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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): SEPTEMBER 30, 1998
AEARO CORPORATION
(Exact name of Registrant as specified in charter)
DELAWARE 0-26942 13-3840450
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
5456 WEST 79TH STREET, INDIANAPOLIS, INDIANA 46268
(Address of principal executive offices) (Zip Code)
(317) 692-6983
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
Complexity Reduction and Restructuring. On September 30, 1998, Aearo
Corporation (the "Company") issued the following press release:
AEARO CORPORATION ANNOUNCES PLAN TO IMPROVE PROFITABILITY
THROUGH COMPLEXITY REDUCTION AND RESTRUCTURING
INDIANAPOLIS--(BUSINESS WIRE)--Sept. 30, 1998--Aearo Corporation today announced
a plan to improve profitability by eliminating certain product offerings in its
Eyewear and Respiratory product lines, reducing headcount in North America
through restructuring and outsourcing, consolidating the branding in its
Consumer product line and reducing selling and manufacturing costs in its
Prescription eyewear product line. The company intends to take a $10 million
restructuring charge in the quarter ended September 30, 1998.
Mike McLain, president and chief executive officer, stated, "This plan will
enable us to improve our profitability in these strategically important product
lines. While we have attractive market positions, our offerings have become too
broad and, as a result, we have a level of complexity that requires higher
costs. By focusing on the key offerings where we have a competitive advantage,
we will be able to improve productivity while, at the same time, offering
superior customer service at acceptable levels of profitability.
"Our restructuring involves four elements: (1) reducing stock-keeping units
(SKUs) and product lines in our Eyewear and Respiratory categories; (2) creating
a more focused and flatter organization by eliminating 60 administrative and
manufacturing overhead positions in North America, as well as outsourcing
certain hand-assembly operations in order to reduce costs; (3) consolidating our
Consumer product offerings under one brand and packaging system with improved
graphics, quality and consistency; and (4) improving the profitability of our
Prescription eyewear business by reducing dispensing costs, centralizing
inventory and investing in a new information technology system to reduce
administrative costs and improve customer service.
We have been pleased with the recovery in profitability that we have experienced
through the first three quarters of this fiscal year. At the same time, there
are portions of our business that are not achieving full potential. We are now
taking the actions necessary to improve profitability further. These moves will
reduce our employment in North America by more than 10 percent."
The restructuring charge is expected to include severance and related costs of
$3 million; consumer packaging, literature and return costs of $1 million;
write-offs of tools and equipment of $1 million; and a write-off of inventory
related to discontinued offerings of $5 million. The cash outlay components of
this charge are expected to total $4 million. The annual benefits are estimated
to total $4.5 million in Fiscal 1999 and $6.5 million in Fiscal 2000.
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The company expects to amend its credit agreement with its senior lenders to
avoid any covenant violations that could occur as a result of the restructuring
charge.
Headquartered in Indianapolis, Aearo Corporation had sales of $293 million and
EBITDA of $46 million for the 12 months ended June 30, 1998. The company
designs, manufactures and sells personal protection equipment, including hearing
protection, prescription and non-prescription safety eyewear and respirators.
The company's products, marketed under the E-A-R, AOSafety, Peltor and Eastern
brand names, are sold principally to industrial safety distributors and are used
by industry, government, the military and health providers. Its AOSafety and
Eastern products can be found in retail outlets such as home centers, hardware,
drug and sporting goods stores. In addition, its E-A-R Specialty Composites
division manufactures energy-absorbing materials for the transportation, OEM and
healthcare markets. Aearo operates 10 manufacturing plants throughout the world,
employing more than 1,800 workers.
Aearo Corporation is jointly owned by affiliates of Vestar Capital Partners, a
major private equity investment firm specializing in management buyouts, Cabot
Corporation (NYSE: CBT news) and the company's senior management.
FOR MORE INFORMATION, CONTACT:
Arthur Yann
Nichol & Company, Ltd.
Tel: 212 889-6401
Fax: 212 532-4062
Email: [email protected]
B. Third Amendment to Credit Agreement. On September 30, 1998, the
Company and its bank group amended the Company's credit facility to provide
that the above restructuring charge will not give rise to a violation of any
covenants under the credit facility for the period ended September 30, 1998.
Item 7. Financial Statement, Pro Forma Financial Information and Exhibits.
(c) Exhibits. The following exhibit is filed as part of this Current Report on
Form 8-K:
10.1 Third Amendment to Credit Agreement, dated as of September 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 1, 1998 AEARO CORPORATION
By: /s/ Bryan J. Carey
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Bryan J. Carey
Vice President and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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10.1 Third Amendment to Credit Agreement, dated as of September 30,
1998.
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EXHIBIT 10.1
THIRD AMENDMENT
THIRD AMENDMENT (this "Amendment"), dated as of September 30, 1998,
among AEARO CORPORATION, a Delaware corporation ("Holdings"), AEARO COMPANY I
(f/k/a Cabot Safety Corporation), a Delaware corporation (the "Company"), each
Subsidiary Borrower (together with the Company, each a "Borrower" and
collectively, the "Borrowers"), the lending institutions from time to time party
to the Credit Agreement referred to below (the "Banks"), and BANKERS TRUST
COMPANY, as Administrative Agent (the "Administrative Agent"). All capitalized
terms used herein and not otherwise defined shall have the respective meanings
provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Holdings, the Borrowers, the Banks and the Administrative
Agent are parties to a Credit Agreement, dated as of July 11, 1995 and amended
and restated as of May 30, 1996 (as further amended, modified or supplemented
to, but not including, the date hereof, the "Credit Agreement");
WHEREAS, the parties hereto wish to further amend the Credit Agreement
as herein provided; and
WHEREAS, subject to the terms and conditions of this Amendment, the
parties hereto agree as follows:
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in the Credit
Agreement, the Banks hereby agree that certain restructuring charges, as
described in the Company's Restructuring Discussion dated September 29, 1998,
will not be included in the calculation of Consolidated EBITDA for the period
ending September 30, 1998 for purposes of Sections 8.08, 8.09 and 8.10 of the
Credit Agreement; PROVIDED, HOWEVER, that (i) such restructuring charges not
exceed $12,000,000 and (ii) this amendment is operative only for the period
ending September, 30, 1998.
2. In order to induce the undersigned Banks to enter into this
Amendment, the Borrower hereby represents and warrants that (x) no Default or
Event of Default exists on the Third Amendment Effective Date after giving
effect to this Amendment and (y) all of the representations and warranties
contained in the Credit Agreement shall be true and correct in all material
respects as of the Third Amendment Effective Date after giving effect to this
Amendment, with the same effect as though such representations and warranties
had been made on and as of the Third Amendment Effective Date (it being
understood that any representation or warranty made as of a specified date shall
be required to be true and correct in all material respects only as of such
specific date).
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3. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
6. This Amendment shall become effective on the date (the "Third
Amendment Effective Date") when (x) the Borrower and the Required Banks (i)
shall have signed a counterpart hereof (whether the same or different
counterparts) and (ii) shall have delivered (including by way of telecopier) the
same to the Administrative Agent at the Notice Office.
7. From and after the Third Amendment Effective Date all references in
the Credit Agreement and the other Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as modified hereby.
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
AEARO CORPORATION
By /s/
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Title:
AEARO COMPANY I
By /s/
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Title:
AEARO CANADA LIMITED
By /s/
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Title:
AEARO LIMITED
By /s/
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Title:
By /s/
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Title:
BANKERS TRUST COMPANY
Individually, and as Administrative Agent
By /s/
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Title:
THE CHASE MANHATTAN BANK
By /s/
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Title:
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FLEET NATIONAL BANK
By /s/
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Title:
NEW YORK LIFE INSURANCE COMPANY
By /s/
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Title:
NEW YORK LIFE INSURANCE & ANNUITY
CORPORATION
By: NEW YORK LIFE INSURANCE COMPANY
By /s/
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Title:
MELLON BANK, N.A.
By
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Title:
MASS MUTUAL LIFE INSURANCE COMPANY
By
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Title:
CRESCENT/MACH I PARTNERS, L.P.
By: TCW ASSET MANAGEMENT COMPANY,
Its Investment Manager
By /s/
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Title:
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ABN AMRO BANK N.V.
By /s/
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Title:
CREDIT LYONNAIS NEW YORK BRANCH
By /s/
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Title:
THE FIRST NATIONAL BANK OF BOSTON
By /s/
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Title:
