHER OPERATIONS
The CT catalog offers a broad assortment of new, used and rebuilt tractor
parts and agricultural components, including approximately 20,000 SKUs. In
fiscal 1996, catalog sales were $7.3 million. The catalog will be distributed
nationally to approximately 550,000 households in rural and agricultural
communities in fiscal 1997. The breadth of this distribution provides the
Company with name recognition among agricultural consumers in areas outside of
its core geographical markets. As a consequence, the Company anticipates some
customer familiarity with the Company when it expands into new areas.
The Company also sells tractor parts and other items, on a wholesale basis,
to other agricultural retailers and distributors. In recent years, the Company
has been reducing the number of products offered and the number of customers
served by this unit. In fiscal 1996, the Company's wholesale business generated
sales of $5.4 million.
PURCHASING AND DISTRIBUTION
The Company maintains a staff of six merchandise buyers, each of whom is
responsible for specific product categories, at its headquarters in Des Moines,
Iowa. The purchasing and inventory control process is controlled centrally by
the Company's POS and automatic replenishment systems. See "-- Corporate Offices
and Management Information Systems." The Company purchases merchandise from
approximately 1,500 vendors, none of which accounted for more than 10% of the
Company's purchases during fiscal 1996. The Company generally maintains multiple
sources of supply for its products in order to minimize the risk of supply
disruption and to improve its negotiating position. The Company has no long-term
contractual commitments with any of its vendors.
CT operates a 135,000 square-foot distribution center in Des Moines, Iowa
and a 155,000 square-foot distribution center in Youngstown, Ohio, from which it
currently supplies the majority of its retail stores' inventory needs. The Des
Moines facility is used to handle the small part items and to receive purchases
sourced from vendors located in the Midwest. The Youngstown facility serves
primarily as a flow-through distribution station. Approximately 35% of total
purchases, consisting mainly of high volume commodity items, are shipped by
vendors directly to individual store locations. Merchandise from the
distribution centers is shipped to each store through supply orders generated by
an automated replenishment system. The Company transports most of its
merchandise to each store once a week from both the distribution centers through
a major contract carrier. The contract carrier's truck fleet delivers all
warehouse shipments and most of the merchandise which is shipped directly from
vendors to store locations.
The Company expects that its current distribution facilities will be
sufficient to accommodate its planned expansion through fiscal 1999.
33
<PAGE> 39
CORPORATE OFFICES AND MANAGEMENT INFORMATION SYSTEMS
To facilitate the Company's expansion plan and to maintain consistent store
operations, CT has centralized specific functions of its operations, including
accounting, the development of policies and procedures, store layouts, visual
merchandise presentation, inventory management, merchandise procurement and
allocations, marketing and advertising, human resources and real estate. This
centralization effectively utilizes the experience and resources of the
Company's senior management and provides a high level of consistency throughout
the chain.
The Company has invested considerable resources in its management
information and control systems, which were developed beginning in 1981 and have
been expanded and improved yearly. These systems provide support for the
purchase and distribution of merchandise and help to improve the manner in which
CT stores, the corporate offices and distribution centers are operated. All CT
stores (including all of the acquired Big Bear stores) use the Company's POS
system to capture sales information at the SKU level, with approximately 70% of
the stores using bar code scanning. Management expects all stores to be using
bar code scanning by the end of fiscal 1997. Through the POS system, the Company
can monitor customer purchases and inventory levels with respect to every item
of merchandise in each store daily. The Company has implemented bar code
scanning capabilities in the receiving process of its distribution centers and
current plans are to expand this to the picking and shipping process. Electronic
data interchange ("EDI") is used to send purchase orders to certain of its
largest suppliers. CT intends to expand its use of EDI to communicate invoicing,
shipments and sales activity to and from most major suppliers.
The Company also has an automated inventory replenishment system which uses
POS information to facilitate the timely replenishment of both the stores and
the warehouses. The sales and inventory information used in this system is
updated on a daily basis. This system also provides for minimum stocking levels
for lower volume items enabling CT to carry a large number of SKUs at a minimum
of inventory carrying expense.
COMPETITION
The Company faces competition primarily from other chain and single-store
agricultural specialty retailers, general merchandise retailers and home
centers. The Company believes that it has successfully differentiated CT stores
from general merchandise retailers and home centers. For example, the Company
already competes in approximately 90% of its trading areas with a Wal-Mart(R)
store. However, the Company will continue to face competition from these
businesses, some of which have substantially greater financial and other
resources than the Company. In the past, certain general merchandise retailers
and home centers have modified their product mix and marketing strategies in an
apparent effort to compete more effectively in the Company's product lines, and
these efforts may reoccur. While there are a small number of large agricultural
retail companies in the United States that offer product lines similar to CT's,
most of their stores do not compete directly in CT's trading areas. In some
trading areas, however, the Company competes with Tractor Supply Company and
Quality Stores, Inc., or small local agricultural specialty retailers. The
Company's expansion plan will likely result in more direct competition with such
competitors. In addition, certain of these competitors have announced expansion
plans into certain of the Company's existing trading areas. See "Risk
Factors -- Competition."
ADVERTISING AND PROMOTIONS
The Company's primary advertising occurs through the bi-weekly distribution
of approximately 2.5 million color circulars distributed as newspaper inserts,
at CT stores and by direct mail. In order to focus its marketing on the many
farmers in CT's markets, the Company also advertises in geographically zoned
editions of leading farming industry magazines. In addition, the Company runs
periodic special events promoted through local flyers, circulars and radio
advertising.
34
<PAGE> 40
EMPLOYEES
As of November 2, 1996, CT had approximately 2,492 employees (approximately
1,171 in full-time and approximately 1,321 in part-time positions). The Company
believes that its relations with its employees are good.
PROPERTIES
As of December 31, 1996, the Company had retail stores located in 16 states
as follows:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES
----------------------------------------------------- ----------------
<S> <C>
New York............................................. 22
Iowa................................................. 21
Pennsylvania......................................... 17
Minnesota............................................ 12
Virginia............................................. 7
Ohio................................................. 6
Kentucky............................................. 5
Maryland............................................. 4
Indiana.............................................. 4
Wisconsin............................................ 4
Tennessee............................................ 3
Missouri............................................. 2
New Jersey........................................... 2
Delaware............................................. 1
Massachusetts........................................ 1
Vermont.............................................. 1
---
Total...................................... 112
===
</TABLE>
All of the Company's stores, its corporate headquarters and its two
distribution centers are leased. The Company's corporate headquarters are
located adjacent to its distribution center in Des Moines, Iowa. The Company
generally negotiates retail store leases with an initial term between five and
seven years, with three renewal periods of five years each, exercisable at the
Company's option. In fiscal 1996, the Company paid an average of $5.03 per
square foot in retail store occupancy expenses, including rent, taxes, common
area charges, repairs and maintenance. Rent expenses typically do not vary based
on sales, and generally increase 10-15% at the beginning of each option period.
The Company leases its corporate offices and distribution facility in Des
Moines and 16 of its stores from the owner of the Company prior to 1988 and
certain of his family members and affiliates. The Company believes that, on
average, the rental rates and other terms of these leases are no less favorable
to the Company than could have been obtained from other third party lessors.
Each of these leases is due to expire by their terms on or before fiscal 2006,
subject to options to renew exercisable at the discretion of the Company.
LEGAL PROCEEDINGS
The Company has been notified by the U.S. Environmental Protection Agency
that it may have potential liability for costs associated with the cleanup of a
dumpsite near Owensburg, Kentucky. To date, the only articles of waste
identified as possibly once belonging to the Company are certain empty battery
acid containers. The Company also has been notified that it is a fourth-party
defendant of a Superfund action pending in the United States District Court. The
action alleges the Company contributed retail and office waste which may have
contained hazardous substances to a landfill in Adams County, Pennsylvania. The
Company believes that any liability it may have as a result of both of these
actions would be as a de minimis contributor and will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations. Moreover, compliance with federal, state and local laws and
regulations pertaining to the
35
<PAGE> 41
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had, and is not anticipated to have, a
material effect on the Company's financial position, liquidity or results of
operations.
The Company is not a party to any other legal proceedings, other than
routine claims and lawsuits arising in the ordinary course of business. The
Company does not believe that such claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company's business,
financial condition, liquidity or results of operations.
36
<PAGE> 42
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the name, age and position of each of the
Company's directors, directors designate, executive officers and other
significant employees. All of the Company's officers are elected annually and
serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
James T. McKitrick....... 51 President, Chief Executive Officer, Director
Dean Longnecker.......... 49 Executive Vice President, Finance, Secretary,
Director
John W. Childs........... 55 Director Designate
Jerry D. Horn............ 59 Director Designate and Chairman Designate
Steven G. Segal.......... 36 Director
Adam L. Suttin........... 29 Director
Jeffrey B. Swartz........ 36 Director Designate
William E. Watts......... 43 Director Designate
Habib Y. Gorgi........... 40 Director Designate
George D. Miller......... 54 Senior Vice President, Merchandising
Denny Starr.............. 43 Senior Vice President, Finance
Jeffrey A. Stanton....... 44 Vice President, Human Resources
David E. Enos............ 36 Vice President, Management Information
Systems/Logistics
Daniel Cunningham........ 60 Vice President, New, Used and Rebuilt Tractor Parts
Jack P. Feichtner........ 50 Vice President, Advertising and Marketing
</TABLE>
James T. McKitrick, President and Chief Executive Officer, joined the
Company in July 1992. He has over 30 years experience in retailing, including 20
years at Kmart Corporation. Prior to joining CT, Mr. McKitrick was President and
Chief Executive Officer of Builder's Emporium, a California-based home
improvement center chain. Previously, he was with Ames Department Stores from
1987 through 1990, where he held the positions of Executive Vice President,
Chairman of Zayre Discount Store Division and President and Chief Executive
Officer of G.C. Murphy Division, a $900 million variety store chain. Mr.
McKitrick also served as President and Chief Executive Officer of Warehouse
Club, Inc. from 1986 through 1987 and Executive Vice President of Merchandising
for T.G.&Y. Stores Company from 1984 through 1986. From 1963 through 1984, Mr.
McKitrick was with the Kmart Corporation, where his most recent position was
Director of Merchandising.
Dean Longnecker, Executive Vice President of Finance, has held his current
position since 1985. He joined CT in 1980 as Controller. Mr. Longnecker was
employed at Payless Cashways from 1973 until 1980, most recently as Treasurer.
He received a B.S. from Iowa State University in 1970 and C.P.A. in 1972.
John W. Childs has been President of J.W. Childs Associates since July
1995. Prior to that time, he was an executive at Thomas H. Lee Company from May
1987, most recently holding the position of Senior Managing Director. He is a
director of Big V Supermarkets, Inc., Cinnabon, Inc., The Edison Project, Inc.,
Personal Care Group, Inc. and Select Beverages, Inc.
Jerry D. Horn has been Chairman of the Board of General Nutrition
Companies, Inc., a 3,000-store vitamin and nutritional supplement retail chain
operating under the GNC name, since October 1991, and prior to that, was
President and Chief Executive Officer since 1985. Mr. Horn is also Chairman of
the Board of Cinnabon, Inc. and has been a Managing Director of J.W. Childs
Associates since July 1995.
Steven G. Segal has been a Managing Director of J.W. Childs Associates
since July 1995. Prior to that time, he was an executive at Thomas H. Lee
Company from August 1987, most recently holding the position of Managing
Director. He is a director of Big V Supermarkets, Inc., Cinnabon, Inc. and Fitz
and Floyd, Inc.
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<PAGE> 43
Adam L. Suttin has been a Vice President of J.W. Childs Associates since
July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from
August 1989, most recently holding the position of Associate. He is a director
of Personal Care Group, Inc.
Jeffrey B. Swartz has been Chief Operating Officer of Timberland Co., a
manufacturer and marketer of branded footwear and apparel, since May 1991, and
has worked for that company in various positions since June 1986.
William E. Watts has been President, Chief Executive Officer and a Director
of General Nutrition Companies, Inc. since October 1991, and prior to that, held
various positions with its predecessor since 1984.
Habib Y. Gorgi is President of the general partners of Fleet Equity
Partners VII, L.P. and the general partner of Silverado III, L.P., which is the
general partner of Chisholm Partners and has worked at Fleet Equity Partners
since 1986. He is a director of La Petite Academy, Dines Industrial Group,
Rosina Food Products, Savage Sports Corporation, Simonds Industries, FTD
Corporation and Wain-Roy, Inc.
George D. Miller, Senior Vice President, Merchandising, joined CT in June
1996. Previously, he was Vice President, Merchandising, with Home Base, a
California-based home improvement center chain, from 1993 through 1996. Mr.
Miller was employed by Sears, Roebuck & Company from 1968 through 1993, most
recently as Senior Merchandise Manager. He received B.S. and M.B.A. degrees from
Indiana University.
Denny Starr, Senior Vice President, Finance, joined the Company in October
1989 as Assistant Controller. He previously served as Assistant Controller of
the Witten Group, a holding company with operations in manufacturing, real
estate and finance, from 1986 through 1989. He was an Audit Manager with
McGladrey & Pullen from 1982 until 1986. Mr. Starr received his B.A. from the
University of Iowa in 1982 and C.P.A. in 1982.
Jeffery A. Stanton, Vice President Human Resources, joined CT in June 1992.
Previously, he was with R.R. Donnelly & Sons and Meredith/Burda Corporation from
1985 through 1992, as well as Reichardt's Inc., a specialty retailer, from 1972
through 1985. Mr. Stanton received a B.B.A. degree from the University of Iowa
in 1972.
David E. Enos, Vice President Management Information Systems/Logistics, has
held his current position since 1990. Mr. Enos joined CT in 1981. Previously, he
was employed at Meredith/Burda Corporation from 1979 through 1981. He received
an A.A.S. degree in Data Processing from DMACC in 1979.
Daniel Cunningham, Vice President, New, Used and Rebuilt Tractor Parts,
joined CT in 1958. Mr. Cunningham has held several positions within the Company,
including store operations, mail order and the Company's tractor parts area. Mr.
Cunningham was promoted to his current position in 1991.
Jack P. Feichtner, Vice President Advertising and Marketing, joined CT in
July 1995. He was previously with Kmart Corporation for 27 years, where his most
recent position was Director, Advertising.
38
<PAGE> 44
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation earned for all services
rendered to the Company during fiscal 1994, fiscal 1995 and fiscal 1996, as
applicable, by the Company's chief executive officer, the two other executive
officers who were employed by the Company as such at the end of fiscal 1996, the
one former executive officer that served as such during fiscal 1996 but who
resigned subsequent to the end of fiscal 1996 (collectively, the "Named
Executives").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
------------------------------ SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY(1) BONUS UNDERLYING COMPENSATION
POSITION AT NOVEMBER 2, 1996 YEAR ($) ($) OPTIONS ($)
- ------------------------------------- ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James T. McKitrick................... 1996 365,000 91,250 -- 9,863(2)
President, Chief 1995 350,000 70,000 -- 4,357(2)
Executive Officer 1994 325,000 162,500 158,939 9,953(2)
Dean Longnecker...................... 1996 234,000 58,500 -- 5,131(2)
Executive Vice 1995 225,000 45,000 15,000 4,152(2)
President, Finance 1994 196,686 147,890 4,565 7,524(2)
George D. Miller(3).................. 1996 108,462 15,190 60,000 5,128(4)
Senior Vice 1995 -- -- -- --
President, Merchandising 1994 -- -- -- --
Don Walter(5)........................ 1996 155,000 12,480 -- 5,213(2)
Senior Vice 1995 153,750 24,800 -- 29,570(6)
President, Operations 1994 115,433 46,500 26,850 17,460(4)
</TABLE>
- ---------------
(1) Includes compensation deferred at the Named Executive's election under the
Company's Profit Sharing Plan.
(2) Represents amounts contributed by the Company during each fiscal year, as
applicable, to the Named Executive's Profit Sharing Plan account.
(3) Mr. Miller joined the Company in May 1996.
(4) Represents payments or reimbursement of certain moving and relocating
expenses.
(5) Mr. Walter resigned his position with the Company effective December 1,
1996.
(6) Represents $2,170 contributed by the Company, to the Named Executive's
Profit Sharing Plan account and $27,400 in payments or reimbursement of
certain moving and relocating expenses.
Option Grants in Last Fiscal Year
The table below shows information regarding grants of stock options, if
any, made to the Named Executives during fiscal 1996. The amounts shown for each
of the Named Executives as potential realizable values are based on arbitrarily
assumed annualized rates of stock price appreciation of five percent and ten
percent over the full term of the options, pursuant to applicable Securities and
Exchange Commission ("SEC") regulations. Actual gains, if any, on option
exercises are dependent on the future performance of the Common Stock and
overall stock market conditions.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
------------------------------------------------------------ OF STOCK PRICE
% OF TOTAL APPRECIATION
OPTIONS FOR OPTION TERM
NUMBER GRANTED TO EXERCISE OR ---------------------
OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME GRANTED FISCAL YEAR ($/SHARE) DATE ($) ($)
- ----------------------- ---------- -------------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
George D. Miller....... 60,000 73% 13.25 5-29-06 499,800 1,267,200
</TABLE>
- ---------------
(1) Such options become exercisable at the rate of 12,000 shares on each
anniversary of the original date of grant. The latest date on which this
option may be exercised is May 28, 2006.
39
<PAGE> 45
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table summarizes for each of the Named Executives the total
number and value of unexercised options, if any, held at November 2, 1996. For
this purpose, the value of unexercised, in-the-money options at fiscal year-end
is the difference between the exercise price and the closing sale price of the
underlying Common Stock on November 2, 1996. There can be no assurance that
these values will be realized. No options were exercised during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (NUMBER) (NUMBER) ($) ($)
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James T. McKitrick............................... 206,517 180,663 1,708,189 583,444
Dean Longnecker.................................. 4,565 15,000 -- --
George D. Miller................................. -- 60,000 -- --
Don Walter....................................... 12,410 14,440 -- --
</TABLE>
- ---------------
(1) In-the-money options for which the fair market value of the underlying
securities exceeds the exercise or base price of the option.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
Mr. McKitrick is currently employed as President and Chief Executive
Officer pursuant to an employment agreement dated September 16, 1994. Under this
agreement, Mr. McKitrick currently receives a salary of $365,000, subject to
increases determined annually by the compensation committee (which increases
must at least equal increases in the consumer price index). In addition, Mr.
McKitrick is eligible for an annual bonus of up to 60% of his salary, based on
financial targets and non-quantitative performance objectives established by the
compensation committee at the beginning of each fiscal year. If his employment
is terminated by the Company other than for cause or because of death or
disability, or because the Company either removed him or failed to elect him as
President and Chief Executive Officer, the Company will pay to Mr. McKitrick his
base salary (reduced by compensation received from other businesses) from the
date of termination to the later of November 1, 1997 and the first anniversary
of such termination. Pursuant to the employment agreement, Mr. McKitrick was
granted an option to acquire, at an exercise price equal to the initial public
offering price, up to 112,512 shares of Common Stock on the seventh anniversary
of the original date of grant, with accelerated vesting in fiscal 1996 through
1998 if certain EBIT targets are met. Mr. McKitrick's employment agreement also
contains certain confidentiality and non-competition requirements.
Mr. Longnecker is employed as Executive Vice President, Finance pursuant to
an agreement dated September 16, 1994. Under this agreement, Mr. Longnecker
currently receives a salary of $234,000, subject to salary increases determined
annually by the compensation committee (which increases must at least equal
increases in the consumer price index). In addition, Mr. Longnecker is eligible
for an annual bonus of up to 48% of his salary, based on financial targets and
nonquantitative performance objectives established by the compensation committee
at the beginning of the fiscal year. If his employment is terminated by the
Company other than for cause or because of death or disability, or because the
Company either removed him or failed to retain him as Executive Vice President,
Finance, the Company will pay to Mr. Longnecker his base salary (reduced by
compensation received from other businesses) from the date of termination to the
first anniversary of such termination. Mr. Longnecker's employment agreement
also contains certain confidentiality and non-competition provisions.
Mr. Miller is employed as Senior Vice President, Merchandising pursuant to
an agreement dated May 6, 1996. Under this agreement, Mr. Miller currently
receives a salary of $175,000, subject to salary increases determined annually
by the compensation committee (which increases must at least equal increases in
the consumer price index). In addition, Mr. Miller is eligible for an annual
bonus of up to 48% of his salary, based on financial targets and
non-quantitative performance objectives established by the compensation
committee
40
<PAGE> 46
at the beginning of the fiscal year. If his employment is terminated by the
Company other than for cause or because of death or disability, or because the
Company either removed him or failed to retain him as Senior Vice President,
Merchandising, the Company will pay to Mr. Miller his base salary (reduced by
compensation received from other businesses) from the date of termination to the
later of May 28, 1998 and the first anniversary of such termination. Mr.
Miller's employment agreement also contains certain confidentiality and
non-competition provisions.
Additionally, as part of the Acquisition, on January 2, 1997, James T.
McKitrick and G. Dean Longnecker sold to JWCAC, for $14.00 per share, 81,810 and
64,489 shares, respectively, of the Company's outstanding common stock, in
accordance with the terms of the Securities Purchase Agreements entered into at
the same time as the Merger Agreement. Additionally, the Securities Purchase
Agreements provide that at the closing of the Merger, Mr. McKitrick will
exchange outstanding options to purchase 183,935 shares of Company common stock
having an aggregate exercise price of $0.6 million for options to acquire shares
of Holding common stock valued at $2.6 million and that Mr. Longnecker will
exchange 71,429 shares of Company common stock for shares of Holding common
stock valued at $1.0 million. The Securities Purchase Agreements also contain
provisions regarding the continued employment of Messrs. McKitrick and
Longnecker in their current capacities after the Merger (the "New Employment
Agreements").
Mr. McKitrick's New Employment Agreement provides for a base salary of
$385,000, and Mr. Longnecker's provides for a base salary of $250,000, subject
in each case to annual increases as determined by the Board of Directors (which
increases must at least equal increases in the consumer price index).
Additionally, Messrs. McKitrick and Longnecker are eligible for annual cash
bonuses if the Company achieves certain operating cash flow targets, which
bonuses are not subject to any ceilings contained in the New Employment
Agreements.
Mr. McKitrick's New Employment Agreement provides for severance payments
equal to his base salary for 18 months if his employment is terminated (other
than in the case of death, disability or for cause) or if he is not reelected as
President and Chief Executive Officer, reduced by any compensation he should
earn during such 18-month period from other businesses. Mr. Longnecker's New
Employment Agreement provides for severance payments equal to his base salary
for 12 months if his employment is terminated (other than in the case of death,
disability or for cause) or if he is not reelected as Executive Vice President,
Finance, not subject, however, to reduction for any compensation earned from
other businesses.
The New Employment Agreements also contemplate that Messrs. McKitrick and
Longnecker will participate along with other management personnel in two stock
option plans of Holding involving 4.5% and 3.2% of Holding's outstanding common
stock and common stock equivalents on a fully diluted basis, respectively.
Allocations of options among the management group are to be made in the first
instance by the Chief Executive Officer of the Company, subject to ratification
by Holding's Board of Directors. Such allocations have not been made as of the
date of this Prospectus. The management stock options will be subject to vesting
based on the Company's achievement of certain operating cash flow targets.
Additionally, the New Employment Agreements contemplate that Messrs.
McKitrick and Longnecker will receive additional stock options which vest if the
Company is sold within six years after the effective time of the Merger and the
realized value of the common equity of the original investment group in Holding
should equal or exceed ten times the value thereof at the time of the Merger.
Mr. McKitrick's and Mr. Longnecker's options under this program are to acquire
an aggregate number of shares of common stock of Holding equal to 1.25% and
0.75%, respectively, of the total outstanding common stock and common stock
equivalents of Holding on a fully diluted basis.
41
<PAGE> 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of January 2, 1997, and the pro forma
beneficial ownership of the voting stock of Holding, giving effect to the
Offering and the Acquisition, by each person known to the Company to be the
beneficial owner of more than five percent of the Common Stock, each director
and director designate of the Company, each Named Executive and all directors
and executive officers of the Company as a group. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Holding. Except as
otherwise indicated, the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares. The business address for each executive
officer of the Company is in care of the Company.
<TABLE>
<CAPTION>
CT PRO FORMA HOLDING
---------------------- ----------------------
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT OWNED PERCENT
---------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
JWC Acquisition I, Inc.
CT Holding, Inc.
JWC Equity Funding, Inc.
J.W. Childs Equity Partners, L.P.
J.W. Childs Advisors, L.P.
J.W. Childs Associates, L.P.
J.W. Childs Associates, Inc.(1)........................... 7,208,551 66.1% 804,984 85.1%
James T. McKitrick(2)..................................... 307,770 2.8 42,918 4.4
Dean Longnecker (3)....................................... 102,194 * 16,667 1.8
John W. Childs(1)......................................... 7,208,551 66.1 838,427 88.6
Jerry D. Horn(1).......................................... 7,208,551 66.1 813,318 85.9
c/o General Nutrition Companies, Inc.
921 Penn Avenue
Pittsburgh, PA 15222
Steven G. Segal(1)........................................ 7,208,551 66.1 813,516 86.0
Adam L. Suttin(1)......................................... 7,208,551 66.1 808,180 85.4
Jeffrey D. Swartz......................................... 0 * 1,417 *
c/o The Timberland Company
200 Domain Drive
Stratham, NH 03885
William E. Watts.......................................... 0 * 833 *
c/o General Nutrition Companies, Inc.
921 Penn Avenue
Pittsburgh, PA 15222
Habib Y. Gorgi(4)......................................... 0 * 72,231 7.6
George D. Miller(5)....................................... 60,000 * 8,333 *
All Directors and executive officers as a group (6
persons)(6)............................................. 7,705,365 67.9 884,630 89.4
</TABLE>
- ---------------
* Less than 1.0%
(1) Represents 6,978,028 CT shares and 785,229 Holding shares owned by JWC
Acquisition I, Inc., a Delaware corporation ("JWCAC") and an additional
230,523 CT shares and 19,756 non-voting Holding shares (which are
convertible to voting shares at any time) subject to warrants owned by JWCAC
and JWC Equity Funding, Inc., respectively, exercisable within 60 days. CT
Holding, Inc., JWC Equity Funding, Inc., J.W. Childs Equity Partners, L.P.,
J.W. Childs Advisors L.P., J.W. Childs Associates, L.P., J.W. Childs
Associates, Inc. and Messrs. Childs, Horn, Segal and Suttin may each be
deemed to beneficially own shares owned or deemed beneficially owned by
JWCAC or JWC Equity Funding. Each of the foregoing, except Mr. Horn, has a
business address c/o J.W. Childs Associates, L.P., One Federal Street,
Boston, MA 2110.
42
<PAGE> 48
(2) Includes 305,370 CT shares and 42,918 Holding shares subject to stock
options exercisable within 60 days. Includes 2,400 CT shares beneficially
owned by Mr. McKitrick's wife, as to which Mr. McKitrick disclaims
beneficial ownership.
(3) Includes 19,565 CT shares subject to stock options exercisable within 60
days. Includes 11,000 CT shares beneficially owned by Mr. Longnecker's wife
and 200 CT shares beneficially owned by Mr. Longnecker's son, as to which
Mr. Longnecker disclaims beneficial ownership.
(4) Represents 43,958 Holding shares, 26,638 non-voting Holding shares (which
are convertible to voting shares at any time) and warrants to acquire an
additional 1,635 non-voting Holding shares, exercisable within 60 days and
then convertible into voting shares at any time, held by Chisholm Partners
III, L.P., Fleet Equity Partners VII, L.P., Fleet Growth Resources, Inc. and
Kennedy Plaza Partners, all affiliates of Fleet. Mr. Gorgi disclaims
beneficial ownership of these shares. Mr. Gorgi and each of the foregoing
has a business address at 50 Kennedy Plaza, Providence, RI 02903.
(5) Includes 60,000 CT shares subject to stock options exerciseable within 60
days.
(6) Includes 411,785 CT shares and 42,918 Holding shares subject to stock
options exercisable within 60 days and an additional 230,523 CT shares and
19,756 non-voting Holding Shares (which are convertible to voting Shares at
any time) subject to warrants exercisable within 60 days.
43
<PAGE> 49
CERTAIN TRANSACTIONS
Two of the Company's suppliers, Iron Age Corporation ("Iron Age") and Walls
Industries, Inc. ("Walls"), are controlled by certain BCC affiliates. Iron Age
is a manufacturer and distributor of workboots and protective footwear. Walls is
a manufacturer of insulated and non-insulated workwear, rugged outdoor and
hunting apparel and casual outerwear. The Company believes that the terms of its
purchases from Iron Age and Walls are at least as favorable to the Company as
could be obtained from other suppliers. In fiscal 1996, the Company's purchases
from Iron Age and Walls totaled $4.7 million and $1.6 million, respectively.
At the effective time of the Merger, it is contemplated that the Company
and Holding will enter into a management agreement with Associates providing for
payment by the Company to Associates of (i) a $1.7 million advisory and
financing fee in consideration of Associates' services regarding the planning,
structuring and negotiation of the Acquisition and related financing and (ii) an
annual management fee of $240,000 in consideration of Associates' ongoing
provision of certain consulting and management advisory services. Payments under
this management agreement may be made only to the extent permitted by the New
Credit Facility and the Indenture. The management agreement is expected to be
for a five-year term, automatically renewable for successive extension terms of
one year, unless Associates or Holding shall give notice of termination.
Additionally, Messrs. McKitrick and Longnecker are parties to a
Stockholders Agreement dated as of December 23, 1996 applicable to all shares of
Holding common stock or vested options to acquire such common stock held now or
hereafter acquired by them. The Stockholders Agreement, among other terms,
permits Holding to "call" their shares and vested options on their termination
of employment for any reason. Additionally, if either Mr. McKitrick or Mr.
Longnecker is terminated for any reason other than for cause or without good
reason (as those terms are defined in the Stockholders Agreement), he has the
right to "put" his shares or vested options to Holding. Depending on the
circumstances, the price for shares of Holding common stock purchased in
connection with a call or put under the Stockholders Agreement will range from
cost to seven times EBITDA. The put and call features of the Stockholders
Agreement terminate on completion of a public offering of Holding common stock
with aggregate net proceeds of $50.0 million or more.
Also, in connection with the consummation of the Acquisition, the Company
will loan $250,000 to George D. Miller and $25,000 to Jack P. Feichtner to
partially fund their investments in Holding common stock. The loans will be due
in ten years and require payments of interest only prior to maturity at the
applicable interest rate under the New Credit Facility.
44
<PAGE> 50
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
between the Company and Marine Midland Bank, as trustee (the "Trustee"). The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Senior Notes are subject to all such terms, and
Holders of Senior Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the material provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below. Copies of the proposed form of Indenture have been filed as an
exhibit to the Registration Statement of which this Prospectus is a part and are
available as set forth below under "-- Available Information." The definitions
of certain terms used in the following summary are set forth below under
"-- Certain Definitions." As of the date of the Indenture, the Company will have
no Subsidiaries. All of the Company's future Subsidiaries will be Restricted
Subsidiaries; however, the Company will be able to designate Subsidiaries as
Unrestricted Subsidiaries pursuant to a resolution of the Board of Directors of
the Company to the extent that such Subsidiary qualifies as an "Unrestricted
Subsidiary" under the Indenture and such designation is made in compliance with
the restrictive covenants contained in the Indenture. See "-- Certain
Covenants -- Restricted Payments" and "-- Certain Definitions." Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set forth
in the Indenture and will not provide Subsidiary Guarantees. For purposes of
this summary, the term "Company" refers only to Central Tractor Farm & Country,
Inc., as survivor of the Merger, and not to any of its Subsidiaries.
The Senior Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment with all current and future unsecured
unsubordinated Indebtedness of the Company, including borrowings under the New
Credit Facility. However, all borrowings under the New Credit Facility will be
secured by a Lien on substantially all of the assets of the Company and its
Subsidiaries. The Indenture restricts, but does not prohibit, the Company and
its Subsidiaries from incurring certain other indebtedness which can be secured
with Liens on the assets of the Company and its Subsidiaries. Consequently, the
obligations of the Company under the Senior Notes will be effectively
subordinated to its obligations under the New Credit Facility and such other
indebtedness to the extent of such assets. As of November 2, on a pro forma
basis after giving effect to the Acquisition, the Company would have had
approximately $17.9 million principal amount of secured indebtedness and $20.1
million would have been available to be borrowed under the revolving portion of
the New Credit Facility. See "Risk Factors -- Effective Subordination."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes offered hereby will be limited in aggregate principal
amount to $100.0 million and will mature on , 2007. The Indenture
provides for the issuance of up to $50.0 million aggregate principal amount of
additional Senior Notes having identical terms and conditions to the Senior
Notes offered hereby (the "Additional Senior Notes"), subject to compliance with
the covenants contained in the Indenture. Any Additional Senior Notes will be
part of the same issue as the Senior Notes offered hereby and will vote on all
matters with the Senior Notes offered hereby. For purposes of this "Description
of Senior Notes," references to the Senior Notes do not include Additional
Senior Notes. Interest on the Senior Notes will accrue at the rate of % per
annum and will be payable semiannually in arrears on and
, commencing on , 1997, to Holders of record on the
immediately preceding and . Interest on the Senior Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Senior Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the Holders of the Senior Notes at their respective
addresses set forth in the register of Holders of Senior Notes; provided that
all payments of principal, premium and interest with respect to
45
<PAGE> 51
Senior Notes the Holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Senior Notes will be
issued in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Notes will be jointly
and severally guaranteed (the "Subsidiary Guarantees") by the Guarantors. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable law. See, however,
"Risk Factors -- Fraudulent Conveyance Considerations."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Senior Notes, the Indenture and Subsidiary Guarantee and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Redemption or
Repurchase at Option of Holders -- Asset Sales." The Indenture will also provide
that in the event that a Guarantor is designated by the Company to be an
Unrestricted Subsidiary in accordance with the terms of the Indenture, such
Guarantor will be released and relieved of any obligations under its Subsidiary
Guaranty. See "Certain Covenants -- Restricted Payments."
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
, 2002. Thereafter, the Senior Notes will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002...................................................... %
2003...................................................... %
2004...................................................... %
2005 and thereafter....................................... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time on or before , 2000,
the Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Senior Notes (including any
Additional Senior Notes) at a redemption price of % of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net cash proceeds of a Public Equity Offering; provided that at least 65%
aggregate principal amount of Senior Notes (including any Additional Senior
Notes) originally issued remain outstanding immediately after the occurrence of
such redemption; and provided, further, that such redemption shall occur within
60 days of the date of the closing of such public offering.
46
<PAGE> 52
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee on a pro
rata basis; provided that no Senior Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Senior Notes
to be redeemed at its registered address. If any Senior Note is to be redeemed
in part only, the notice of redemption that relates to such Senior Note shall
state the portion of the principal amount thereof to be redeemed. A new Senior
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Senior Note.
On and after the redemption date, interest ceases to accrue on Senior Notes or
portions of them called for redemption.
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control prior to , 2002,
the Senior Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each holder
of Senior Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest thereon, to the redemption date plus (iii) the Applicable Premium. The
following definitions are used to determine the Applicable Premium:
"Applicable Premium" will be defined, with respect to a Senior Note,
as the greater of (i) % of the then outstanding principal amount of such
Senior Note and (ii) the excess of (A) the present value of the remaining
required interest and principal payments due on such Senior Note (exclusive
of accrued and unpaid interest), computed using a discount rate equal to
the Treasury Rate plus basis points, over (B) the then
outstanding principal amount of such Senior Note.
"Treasury Rate" will be defined as the yield to maturity at the time
of computation of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) which has become publicly available at least
two Business Days prior to the date fixed for prepayment (or, if such
Statistical Release is no longer published, and publicly available source
of similar market data)) most nearly equal to the then remaining Average
Life to Stated Maturity of the Senior Notes; provided, however, that if the
Average Life to Stated Maturity of the Senior Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the Average Life to Stated Maturity of the
Senior Notes is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of repurchase (the
"Change of Control Payment"). Within fifteen days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in
47
<PAGE> 53
such notice. 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 the Senior Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any; provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar transaction.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. In addition, the Company's
ability to pay cash to the Holders of Senior Notes upon a repurchase may be
limited by the Company's then existing financial resources. See "Risk
Factors -- Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Notes to require the Company
to repurchase such Senior Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided, however that, the Company and
the Restricted Subsidiaries will be permitted to consummate Asset Sales with
respect to assets with a fair market value of less than $5.0 million in the
aggregate since the Issue Date without complying with clause (ii) above to the
extent (a) at least 75% of the consideration received in connection with such
Asset Sale constitutes Replacement Assets (as defined below) or a combination of
Replacement Assets, cash and Cash Equivalents and (b) any Net Proceeds in the
form of cash or Cash Equivalents received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated pursuant to this provision shall be subject to the provisions of the
immediately following paragraph.
48
<PAGE> 54
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option (a) to permanently reduce
Indebtedness under the Credit Facilities (and correspondingly reduce commitments
thereunder) or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in the same or a similar line of business as the
Company was engaged in on the date of the Indenture (collectively "Replacement
Assets"). Pending the final application of any such Net Proceeds, the Company
may temporarily reduce revolving credit Indebtedness or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Senior Notes and Additional
Senior Notes (an "Asset Sale Offer") to purchase the maximum principal amount of
Senior Notes and Additional Senior Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Senior Notes and Additional Senior Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Senior Notes and Additional Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Notes and Additional Senior Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company, any
Restricted Subsidiary of the Company or any Affiliate of the Company (other than
any such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Senior Notes (other than Senior Notes),
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less than
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
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Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment plus (iv) the amount resulting
from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(in each case, such amount to be valued as provided in the second
succeeding paragraph) not to exceed the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary and which was treated as a Restricted Payment under the
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the holders
of its common Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other retirement for value of any Equity Interests of the Company
or a Restricted Subsidiary, or dividends or other distributions by the Company
to Holding the proceeds of which are utilized by Holding to repurchase, redeem
or otherwise acquire or retire for value any Equity Interests of Holding, in
each case, held by any member of the management, employees or consultants of the
Company, Restricted Subsidiary or Holding pursuant to any management, employee
or consultant equity subscription agreement or stock option agreement; provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $500,000 in any twelve-month period
and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (vi) payments or distributions to dissenting
stockholders of the Company in connection with the Merger; (vii) dividends or
other payments to Holding sufficient to enable Holding to pay accounting, legal,
corporate reporting and administrative expenses of Holding incurred in the
ordinary course of business or to pay required fees and expenses in connection
with the Acquisition and the registration under applicable laws and regulations
of its debt or equity securities and (viii) payments to Holding pursuant to the
Tax Sharing Agreement.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of (x) the net book value of such Investments at the time of such
designation and (y) the fair market value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such
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Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if such fair market value exceeds $5.0 million. Not later than the date
of making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2 to 1, if such
incurrence or issuance is on or prior to , 1998, or 2.25 to
1, if such incurrence or issuance is after , 1998, in each
case, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The Indenture will also provide that the Company will not incur any
Indebtedness that is contractually subordinated to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated to the
Senior Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually subordinated to
any other Indebtedness of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
(including letters of credit) pursuant to the Credit Facilities (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Subsidiaries
thereunder); provided that, after giving pro forma effect to any such
incurrence and the application of the proceeds therefrom, the aggregate
principal amount of all Indebtedness (including letters of credit) of the
Company and its Subsidiaries outstanding under the Credit Facilities does
not exceed the greater of (x) $38.0 million less the aggregate amount of
all Net Proceeds of Asset Sales applied to permanently repay any such
Indebtedness pursuant to the covenant described above under the caption
"Repurchase at the Option of Holders -- Asset Sales" and (y) the amount of
the Borrowing Base as of any date of incurrence;
(ii) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Senior Notes (other than any Additional
Senior Notes) and the Subsidiary Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$10.0 million at any time outstanding;
(iv) the incurrence by any corporation that becomes a Subsidiary after
the Issue Date of Acquired Debt, which Indebtedness is existing at the time
such corporation becomes a Subsidiary; provided, however, that (A)
immediately after giving effect to such corporation becoming a Subsidiary
the
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Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Debt) in accordance with the Indenture, (B) such Indebtedness is
without recourse to the Company or to any Subsidiary or to any of their
respective properties or assets other than Person becoming a Subsidiary or
its properties and assets and (C) such Indebtedness was not incurred as a
result of or in connection with or in contemplation of such entity becoming
a Subsidiary;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(vi) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the Senior Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be;
(vii) Indebtedness of an Unrestricted Subsidiary of the Company owed
to and held by the Company or a Restricted Subsidiary of the Company,
provided that the Company or such Restricted Subsidiary is permitted to
make an investment in such Unrestricted Subsidiary under the Indenture at
the time such Indebtedness is incurred in an amount equal to the principal
amount of such Indebtedness;
(viii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging currency risk or interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of this Indenture to be outstanding;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(x) Indebtedness incurred in respect of performance, surety and
similar bonds provided by the Company and its Restricted Subsidiaries in
the ordinary course of business, and refinancings thereof;
(xi) Indebtedness for letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the
ordinary course of business;
(xii) Indebtedness arising from guarantees of Indebtedness of the
Company or any Subsidiary or other agreements of the Company or a
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or Subsidiary, other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition, provided that the maximum aggregate liability in respect
of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Subsidiaries in connection with
such disposition;
(xiii) the guarantee by any of the Guarantors of Indebtedness of the
Company or another Guarantor that was permitted to be incurred under the
Indenture; and
(xiv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv)
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above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest and
the accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) applicable law, (b) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (c) by reason of customary non-assignment provisions in leases,
licenses, encumbrances, contracts or similar assets entered into or acquired in
the ordinary course of business and consistent with past practices, (d) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (e) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (f) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary or (g) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned
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Restricted Subsidiary of the Company, the Company or the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $500,000, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that (v) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(w) transactions between or among the Company and/or its Restricted
Subsidiaries, (x) Restricted Payments (other than Restricted Investments) that
are permitted by the provisions of the Indenture described above under the
caption "Restricted Payments," (y) investment banking and management fees in an
aggregate amount no greater than $240,000 in the aggregate in any calendar year
(plus reimbursement of expenses) to be paid by the Company to the Principals or
any Related Party and (z) an aggregate cash fee of $1.7 million payable by the
Company to the Principals or any Related Party on or about the Issue Date, in
each case, shall not be deemed Affiliate Transactions.
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction (other than among the Company and Wholly Owned Restricted
Subsidiaries or among Wholly Owned Restricted Subsidiaries); provided that the
Company may enter into a sale and leaseback transaction if (i) the Company could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the covenant
described above under the caption "-- Incurrence of Additional Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "-- Liens," (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal to
the fair market value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (iii) the
transfer of assets in such sale and leaseback transaction is permitted by, and
the Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "Repurchase at the Option of
Holders -- Asset Sales."
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Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Restricted Subsidiary of the Company to any Person (other than the Company
or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds
from such transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "-- Asset Sales,"
and (ii) will not permit any Wholly Owned Restricted Subsidiary of the Company
to issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
Payments for Consent
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Senior Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the Senior Notes unless such
consideration is offered to be paid or is paid to all Holders of the Senior
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary shall execute a Subsidiary Guarantee
and deliver an opinion of counsel, in accordance with the terms of the
Indenture, except for all Subsidiaries that have properly been designated as
Unrestricted Subsidiaries in accordance with the Indenture for so long as they
continue to constitute Unrestricted Subsidiaries.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Senior Notes are outstanding, the Company will furnish to the
Holders of Senior Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company), but excluding
exhibits, and, with respect to the annual information only, a report thereon by
the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by the Company to comply with the
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provisions described under the captions "Repurchase at the Option of the
Holders -- Change of Control" or "-- Asset Sales" or "Covenants -- Restricted
Payments" or "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(iv) failure by the Company for 60 days after notice from the Trustee or holders
of at least 25% in aggregate principal amount of the outstanding Senior Notes to
comply with any of its other agreements in the Indenture or the Senior Notes;
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a)
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Guarantor constituting a Significant Restricted Subsidiary, all outstanding
Senior Notes will become due and payable without further action or notice.
Holders of the Senior Notes may not enforce the Indenture or the Senior Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Senior Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Senior Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to , 2002 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Senior Notes prior to
, 2002, then the premium specified in the Indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Senior Notes, the Indenture or the Subsidiary Guarantees or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Senior Notes by accepting a Senior Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Senior Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Senior Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Senior Notes
are being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
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91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Senior Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Subsidiary Guarantees or the Senior Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Senior Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Notes), and any existing default or compliance with any provision of
the Indenture, the Subsidiary Guarantees or the Senior Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the caption "Repurchase at the Option of Holders"), (iii) reduce the rate
of or change the time for payment of interest on any Senior Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Senior Notes (except a rescission of acceleration of the
Senior Notes by the Holders of at least a majority in aggregate principal amount
of the Senior Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Note payable in money other than that stated
in the Senior Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Senior Notes to
receive payments of principal of or premium, if any, or interest on the Senior
Notes, (vii) waive a redemption payment with respect to any Senior Note (other
than a payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Subsidiary Guarantee or the Indenture,
except in accordance with the terms of the Indenture, or (ix) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the Senior Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Senior Notes in addition
to or in place of certificated Senior Notes, to provide for the assumption of
the Company's or a Guarantor's obligations to Holders of Senior Notes in the
case of a merger or consolidation, to provide for the issuance of a Subsidiary
Guarantee by a Subsidiary of the Company, to provide for the issuance of
Additional Notes in accordance with the limitations set forth in the Indenture
on the Issue Date, to make any change that would provide any additional rights
or benefits to the Holders of Senior Notes or that does not adversely affect the
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legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or other current assets in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "Repurchase
at the Option of Holders -- Change of Control" and/or the provisions described
above under the caption "Covenants -- Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant), and (ii) the issue or
sale by the Company or any of its Subsidiaries of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions that have a fair market
value (as determined in good faith by the Board of Directors) in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly-Owned Restricted Subsidiary or by a Subsidiary to the Company or to
Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, and (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "Covenants -- Restricted Payments"
will not be deemed to be Asset Sales.
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"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
80% of accounts receivable of the Company and its Restricted Subsidiaries as of
such date that are not more than 45 days past due (including accounts receivable
relating to any layaway or similar plan), plus (ii) 65% of the book value of all
inventory owned by the Company and its Restricted Subsidiaries as of such date,
in each case calculated on a consolidated basis and in accordance with GAAP. To
the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, the Company may utilize the most
recent available information for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the New Credit Facility or with
any domestic commercial bank having capital and surplus in excess of $500.0
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper of a domestic issuer having a rating of at least A-1 by
Standard and Poor's Ratings Services ("S&P") or P-1 by Moody's Investors
Service, Inc. ("Moody's") maturing within twelve months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) (a) prior to the initial underwritten public offering
by the Company or Holding of its Common Stock pursuant to an effective
registration statement under the Securities Act (the "IPO") the result of which
is that the Principals and their Related Parties become the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition) of less than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares) or (b) after the IPO, any person (as
defined above), other than the Principals and their Related Parties, becomes the
beneficial owner (as defined above), directly or indirectly, of 35% or more of
the Voting Stock of the Company and such person is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting power of
the Voting Stock of the Company, calculated on a fully diluted basis, than the
percentage beneficially owned by the Principals and their Related Parties, (iv)
the first day on which a majority of the members of the Board
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of Directors of the Company are not Continuing Directors or (v) the Company
consolidates with, or merges with or into, any Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance). For purposes of this definition, any
transfer of an equity interest of an entity that was formed for the purpose of
acquiring Voting Stock of the Company will be deemed to be a transfer of such
portion of such Voting Stock as corresponds to the portion of the equity of such
entity that has been so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting
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principles shall be excluded and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Senior Notes are first issued and authenticated
under the Indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (i) of the definition of Permitted
Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of debt issuance costs) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon) and (iv) the product of (a) all
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cash dividend payments on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified Stock) of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person and its Restricted Subsidiaries, expressed as
a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and its respective successors
and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies purchased or received by the Company in
the ordinary course of business.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by
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such Person of any indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "-- Restricted
Payments."
"Issue Date" means the first date of issuance of Senior Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"New Credit Facility" means that certain credit facility, dated as of
December 23, 1996, by and among the Company and Fleet National Bank, as agent
and a lender, providing for up to $38.0 million of revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof
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may have to take enforcement action against an Unrestricted Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other Indebtedness
of the Company or any of its Restricted Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and (iii) as to which the lenders have
been notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company and a
Guarantor; (d) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "Repurchase at
the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; and (f) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (f) that are at the time
outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Facilities that was permitted by the terms of the Indenture to be incurred; (ii)
Liens in favor of the Company; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory or regulatory obligations, leases, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iii) of the third paragraph of
the covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (x) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security; (xi) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (xii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(xiii) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (xiv) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xv) Liens in favor of
the Company or any Restricted Subsidiary; (xvi) Liens arising from the rendering
of a final judgment or order against the Company or any Restricted Subsidiary of
the Company that does not give rise to an Event of Default; (xvii) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation
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of goods; (xviii) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are either within the general parameters
customary in the industry and incurred in the ordinary course of business, in
each case securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, futures contracts, futures options or
similar agreements or arrangements designed solely to protect the Company or any
of its Restricted Subsidiaries from fluctuations in interest rates, currencies
or the price of commodities; (xix) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date; (xx) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed $2.5 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary; and (xxi) Liens on
assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund Existing
Indebtedness or other Indebtedness of the Company or any of its Restricted
Subsidiaries incurred in accordance with the Indenture (other than Indebtedness
incurred in accordance with clauses (i), (vi), (viii), (ix), (x), (xi), (xii)
(xiii) and (xiv) of the third paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock;" provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date at or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final
maturity date at or later than the final maturity date of, and is subordinated
in right of payment to, the Senior Notes on terms at least as favorable to the
Holders of Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Principals" means (i) J.W. Childs Equity Partners, L.P., (ii) each
Affiliate of J.W. Childs Equity Partners, L.P. as of the Issue Date, and (iii)
each officer or employee (including their respective immediate family members)
of J.W. Childs Associates, L.P. as of the Issue Date.
"Public Equity Offering" means an underwritten public offering of common
stock (other than Disqualified Stock) of the Company or Holding, pursuant to an
effective registration statement filed with the Commission in accordance with
the Securities Act; provided, however, that, in the case of a Public Equity
Offering by Holding, Holding contributes to the capital of the Company net cash
proceeds thereof in an amount sufficient to redeem the Senior Notes called for
redemption in accordance with the terms of the Indenture.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"Significant Restricted Subsidiary" means a subsidiary, including its
subsidiaries, which meets any of the following conditions:
(1) The Company's and its other subsidiaries' investments in and
advances to the subsidiary exceed 10% of the total assets of the Company
and its subsidiaries consolidated as of the end of the most recently
completed fiscal year (for a proposed business combination to be accounted
for as a pooling of interests, this condition is also met when the number
of common shares exchanged or to be exchanged by the Company exceeds 10% of
its total common shares outstanding at the date the combination is
initiated); or
(2) The Company's and its other subsidiaries' proportionate share of
the total assets (after intercompany eliminations) of the subsidiary
exceeds 10% of the total assets of the Company and its subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
(3) The Company's and its other subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the subsidiary
exceeds 10% of such income of the Company and its subsidiaries consolidated
for the most recently completed fiscal year.
For purposes of this definition under the Indenture, a "significant
subsidiary" will be determined in accordance with the computational note
contained in the definition of Significant Subsidiary in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means the tax sharing agreement among Holding, the
Company and any one or more of Holding's subsidiaries, as amended from time to
time, so long as the method of calculating the amount of the Company's payments,
if any, to be made thereunder is not less favorable to the Company than as
provided in such agreement as in effect on the Issue Date (except to the extent
required to reflect changes in applicable federal or state tax laws), as
determined in good faith by the Board of Directors of the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company (as determined in good faith by the Board of
Directors); (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying
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that such designation complied with the foregoing conditions and was permitted
by the covenant described above under the caption "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" means, with respect to any Person, the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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DESCRIPTION OF NEW CREDIT FACILITY
The Company entered into a Credit Agreement dated as of December 23, 1996,
by and among the Company and Fleet, as Administrative Agent and NationsBank, as
Co-Agent for the lenders referred to therein, providing for borrowings in an
aggregate principal amount of up to $38.0 million (the "New Credit Facility").
The New Credit Facility is comprised of a five-year term facility (the "New Term
Loan") in the principal amount of $8.0 million, a revolving credit facility (the
"New Revolving Credit Facility") in the principal amount of $30.0 million with a
sublimit for the issuance of standby and trade letters of credit in the amount
of $10.0 million and a swing line facility with a sublimit in the amount of $5.0
million. Indebtedness under the New Credit Facility will be guaranteed by
Holding and secured by substantially all of the assets of the Company and the
Company's future subsidiaries. Loans made pursuant to the New Term Loan must be
repaid in 10 installments of $0.8 million beginning June 30, 1997, and must be
repaid in full on December 31, 2001. In addition to the scheduled repayment of
the New Term Loan, the Company is obligated to make annual prepayments based on
the Company's excess cash flow. All payments and prepayments of the New Term
Loan permanently reduce the availability under the New Term Loan as defined in
the New Credit Facility. Advances made pursuant to the New Revolving Credit
Facility may be borrowed, repaid and reborrowed from time to time until the
fifth anniversary of the establishment of the facility. Advances under the New
Credit Facility are subject to the satisfaction of certain conditions on the
date of advance.
Amounts outstanding under the New Credit Facility will bear interest at a
rate based, at the Company's option, upon (i) the greater of Fleet's prime rate
and 0.50% over the federal funds rate, plus 1.0% through the first day of the
Company's 1998 fiscal year and thereafter plus a percentage between 0.25% and
1.0% depending on the Company's debt to EBITDA ratio ("Prime Rate Advances") or
(ii) the Eurodollar Rate, plus 2.25% through the first day of the Company's 1998
fiscal year and thereafter plus a percentage between 1.50% and 2.25% depending
on the Company's debt to EBITDA ratio, except that advances under the swing line
facility may only be Prime Rate Advances. As of December 31, 1996, the interest
rate on the New Term Loan was 7.89% and the interest rate on the outstanding
balance under the New Revolving Credit Facility was 7.85%.
The New Credit Facility contains a number of financial, affirmative and
negative covenants that regulate the Company's operations. Financial covenants
require the Company to maintain: (i) a minimum consolidated net worth of $58.0
million, plus 75% of consolidated net income for the period after November 2,
1996; (ii) minimum consolidated EBITDA for the four most recently completed
fiscal quarters increasing from $20.9 million for the first quarter of fiscal
1997 to $37.5 million for the fourth quarter of fiscal 2001; (iii) a minimum
ratio of consolidated EBITDA to cash interest payable on consolidated debt for
the four most recently completed fiscal quarters increasing from 1.55x for the
first quarter of fiscal 1997 to 2.70x for the fourth quarter of fiscal 2001; and
(iv) a minimum ratio of consolidated debt to consolidated EBITDA for the four
most recently completed fiscal quarters decreasing from 5.60x for the first
quarter of fiscal 1997 to 2.80x for the fourth quarter of fiscal 2001. Negative
covenants restrict, among other things, the incurrence of debt, the existence of
liens, transactions with affiliates, loans, advances and investments by the
Company, payment of dividends and other distributions to shareholders,
dispositions of assets, mergers, consolidations and dissolutions, contingent
liabilities and changes in business.
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DESCRIPTION OF HOLDING PREFERRED STOCK
The following statements are brief summaries of certain provisions relating
to the shares of Series B 13% Senior Redeemable Exchangeable Pay-In-Kind
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of Holding.
The Preferred Stock will be issued concurrently with the closing of the offering
of the Senior Notes, in exchange for the shares of Series A 13% Senior
Redeemable Exchangeable Pay-In-Kind Preferred Stock, par value $.01 per share,
of Holding issued in December 1996. The following statements are qualified in
their entirety by the provisions of Holding's Certificate of Incorporation and
the Restated Certificate of Designation of Series B 13% Senior Redeemable
Exchangeable Pay-In-Kind of Holding (the "Certificate of Designation") to be
filed with the secretary of state of Delaware prior to the closing of the
offering of the Senior Notes, which includes the resolutions of the Board of
Directors of Holding creating the Preferred Stock.
DIVIDEND RIGHTS
Holders of Preferred Stock are entitled to receive, but only when and as
declared by the Board of Directors of Holding out of funds legally available
therefor, cumulative dividends at the annual rate of $130.00 per share, payable
semiannually on the last day of May and November in each year, commencing May
31, 1997 (a "Dividend Reference Date"). Dividends are cumulative, accrue on a
daily basis, are calculated from the date of issue of the Preferred Stock and
are payable to holders of record on such record dates as are fixed by the Board
of Directors of Holding. Dividends payable for any period less than a full
semiannual period will be computed on the basis of a 365-day year and the actual
number of days elapsed.
Dividends are payable in cash, except as follows:
(a) If any dividend payable on any Dividend Reference Date occurring
on or before May 31, 2002 is not declared and paid in full in cash on such
Dividend Reference Date, the amount payable as a dividend on such Dividend
Reference Date that is not paid in cash shall, subject to the terms of any
Parity Securities or Senior Securities (each defined below), be declared
and paid in additional shares of Preferred Stock, with such additional
shares of Preferred Stock being valued at $1,000 per share for such
purpose.
(b) If any dividend payable on any Dividend Reference Date occurring
after May 31, 2002 is not declared and paid in full in cash on such
Dividend Reference Date, then, subject to the terms of any Parity
Securities or Senior Securities, the Board of Directors of Holding shall
declare and Holding shall pay on such Dividend Reference Date a dividend in
additional shares of Preferred Stock, with such additional shares of
Preferred Stock being valued at $1,000 per share for such purpose, in an
amount equal to the lesser of (i) the amount payable as a dividend on such
Dividend Reference Date that is not paid in cash on such Dividend Reference
Date and (ii) the remainder of (x) the amount payable as a dividend on such
Dividend Reference Date minus (y) the amount of Cash Per Share Available
for Dividends, as determined by the Corporation as of a date within ten
business days of such Dividend Reference Date.
For purposes of the Certificate of Designation:
"Cash Per Share Available for Dividends" means, as of any date, the
quotient of (i) the sum of (A) the aggregate amount of cash and cash equivalents
held by Holding as of such date, plus (B) the lesser of (I) the aggregate amount
of cash and cash equivalents held by the Company as of such date and (II) the
maximum amount that the Company could, if it declared and paid a cash dividend
on its common stock on such date, declare and pay without being in violation of
or default under (with or without the lapse of time or the giving of notice, or
both) any applicable law or any note, debenture, indenture or other agreement or
instrument governing indebtedness for borrowed money of the Company minus (C) a
reasonable reserve determined by the Board of Directors of Holding in the good
faith exercise of its business judgment, divided by (ii) the aggregate number of
shares of Preferred Stock outstanding as of such date.
"Equity Interests" means capital stock and all warrants, options or other
rights to acquire capital stock (but excluding any debt security that is
convertible into, or exchangeable for, capital stock).
"Junior Security" means any shares of the voting common and the non-voting
common stock of Holding and any other class or series of stock of Holding which,
by the terms of Holding's Restated Certificate of
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Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in Holding's Restated Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Preferred Stock in respect of the right to
receive dividends or to participate in any distribution of assets (including but
not limited to any distribution of assets in connection with the liquidation of
Holding) other than by way of dividends.
"Parity Security" means any shares of any class or series of stock of
Holding which, by the terms of Holding's Restated Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in Holding's Restated Certificate of Incorporation, shall fix
the relative rights, preferences and limitations thereof, shall be on a parity
with the Preferred Stock in respect of the right to receive dividends and to
participate in any distribution of assets (including but not limited to any
distribution of assets in connection with the liquidation of Holding) other than
by way of dividends.
"Senior Security" means shares of any class or series of stock of Holding
which, by the terms of Holding's Restated Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in Holding's Restated Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be senior to the Preferred
Stock in respect of the right to receive dividends or to participate in any
distribution of assets (including but not limited to any distribution of assets
in connection with the liquidation of Holding) other than by way of dividends.
No dividend (payable other than in shares of Junior Securities) whatsoever
shall be paid upon, or moneys or other property of Holding set apart for payment
of any dividend upon, any Junior Security nor shall any Junior Security be
redeemed or purchased by Holding or any subsidiary thereof (except by conversion
into or exchange for Junior Securities) nor shall any moneys or other property
be paid to or made available for a sinking fund for any such redemption or
purchase of any Junior Security, unless, in each such instance, all of the
following conditions are met: (i) all dividends on all outstanding shares of
Preferred Stock accrued through the most recent Dividend Reference Date shall
have been paid or declared and sufficient moneys (or, to the extent required by
the Certificate of Designation, shares of Preferred Stock) set aside for payment
thereof; (ii) all dividends on all outstanding shares of Preferred Stock accrued
through the most recent Dividend Reference Date from the Dividend Reference Date
immediately preceding such most recent Dividend Reference Date shall have been
paid in cash or declared and sufficient moneys set aside for payment thereof;
and (iii) all shares of Preferred Stock issued by Holding after May 31, 2002 as
payment-in-kind dividends shall have been redeemed. The foregoing provisions
shall not prohibit (i) the payment of any dividend within sixty (60) days after
the date of declaration thereof, if at the date of such declaration such payment
would have complied with the provisions of the Certificate of Designation, or
(ii) the repurchase, redemption or other retirement for value of any Equity
Interests of Holding held by any member of the management, employees or
consultants of Holding or any subsidiary of Holding pursuant to any management,
employee or consultant equity subscription agreement or stock option agreement
or the Stockholders Agreement dated as of December 23, 1996, among Holding and
its stockholders named therein; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1.0 million in any twelve-month period and no Voting Rights Triggering
Event (defined below) shall have occurred and be continuing immediately after
such transaction; provided, further, that the immediately foregoing proviso
shall not restrict the right or the obligation of Holding pursuant to said
Stockholders Agreement, to repurchase, redeem, acquire or retire Equity
Interests by delivery of a subordinated promissory note or notes in accordance
with the provisions of said Stockholders Agreement.
So long as any share of Preferred Stock remains outstanding, no full
dividend (payable other than in shares of Junior Securities) shall be paid upon,
or moneys or other property of Holding set apart for payment of any full
dividend upon, any Parity Securities, unless all dividends on all outstanding
shares of Preferred Stock accrued through the most recent Dividend Reference
Date shall have been paid or declared and sufficient moneys (or, to the extent
required by the Certificate of Designation, shares of Preferred Stock) set aside
for payment thereof. If all such dividends are not so paid, the Preferred Stock
shall share dividends pro rata with such Parity Securities.
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Substantially all of Holding's operations are conducted through the
Company. The ability of Holding to pay cash dividends on the Preferred Stock
will be dependent upon the payment to it of dividends, interest or other charges
by the Company. The Company's right to make such payments is restricted by the
New Credit Agreement and the Indenture.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution or winding up of Holding, whether
voluntary or involuntary, the holders of Preferred Stock will be entitled to be
paid out of the assets of Holding available for distribution to stockholders,
before any distribution or payment is made upon any Junior Securities, an amount
in cash equal to the sum of $1,000 per share of Preferred Stock plus all accrued
and unpaid dividends thereon (the "Liquidation Value"). After such payment, the
holders of Preferred Stock will not be entitled to any further payment or claim
to any of the remaining assets of Holding. If, upon any liquidation, dissolution
or winding up of Holding, the assets of Holding to be distributed among holders
of Preferred Stock are insufficient to permit payment to holders of the
aggregate Liquidation Value to which they are entitled, then the assets of
Holding to be distributed to such holders will be distributed ratably among such
holders. Neither the consolidation or merger of Holding into or with any other
person or entity, nor the sale or transfer by Holding of all or any part of its
assets, nor the reduction of the capital stock of Holding, will be deemed to be
a liquidation, dissolution or winding up of Holding.
REDEMPTION
Holding has the following redemption rights and obligations with respect to
the Preferred Stock:
Optional Redemptions by Holding. At any time within six (6) months after a
Change of Control or a Qualified Public Offering (each as defined below),
Holding may, at its election, redeem all or any part of the outstanding shares
of Preferred Stock, out of funds legally available therefor, at the Liquidation
Value. For purposes of the Certificate of Designation:
"Change of Control" shall mean the occurrence of any of the following:
(i) The sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of Holding
or the Company to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the JWC Holders or their affiliates, except to
the extent otherwise permitted under clause (vi) of this definition;
(ii) The adoption of a plan relating to the liquidation or
dissolution of Holding or the Company;
(iii) The consummation of any transaction (including but not limited
to any merger or consolidation, (A) prior to the initial underwritten
public offering of the common stock of Holding pursuant to an effective
registration statement under the Securities Act (the "IPO") the result of
which is that the JWC Holders and their Related Parties become the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition) of less than 50% of the
Voting Stock of Holding (measured by voting power rather than number of
shares) or (B) after the IPO, any person (as defined above), other than the
JWC Holders and their Related Parties, becomes the beneficial owner (as
defined above), directly or indirectly, of 35% or more of the Voting Stock
of Holding and such person is or becomes, directly or indirectly, the
beneficial owner of a greater percentage of the voting power of the Voting
Stock of Holding, calculated on a fully diluted basis, than the percentage
beneficially owned by the JWC Holders and their Related Parties;
(iv) The first day on which a majority of the members of the Board of
Directors of Holding are not Continuing Directors;
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(v) The first day on which Holding shall own, directly or
indirectly, less than all of the issued and outstanding capital stock of
the Company or of the surviving or transferee Person of the Company in a
transaction permitted under clause (vi) of this definition; or
(vi) Holding or the Company consolidates with, or merges with or
into, any Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any
Person consolidates with, or merges with or into, Holding or the Company,
as the case may be, in any such event pursuant to a transaction in which
(A) any of the outstanding Voting Stock of Holding is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of Holding outstanding immediately prior
to such transaction is converted into or exchanged for Voting Stock of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
(immediately after giving effect to such issuance) or (B) any of the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property (other than payments of or other right
to receive cash in respect of fractional shares of such Voting Stock),
other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock of the surviving or transferee Person all of
which is owned, directly or indirectly, by Holding (immediately after
giving effect to such issuance).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holding who (i) was a member of such Board of
Directors on the date of adoption of the Certificate of Designation by the Board
of Directors of Holding or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"JWC Holders" means the JWC Holders as defined in the Stockholders
Agreement, dated as of December 23, 1996, among Holding and the stockholders of
Holding named therein. The Principals are included among the JWC Holders.
"Person" means any individual, partnership, corporation, limited liability
corporation, trust, estate, joint venture, association, unincorporated
organization, government or any department or agency thereof, or other entity.
"Qualified Public Offering" means one or more public sales of any capital
stock of Holding pursuant to one or more registration statements (other than on
Form S-4 or S-8 or any other similar limited purpose form), that have become
effective under the Securities Act, yielding at least $10.0 million in aggregate
gross proceeds.
"Related Party" with respect to any JWC Holder means (i) any controlling
stockholder or 80% (or more) owned subsidiary of such JWC Holder or (ii) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partner, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of JWC Holders and/or such other Persons referred to
in the immediately preceding clause (i).
"Voting Stock" means, with respect to any Person, the capital stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
At any time and from time to time Holding may, at its election, redeem all
or any part of the outstanding shares of Preferred Stock issued by the Holding
as payment-in-kind dividends after May 31, 2002, out of funds legally available
therefor, at the Liquidation Value.
Redemption on Demand by Holder. Within ten business days after a Change of
Control, Holding shall, unless Holding shall have theretofore given notice of
the optional redemption by Holding of all of the outstanding shares of Preferred
Stock, give written notice to the holders of the Preferred Stock of the demand
redemption rights described in this paragraph. In addition, within ten business
days after each Dividend Reference Date occurring at least six months after such
Change of Control, Holding shall give written notice to the holders of Preferred
Stock of such demand redemption rights. Upon receipt of any such notice, each
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holder of shares of Preferred Stock may require Holding to redeem, at the
Liquidation Value plus an amount equal to one percent (1%) of such Liquidation
Value at the time of redemption, up to the lesser of (i) all of the shares of
Preferred Stock held by such holder and (ii) such number of shares of Preferred
Stock held of record by such holder as shall equal the product of (x) all of the
shares of Preferred Stock in respect of which such holder shall have exercised
his demand redemption right multiplied by (y) a ratio, the numerator of which
shall be equal to the Cash Available for Redemption and the denominator of which
shall be equal to the aggregate of the Liquidation Value plus an amount equal to
one percent (1%) of the Liquidation Value at the time of redemption for all of
the shares of Preferred Stock in respect of which holders of Preferred Stock
shall have exercised their demand redemption rights. Holding will not be
required to pay the redemption price due in connection with the redemption of
any Preferred Stock as described in this paragraph until ten business days after
the redemption of all of the Senior Notes required to be redeemed by the Company
in connection with such Change of Control. The right of a holder of shares of
Preferred Stock to require Holding to redeem, out of Cash Available for
Redemption, any or all of such shares (and any shares of Preferred Stock
thereafter issued as payment-in-kind dividends thereon) following a Change of
Control or any Dividend Reference Date occurring at least six months after such
Change of Control will terminate to the extent that such holder fails to
exercise his demand redemption right in respect of such shares within the
applicable exercise period following any date on which Holding gives notice of
such demand redemption rights.
For purposes of the Certificate of Designation, "Cash Available for
Redemption" means, as of any date, the sum of
(i) the aggregate amount of cash and cash equivalents held by Holding
as of such date, plus
(ii) the lesser of
(A) the sum of (I) the aggregate amount of cash and cash
equivalents held by the Company as of such date plus (II) the maximum
undrawn amount available as of such date under (x) the New Credit
Facility, as amended and in effect from time to time, or (III) any
credit or loan agreements, as amended and in effect from time to time,
hereafter executed in connection with any refinancing or replacement of
the New Credit Facility, and
(B) the maximum amount that the Company could, if it declared and
paid a cash dividend on its common stock on such date, declare and pay
without being in violation of or default under (with or without the
lapse of time or the giving of notice, or both) any applicable law or
any note, debenture, indenture or other agreement or instrument
governing indebtedness for borrowed money of the Company, minus
(iii) a reasonable reserve determined by the Board of Directors of
Holding in the good faith exercise of its business judgment.
Mandatory Redemption. On May 31, 2009, Holding shall redeem, at the
Liquidation Value, all of the outstanding shares of Preferred Stock.
If the funds of Holding legally available for redemption of Preferred Stock
on any redemption date are insufficient to redeem the total number of shares of
Preferred Stock to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of shares of
Preferred Stock ratably among the holders of the Preferred Stock to be redeemed.
At any time thereafter, when additional funds of the Holding are legally
available for the redemption of Preferred Stock, such funds shall immediately be
used to redeem, without interest, the balance of the Preferred Stock which
Holding has become obligated to redeem on any redemption date but which it has
not redeemed.
Substantially all of Holding's operations are conducted through the
Company. The ability of Holding to pay the redemption price due on the
redemption of any of the Preferred Stock will be dependent upon the payment to
it of dividends, interest or other charges by the Company. The Company's right
to make such payments is restricted by the New Credit Facility and the
Indenture.
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VOTING RIGHTS
The outstanding shares of Preferred Stock have no voting rights except as
required by law and as follows:
(a) The affirmative vote of the holders of record of at least two
thirds (2/3) of the outstanding shares of Preferred Stock, voting together
as a separate class, is required (i) to change (A) the rate or time of
payment of any dividends on, or (B) the time or amount of any redemption
of, or (C) the amount of any payments upon liquidation of Holding with
respect to, or (D) the priorities afforded by the provisions of the
Certificate of Designation for the benefit of shares of Preferred Stock or
(ii) to amend the redemption rights of the holders of the Preferred Stock
described above under the heading "Mandatory Redemption" or (iii) to amend
the voting rights of the holders of the Preferred Stock.
(b) The affirmative vote of the holders of at least a majority of the
outstanding shares of Preferred Stock, voting together as a separate class,
is required to: (i) increase the number of authorized shares of Preferred
Stock or (ii) authorize or issue any additional shares of Preferred Stock
(other than as dividends on outstanding shares of Preferred Stock to the
extent permitted under the Certificate of Designation) or (iii) issue any
shares of capital stock of Holding of any class, or any security or
obligations convertible into any capital stock of Holding of any class, in
each case ranking on a parity with or prior to the Preferred Stock as to
distribution of assets in liquidation or in right of payment of dividends
(other than shares of Preferred Stock issued as dividends on outstanding
shares of Preferred Stock to the extent permitted under the Certificate of
Designation or in connection with the exchange, for shares of Preferred
Stock, of any Exchange Notes (as defined below) issued by Holding).
(c) In the event that (I) dividends (either in cash or through the
issuance of additional shares of Preferred Stock to the extent permitted or
required under the Certificate of Designation) on the Preferred Stock are
in arrears and unpaid with respect to three (3) or more Dividend Reference
Dates (whether or not consecutive) (a "Dividend Default") or (II) Holding
fails to redeem all of the then outstanding shares of Preferred Stock on
May 31, 2009 or otherwise fails to discharge any redemption obligation with
respect to the Preferred Stock, then the maximum authorized number of
directors of Holding will be increased by one (1) and holders of Preferred
Stock shall be entitled to vote their shares of Preferred Stock, together
with the holders of any Parity Securities upon which like voting rights
have been conferred and are exercisable, to elect, as a class, an
additional one (1) director. Each such event described in clauses (I) and
(II) is herein referred to as a "Voting Rights Triggering Event." So long
as shares of Preferred Stock shall be outstanding, the holders of Preferred
Stock shall retain the right to vote and elect, with the holders of any
such Parity Securities, voting together as a single class, such director
until such time as (A) in the event such right arises due to a Dividend
Default, all accumulated dividends that are in arrears on the Preferred
Stock are paid in full in cash or, with respect to any Dividend Reference
Date occurring on or before May 31, 2002, through the issuance of
additional shares of Preferred Stock; and (B) in all other cases, the
failure, breach or default giving rise to such Voting Rights Triggering
Event is remedied or waived by the holders of at least a majority of the
shares of Preferred Stock then outstanding and entitled to vote thereon.
Such period is herein referred to as a "Default Period." Immediately upon
the expiration of a Default Period, the right of the holders of Preferred
Stock to elect one director shall cease, the term of office of the director
elected by the holders of Preferred Stock and such Parity Securities as a
class shall terminate, and the number of directors shall be such number as
may be provided for in the Certificate of Incorporation, as amended, or
By-Laws of Holding.
EXCHANGE NOTES
Exchange Provisions. Holding may, at its election, exchange all but not
less than all of the outstanding shares of Preferred Stock for 13% Exchangeable
Subordinated Pay-In-Kind Notes due May 31, 2009 of Holding (the "Exchange
Notes") having the general terms described below. Upon the exchange of the
Preferred Stock for the Exchange Notes, each holder of Preferred Stock will be
entitled to receive, per share of Preferred Stock so exchanged, a principal
amount of Exchange Notes equal to the Liquidation Value of such share as of the
date of such exchange. Upon such exchange, dividends on the shares of Preferred
Stock so exchanged shall cease to accrue, such shares shall no longer be deemed
to be outstanding, and all rights of the
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holders thereof as stockholders of Holding with respect to shares so exchanged
(except the right to receive from Holding the Exchange Notes in the aggregate
original principal amount to which such holder is entitled upon such exchange)
shall cease.
General. The Exchange Notes will be issued only if and when Holding elects
to require the exchange of the Preferred Stock for the Exchange Notes. The
Exchange Notes will be subordinated unsecured obligations of Holding. The
Exchange Notes will not be obligations of the Company and, accordingly, the
rights of the holders of the Exchange Notes will be effectively subordinated to
rights of the holders of the Senior Notes, except to the extent that Holding may
itself be a creditor with claims against the Company. The maximum aggregate
original principal amount of the Exchange Notes will be limited to the sum of
(i) the aggregate original principal amount of the Exchange Notes originally
issued in exchange for shares of the Preferred Stock of CT Holding, Inc. and
(ii) the aggregate original principal amount of Exchange Notes permitted or
required to be issued, in lieu of cash interest payments on the Exchange Notes,
in payment of interest payable on the Exchange Notes on any interest payment
date.
The Exchange Notes will bear interest from their date of issuance at the
rate of 13% per annum, which will be due and payable on the last day of each May
and November after the Exchange Notes are issued. Interest on the Exchange Notes
will accrue from the most recent date on which interest has been paid, or if no
interest has been paid, from the original issuance of the Exchange Notes.
Interest is payable in cash, except that Holding may elect to pay interest
payable on any interest payment date occurring (i) on or before May 31, 2002 by
issuing and delivering, in lieu of any or all cash interest payments due,
additional Exchange Notes having an aggregate original principal amount equal to
the accrued and unpaid interest on the Exchange Notes not paid in cash or (ii)
before May 31, 2009 by issuing and delivering, in lieu of a portion of cash
interest payments due, additional Exchange Notes having an aggregate original
principal amount equal to up to the remainder of all accrued and unpaid interest
on the Exchange Notes minus Cash Available for Interest Payments. The Exchange
Notes will mature on May 31, 2009.
For purposes of the Exchange Notes, "Cash Available for Interest Payments"
means, as of any date, the sum of (i) the aggregate amount of cash and cash
equivalents held by Holding as of such date, plus (ii) the lesser of (A) the
aggregate amount of cash and cash equivalents held by the Company as of such
date and (B) the maximum amount that the Company could, if it declared and paid
a cash dividend on its common stock on such date, declare and pay without being
in violation of or default under (with or without the lapse of time or the
giving of notice, or both) any applicable law or any note, debenture, indenture
or other agreement or instrument governing indebtedness for borrowed money of
the Company, minus (iii) a reasonable reserve determined by the Board of
Directors of Holding in the good faith exercise or its business judgement.
Holding's operations are conducted through the Company. The rights of
Holding and its creditors, including the holders of Exchange Notes, to
participate in the assets of the Company upon any liquidation or reorganization
of the Company or otherwise will be subject to the prior claims of creditors or
the Company (including, among other, holders of the Senior Notes), except to the
extent that Holding may itself be a creditor with claims against the Company.
The ability of Holding to pay principal and cash interest payments on the
Exchange Notes will be dependent upon the payment to it of dividends, interest
or other charges by the Company. The Company's right to make such payments is
restricted by the New Credit Facility and the Indenture.
Redemption. Holding has the following redemption rights and obligations
with respect to the Exchange Notes:
(a) At any time within six months after a Change of Control or a
Qualified Public Offering, Holding may redeem all or any part of the
outstanding principal amount of the Exchange Notes, without premium, but
together with accrued and unpaid interest thereon.
(b) Within ten business days after a Change of Control, Holding shall,
unless Holding shall have theretofore given notice of the optional
redemption by Holding of all of the Exchange Notes, give written notice to
the holders of the Exchange Notes of the demand redemption rights described
in this paragraph. In addition, within ten business days after each
interest payment date occurring at least six months after
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such Change of Control, Holding shall give written notice to the holders of
the Exchange Notes of such redemption rights. Upon receipt of any such
notice, each holder of Exchange Notes may require Holding to redeem, at a
redemption price equal to the outstanding principal amount of such Exchange
Notes, together with a premium thereon in an amount equal to one percent
(1%) of the principal amount to be redeemed, and all accrued and unpaid
interest on such principal amount, up to the lesser of (i) all of the
Exchange Notes held by such holder and (ii) such aggregate amount of the
Exchange Notes held of record by such holder as shall equal the product of
(A) the Cash Available for Redemption multiplied by (B) a ratio, the
numerator of which shall be equal to the redemption price of all of the
Exchange Notes in respect of which such holder shall have exercised his
demand redemption right and the denominator of which shall be equal to the
aggregate redemption price for all of the Exchange Notes in respect of
which the holders thereof shall have exercised their demand redemption
right. Holding will not be obligated to pay the redemption price due in
connection with the redemption of any Exchange Notes as described in this
paragraph (b) until ten business days after the redemption of all of the
Senior Notes required to be redeemed by the Company in connection with such
Change of Control. The right of a holder of Exchange Notes to require
Holding to redeem, out of Cash Available for Redemption, any or all of such
Exchange Notes following a Change of Control or any interest payment date
occurring at least six months after such Change of Control will terminate
to the extent that such holder fails to exercise his demand redemption
right in respect of such Exchange Notes within the applicable exercise
period following any date on which Holding gives notice of such demand
redemption rights.
(c) On the fifth anniversary of the exchange of the Preferred Stock
for Exchange Notes, Holding shall redeem in cash, at a redemption price
equal to the outstanding principal amount of such Exchange Notes plus all
accrued and unpaid interest on such Exchange Notes, all of the Exchange
Notes issued as payment-in-kind interest payments on any of the Exchange
Notes prior to such fifth anniversary of such exchange.
Subordination and Standstill Provisions. The payment of the principal,
premium, if any, and interest on the Exchange Notes is subordinated in right of
payment to the prior payment in full of all Senior Debt (as defined below) of
Holding, whether outstanding on the date of issuance of the Exchange Notes or
thereafter created, incurred, assumed or guaranteed. Upon any distribution to
creditors of Holding in a liquidation, dissolution or winding up of Holding or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Holding or its property, the holders of Senior Debt will be entitled
to receive payment in full before the Exchange Noteholders are entitled to
receive any payment. If any such distribution is made to the Exchange
Noteholders before all Senior Debt has been paid in full or provision has been
made for such payment, such distribution must be paid over to the holders of the
Senior Debt. No such subordination will prevent the occurrence of an Event of
Default (as defined below).
During the continuance of (i) any default in the payment of the principal,
premium, if any, or interest on Senior Debt in an aggregate principal amount of
at least $5.0 million, including principal or interest which has become due by
reason of acceleration, or (ii) any other default, in respect of which Holding
shall have been notified in writing by the holder of such Senior Debt or any
trustee therefor, with respect to Senior Debt in an aggregate principal amount
of at least $5.0 million permitting the holders thereof to accelerate the
maturity thereof, no payment may be made on the Exchange Notes (other than
payments of interest made by Holding by issuing additional Exchange Notes in
lieu of cash interest payments), and payments may thereafter be resumed only if
both such default or any subsequent default shall have been cured or waived or
shall cease to exist; provided that, in the event that a Senior Debt default
(other than any such Senior Debt default of a nature described in clause (i) of
this paragraph) shall have occurred and be continuing, the restrictions set
forth in this paragraph shall, unless all of the Senior Debt in respect of which
such Senior Debt default shall have occurred and be continuing shall have been
declared due and payable under any acceleration provision applicable thereto and
such declaration shall not have been waived, rescinded or annulled, cease to
apply upon the earliest of (A) two hundred seventy (270) days after the
occurrence of such Senior Debt default or (B) the date on which all Senior Debt
defaults under such Senior Debt shall have been cured or waived; provided,
further, that the restrictions set forth in this paragraph on payments with
respect to the Exchange Notes in the event that a Senior Debt default (other
than any such Senior Debt default of a nature described in clause (i)
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of this paragraph) may be invoked no more than one (1) time in any three hundred
sixty-five (365) day period, unless all of the Senior Debt in respect of which
such Senior Debt default shall have occurred and be continuing shall have been
declared due and payable under any acceleration provision applicable thereto and
such declaration shall not have been waived, rescinded or annulled. If any such
payment is made to the Exchange Noteholders before all Senior Debt has been paid
in full or provision has been made for such payment, such payment must be paid
over to the holders of the Senior Debt.
Holders of the Exchange Notes may not take any action to accelerate the
maturity of the indebtedness evidenced by the Exchange Notes unless all Senior
Debt shall have been paid in full or all Senior Debt shall theretofore have
become due and payable.
Holders of the Exchange Notes may not commence any action or proceeding
against Holding to recover all or any part of any indebtedness evidenced by the
Exchange Notes or bring or join with any creditor in bringing, unless the
holders of the Senior Debt then outstanding shall join therein, any proceeding
against Holding under any bankruptcy, reorganization, insolvency or similar law
or statute unless and until all Senior Debt shall be paid in full.
For purposes of the Exchange Notes, "Senior Debt" means
(a) All obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes), direct or indirect, as to
principal, interest, premium or otherwise, initially incurred or issued to
institutional investors, whether outstanding on the date hereof or
hereafter created or incurred, and whether at any time assigned or
otherwise transferred to any other institutional investor or any other
person, including but not limited to (i) all obligations and liabilities in
respect of money borrowed or purchase money indebtedness by or of Holding,
(ii) all guarantees and endorsements (other than for collection or deposit
in the ordinary course of business) of any such obligations and liabilities
of others, such as but not limited to guarantees of any such obligation or
liability of a subsidiary of Holding, (iii) all obligations and liabilities
secured by any mortgage, lien, pledge, security interest or other
encumbrance in respect of property, whether incurred in connection with
money borrowed or the acquisition of property, (iv) all obligations and
liabilities in respect of any lease of property, and (v) reimbursement
obligations with respect to letters of credit and interest rate protection
agreements;
(b) All obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes), direct or indirect, as to
principal, interest, premium or otherwise with respect to any obligation,
note, or debenture offered by Holding for sale to the public in an offer
structured so as to comply with applicable rules and regulations for a
public offering in the jurisdiction or jurisdictions in which such
obligation, note or debenture is offered, whether outstanding on the date
hereof or hereafter created or incurred, which are not expressly made pari
passu or subordinate to the Exchange Notes;
(c) All obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes) to which the Exchange Notes
shall be expressly subordinated in writing by the holders of not less than
a majority in aggregate principal amount of the Exchange Notes then
outstanding;
(d) All other obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes); and
(e) All renewals, extensions, modifications and refundings of any such
obligation or liability;
unless in the case of either (a), (b), (c), (d) or (e), the terms of the
agreement or instrument creating the obligation or liability provide that it is
not senior to the Exchange Notes.
Events of Default and Remedies. Subject to the subordination and
standstill provisions described above under the heading "Subordination and
Standstill Provisions": (i) upon the occurrence and continuation of any Event of
Default (as defined below), then (a) in the case of any Event of Default
specified in clause (a) of the definition of "Event of Default," each holder of
Exchange Note, and (b) in the case of any other Event of Default, the holder or
holders of record of at least twenty-five percent (25%) in aggregate principal
amount of the Exchange Notes then outstanding, may proceed to protect and
enforce his or their rights, as the case may be, by suit in equity, action at
law and/or other appropriate proceeding either for specific performance of any
78
<PAGE> 84
covenant or condition, or in aid of the exercise of any power granted in the
Exchange Notes, and may by notice in writing to Holding declare all or any part
of the unpaid balance of the Exchange Notes held by him to be forthwith due and
payable, and the holder may proceed to enforce payment of such balance or part
thereof in such manner as he may elect; and (ii) Holding shall pay to the
holder, upon demand, the reasonable costs and expenses (including reasonable
attorneys fees and expenses) incurred by the holder in connection with the
enforcement of his rights and remedies arising upon the occurrence and
continuance of an Event of Default.
Anything in the Exchange Notes to the contrary notwithstanding, in the
event that an Event of Default shall occur and continue to exist by reason of
Holding's failure to redeem any Exchange Notes pursuant to the provisions
described above in paragraph (c) under the heading "-- Redemption," the remedy
at law or in equity of any holder or holders of the Exchange Notes shall be
limited, subject nonetheless to the subordination and standstill provisions
described above under the heading "Subordination and Standstill Provisions," to
the right to seek specific performance of such obligation of Holding to and only
to the extent that Holding shall have had Cash Available for Interest Payments
at such fifth anniversary of such exchange, which remedy shall be the sole and
exclusive remedy at law or in equity of any such holder or holders in respect of
any such Event of Default.
For purposes of the Exchange Notes, "Event of Default" means the occurrence
and continuance of any of the following events:
(a) Holding shall have failed, for a period of thirty days after
written notice thereof, to make any principal, interest, fee or other
payment on any of the indebtedness evidenced by the Exchange Notes
(notwithstanding that such payment shall have been suspended pursuant to
the subordination provisions hereof); or
(b) Holding shall have failed duly to observe or perform in any
material respect any other covenant, agreement or provision contained in
the Exchange Notes other than those referred to in subdivision (a) above,
and such failure shall have continued for a period of thirty days after
written notice thereof; or
(c) Any customary bankruptcy-type event with respect to Holding shall
have occurred and be continuing.
79
<PAGE> 85
UNDERWRITING
Upon the terms and subject to the conditions of the Underwriting Agreement
(the "Underwriting Agreement") to be entered into between the Company and
NationsBanc Capital Markets, Inc. ("NCMI" or the "Underwriter"), the Underwriter
has agreed to purchase from the Company, and the Company has agreed to sell to
the Underwriter all of the Senior Notes offered hereby.
In the Underwriting Agreement, the Underwriter will agree, subject to
certain conditions, to purchase all of the Senior Notes, if any are purchased by
the Underwriter.
The Company has been advised by the Underwriter that it proposes to offer
the Senior Notes to the public initially at the price set forth on the cover
page of this Prospectus, to certain securities dealers (who may include the
Underwriter) at such price less a concession not in excess of % of the amount
per Senior Note and that the Underwriter and such dealers may reallow a discount
not in excess of % of the amount per Note to other dealers, including the
Underwriter. After the closing of the public offering, the public offering
price, the concession and the discount to other dealers may be changed by the
Underwriter.
There is no currently existing trading market for the Senior Notes, and
although the Underwriter has advised the Company that it currently intends to
make a market in the Senior Notes, it is not obligated to do so and any such
market making may be discontinued at any time, without notice, in the sole
discretion of the Underwriter. Accordingly, there can be no assurance as to the
development or liquidity of any market that may develop for the Senior Notes.
The Underwriter has informed the Company that it does not expect to confirm
sales of Notes offered hereby to any accounts over which they exercise
discretionary authority.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), or to contribute to payments the Underwriter may be
required to make in respect thereof.
In accordance with Rule 2720 of the Conduct Rules (the "Conduct Rules") of
the National Association of Securities Dealers, Inc. ("NASD"), no member of the
NASD participating in the Offering will execute a transaction in the Senior
Notes in an account over which it exercises discretion without the prior
specific written approval of the customer.
NationsBridge, L.L.C., an affiliate of NCMI, has provided a commitment to
provide the Company interim financing to finance the Acquisition and will
receive customary fees (and reimbursement of expenses) in connection therewith.
NationsBank is the agent and lender under the Margin Loan Facility and is a
lender under the New Credit Facility and will receive customary fees (and
reimbursement of expenses) in connection therewith.
The Offering is being made pursuant to the provisions of Rule 2710(c)(8) of
the Conduct Rules because a substantial portion of the proceeds from the
Offering will be applied to redeem the Margin Loan Facility, which is held by
NationsBank, an affiliate of the Underwriter. Under Rule 2710(c)(8) of the
Conduct Rules, if more than 10% of the net proceeds from the sale of securities,
not including underwriting compensation, is paid to any underwriter of such
securities or its affiliates, the minimum yield at which such securities are to
be distributed to the public must be established by a "qualified independent
underwriter," as defined in Rule 2720(b)(15) of the Conduct Rules, who must
participate in the preparation of the registration statement and the prospectus
and who must exercise the usual standards of due diligence with respect thereto.
In accordance with such requirements, Piper Jaffray Inc. has agreed to act as
the qualified independent underwriter in connection with the Offering, has
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part and has exercised the usual
standard of due diligence with respect thereto. For acting as qualified
independent underwriter, Piper Jaffray Inc. will receive aggregate fees of
$100,000 and will be reimbursed for certain other expenses, all of which will be
paid by the Company. The Company and a special committee of the Board of
Directors of the Company also retained Piper Jaffray Inc. to issue an opinion
with respect to the fairness from a financial point of view of the Merger
Consideration paid in the Merger to holders of common stock pursuant to the
Merger Agreement, for which Piper Jaffray Inc. will receive customary fees. In
addition, the Company has agreed to indemnify Piper Jaffray Inc. against certain
liabilities, including liabilities under the Securities Act.
80
<PAGE> 86
LEGAL MATTERS
Certain legal matters related to the Senior Notes offered hereby are being
passed upon for the Company by Sullivan & Worcester LLP, Boston, Massachusetts.
Certain matters will be passed upon for the Underwriter by Latham & Watkins, New
York, New York.
EXPERTS
The consolidated financial statements of the Company for each of the three
years in the period ended November 2, 1996, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included herein. Such financial
statements are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Proxy statements, reports
and other information concerning the Company can be inspected and copied at the
Commission's office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's Regional Offices in New York (7
World Trade Center, Suite 1300, New York, New York 10048) and Chicago (CitiCorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661), and
copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site (located at
http://www.sec.gov) which contains reports, proxy and information statements and
other information regarding the Company and other registrants that file
electronically with the Commission. The Company's Common Stock is listed on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System. Consequently, reports, proxy statements and other
information concerning the Company may also be inspected at the offices of the
National Association of Securities Dealers, Inc. ("NASD") at 1735 K Street,
N.W., Washington, D.C. 20006. This Prospectus does not contain all the
information set forth in the Registration Statement and exhibits thereto which
the Company has filed with the Commission under the Securities Act, which
Registration Statement and exhibits thereto may be obtained from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549 upon payment of the prescribed fees, and to which
reference is hereby made.
81
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP........................................................... F-2
Consolidated Balance Sheets as of October 29, 1994, October 28, 1995 and November 2,
1996................................................................................ F-3
Consolidated Statements of Income for fiscal years ended October 29, 1994, October 28,
1995 and November 2, 1996........................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for fiscal years ended
October 29, 1994, October 28, 1995 and November 2, 1996............................. F-5
Consolidated Statements of Cash Flows for fiscal years ended October 29, 1994, October
28, 1995 and November 2, 1996....................................................... F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 88
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Central Tractor Farm & Country, Inc.
We have audited the accompanying consolidated balance sheets of Central
Tractor Farm & Country, Inc. as of October 29, 1994, October 28, 1995 and
November 2, 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. 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 audits 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 Central Tractor
Farm & Country, Inc. at October 29, 1994, October 28, 1995 and November 2, 1996,
and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
December 6, 1996
F-2
<PAGE> 89
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 2,582 $ 3,094 $ 3,809
Receivable from sale of common stock (Note 6)........... 6,703 -- --
Trade receivables, less allowances of $168 in 1994, $72
in 1995 and $50 in 1996............................... 1,469 883 992
Inventory............................................... 75,044 93,874 107,203
Deferred income taxes (Note 7).......................... 172 -- --
Other................................................... 1,511 1,383 2,368
Net assets of discontinued operations (Note 10)......... 8,113 13,520 --
-------- -------- --------
Total current assets...................................... 95,594 112,754 114,372
Property, improvements and equipment:
Leasehold improvements.................................. 7,740 9,988 12,803
Furniture and fixtures.................................. 14,614 18,253 23,766
Capitalized property rights (Note 5).................... 2,508 2,508 2,859
Automobiles and trucks.................................. 499 817 1,065
-------- -------- --------
25,361 31,566 40,493
Less allowances for depreciation and amortization....... 10,917 13,339 16,036
-------- -------- --------
14,444 18,227 24,457
Goodwill, net of amortization of $3,490 in 1994, $4,014 in
1995 and $4,592 in 1996................................. 17,454 16,930 19,018
Other intangible assets, net of amortization of $2,406 in
1994, $2,527 in 1995 and $2,759 in 1996................. 1,630 1,406 1,016
Other assets.............................................. 775 660 375
Noncurrent assets of discontinued operations.............. 9,519 -- --
-------- -------- --------
Total assets.............................................. $139,416 $149,977 $159,238
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit (Note 3)............................ $ 977 $ 6,789 $ 3,669
Accounts payable........................................ 37,557 39,150 41,081
Accrued payroll and bonuses............................. 4,438 2,553 3,631
Deferred income taxes (Note 7).......................... -- -- 913
Accrued income taxes.................................... 140 163 4
Other accrued expenses.................................. 1,482 1,506 1,101
Current portion of long-term debt and capital lease
obligation............................................ 558 97 170
-------- -------- --------
Total current liabilities................................. 45,152 50,258 50,569
Long-term debt (due to related party), less current
portion (Notes 2 and 4)................................. 16,017 16,000 16,000
Capital lease obligations, less current portion (Note
5)...................................................... 942 862 1,341
Deferred income taxes (Note 7)............................ 1,570 1,580 1,265
-------- -------- --------
Total liabilities......................................... 63,681 68,700 69,175
Stockholders' equity (Notes 3 and 6):
Preferred stock, $.01 par value: authorized
shares -- 5,000,000; none issued or outstanding....... -- -- --
Common stock, $.01 par value: authorized
shares -- 45,000,000; issued and outstanding
shares -- 10,576,676 in 1994, 10,576,676 in 1995 and
10,589,082 in 1996.................................... 106 106 106
Stock warrant outstanding............................... 665 665 665
Additional paid-in capital.............................. 69,667 69,667 69,709
Retained earnings....................................... 5,297 10,839 19,583
-------- -------- --------
Total stockholders' equity................................ 75,735 81,277 90,063
Commitments (Notes 5 and 8)............................... -- -- --
-------- -------- --------
Total liabilities and stockholders' equity................ $139,416 $149,977 $159,238
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 90
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................ $ 231,064 $ 251,703 $ 293,020
Cost of sales............................................ 161,523 177,340 207,228
-------- -------- --------
Gross profit............................................. 69,541 74,363 85,792
Selling, general and administrative expenses, including
amounts with related parties (Note 2).................. 54,548 58,294 68,197
Amortization of intangibles.............................. 841 862 938
-------- -------- --------
Operating income......................................... 14,152 15,207 16,657
Interest expense, including amounts with related parties
(Note 2)............................................... 4,774 1,302 1,663
-------- -------- --------
Income from continuing operations before income taxes and
extraordinary item..................................... 9,378 13,905 14,994
Income taxes (Note 7).................................... 4,197 5,720 6,250
-------- -------- --------
Income from continuing operations before extraordinary
item................................................... 5,181 8,185 8,744
Discontinued operations (Notes 7 and 10):
Income (loss) from discontinued operations, net of
income taxes (benefit) of $(340) in 1994 and $474 in
1995................................................ (745) 812 --
Loss on sale of Herschel Corporation, net of $665
income tax benefit.................................. -- (3,455) --
-------- -------- --------
Loss from discontinued operations........................ (745) (2,643) --
-------- -------- --------
Income before extraordinary item......................... 4,436 5,542 8,744
Extraordinary loss on early extinguishment of debt, net
of income tax benefit of $2,073 (Note 6)............... 3,110 -- --
-------- -------- --------
Net income............................................... $ 1,326 $ 5,542 $ 8,744
======== ======== ========
Per share (Note 1):
Income from continuing operations before extraordinary
item................................................ $ 0.66 $ 0.74 $ 0.80
Discontinued operations:
Income (loss) from operations....................... (0.10) 0.07 --
Loss on sale........................................ -- (0.31) --
-------- -------- --------
Loss from discontinued operations...................... (0.10) (0.24) --
Extraordinary loss..................................... (0.40) -- --
Net income............................................. 0.17 0.50 0.80
Weighted average common and common equivalent shares
outstanding (Note 1)................................... 7,791 11,019 10,986
</TABLE>
See accompanying notes.
F-4
<PAGE> 91
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FISCAL YEARS ENDED OCTOBER 29, 1994,
OCTOBER 28, 1995 AND NOVEMBER 2, 1996
<TABLE>
<CAPTION>
NOTE
STOCK ADDITIONAL RECEIVABLE TOTAL
COMMON WARRANT PAID-IN FROM RETAINED STOCKHOLDERS'
STOCK OUTSTANDING CAPITAL STOCKHOLDER EARNINGS EQUITY
------ ----------- ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity at October
30, 1993....................... $ 70 $ 665 $ 19,664 $(83) $ 3,971 $24,287
Repurchase of common stock..... -- -- (70) -- -- (70)
Reduction in notes from
stockholders................ -- -- -- 83 -- 83
Issuance of common stock in
connection with the
Company's initial public
offering, net of offering
expenses (Note 6)........... 36 -- 50,073 -- -- 50,109
Net income....................... -- -- -- -- 1,326 1,326
---- ---- ------- ---- ------- -------
Stockholders' equity at October
29, 1994....................... 106 665 69,667 -- 5,297 75,735
Net income..................... -- -- -- -- 5,542 5,542
---- ---- ------- ---- ------- -------
Stockholders' equity at October
28, 1995....................... 106 665 69,667 -- 10,839 81,277
Exercise of common stock
options..................... -- -- 42 -- -- 42
Net income..................... -- -- -- -- 8,744 8,744
---- ---- ------- ---- ------- -------
Stockholders' equity at November
2, 1996........................ $106 $ 665 $ 69,709 $ -- $19,583 $90,063
==== ==== ======= ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 92
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations before extraordinary
item.................................................. $ 5,181 $ 8,185 $ 8,744
Adjustments to reconcile pretax income from continuing
operations to net cash provided by (used in)
continuing operations:
Depreciation and amortization of property,
improvements and equipment......................... 2,206 2,523 3,056
Amortization of intangibles and other deferred
assets............................................. 1,180 862 998
Loss on sale of assets................................ 143 24 20
Deferred interest..................................... 109 -- --
Deferred income taxes................................. 367 800 1,000
Changes in operating assets and liabilities:
Trade receivables.................................. (362) 586 83
Inventory.......................................... (23,345) (18,830) (4,549)
Other current assets............................... (330) 128 (972)
Accounts payable................................... 11,371 1,593 (3,806)
Accrued expenses................................... (91) (1,838) 287
-------- -------- --------
(3,571) (5,967) 4,961
-------- -------- --------
Income (loss) from discontinued operations.............. (745) (2,643) --
Adjustments to reconcile pretax income (loss) from
discontinued operations to net cash provided by
discontinued operations:
Loss on sale of Herschel Corporation.................. -- 4,120 --
Depreciation and amortization of property,
improvements and equipment......................... 559 559 --
Amortization of intangibles........................... 561 561 --
Deferred interest..................................... 336 -- --
Deferred income taxes................................. (38) (618) (367)
Changes in operating assets and liabilities........... (1,321) (651) 13,520
-------- -------- --------
(648) 1,328 13,153
Extraordinary loss on early extinguishment of debt...... (3,110) -- --
-------- -------- --------
Net cash provided by (used in) operating activities..... (7,329) (4,639) 18,114
INVESTING ACTIVITIES
Purchases of property, improvements and equipment....... $ (5,207) $ (6,339) $ (8,789)
Acquisition of certain net assets of Big Bear (Note
11)................................................... -- -- (5,650)
Other................................................... (54) (74) 255
Discontinued operations................................. (255) (400) --
-------- -------- --------
Net cash used in investing activities................... (5,516) (6,813) (14,184)
</TABLE>
F-6
<PAGE> 93
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Repurchase of common stock.............................. (70) -- --
Proceeds from sale of assets............................ -- 7 --
Borrowings under line of credit......................... 39,025 67,020 86,782
Repayments on line of credit............................ (38,048) (61,208) (89,902)
Payments on long-term debt.............................. (37,757) (372) (17)
Payments on capitalized lease obligations............... (244) (186) (120)
Proceeds from issuance of common stock.................. 43,406 6,703 42
-------- -------- --------
Net cash provided by (used in) financing activities..... 6,312 11,964 (3,215)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... (6,533) 512 715
Cash and cash equivalents at beginning of period........ 9,115 2,582 3,094
-------- -------- --------
Cash and cash equivalents at end of period.............. $ 2,582 $ 3,094 $ 3,809
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest................ $ 7,925 $ 1,491 $ 1,991
Cash paid during the period for income taxes............ 1,815 5,324 5,675
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Receivable from sale of common stock.................... 6,703 -- --
</TABLE>
See accompanying notes.
F-7
<PAGE> 94
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 29, 1994,
OCTOBER 28, 1995 AND NOVEMBER 2, 1996
1. SUMMARY OF ACCOUNTING POLICIES AND OTHER MATTERS
Business and Principles of Consolidation
Central Tractor Farm & Country, Inc. and subsidiaries (the Company) is an
agricultural specialty retailer which operates retail stores primarily located
in the Midwest and Northeastern United States. The Company also sells
merchandise on a wholesale basis under various distributor agreements throughout
the United States. With the sale of the net operating assets of Herschel
Corporation, a wholly-owned subsidiary of the Company, continuing operations
constitute one business segment for financial reporting purposes.
The Company operates on a 52-53 week fiscal year ending on the Saturday
nearest to October 31.
All significant intercompany transactions have been eliminated from the
consolidated financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. Investments, including repurchase agreements and
commercial paper, are carried at cost, which approximates market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Trade Receivables
Most of the Company's retail sales are cash or credit card sales, while
wholesale sales are generally on account. Concentrations of credit risk with
respect to trade receivables are limited due to the number of customers of the
Company and their geographic dispersion. The allowance for doubtful accounts is
based on a current analysis of receivable delinquencies and historical loss
experience.
Inventory
Inventory is recorded at cost, including warehousing and freight costs,
determined principally by the last-in, first-out (LIFO) method, which is not in
excess of market. The Company reviews its inventory for slow-moving, obsolete or
otherwise unsalable items on a regular basis throughout the year, including at
the time of physical inventory counts. Write-downs are made for any estimated
losses to be incurred, which have not been material, with respect to
slow-moving, obsolete or otherwise unsalable inventory as such inventory is
identified. Inventories valued using the LIFO method were approximately
$3,926,000, $4,851,000 and $5,081,000 at October 29, 1994, October 28, 1995 and
November 2, 1996, respectively, less than the amounts of such inventories valued
at current cost.
F-8
<PAGE> 95
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property, Improvements and Equipment
Property, improvements and equipment are carried at cost less allowances
for depreciation and amortization. Depreciation and amortization expense is
computed primarily on a basis of the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements (not in excess of underlying lease
terms)..................................................... 5 to 20 years
Furniture and fixtures....................................... 5 to 15 years
Automobiles and trucks....................................... 3 to 10 years
</TABLE>
Certain long-term lease transactions have been accounted for as capital
leases. The property rights recorded under direct financing leases are amortized
on a straight-line basis over the lesser of the useful life or the respective
terms of the leases.
Goodwill and Other Intangible Assets
Goodwill is being amortized utilizing the straight-line method principally
over periods of 40 years. Other intangible assets are being amortized over
periods of expected benefit, ranging from 5 to 24 years. The carrying value of
goodwill and other intangibles is reviewed continually to determine whether any
impairment has occurred. This review takes into consideration the recoverability
of the unamortized amounts based on a comparison of the estimated undiscounted
future cash flows of the related business lines to the respective carrying value
of the related assets, including goodwill and other intangibles. To the extent
that the estimated undiscounted future cash flows are less than the carrying
value of the assets, an impairment loss can be measured based upon various
methods, including undiscounted cash flows, discounted cash flows and fair
value. Based upon undiscounted cash flows, no impairment of goodwill or other
intangibles was determined to exist as of November 2, 1996, and, accordingly, no
measurement was required.
Deferred Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
the difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expenses
or credits are based on the changes in the asset or liability from period to
period.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value of financial instruments:
Cash equivalents, short-term investments, accounts receivable and
payable, and bank line of credit: Carrying amounts reported in the
Company's consolidated balance sheets based on historical cost approximate
estimated fair value for these instruments, due to their short-term nature.
The fair value of the convertible long-term debt is estimated to
approximate its carrying value as of November 2, 1996 and was based on the
estimated market price for this security as of that date.
Returns and Warranties
Costs relating to merchandise returns from sales at retail stores and
through distributors are not significant and are accounted for as they occur.
F-9
<PAGE> 96
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Catalogs, Sale Flyers and Advertising Costs
The direct cost of printing and mailing the Company's annual mail order
catalog is deferred and amortized against mail order revenues over the year the
catalog is in use. The direct cost of printing and distributing sale flyers is
deferred and amortized over the life of the flyer which is generally two weeks
or less. Other advertising costs are expensed as incurred. Unamortized amounts
relating to the costs of the annual catalog and periodic sale flyers is
immaterial at each fiscal year-end. Advertising expenses were approximately
$6,184,000, $7,228,000 and $8,841,000 for fiscal 1994, 1995 and 1996,
respectively.
Store Pre-Opening Costs
Direct costs, which consist principally of rent, employee compensation and
travel costs for merchandise set-up and supplies, incurred in setting up new
stores for opening are deferred and amortized over the first twenty-six weeks of
store operations. The amount of unamortized store pre-opening costs at October
29, 1994, October 28, 1995 and November 2, 1996, amounted to $502,000, $431,000
and $1,123,000, respectively.
Earnings Per Share
Per share earnings is based on the weighted average number of shares of
common stock and common stock equivalents outstanding and assuming all stock
options issued prior to the Company's initial public offering and the stock
warrant were outstanding at the beginning of each respective year. The dilutive
effect of outstanding stock options and the stock warrant were determined based
upon the Treasury Stock Method. Fully diluted earnings per share did not vary
significantly from earnings per share as presented.
Emerging Accounting Issues
The Company is not aware of any accounting standards which have been issued
and which will require the Company to change its current accounting policies or
adopt new policies, the effect of which would be material to the Company's
financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
Certain investment funds (collectively referred to as "BCC Funds") managed
by Butler Capital Corporation ("BCC") own a majority of the outstanding common
stock of the Company. The BCC Funds held the senior and subordinated notes
extinguished in October 1994, and currently hold the outstanding 7% convertible
notes (see Note 4). Interest paid on such notes in fiscal 1994, 1995 and 1996
was approximately $6,960,000, $883,000 and $1,425,000, respectively.
A company affiliated with the BCC Funds was paid a management and
consulting fee of approximately $238,000 in fiscal 1994.
The Company purchases inventory from two suppliers who are controlled by
the BCC Funds. Purchases from these suppliers aggregated approximately
$3,882,000, $6,254,000 and $6,228,000 for fiscal years 1994, 1995 and 1996,
respectively.
3. LINE OF CREDIT
On January 28, 1994, the Company entered into a line of credit agreement
with a commercial bank through February 1, 1998. At November 2, 1996, borrowings
of $3,669,000 and letters of credit totaling approximately $1,515,000 were
outstanding against the line of credit. Available borrowings under the line of
credit are $25,000,000 each year from November 1 through May 31 and $12,000,000
from June 1 through October 31. Interest on the outstanding borrowing varies,
but is primarily payable monthly at an annual rate equal to the bank's prime
rate. The interest rate on October 29, 1994, October 28, 1995 and November 2,
1996
F-10
<PAGE> 97
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
was 8.25%, 8.75%, and 8.25%, respectively. In addition, the Company is required
to pay commitment fees ranging from 0.375% down to 0.125% on the total credit
line, less outstanding borrowing. During the period from April 15 through
December 31 in each year, the Company must have borrowing less than $5,000,000
outstanding under this line of credit for a consecutive period of 45 days. The
line of credit contains, among other provisions, requirements that the Company
maintain a minimum current ratio, leverage ratio and fixed charge coverage
ratio, and restricts the payment of cash dividends. At November 2, 1996,
substantially all retained earnings were restricted from payment of cash
dividends under the Company's line of credit agreement.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
7% convertible notes...................... $16,000,000 $16,000,000 $16,000,000
Other..................................... 388,989 17,044 --
----------- ----------- -----------
16,388,989 16,017,044 16,000,000
Less current portion...................... 371,944 17,044 --
----------- ----------- -----------
$16,017,045 $16,000,000 $16,000,000
=========== =========== ===========
</TABLE>
Interest on the convertible notes is payable quarterly at 7.0% per annum
and the entire principal amount is due October 31, 2002. The note may be prepaid
after October 14, 1999, at a premium of 2.0%, which declines by 1.0% annually on
each October 14 thereafter. The holders of the convertible notes have the right,
at any time prior to the close of business on October 31, 2002, to convert the
principal amounts into shares of common stock at a conversion price of $19.375
per share. The conversion price of the convertible notes is subject to
adjustment in certain events, including a common stock split, the issuance of
securities convertible or exchangeable into common stock at less than the then
fair market value of the common stock and certain mergers, consolidations or
sales of stock. The convertible notes are subordinated to the principal amounts
outstanding pursuant to the line of credit (see Note 3).
As of November 2, 1996, there are no maturities of long-term debt during
the next five fiscal years.
5. LEASE OBLIGATIONS
The Company has entered into certain long-term lease agreements for the use
of warehouses, certain retail store facilities and computer equipment. These
leases have been accounted for as purchases of property rights and designated as
capitalized leases.
Amortization expense relating to such property rights recorded under
capitalized leases was $213,000, $130,000 and $125,000 for fiscal 1994, 1995 and
1996, respectively. The net book value of property rights recorded under capital
leases was $829,000, $699,000 and $926,000 at October 29, 1994, October 28, 1995
and November 2, 1996, respectively.
F-11
<PAGE> 98
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of November 2, 1996, the debt associated with the capitalized property
rights is represented by the present value of the minimum lease payments as
follows:
<TABLE>
<S> <C>
Fiscal year ended in:
1997............................................................. $ 347,108
1998............................................................. 324,648
1999............................................................. 292,968
2000............................................................. 292,968
2001............................................................. 292,968
After 2001....................................................... 735,000
----------
Total minimum lease payments..................................... 2,285,660
Less amount representing interest................................ 774,663
----------
Present value of minimum lease payments.......................... 1,510,997
Less current installments........................................ 170,072
----------
$1,340,925
==========
</TABLE>
The Company also has entered into certain noncancelable operating leases
for the use of real estate, automobiles and trucks, and office equipment.
Aggregate rental expense for operating leases for fiscal 1994, 1995 and 1996 was
approximately $6,724,000, $7,833,000 and $9,294,000, respectively.
The following is a summary of minimum rental commitments as of November 2,
1996, for operating leases:
<TABLE>
<CAPTION>
AUTOMOBILE OFFICE
FISCAL YEAR-END REAL ESTATE AND TRUCKS EQUIPMENT TOTAL
------------------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
1997.................... $ 9,479,335 $ 12,293 $ 52,328 $ 9,543,956
1998.................... 8,320,110 8,195 52,328 8,380,633
1999.................... 6,822,291 -- 46,280 6,868,571
2000.................... 5,288,555 -- 16,544 5,305,099
2001.................... 2,927,707 -- 1,972 2,929,679
After 2001.............. 6,315,729 -- -- 6,315,729
----------- -------- --------- -----------
$39,153,727 $ 20,488 $ 169,452 $39,343,667
=========== ======== ========= ===========
</TABLE>
6. CAPITAL STOCK AND STOCK OPTIONS
Capital Stock
During October 1994, the Company completed an initial public offering for
the sale of 3,565,000 shares of its common stock. The net proceeds from the
offering were used to prepay both principal and prepayment premium on the
outstanding Senior Notes and a portion of the outstanding Subordinated Notes.
Prepayment premiums on the early extinguishment of these notes resulted in an
extraordinary loss of $3,110,000, net of income tax benefit. The remaining
Subordinated Notes in the amount of $16,000,000 were exchanged for notes which
are convertible into the Company's common stock. At October 29, 1994, $6,703,000
of the net proceeds representing the Underwriter's exercise of their
over-allotment option was receivable. This amount was received on November 2,
1994.
The Board of Directors is authorized to issue up to an aggregate of
5,000,000 shares of preferred stock, $0.01 par value per share, in one or more
series, each series to have voting preferences or other rights as determined by
the Board of Directors.
F-12
<PAGE> 99
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Under the Company's stockholders' agreement, common stock acquired by a
management stockholder is subject to certain restrictions on the sale or
transfer of such shares.
Stock Options
The Company has stock option arrangements with various officers, directors
and other members of management which it accounts for under the provisions of
APB Opinion No. 25 and related interpretations. The option prices approximated
fair market value at the date of grant. The options generally vest over periods
of three to seven years and must be exercised no later than ten years from the
date of grant. With respect to options for 150,200 shares, their vesting period
may be accelerated based upon the attainment of specified Company operating
goals. Shares of common stock issuable upon exercise of stock options are
subject to restrictions on transfer.
A summary of common stock option activity through November 2, 1996 is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Outstanding at beginning of year........... 468,923 637,774 623,960
Options granted............................ 323,464 66,800 81,900
Options exercised.......................... -- -- (12,406)
Options canceled........................... (154,613) (80,614) (30,771)
-------- ------- -------
Outstanding at end of year................. 637,774 623,960 662,683
======== ======= =======
Range of option prices per share:
Outstanding.............................. $3.08-$15.50 $ 3.08-$15.50 $ 3.08-$15.50
Granted during year...................... $3.41-$15.50 $11.50-$15.50 $11.38-$14.50
</TABLE>
At November 2, 1996, options for 295,973 shares were exercisable. The
remaining options become exercisable in fiscal years as follows: 1997 -- 90,802
shares; 1998 -- 30,916 shares; 1999 -- 25,409 shares; 2000 -- 14,000 shares;
2001 -- 156,583 shares; 2002 -- 49,000 shares.
As of November 2, 1996, the Company has reserved 914,025 shares of common
stock for issuance under stock option arrangements described above. In addition,
the Company has reserved 230,523 shares of common stock for issuance under the
stock warrant.
Compensation expense charged to operating income relating to stock option
grants amounts to $111,000 for fiscal 1994, $1,000 for fiscal 1995 and $0 for
fiscal 1996.
F-13
<PAGE> 100
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Differences in depreciation on property,
improvements and equipment............ $1,789,000 $1,890,000 $1,766,000
LIFO and uniform capitalization
differences on inventories............ 787,000 1,391,000 1,160,000
Prepaid advertising...................... 211,000 174,000 244,000
Deferred leasing costs................... 185,000 82,000 --
Store pre-opening costs.................. 208,000 172,000 449,000
Other.................................... 10,000 10,000 9,000
---------- ---------- ----------
Total deferred tax liabilities............. 3,190,000 3,719,000 3,628,000
---------- ---------- ----------
Deferred tax assets:
Loss on sale of discontinued operations:
Ordinary loss......................... $ -- $ 665,000 $ --
Capital loss carryforward............. -- 755,000 755,000
Allowance for doubtful accounts.......... 101,000 45,000 20,000
Compensation and employee benefit
accruals.............................. 174,000 148,000 58,000
Operating leases......................... 330,000 261,000 273,000
Accrued profit sharing contributions..... 323,000 321,000 356,000
Stock warrant............................ 279,000 266,000 266,000
Accrued store closing costs.............. 168,000 86,000 32,000
Capitalized property rights and lease
obligations treated as operating
leases for
income tax purposes................... 126,000 97,000 234,000
Other.................................... 291,000 250,000 211,000
---------- ---------- ----------
1,792,000 2,894,000 2,205,000
Less valuation allowance for capital loss
carryforward.......................... -- (755,000) (755,000)
---------- ---------- ----------
Total deferred tax assets.................. 1,792,000 2,139,000 1,450,000
---------- ---------- ----------
Net deferred tax liabilities
$1,398,000 $1,580,000 $2,178,000
========== ========== ==========
</TABLE>
The capital loss carryforward relating to the sale of Herschel will expire
in the year 2001.
F-14
<PAGE> 101
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal............................... $3,121,000 $3,768,000 $3,951,000
State................................. 709,000 1,152,000 1,199,000
---------- ---------- ----------
3,830,000 4,920,000 5,150,000
Deferred................................. 367,000 800,000 1,100,000
---------- ---------- ----------
4,197,000 5,720,000 6,250,000
Discontinued operations:
Current.................................. (302,000) 427,000 367,000
---------- ---------- ----------
Deferred................................. (38,000) (618,000) (367,000)
---------- ---------- ----------
(340,000) (191,000) --
---------- ---------- ----------
Extraordinary loss -- currently
deductible............................... (2,073,000) -- --
---------- ---------- ----------
Total...................................... $1,784,000 $5,529,000 $6,250,000
========== ========== ==========
</TABLE>
Total reported income tax expense differs from the tax that would have
resulted by applying the statutory expected federal income tax rate to income
before taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
NOVEMBER
OCTOBER 29, OCTOBER 28, 2,
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate.......... $1,057,000 $3,764,000 $5,098,000
Increases in taxes resulting from:
State income taxes, net of federal income
tax effect............................... 403,000 897,000 833,000
Goodwill amortization....................... 215,000 215,000 178,000
Capital loss carryforward................... -- 755,000 --
Other, net.................................. 109,000 102,000 141,000
Reduction of prior year overaccruals........ -- (204,000) --
---------- ---------- ----------
$1,784,000 $5,529,000 $6,250,000
========== ========== ==========
</TABLE>
8. EMPLOYMENT COMMITMENTS
The Company has employment agreements with three officers of the Company
which provide for annual salaries amounting to approximately $775,000. Upon
termination of employment for death, disability or without cause, compensation
may be continued for a period not to exceed two years.
9. PROFIT SHARING PLAN
The Company has a profit sharing plan covering all employees who meet
certain eligibility requirements. The plan provides for discretionary employer
contributions and allows voluntary participant contributions. Company
contributions are determined by its Board of Directors. The Company incurred
expense in connection with the profit sharing plan of $770,000, $804,000 and
$881,000 for fiscal 1994, 1995 and 1996, respectively.
F-15
<PAGE> 102
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. DISCONTINUED OPERATIONS
During fiscal 1996, the Company completed the sale of its wholly owned
subsidiary, Herschel Corporation ("Herschel"), a manufacturer and wholesale
distributor of equipment parts for use in the farming industry. Herschel has
been reported as a discontinued segment of the business; accordingly, its net
assets and operating results have been segregated in the consolidated financial
statements. The net assets of Herschel Corporation have been classified as
current at October 28, 1995 as the carrying amount approximates the selling
price, plus advances to be repaid, less expenses of sale, and were realized upon
closing in December 1995.
Summarized financial information of the Company's income (loss) from
discontinued operations follow:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
OCTOBER 29, OCTOBER 28,
1994 1995
----------- -----------
<S> <C> <C>
Net sales................................................. $23,312,046 $22,969,504
Income (loss) before income taxes......................... (1,085,217) 1,286,242
Income taxes (credit)..................................... (340,000) 474,127
Income (loss) from discontinued operations................ (745,217) 812,115
</TABLE>
11. ACQUISITION
On May 31, 1996, the Company acquired 31 retail stores and related net
operating assets from Big Bear Farm Stores, Inc. ("Big Bear"), an agricultural
specialty retailer, for approximately $5,650,000. The transaction was accounted
for as a purchase. The purchase price was allocated based on fair value as
follows:
<TABLE>
<S> <C>
Inventories..................................................... $ 8,780,000
Accounts receivable and other assets............................ 206,000
Leaseholds and equipment........................................ 517,000
Deferred income taxes........................................... 135,000
Goodwill........................................................ 2,666,000
Accounts payable and accrued expenses........................... (6,654,000)
-----------
$ 5,650,000
===========
</TABLE>
The results of operations of Big Bear from the date of purchase to the end
of fiscal year 1996 are included in the accompanying consolidated statement of
income.
Pro forma amounts, based on the assumption that the purchase occurred at
the beginning of fiscal 1995, are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
OCTOBER 28, NOVEMBER 2,
1995 1996
----------- -----------
<S> <C> <C>
Net sales.................................................... $ 275,685 $ 307,847
Net income................................................... 6,018 9,104
Net income per share......................................... .55 .83
</TABLE>
F-16
<PAGE> 103
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the years ended October 28, 1995 and November 2, 1996 (in
thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended October 28, 1995:
Net sales................................. $61,836 $59,347 $74,362 $56,158
Gross profit.............................. 17,362 18,214 22,557 16,230
Income from continuing operations......... 1,473 2,121 4,249 342
Income (loss) from discontinued
operations............................. (1) 467 187 (3,296)
Net income (loss)......................... 1,472 2,588 4,436 (2,954)
Per share:
Income from continuing operations...... 0.13 0.19 0.39 0.03
Income (loss) from discontinued
operations........................... -- 0.04 0.02 (0.30)
Net income (loss)...................... 0.13 0.23 0.40 (0.27)
Fiscal year ended November 2, 1996:
Net sales................................. 69,967 62,989 86,169 73,895
Gross profit.............................. 18,862 19,245 25,417 22,268
Net income................................ 1,280 1,684 3,937 1,843
Net income per share...................... 0.12 0.15 0.36 0.17
</TABLE>
The sum of quarterly per share amounts do not necessarily equal the annual
amount reported, as per share amounts are computed separately for each quarter
and the full year based on respective weighted average of common and common
equivalent shares outstanding.
13. SUBSEQUENT EVENT
On November 27, 1996, the Board of Directors of the Company approved, and
the Company entered into, a merger agreement (the "Merger Agreement") with J.W.
Childs Equity Partners, L.P. and two of its affiliates (collectively, "Childs")
that provides for the acquisition of the Company by Childs in a two-stage
transaction. The Merger Agreement provides that following the acquisition by
Childs of all of the Company shares held by affiliates of Butler Capital
Corporation (collectively, "BCC"), an affiliate of Childs will merge with and
into the Company, and Childs will acquire the remaining shares of the Company
held by public stockholders for $14.25 per share in cash. The consummation of
the merger is subject to the satisfaction of certain conditions including, among
other things, (i) the acquisition by Childs of all of the Company's shares held
by affiliates of BCC and (ii) the availability of sufficient funds to consummate
the merger pursuant to commitments obtained by Childs from its prospective
lenders.
Pursuant to an agreement executed contemporaneously with the Merger
Agreement between Childs and affiliates of BCC which own 64.5% of the Company's
outstanding common stock, BCC's affiliates have sold 1,048,214 shares of the
Company's common stock (representing 9.9% of the outstanding shares) to Childs
for a cash consideration of $14.00 per share, and have agreed to sell their
remaining shares to Childs for $14.00 per share in cash. The agreement also
provides that such BCC affiliates will agree, immediately following the
conclusion of the stock sale, to the prepayment by the Company (without payment
of any prepayment premium) of all the Company's 7% convertible notes with a face
amount of $16,000,000. In connection with the second purchase, certain members
of management agreed to sell 146,299 shares to Childs for a cash consideration
of $14.00 per share.
While the Merger Agreement is subject to stockholder approval, it is
expected that Childs will own a sufficient number of shares of Company common
stock to adopt and approve the merger.
F-17
<PAGE> 104
[MAP SHOWING CT STORES LOCATIONS AND CT STORE FORMAT FLOORPLAN]
<PAGE> 105
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION WHERE, 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 AN IMPLICATION
THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
Use of Proceeds....................... 14
Capitalization........................ 15
Pro Forma Condensed Consolidated
Financial Data...................... 16
Selected Historical and Pro Forma
Financial Data...................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 28
Management............................ 37
Security Ownership of Certain
Beneficial Owners and Management.... 42
Certain Transactions.................. 44
Description of Senior Notes........... 45
Description of New Credit Facility.... 69
Description of Holding Preferred
Stock............................... 70
Underwriting.......................... 80
Legal Matters......................... 81
Experts............................... 81
Available Information................. 81
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
LOGO
CENTRAL TRACTOR FARM & COUNTRY, INC.
$100,000,000 % SENIOR
NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
NATIONSBANC CAPITAL MARKETS, INC.
, 1997
======================================================
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Set forth below is an estimate of the amount of fees and expenses to be
incurred in connection with the issuance and distribution of the Senior Notes
registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee under Securities Act.................................... $30,303.03
NASD Filing Fee.......................................................... 10,500.00
Blue Sky Fees and Expenses...............................................
Legal Fees...............................................................
Accounting Fees..........................................................
Printing and Engraving...................................................
Rating Agencies..........................................................
Trustee Fees.............................................................
Miscellaneous Fees.......................................................
----------
Total..........................................................
==========
</TABLE>
- ---------------
* All expenses are estimated except the SEC registration fee and the NASD filing
fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any director or officer made a party to any
proceeding against judgments, penalties, fines, settlements and reasonable
expenses, unless it is established that (i) the act or omission of the director
was material to the matter giving rise to the proceeding, and was committed in
bad faith or was a result of deliberate dishonesty, (ii) director actually
received an improper personal benefit or (iii) in a criminal proceeding,
director had reasonable cause to believe the act or omission was unlawful. A
director may not be indemnified in any proceeding charging improper personal
benefit, if director was adjudged to be liable and, in a derivative action,
there shall not be indemnification if the director has been adjudged liable to
the corporation. A director or officer of a corporation who has been successful
in the defense of any proceeding shall be indemnified against reasonable costs
incurred in such defense. Indemnification may not be made unless authorized
pursuant to a determination that the director has met the requisite standard of
conduct.
Paragraph 10 of the Company's Restated Certificate of Incorporation
provides that the Company shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was or has agreed to be a director or officer of
the Company or while a director or officer is or was serving at the request of
the Company as a director, officer, partner, trustee, employee or agent of any
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, against expenses (including
attorney's fees and expenses), judgments, fines, penalties and amounts paid in
settlement incurred in connection with the investigation, preparation to defend
or defense of such action, suit, proceeding or claim; provided, however, that
the foregoing shall not require the Company to indemnify or advance expenses to
any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such indemnification
shall not be exclusive of other indemnification rights arising under any by-law,
agreement, vote of directors or stockholders or otherwise and shall inure to the
benefit of the heirs and legal representatives of such person. Any person
seeking indemnification under paragraph 10 shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. Any repeal or modification of the foregoing provisions of
paragraph 10 shall not adversely affect any right or
II-1
<PAGE> 107
protection of a director or officer of the Company with respect to any acts or
omissions of such director or officer occurring prior to such repeal of
modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C> <C>
1 -- Form of Underwriting Agreement**
3(i).1 -- Restated Certificate of Incorporation, filed as an exhibit 3(i).1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
3(i).2 -- Certificate of Merger dated October 5, 1994, filed as an exhibit 3(i).2 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
3(ii) -- By-Laws of the Company, filed as an exhibit (3(ii) to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.1 -- Form of Common Stock Certificate of the Company, filed as an exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
4.2 -- Exchange Agreement dated October 14, 1994, among the Company, Mezzanine Lending
Associates I, L.P., Mezzanine Lending Associates II, L.P., and Mezzanine Lending
Associates III, L.P., filed as an exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.3 -- Form of 7% Convertible Subordinated Note due 2002 (contained as Exhibit 2 to the
Exchange Agreement filed as Exhibit 4.2), filed as an exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
4.4 -- Form of Indenture relating to the Senior Notes**
4.5 -- Form of Senior Note**
5 -- Opinion of Sullivan & Worcester LLP**
10.1 -- Credit Agreement dated January 28, 1994 among the Company, Herschel Corporation and
First Bank National Association, filed as an exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.2 -- Stockholder's Agreement, dated October 14, 1994 among the Company, Mezzanine
Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., Mezzanine
Lending Associates III, L.P. and the individual stockholders party thereto, filed
as an exhibit 10.2 to the Company's Registration Statement on Form S-1 (File
#33-82620) originally filed on August 9, 1994 and incorporated herein by reference
10.3 -- Form of Stock Option Agreement of the Company with respect to options issued prior
to September 14, 1994, filed as an exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
</TABLE>
II-2
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C> <C>
10.4 -- 1994 Stock Incentive Plan, filed as an exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.5 -- Employment Agreement between the Company and James T. McKitrick dated as of
September 16, 1994, filed as an exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.6 -- Employment Agreement between the Company and Dean Longnecker dated as of September
16, 1994, filed as an exhibit 10.6 to the Company's Registration Statement on Form
S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.7 -- Employment Agreement between the Company and Michael London dated as of May 23,
1994, filed as an exhibit 10.7 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.8 -- Warrant dated August 31, 1993, registered in the name of BCC Industrial Services,
Inc., filed as an exhibit 10.8 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 incorporated herein by
reference
10.9 -- Merger Agreement dated as of September 14, 1994 between the Company and Central
Tractor Farm & Country, Inc., an Iowa Corporation, filed as an exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
10.10 -- 1994 Directors' Stock Option Plan, filed as an exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.11 -- First Amendment to Credit Agreement dated December 3, 1994 among the Company,
Herschel Corporation and First Bank National Association, filed as an exhibit 10.11
to the Company's Form 10-K originally filed on January 26, 1996 and incorporated
herein by reference
10.12 -- Second Amendment to Credit Agreement dated May 16, 1995 among the Company, Herschel
Corporation and First Bank National Association, filed as an exhibit 10.12 to the
Company's 10-K originally filed on January 26, 1996 and incorporated herein by
reference
10.13 -- Third Amendment to Credit Agreement dated December 1, 1995 among the Company and
First Bank National Association, filed as an exhibit 10.13 to the Company's 10-K
originally filed on January 26, 1996 and incorporated herein by reference
10.14 -- Asset Purchase Agreement By and Between Alamo Group (USA) Inc. (the "Buyer") and
Herschel Corporation and Central Tractor Farm and Country, Inc. (the "Sellers")
dated December 4, 1995, filed as an exhibit 10.14 to the Company's 10-K originally
filed on January 26, 1996 and incorporated herein by reference
10.15 -- Asset Purchase Agreement By and Between Central Tractor Farm & Country, Inc. (the
"Buyer") and Big Bear Farm Stores, Inc. (the "Seller") dated May 22, 1996, filed as
an exhibit 10.15 to the Company's 10-Q originally filed on September 9, 1996 and
incorporated herein by reference
10.16 -- Agreement and Plan of Merger dated November 27, 1996 by and among Central Tractor
Farm & Country, Inc., J.W. Childs Equity Partners, L.P., JWC Holdings I, Inc. and
JWC Acquisition, I, Inc., filed as an exhibit 10.16 to the Company's 8-K originally
filed on December 3, 1996 and incorporated herein by reference
</TABLE>
II-3
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
10.17 -- Securities Purchase Agreement, dated as of November 27, 1996, by and among
Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P.,
Mezzanine Lending Associates III, L.P., Senior Lending Associates I, L.P., BCC
Industrial Services, JWC Acquisition, I, Inc., J.W. Childs Equity Partners, L.P.,
Central Tractor Farm & Country, Inc. filed as an exhibit 10.20 to JWCAC's Schedule
13D originally filed on December 9, 1996 and incorporated herein by reference
10.18 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. James T. McKitrick, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.19 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. G. Dean Longnecker, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.20 -- Commitment Letter, dated as of November 26, 1996, among NationsBank, N.A.,
NationsBanc Capital Markets, Inc., J.W. Childs Equity Parnters, L.P., JWC
Acquisition I, Inc. and JWC Holdings I, Inc., filed as an exhibit 10.23 to the
JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein
by reference
10.21 -- Commitment Letter, dated as of November 26, 1996, among NationsBridge, L.L.C., J.W.
Childs Equity Parnters, L.P., JWC Acquisition I, Inc. and JWC Holdings I, Inc.,
filed as an exhibit 10.24 to JWCAC's Schedule 13D originally filed on December 9,
1996 and incorporated herein by reference
10.22 -- Employment Agreement between the Company and George D. Miller dated May 6, 1996*
11 -- Statement Regarding Computation of Per Share Earnings*
12 -- Schedule Regarding Computation of Ratio of Earnings to Fixed Charges*
21 -- Subsidiaries of the Company, filed as exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended November 2, 1996 and incorporated herein by reference
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Sullivan & Worcester LLP (included in Exhibit 5)**
23.3 -- Consent of John W. Childs*
23.4 -- Consent of Jerry D. Horn*
23.5 -- Consent of Steven G. Segal*
23.6 -- Consent of Adam L. Suttin*
23.7 -- Consent of Jeffrey B. Swartz*
23.8 -- Consent of William E. Watts*
24 -- Power of Attorney*
25 -- Statement of Eligibility of Trustee**
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
(b) Financial Statement Schedules.
No Financial Statement Schedules have been presented since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
II-4
<PAGE> 110
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(a)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Central Tractor Farm & Country, Inc. has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Des Moines, State of Iowa, on this 4th day of
March, 1997.
CENTRAL TRACTOR FARM & COUNTRY, INC.
By: /s/ JAMES T. MCKITRICK
------------------------------------
James T. McKitrick, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to Registration Statement on Form S-1 has been signed below by
the following persons in the capacities and on the dates indicated;
<TABLE>
<S> <C> <C>
/s/ JAMES T. MCKITRICK President and Chief March 4, 1997
- --------------------------------------------- Executive Officer, Director
James T. McKitrick (Principal Executive
Officer)
/s/ DEAN LONGNECKER Executive Vice President of March 4, 1997
- --------------------------------------------- Finance, Director
Dean Longnecker (Principal Financial and
Accounting Officer)
/s/ STEVEN G. SEGAL Director March 4, 1997
- ---------------------------------------------
Steven G. Segal
/s/ ADAM L. SUTTIN Director March 4, 1997
- ---------------------------------------------
Adam L. Suttin
</TABLE>
II-6
<PAGE> 112
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C> <C>
1 -- Form of Underwriting Agreement**
3(i).1 -- Restated Certificate of Incorporation, filed as an exhibit 3(i).1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
3(i).2 -- Certificate of Merger dated October 5, 1994, filed as an exhibit 3(i).2 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
3(ii) -- By-Laws of the Company, filed as an exhibit (3(ii) to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.1 -- Form of Common Stock Certificate of the Company, filed as an exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
4.2 -- Exchange Agreement dated October 14, 1994, among the Company, Mezzanine Lending
Associates I, L.P., Mezzanine Lending Associates II, L.P., and Mezzanine Lending
Associates III, L.P., filed as an exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.3 -- Form of 7% Convertible Subordinated Note due 2002 (contained as Exhibit 2 to the
Exchange Agreement filed as Exhibit 4.2), filed as an exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
4.4 -- Form of Indenture relating to the Senior Notes**
4.5 -- Form of Senior Note**
5 -- Opinion of Sullivan & Worcester LLP**
10.1 -- Credit Agreement dated January 28, 1994 among the Company, Herschel Corporation and
First Bank National Association, filed as an exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.2 -- Stockholder's Agreement, dated October 14, 1994 among the Company, Mezzanine
Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., Mezzanine
Lending Associates III, L.P. and the individual stockholders party thereto, filed
as an exhibit 10.2 to the Company's Registration Statement on Form S-1 (File
#33-82620) originally filed on August 9, 1994 and incorporated herein by reference
10.3 -- Form of Stock Option Agreement of the Company with respect to options issued prior
to September 14, 1994, filed as an exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.4 -- 1994 Stock Incentive Plan, filed as an exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.5 -- Employment Agreement between the Company and James T. McKitrick dated as of
September 16, 1994, filed as an exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.6 -- Employment Agreement between the Company and Dean Longnecker dated as of September
16, 1994, filed as an exhibit 10.6 to the Company's Registration Statement on Form
S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.7 -- Employment Agreement between the Company and Michael London dated as of May 23,
1994, filed as an exhibit 10.7 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.8 -- Warrant dated August 31, 1993, registered in the name of BCC Industrial Services,
Inc., filed as an exhibit 10.8 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 incorporated herein by
reference
10.9 -- Merger Agreement dated as of September 14, 1994 between the Company and Central
Tractor Farm & Country, Inc., an Iowa Corporation, filed as an exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
10.10 -- 1994 Directors' Stock Option Plan, filed as an exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.11 -- First Amendment to Credit Agreement dated December 3, 1994 among the Company,
Herschel Corporation and First Bank National Association, filed as an exhibit 10.11
to the Company's Form 10-K originally filed on January 26, 1996 and incorporated
herein by reference
10.12 -- Second Amendment to Credit Agreement dated May 16, 1995 among the Company, Herschel
Corporation and First Bank National Association, filed as an exhibit 10.12 to the
Company's 10-K originally filed on January 26, 1996 and incorporated herein by
reference
10.13 -- Third Amendment to Credit Agreement dated December 1, 1995 among the Company and
First Bank National Association, filed as an exhibit 10.13 to the Company's 10-K
originally filed on January 26, 1996 and incorporated herein by reference
10.14 -- Asset Purchase Agreement By and Between Alamo Group (USA) Inc. (the "Buyer") and
Herschel Corporation and Central Tractor Farm and Country, Inc. (the "Sellers")
dated December 4, 1995, filed as an exhibit 10.14 to the Company's 10-K originally
filed on January 26, 1996 and incorporated herein by reference
10.15 -- Asset Purchase Agreement By and Between Central Tractor Farm & Country, Inc. (the
"Buyer") and Big Bear Farm Stores, Inc. (the "Seller") dated May 22, 1996, filed as
an exhibit 10.15 to the Company's 10-Q originally filed on September 9, 1996 and
incorporated herein by reference
10.16 -- Agreement and Plan of Merger dated November 27, 1996 by and among Central Tractor
Farm & Country, Inc., J.W. Childs Equity Partners, L.P., JWC Holdings I, Inc. and
JWC Acquisition, I, Inc., filed as an exhibit 10.16 to the Company's 8-K originally
filed on December 3, 1996 and incorporated herein by reference
10.17 -- Securities Purchase Agreement, dated as of November 27, 1996, by and among
Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P.,
Mezzanine Lending Associates III, L.P., Senior Lending Associates I, L.P., BCC
Industrial Services, JWC Acquisition, I, Inc., J.W. Childs Equity Partners, L.P.,
Central Tractor Farm & Country, Inc. filed as an exhibit 10.20 to JWCAC's Schedule
13D originally filed on December 9, 1996 and incorporated herein by reference
10.18 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. James T. McKitrick, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.19 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. G. Dean Longnecker, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.20 -- Commitment Letter, dated as of November 26, 1996, among NationsBank, N.A.,
NationsBanc Capital Markets, Inc., J.W. Childs Equity Parnters, L.P., JWC
Acquisition I, Inc. and JWC Holdings I, Inc., filed as an exhibit 10.23 to the
JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein
by reference
10.21 -- Commitment Letter, dated as of November 26, 1996, among NationsBridge, L.L.C., J.W.
Childs Equity Parnters, L.P., JWC Acquisition I, Inc. and JWC Holdings I, Inc.,
filed as an exhibit 10.24 to JWCAC's Schedule 13D originally filed on December 9,
1996 and incorporated herein by reference
10.22 -- Employment Agreement between the Company and George D. Miller dated May 6, 1996*
11 -- Statement Regarding Computation of Per Share Earnings*
12 -- Schedule Regarding Computation of Ratio of Earnings to Fixed Charges*
21 -- Subsidiaries of the Company, filed as exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended November 2, 1996 and incorporated herein by reference
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Sullivan & Worcester LLP (included in Exhibit 5)**
23.3 -- Consent of John W. Childs*
23.4 -- Consent of Jerry D. Horn*
23.5 -- Consent of Steven G. Segal*
23.6 -- Consent of Adam L. Suttin*
23.7 -- Consent of Jeffrey B. Swartz*
23.8 -- Consent of William E. Watts*
24 -- Power of Attorney*
25 -- Statement of Eligibility of Trustee**
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
<PAGE> 1
Ernst & Young LLP / / Suite 3400 / / Phone: 515 243 2727
801 Grand Avenue
Des Moines, Iowa 50390-2764
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 6, 1996, in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-19613) and related Prospectus of
Central Tractor Farm & Country, Inc. for the registration of $100,000,000 of
Senior Notes Due 2007.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Des Moines, Iowa
March 3, 1997
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
