AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALLIANCE LAUNDRY SYSTEMS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35820 39-1927923
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR P.O. BOX 990
ORGANIZATION) RIPON, WISCONSIN 54971-0990
TELEPHONE: (920) 748-3121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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THOMAS F. L'ESPERANCE
P.O. BOX 990
RIPON, WISCONSIN 54971-0990
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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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 the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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9 5/8% Senior
Subordinated Notes due
2008................... $110,000,000 $1,000 $110,000,000 $32,450
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Guarantee(2)............ N/A N/A N/A N/A
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) based upon the book value of the securities
as of June 9, 1998.
(2) The Guarantee by Alliance Laundry Holdings LLC of the payment of principal
and interest on the Notes is being registered hereby. Pursuant to Rule
457(g), no registration fee is required with respect to the Guarantee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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(continued from previous page)
ALLIANCE LAUNDRY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35820 39-1928505
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION
ORGANIZATION) NUMBER)
ALLIANCE LAUNDRY HOLDINGS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35820 52-2055893
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION
ORGANIZATION) NUMBER)
OFFERING MEMORANDUM
[LOGO]
ALLIANCE
LAUNDRY SYSTEMS
ALLIANCE LAUNDRY SYSTEMS LLC
ALLIANCE LAUNDRY CORPORATION
OFFER TO EXCHANGE THEIR SERIES B 9 5/8% SENIOR SUBORDINATED NOTES
DUE 2008 FOR ANY AND ALL OF THEIR OUTSTANDING SERIES A
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
---------------
Alliance Laundry Systems LLC, a Delaware limited liability company
("Alliance" or the "Company"), and Alliance Laundry Corporation, a Delaware
corporation ("ALC" and, together with the Company, the "Issuers"), hereby
offer (the "Exchange Offer"), upon the terms and conditions set forth in this
Offering Memorandum (the "Offering Memorandum") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 9 5/8% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which
will have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this Offering
Memorandum is a part, for each $1,000 principal amount of its outstanding 9
5/8% Senior Subordinated Notes due 2008 (the "Notes"), of which $110,000,000
principal amount is outstanding. The form and terms of the Exchange Notes are
the same as the form and term of the Notes (which they replace) except that
the Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain certain provisions relating to an increase in the interest rate which
were included in the terms of the Notes in certain circumstances relating to
the timing of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indenture dated May 5, 1998 between the
Issuers and United States Trust Company of New York (the "Indenture")
governing the Notes. See "The Exchange Offer" and "Description of the Exchange
Notes."
Alliance has not issued, and does not have any current firm arrangements to
issue, any indebtedness to which the Exchange Notes would rank senior or pari
passu in right of payment. The Exchange Notes will be general unsecured
obligations of the Company and will be subordinate in right of payment to all
existing and future Senior Debt (as defined) and will be senior or pari passu
in right of payment to all existing and future subordinated indebtedness of
the Company. As of May 5, 1998, after consummation of the Transactions, the
Company and its Subsidiaries (as defined) had $200.0 million of Senior Debt
outstanding (exclusive of $75.0 million available under the Revolving Credit
Facility (as defined), which would also be Senior Debt). See "Capitalization,"
"Description of Senior Credit Facility" and "Description of the Exchange
Notes--Subordination."
The Issuers will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by the Issuers in their sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Issuers will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to 5:00
p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by the Issuers on May 5, 1998 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and in offshore
transactions pursuant to Regulation S under the Securities Act. Accordingly,
the Notes may not be reoffered, resold or otherwise transferred in the United
States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Issuers under the Registration Rights Agreement entered
into by the Issuers in connection with the offering of the Notes. See "The
Exchange Offer".
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") set forth
in no-action letters issued to third parties, the Issuers believe the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of either Alliance or ALC within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "The Exchange Offer--
Resales of the Exchange Notes." Each broker-dealer (a "Participating Broker-
Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Offering
Memorandum, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Issuers have agreed that, for a period of up to one
year from the consummation of the Exchange Offer, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
If any holder of Notes is an affiliate of either Alliance or ALC, is engaged
in or intends to engage in or has any arrangement or understanding with any
person to participate in the distribution of the Exchange Notes to be acquired
in the Exchange Offer, such holder (i) cannot rely on the applicable
interpretations of the Commission and (ii) must comply with the registration
requirements of the Securities Act in connection with any resale transaction.
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Issuers
will pay all the expenses incurred by them incident to the Exchange Offer. See
"The Exchange Offer."
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SEE "RISK FACTORS" ON PAGE 13 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
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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
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Offering Memorandum is , 1998.
There has not previously been any public market for the Notes or the
Exchange Notes. The Issuers do not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes
could be adversely affected.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Offering Memorandum does not
contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Issuers and the
Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Offering Memorandum as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Exchange Offer Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Regional Offices of the Commission at 75 Park
Place, New York, New York 10007 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally,
the Commission maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the
Issuers.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Issuers will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports
and other information with the Commission. The obligation of the Issuers to
file periodic reports and other information with the Commission will be
suspended if the Exchange Notes are held of record by fewer than 300 holders
as of the beginning of any fiscal year of the Issuers other than the fiscal
year in which the Exchange Offer Registration Statement is declared effective.
The Issuers will nevertheless be required to continue to file reports with the
Commission if the Exchange Notes are listed on a national securities exchange.
In the event the Issuers cease to be subject to the informational requirements
of the Exchange Act, Alliance will be required under the Indenture to continue
to file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. Under the Indenture, the Issuers shall file
with the Trustee annual, quarterly and other reports within fifteen days after
it files such reports with the Commission. Further, to the extent that annual
or quarterly reports are furnished by the Issuers to unitholders generally it
will mail such reports to holders of Exchange Notes. The Issuers will furnish
annual and quarterly financial reports to unitholders of the Issuers and will
mail such reports to holders of Exchange Notes pursuant to the Indenture, thus
holders of Exchange Notes will receive financial reports every quarter. Annual
reports delivered to the Trustee and the holders of Exchange Notes will
contain financial information that has been examined and reported upon, with
an opinion expressed by an independent public or certified public accountant.
The Issuers will also furnish such other reports as may be required by law.
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This Offering Memorandum includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
i
The statements appear in a number of places in this Offering Memorandum and
include statements regarding the intent, belief or current expectations of the
Company or its officers with respect to, among other things, the use of
proceeds of the Offering, the ability to borrow funds under the Senior Credit
Facility, the ability to successfully implement operating strategies,
including trends affecting the Company's business, financial condition and
results of operations. All statements other than statements of historical
facts included in this Offering Memorandum, including, without limitation, the
statements under "Offering Memorandum Summary," "Unaudited Pro Forma Combined
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and located elsewhere herein
regarding industry prospects and the Company's financial position are forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Although
the Issuers believe that the expectations reflected in such forward-looking
statements are reasonable, they can give no assurance that such expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from the Issuers' expectations (the "Cautionary
Statements") are disclosed in this Offering Memorandum, including, without
limitation, in conjunction with the forward-looking statements included in
this Offering Memorandum under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
All subsequent written and oral forward-looking statements attributable to
the Issuers or persons acting on their behalf are expressly qualified in their
entirety by the Cautionary Statements and Risk Factors contained throughout
this Offering Memorandum.
MARKET SHARE DATA
The market share data presented herein are based upon estimates by
management of the Company, utilizing various third party sources, where
available. While management believes that such estimates are reasonable and
reliable, in certain cases, such estimates cannot be verified by information
available from independent sources. Accordingly, no assurance can be given
that such market share data are accurate in all material respects.
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TRADEMARKS AND TRADENAMES
The following items referred to in this document are trademarks that are
federally registered in the United States and abroad pursuant to applicable
intellectual property laws and are the property of the Company: Speed Queen,
Huebsch and UniMac.
The following items referred to in this document are trademarks owned by the
Company, for which applications for registration are pending in the United
States pursuant to applicable intellectual property laws: MicroMaster and
CardMate Plus.
ii
OFFERING MEMORANDUM SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Offering Memorandum. Each prospective investor is urged to
read this Offering Memorandum in its entirety, including information set forth
under the heading "Risk Factors." As used in this Offering Memorandum, unless
the context requires otherwise, references to "Alliance" or the "Company" with
respect to periods prior to the Transactions refer to the commercial laundry
business of Raytheon Company, a Delaware corporation ("Raytheon"), historically
conducted by Alliance Laundry Holdings LLC (the "Parent," formerly known as
Raytheon Commercial Laundry LLC) and its predecessors and subsidiaries and with
respect to periods subsequent to the Transactions, refer collectively to
Alliance Laundry Systems LLC and its subsidiaries. As used herein, the term
"stand alone commercial laundry equipment" refers to commercial laundry
equipment excluding dry cleaning equipment and custom engineered, continuous
process laundry systems and the term "stand alone commercial laundry industry"
includes laundromats, multi-housing laundries and on-premise laundries and
excludes dry cleaners and continuous process laundries.
THE COMPANY
Alliance believes it is the leading designer, manufacturer and marketer of
stand alone commercial laundry equipment in North America and a leader
worldwide. Under the well-known brand names of Speed Queen, UniMac and Huebsch,
the Company produces a full line of commercial washing machines and dryers with
load capacities from 16 to 250 pounds. The Company believes it has had the
leading market share in the North American stand alone commercial laundry
equipment industry for the last five years and has progressively increased its
market share from approximately 21% in 1993 to 38% in 1997. The Company
attributes its industry leading position to: (i) the quality, reliability and
functionality of its products; (ii) the breadth of its product offerings; (iii)
its extensive distributor network and strategic alliances with key customers;
and (iv) its substantial investment in new product development and
manufacturing capabilities. As a result of its market leadership, the Company
has an installed base of equipment that it believes is the largest in the
industry and that generates significant recurring sales of replacement
equipment and service parts. Internationally, the Company has developed
targeted opportunities, generating equipment sales of $45.5 million in 1997. In
addition, pursuant to an agreement, the Company supplies consumer washing
machines to a large consumer appliance company ("Appliance Co.") for sale at
retail. For 1997, the Company generated net sales of $347.7 million and EBITDA
(as defined) of $57.2 million.
The Company believes it has developed the most extensive distribution
networks to each of the three distinct customer groups within the North
American stand alone commercial laundry equipment industry: (i) laundromats;
(ii) multi-housing laundries, consisting primarily of common laundry facilities
in apartment buildings, universities and military installations; and (iii) on-
premise laundries, consisting primarily of in-house laundry facilities in
hotels, hospitals, nursing homes and prisons. The Company estimates that in
over 80% of the North American market its laundromat and on-premise laundry
distributors are either the number one or number two distributor for their
respective selling regions. In addition, the Company's in-house sales force has
developed superior relationships with leading route operators that own, install
and maintain commercial laundry equipment in multi-housing laundries, a
critical factor in enabling the Company to grow its market share.
Internationally, the Company sells its laundry equipment through distributors
and to retailers.
With an investment of over $70.0 million since 1994, the Company has
substantially completed the development of many new products, the redesign of
existing products and the modernization of its three manufacturing facilities
in Wisconsin, Florida and Kentucky. Since January 1, 1997, the Company has
introduced new product designs and new product models that comprise over 85% of
its current product offerings. The Company believes its considerable investment
in its product line and manufacturing capabilities has strengthened and will
continue to enhance its market leadership position.
1
INDUSTRY OVERVIEW
The Company estimates that North American stand alone commercial laundry
equipment sales were approximately $500.0 million in 1997, of which the
Company's equipment sales represented approximately $187.0 million. The Company
believes that North American sales of stand alone commercial laundry equipment
have grown at a compound annual rate of approximately 4.5% since 1993. North
American commercial laundry equipment sales historically have been relatively
insulated from business and economic cycles, given that economic conditions do
not tend to affect the frequency of use, or replacement, of laundry equipment.
Management believes industry growth will be sustained by continued population
expansion and by customers increasingly "trading up" to equipment with enhanced
functionality, raising average selling prices.
Manufacturers of stand alone commercial laundry equipment compete on their
ability to satisfy several customer criteria, including: (i) equipment
reliability and durability; (ii) performance criteria such as water and energy
efficiency, load capacity and ease of use; (iii) availability of innovative
technologies such as cashless payment systems and advanced electronic controls,
which improve ease of use and management audit capabilities; and (iv) value-
added services such as rapid spare parts delivery, equipment financing and
computer aided assistance in the design of commercial laundries.
COMPANY STRENGTHS
MARKET LEADER WITH SIGNIFICANT INSTALLED BASE. The Company believes it led
the North American industry in sales to all customer groups, with a 38% market
share overall in 1997. The Company's market share has increased progressively
during the last five years for each customer group. As a result of its leading
market position, the Company has achieved superior brand recognition and
extensive distribution capabilities. The Company's market position has also
allowed it to establish what it believes to be the largest installed base in
its industry, which generates a significant level of recurring sales of
replacement equipment and service parts and provides a platform for sales
growth.
INDUSTRY-LEADING PRODUCT OFFERING. The Company believes its product line
leads the industry in reliability, breadth of offerings, functionality and
advanced features. Its development team of more than 120 engineers and
technical personnel, together with its marketing and sales personnel, work with
the Company's major customers to redesign and enhance the Company's products to
better meet customer needs. For example, the Company has introduced since
January 1, 1997 new product designs and new product models that comprise over
85% of its current product offerings; the Company's new products emphasize
efficiency and new technology, facilitating ease of use as well as improving
performance and reliability. In addition, the Company believes it is the only
manufacturer in North America to produce a full product line (including
washers, dryers, washer-extractors and tumblers for all customer groups),
thereby providing customers with a single source for all their stand alone
commercial laundry equipment needs.
EXTENSIVE AND LOYAL DISTRIBUTION NETWORKS. The Company believes it has
developed the industry's most extensive North American distribution networks.
The Company estimates its distributors are either the number one or number two
distributor for their respective selling regions in over 80% of the North
American market. Most of the Company's distributors have been customers for
over ten years. In addition, through its in-house sales force the Company has
developed excellent relationships with industry-leading route operators, who
are direct customers of the Company. The Company believes its strong
relationships with its customers are based, in part, on the quality, breadth
and performance of its products and on its comprehensive value-added services.
LEADING NATIONAL BRANDS. The Company markets and sells its products under the
widely recognized brand names Speed Queen, UniMac and Huebsch. A survey
commissioned by the Company in 1993 of more than 1,000 commercial laundry
distributors and end-users ranked Speed Queen as the leader in terms of brand
awareness and as an industry leader for quality and reliability. In the same
study, UniMac was ranked a leading brand in the stand alone on-premise laundry
industry; Huebsch and Speed Queen ranked first and second, respectively, in
customer satisfaction.
2
STRONG AND INCENTIVIZED MANAGEMENT TEAM. Led by Chief Executive Officer
Thomas L'Esperance, the Company believes it has assembled the strongest
management team in the commercial laundry equipment industry. The Company's
seven executive officers have over 80 years of combined experience in the
commercial laundry equipment and appliance industries. This management team has
executed numerous strategic initiatives, including: (i) ongoing refinements to
its product offerings; (ii) the development of strategic alliances with key
customers; (iii) the implementation of manufacturing cost reduction and quality
improvement programs; and (iv) the acquisition and successful integration of
the commercial washer-extractor business of the UniMac Company ("UniMac"). In
addition, senior management (the "Management Investors") owns approximately 19%
of the Company on a diluted basis.
BUSINESS STRATEGY
The Company's strategy is to achieve profitable growth by offering a full
line of the most reliable and functional stand alone commercial laundry
equipment, along with comprehensive value-added services. The key elements of
the Company's strategy are as follows:
OFFER FULL LINE OF SUPERIOR PRODUCTS AND SERVICES. The Company seeks to
satisfy all of a customer's stand alone commercial laundry equipment needs with
its full line of products and services. The Company seeks to compete with other
manufacturers in the commercial laundry equipment industry by introducing new
products, features and value-added services tailored to meet evolving customer
requirements. In 1997, for example, the Company began field tests for a new
line of small-chassis frontload washers, offering multi-housing laundries
increased water and energy efficiency. In addition, in 1997, the Company
introduced its Automatic Balance System for topload washers, providing
industry-leading out-of-balance handling; Alliance's new topload washers
generate a higher g-force, thereby reducing moisture left in the laundry and
drying time, ultimately reducing operating costs for the Company's customers.
DEVELOP AND STRENGTHEN ALLIANCES WITH KEY CUSTOMERS. The Company has
developed and will continue to pursue long-term alliances and multi-year supply
agreements with key customers. The Company is the predominant supplier of new
laundry equipment to Coinmach Corporation ("Coinmach"), the largest and fastest
growing operator of multi-housing laundries in North America. Similarly, the
Company is the supplier of substantially all of the laundry equipment purchased
by SpinCycle, Inc. ("SpinCycle"), an emerging leader in the North American
laundromat industry.
CONTINUOUSLY IMPROVE MANUFACTURING OPERATIONS. The Company seeks to
continuously enhance its product quality and reduce costs through refinements
to manufacturing processes. The Company achieves such improvements through
collaboration among key customers and its engineering and marketing personnel.
Since 1995, the Company has progressively reduced manufacturing costs through
improvements in raw material usage and labor efficiency, among other factors.
These improvements are driven in part by the Company's goalsharing programs,
through which the Company's manufacturing teams share in a portion of the cost
reductions they achieve.
THE SPONSOR
Bain Capital, Inc. ("Bain"), founded in 1984, manages capital in excess of
$1.5 billion and has invested in more than 100 companies. Bain is one of the
most experienced and successful private equity investors in the United States,
and the firm's principals have extensive experience working with companies on a
wide range of operational challenges. Bain's investment strategy is to acquire
companies in partnership with excellent management teams and to improve the
long-term value of businesses. The firm typically invests in companies that are
market share leaders with strong strategic positions and significant
opportunities for growth.
3
THE TRANSACTIONS
On May 5, 1998 the Company completed the offering of the Notes (the
"Offering") and the recapitalization of the Parent (the "Recapitalization")
through (i) the Merger whereby, among other things, Bain/RCL, L.L.C., a
Delaware limited liability company ("Bain LLC"), the BRS Investors (as defined)
and the Management Investors (collectively with Bain LLC and the BRS Investors,
the "Securityholders") acquired 93% of the common equity of the Parent, of
which the Company is a direct wholly-owned subsidiary, and (ii) financings
whereby the Company entered into and borrowed under the Senior Credit Facility
and entered into a $250.0 million off-balance sheet receivables and equipment
financing facility (the "Asset Backed Facility"). In addition, simultaneously
with the consummation of each of the other Transactions, the Parent completed
the Parent Contribution (as defined).
The transactions contemplated by the Merger Agreement (as defined) were
funded by: (i) $200.0 million of term loan borrowings by the Company pursuant
to the Senior Credit Facility; (ii) the Offering, with aggregate gross proceeds
of $110.0 million (substantially all of the amounts in clauses (i) and (ii) was
distributed to the Parent to fund the Merger and related fees and expenses);
(iii) the issuance by the Parent of the Seller Subordinated Note (as defined)
to Raytheon, with a principal amount of $9.0 million; (iv) the issuance by the
Parent of the Seller Preferred Equity (as defined) to Raytheon with a
liquidation value of approximately $6.0 million; (v) an equity investment in
the Parent by the Securityholders of approximately $47.1 million (the
"Investors Equity Contribution"); and (vi) a retained equity investment in the
Parent by Raytheon with a fair market value of approximately $3.5 million (the
"Raytheon Equity"). The Offering, the Senior Credit Facility, the Investors
Equity Contribution, the Parent Contribution, the Merger, the Asset Backed
Facility and the issuance of the Seller Subordinated Note and the Seller
Preferred Equity are collectively referred to herein as the "Transactions."
Each of the Transactions was conditioned upon each of the others, and
consummation of each of the Transactions occurred simultaneously. See "The
Transactions."
----------------
The executive offices of the Company are located at Shepard Street, Ripon,
Wisconsin 54971-0990, and its telephone number is (920) 748-3121.
4
THE OFFERING
NOTES....................... The Notes were sold by the Issuers on May 5, 1998
to Lehman Brothers Inc. and Credit Suisse First
Boston Corporation (the "Initial Purchasers")
pursuant to a Purchase Agreement dated May 5,
1998 (the "Purchase Agreement"). The Initial
Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to a limited
number of institutional accredited investors that
agreed to comply with certain transfer
restrictions and other conditions.
EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT........... Pursuant to the Purchase Agreement, the Issuers
and the Initial Purchasers entered into a
Registration Rights Agreement dated May 5, 1998,
which grants the holder of the Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange rights
which terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $110,000,000 aggregate principal amount of 9 5/8%
Senior Subordinated Notes due 2008.
THE EXCHANGE OFFER.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Notes. As of the date hereof, $110,000,000
aggregate principal amount of Notes are
outstanding. The Issuers will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Issuers believe that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which
is an "affiliate" of either Alliance or ALC
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This
5
Offering Memorandum, as it may be amended or
supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange
for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Issuers have agreed that, for a
period of up to one year from the consummation of
the Exchange Offer, it will make this Offering
Memorandum available to any Participating Broker-
Dealer for use in connection with any such
resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Issuers.
EXPIRATION DATE............. 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE Each Exchange Note will bear interest from its
NOTES...................... issuance date. Holders of Notes that are accepted
for exchange will receive, in cash, accrued
interest thereon to, but not including, the
issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
CONDITIONS TO THE EXCHANGE The Exchange Offer is subject to certain
OFFER...................... customary conditions, which may be waived by the
Issuers. See "The Exchange Offer--Conditions."
PROCEDURES FOR TENDERING Each holder of Notes wishing to accept the
NOTES...................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Notes and any other required documentation to the
Exchange Agent (as defined) at the address set
forth herein. Delivery of the Notes may also be
made by book-entry transfer in accordance with
the procedures described below. Confirmation of
such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date. By
executing the Letter of Transmittal or effecting
delivery by book-entry transfer, each holder will
represent to the Issuers that, among other
6
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of either
Alliance or ALC. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and "--
Procedures for Tendering."
UNTENDERED NOTES............ Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who
do not tender their Notes will not have any
further exchange rights and such Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the
market for such Notes could be adversely
affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE...................
The Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only: (i)
to the Issuers; (ii) pursuant to Rule 144A or
Rule 144 under the Securities Act or pursuant to
some other exemption under the Securities Act;
(iii) outside the United States to a foreign
person pursuant to the requirements of Rule 904
under the Securities Act; or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
SHELF REGISTRATION If any holder of the Notes (other than any such
STATEMENT.................. holder which is an "affiliate" of either Alliance
or ALC within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of
such holder's Notes to the Issuers for use
therein, the Issuers have agreed to register the
Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practicable on or
after the consummation of the Exchange Offer. The
Issuers have agreed to maintain the continuous
effectiveness of the Shelf Registration Statement
for, under certain circumstances, a maximum of
two years, to cover resales of the Notes held by
any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes
in such owner's name or obtain a properly
completed bond
7
power from the registered holder. The transfer of
registered ownership may take considerable time.
The Issuers will keep the Exchange Offer open for
not less than twenty days in order to provide for
the transfer of registered ownership.
GUARANTEED DELIVERY Holders of Notes who wish to tender their Notes
PROCEDURES................. and whose Notes are not immediately available or
who cannot deliver their Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE The Issuers will accept for exchange any and all
NOTES...................... Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
USE OF PROCEEDS............. There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.............. United States Trust Company of New York.
THE EXCHANGE NOTES
GENERAL..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Notes (which
they replace) except that: (i) the Exchange Notes
bear a Series B designation; (ii) the Exchange
Notes have been registered under the Securities
Act and, therefore, will not bear legends
restricting the transfer thereof; and (iii) the
holders of Exchange Notes will not be entitled to
certain rights under the Exchange and
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer." The Exchange Notes will evidence
the same debt as the Notes and will be entitled
to the benefits of the Indenture. See
"Description of Exchange Notes." The Notes and
the Exchange Notes are referred to herein
collectively as the "Senior Subordinated Notes."
SECURITIES OFFERED.......... $110,000,000 aggregate principal amount of Series
B 9 5/8% Senior Subordinated Notes due 2008 of
the Issuers.
MATURITY DATE............... May 1, 2008.
INTEREST PAYMENT DATES...... May 1 and November 1, commencing November 1,
1998.
8
An Event of Default occurs under the Indenture in
EVENTS OF DEFAULT........... instances such as the failure to pay principal
when due, the failure to pay any interest within
30 days of when due and payable, the failure to
perform or comply with various covenants under
the Indenture or the default under the terms of
certain other indebtedness of the Company. See
"Description of Exchange Notes--Events of
Default."
OPTIONAL REDEMPTION......... The Exchange Notes will be redeemable at the
option of the Issuers, in whole or in part, at
any time on or after May 1, 2003, at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption. In
addition, at any time prior to May 1, 2001, the
Issuers may, in their discretion, redeem up to
35% of the aggregate principal amount of the
Notes issued under the Indenture at a redemption
price of 109.625% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date
of redemption, with the net cash proceeds of one
or more Equity Offerings, provided that at least
65% of the aggregate principal amount of the
Exchange Notes issued under the Indenture remains
outstanding immediately after each such
redemption. See "Description of the Exchange
Notes--Optional Redemption."
CHANGE OF CONTROL........... In the event of a Change of Control, holders of
the Notes will have the right to require the
Issuers to purchase their Notes, in whole or in
part, at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of purchase. At any time on or prior
to May 1, 2003, the Exchange Notes may also be
redeemed in whole, but not in part, at the option
of the Issuers, upon the occurrence of a Change
of Control (but in no event more than 90 days
after the occurrence of such Change of Control),
at a redemption price equal to 100% of the
principal amount thereof plus the Applicable
Premium as of, and accrued but unpaid interest
and Liquidated Damages thereon, if any, to, the
date of redemption (subject to the right of
holders on the relevant record date to receive
interest due on the relevant interest payment
date). See "Description of the Exchange Notes--
Repurchase at the Option of Holders--Change of
Control;--Optional Redemption."
RANKING..................... The Exchange Notes will be general unsecured
obligations of the Issuers, subordinate in right
of payment to all existing and future Senior Debt
of the Issuers, including all borrowings of the
Company and its subsidiaries under the Senior
Credit Facility. Concurrently with the Offering,
the Company entered into a new $275.0 million
Senior Credit Facility. As of May 5, 1998, after
consummation of the Transactions, including the
Offering, borrowings under the Senior Credit
Facility and application of the net proceeds
therefrom, the Company and its Subsidiaries had
$200.0 million of Senior Debt outstanding
(exclusive of $75.0 million available under the
Revolving Credit Facility which would also be
Senior Debt). See
9
"Capitalization," "Description of Senior Credit
Facility" and "Description of the Exchange
Notes--Subordination."
GUARANTEES..................
The Issuers' payment obligations under the
Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis (the
"Guarantees") by the Parent and each of the
Company's future direct and indirect Domestic
Subsidiaries (the "Guarantors"). The Exchange
Notes will not be guaranteed by any of the
Company's current direct and indirect Domestic
Subsidiaries or current or future Foreign
Subsidiaries (the "Non-Guarantor Subsidiaries").
For the fiscal year ended December 31, 1997, the
Non-Guarantor Subsidiaries accounted for 2.0% of
the Company's net sales and generated $2.1
million of EBITDA. The Guarantees will be
subordinated to the guarantees of Senior Debt
issued by the Guarantors under the Senior Credit
Facility. See "Description of the Exchange
Notes--Exchange Note Guarantees."
CERTAIN COVENANTS........... The indenture pursuant to which the Exchange
Notes will be issued (the "Indenture") will
contain certain covenants that, among other
things, limit the ability of the Company, its
Restricted Subsidiaries (as defined) and, with
respect to clause (i), any Guarantor to (i) incur
additional indebtedness and issue preferred
stock, (ii) pay dividends or make certain other
restricted payments, (iii) enter into
transactions with affiliates, (iv) make certain
asset dispositions, (v) merge or consolidate
with, or transfer all or substantially all of its
assets to, another Person (as defined), (vi)
encumber assets under certain circumstances,
(vii) restrict dividends and other payments from
Restricted Subsidiaries or (viii) engage in
certain business activities. See "Description of
the Exchange Notes--Certain Covenants." In
addition, under certain circumstances, the
Issuers will be required to offer to purchase the
Exchange Notes at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of purchase, with the proceeds of
certain Asset Sales (as defined). See
"Description of the Exchange Notes--Certain
Covenants;--Repurchase at the Option of Holders--
Asset Sales."
For additional information regarding the
Exchange Notes, see "Description of Exchange
Notes."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE EXCHANGE NOTES, SEE "RISK FACTORS."
10
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL AND OPERATING
DATA
The following table sets forth (i) summary historical combined financial data
of the Company for the four years ended December 31, 1997 and for the quarters
ended March 30, 1997 and March 29, 1998 and (ii) summary unaudited pro forma
combined financial data for the fiscal year ended December 31, 1997 and for the
quarter ended March 29, 1998. Since following the Transactions the Parent is a
holding company with no operations other than those of the Company and its
subsidiaries, the historical combined financial statements of the Parent
represent the historical results of operations of the Company. The summary
historical combined financial data for the four years ended December 31, 1997
were derived from the audited combined financial statements of the Company,
which for the three years ended December 31, 1997 are included elsewhere
herein, together with the report of Coopers & Lybrand, L.L.P., independent
accountants. The summary historical combined financial data of the Company for
the quarters ended March 30, 1997 and March 29, 1998 were derived from
unaudited financial statements that were prepared on the same basis as the
audited financial statements and that, in the opinion of management, include
normal recurring adjustments and adjustments necessary for a fair presentation
of the combined results of operations and financial condition of the Company as
it operated as a unit of Raytheon. The summary historical combined financial
data for the quarter ended March 29, 1998 are not necessarily indicative of the
results for the full year. The summary unaudited pro forma combined statements
of income and other operating data for the fiscal year ended December 31, 1997
and for the quarter ended March 29, 1998 give effect to the Transactions as if
each had occurred on January 1, 1997 and January 1, 1998, respectively. The
summary unaudited pro forma combined balance sheet data at March 29, 1998 give
effect to the Transactions as if each had occurred on March 29, 1998. The
summary unaudited pro forma combined financial data are intended for
informational purposes and should not be considered indicative of either future
results of operations or the results that might have occurred if the
Transactions had been consummated on the indicated date or had been in effect
for the period presented. The following table should be read in conjunction
with "Selected Historical Combined Financial Data," "Unaudited Pro Forma
Combined Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical combined financial
statements and the notes related thereto of the Company included elsewhere in
this Offering Memorandum.
PRO FORMA
YEARS ENDED DECEMBER 31, QUARTERS ENDED PRO FORMA QUARTER
----------------------------------- ------------------- YEAR ENDED ENDED
MARCH 30, MARCH 29, DECEMBER 31, MARCH 29,
1994 1995 1996 1997 1997 1998 1997(/1/) 1998(/1/)
-------- -------- -------- -------- --------- --------- ------------ ---------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME:
Net sales............... $267,445 $324,529 $318,263 $347,709 $80,475 $83,295 $346,546 $82,777
Cost of sales........... 208,543 259,272 246,017 263,932 61,881 63,945 263,932 63,945
-------- -------- -------- -------- ------- ------- -------- -------
Gross profit............ 58,902 65,257 72,246 83,777 18,594 19,350 82,614 18,832
Selling, general and
administrative expense. 29,782 35,360 34,464 41,070 9,128 10,580 41,940 10,763
Nonrecurring costs(/2/). -- 574 3,704 -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------- -------
Operating income....... 29,120 29,323 34,078 42,707 9,466 8,770 40,674 8,069
Other income, net....... 312 778 685 -- -- -- -- --
Interest expense........ -- -- -- -- -- -- 31,287 7,662
-------- -------- -------- -------- ------- ------- -------- -------
Income before taxes..... 29,432 30,101 34,763 42,707 9,466 8,770 9,387 407
Provision for income
taxes(/3/)............. 11,265 11,545 13,408 16,431 3,643 3,385 -- --
-------- -------- -------- -------- ------- ------- -------- -------
Net income.............. $ 18,167 $ 18,556 $ 21,355 $ 26,276 $ 5,823 $ 5,385 $ 9,387 $ 407
======== ======== ======== ======== ======= ======= ======== =======
11
PRO FORMA
YEARS ENDED DECEMBER 31, QUARTERS ENDED PRO FORMA QUARTER
----------------------------------- -------------------- YEAR ENDED ENDED
MARCH 30, MARCH 29, DECEMBER 31, MARCH 29,
1994 1995 1996 1997 1997 1998 1997(/1/) 1998(/1/)
------- ------- ------- -------- --------- --------- ------------ ---------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
OTHER OPERATING DATA:
EBITDA(/4/)............. $37,573 $41,522 $49,612 $ 57,152 $ 12,466 $ 12,497 $ 55,119 $ 11,796
EBITDA Margin(/5/)...... 14.0% 12.8% 15.6% 16.4% 15.5% 15.0% 15.9% 14.3%
Adjusted EBITDA(/6/).... $ -- $ -- $ -- $ -- $ -- $ -- $ 54,485 $ --
Adjusted EBITDA
margin(/7/)............ -- % -- % -- % -- % -- % -- % 15.9% -- %
Cash interest
expense(/8/)........... $ -- $ -- $ -- $ -- $ -- $ -- $ 28,632 $ 7,067
Depreciation and
amortization........... 8,141 10,847 11,145 14,445 3,000 3,727 14,445 3,727
Capital
expenditures(/9/)...... 11,579 16,177 22,030 22,623 7,949 1,457 22,623 1,457
Ratio of EBITDA to cash interest expense................. -- -- 1.9x 1.7x
Ratio of Adjusted EBITDA to cash interest expense........ -- -- 1.9x --
Ratio of earnings to fixed charges(/1//0/)............... -- -- 1.3x 1.1x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................. $ 15,434 $ 13,205 $ 5,325
Total assets.................................... 193,257 182,982 190,248
Total debt...................................... -- -- 315,146
Parent company investment/(members' deficit).... 148,573 135,824 (166,008)
- -------
(1) See "Unaudited Pro Forma Combined Financial Data."
(2) Nonrecurring costs associated primarily with reductions in work force. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
(3) Subsequent to the consummation of the Transactions, the Company will not
be a tax paying entity. Historical amounts represent the Company's tax
attributes as a division of Raytheon as calculated on a separate return
basis. See "Unaudited Pro Forma Combined Financial Data."
(4) "EBITDA," as presented, represents income before income taxes plus
depreciation and amortization, interest expense and nonrecurring costs (as
described above). EBITDA is included because management believes that such
information provides an additional basis for evaluating the Company's
ability to pay interest, repay debt and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating
performance as determined in accordance with generally accepted accounting
principles, including net income as a measure of the Company's operating
results and cash flows as a measure of the Company's liquidity. Because
EBITDA is not calculated identically by all companies, the presentation
herein may not be comparable to other similarly titled measures of other
companies.
(5) Represents EBITDA as a percentage of net sales.
(6) Adjusted EBITDA is calculated by adding to EBITDA (as described above)
certain items of income and expense primarily related to the Appliance Co.
Transaction (as defined) including: (i) the impact of lower contractual
selling prices for sales of consumer topload washers to Appliance Co.
compared to sales of such washers to Raytheon's consumer appliance
business prior to the Appliance Co. Transaction; (ii) the elimination of
one time transition costs; and (iii) the elimination of costs incurred by
the Company prior to the Appliance Co. Transaction that would have been
reimbursed by Appliance Co. under the terms of the Appliance Co. Supply
Agreement (as defined). See Supplemental Adjustments in the Unaudited Pro
Forma Combined Statements of Income for additional disclosure regarding
these adjustments. Adjusted EBITDA should not be considered an alternative
to measures of operating performance as determined in accordance with
generally accepted accounting principles, including net income as a
measure of the Company's operating results and cash flows as a measure of
the Company's liquidity. Because Adjusted EBITDA is not calculated
identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(7) Represents Adjusted EBITDA as a percentage of pro forma as adjusted net
sales.
(8) Cash interest expense represents pro forma interest expense less
amortization of deferred financing costs.
(9) Excludes purchases of assets related to the November 1994 acquisition of
the business of UniMac. For each of the four years ended December 31,
1997, capital expenditures excluding those relating to major new products,
significant product redesigns and major capacity additions would have been
less than $10.0 million.
(10) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest
expense on all indebtedness and the estimated interest portion of rental
expense.
12
RISK FACTORS
Holders of the Notes should carefully consider the risk factors set forth
below, as well as the other information appearing elsewhere in this Offering
Memorandum, before tendering their Notes in the Exchange Offer.
Certain statements, estimates, predictions and projections contained herein
under "Offering Memorandum Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
in addition to certain statements contained elsewhere herein, are "forward-
looking statements" within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. These forward-looking statements are
prospective, involving risks and uncertainties. While these forward-looking
statements, and any assumptions upon which they are based, are made in good
faith and reflect the Company's current judgment regarding the direction of
its business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Some important factors (but not necessarily all
factors) that could affect the Company's revenues, growth strategies, future
profitability and operating results, or that otherwise could cause actual
results to differ materially from those expressed in or implied by any
forward-looking statement, include the following: lack of operating history as
an independent public company; inability to enter into and borrow under the
Senior Credit Facility; ability to successfully implement operating
strategies; working capital adjustments; payments pursuant to indemnification
arrangements; changes in economic conditions; competition; regulatory
difficulties; and the other matters referred to herein or elsewhere in this
Offering Memorandum. Holders of the Notes are urged to carefully consider
these factors in connection with the forward-looking statements. The Company
does not undertake to release publicly any revisions to forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RISKS RELATING TO THE NOTES
Substantial Leverage
The Company incurred significant debt in connection with the Transactions.
As of May 5, 1998, the Company had outstanding indebtedness of $310.0 million,
including $200.0 million drawn under the Term Loan Facility and $110.0 million
of the Notes, and had a significant members' deficit. In addition, the Company
had available borrowings of up to $75.0 million under the Revolving Credit
Facility. In addition, subject to restrictions in the Senior Credit Facility
and the Indenture, the Company may incur additional indebtedness from time to
time to finance acquisitions or capital expenditures. For the year ended
December 31, 1997, after giving pro forma effect to the Transactions, the
Company's ratio of earnings to fixed charges would have been 1.3 to 1.
The Company's ability to make scheduled payments of principal of, or to pay
the premium, if any, interest or Liquidated Damages, if any, on, or to
refinance, its indebtedness (including the Exchange Notes), or to fund planned
capital expenditures will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations and certain anticipated improvements,
management believes that cash flow from operations and available cash,
together with available borrowings under the Senior Credit Facility, will be
adequate to meet the Company's future liquidity needs for at least the next
several years. There can be no assurance, however, that the Company's business
will generate sufficient cash flow from operations, that anticipated revenue
growth and operating improvements will be realized or that future borrowings
will be available under the Senior Credit Facility in an amount sufficient to
enable the Company to service its indebtedness, including the Exchange Notes,
or to fund its other liquidity needs. The Company may be required to refinance
all or a portion of the principal of the Exchange Notes on or prior to
maturity. There can be no assurance, however, that such refinancing would be
available on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
13
The degree to which the Company has been leveraged following the
Transactions could have important consequences to holders of the Exchange
Notes, including, but not limited to: (i) making it more difficult for the
Company to satisfy its obligations with respect to the Exchange Notes; (ii)
increasing the Company's vulnerability to general adverse economic and
industry conditions; (iii) limiting the Company's ability to obtain additional
financing to fund future working capital, capital expenditures, research and
development and other general corporate requirements; (iv) requiring the
dedication of a substantial portion of the Company's cash flow from operations
to the payment of principal of, and interest on, its indebtedness, thereby
reducing the availability of such cash flow to fund working capital, capital
expenditures, research and development or other general corporate purposes;
(v) limiting the Company's flexibility in planning for, or reacting to,
changes in its business and the industry in which it competes; and (vi)
placing the Company at a competitive disadvantage compared to less leveraged
competitors. In addition, the Indenture and the Senior Credit Facility contain
financial and other restrictive covenants that limit the ability of the
Company to, among other things, borrow additional funds. Failure by the
Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company's business, financial condition and results of operations. If the
Company cannot generate sufficient cash to meet its obligations as they become
due or refinance such obligations, the Company may have to sell assets or
reduce capital expenditures. In addition, the degree to which the Company is
leveraged could prevent it from repurchasing all of the Exchange Notes
tendered to it upon the occurrence of a Change of Control. See "Description of
Senior Credit Facility" and "Description of the Exchange Notes--Repurchase at
the Option of Holders--Change of Control."
Subordination of the Exchange Notes; Guarantees
The Exchange Notes will be contractually subordinated to all Senior Debt
including all obligations under the Senior Credit Facility. Upon any
distribution to creditors of the Company in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, the holders of
Senior Debt will be entitled to be paid in full in cash before any payment may
be made with respect to the Exchange Notes. In addition, the subordination
provisions of the Indenture will provide that payments with respect to the
Exchange Notes can be blocked in the event of defaults on Designated Senior
Debt (as defined). In the event of a bankruptcy, liquidation or reorganization
of the Company, holders of the Notes will participate ratably with all holders
of subordinated indebtedness of the Company that is deemed to be of the same
class as the Exchange Notes, and potentially with all other general creditors
of the Company, based upon the respective amounts owed to each holder or
creditor, in the remaining assets of the Company. In any of the foregoing
events, there can be no assurance that there would be sufficient assets to pay
amounts due on the Exchange Notes. As a result, holders of the Exchange Notes
may receive less, ratably, than holders of Senior Debt. At May 5, 1998, after
giving effect to the Transactions, the aggregate amount of consolidated
indebtedness and other liabilities to which the Exchange Notes were
subordinated was approximately $200.0 million, consisting of secured
borrowings under the Term Loan Facility. In addition, the Company had
available borrowings of up to $75.0 million under the Revolving Credit
Facility, all of which would constitute Senior Debt. Subject to certain
limitations, the Indenture will permit the Company to incur additional
indebtedness. Substantially all of the assets of the Company will or may in
the future be pledged to secure other indebtedness of the Company or its
Subsidiaries. See "The Transactions," "Description of Senior Credit Facility"
and "Description of the Exchange Notes--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Issuers' payment obligations under the Exchange Notes will be jointly
and severally guaranteed on a senior subordinated basis by the Parent and each
of the Company's future direct and indirect domestic subsidiaries. The
Exchange Notes will not be guaranteed by any of the Company's current direct
and indirect domestic subsidiaries or current or future foreign subsidiaries.
For the fiscal year ended December 31, 1997, the Non-Guarantor Subsidiaries
accounted for 2.0% of the Company's net sales and generated $2.1 million of
EBITDA . The Guarantees will be subordinated to the guarantees of Senior Debt
issued by the Guarantors under the Senior Credit Facility. Additionally, the
Company's payment obligations under the Notes will be structurally
subordinated to indebtedness of the Company's subsidiaries. See "Description
of the Exchange Notes--Subordination;--Exchange Note Guarantees."
14
Restrictions Imposed by the Senior Credit Facility and the Indenture
The Senior Credit Facility requires the Company to maintain specified
financial ratios and tests, among other obligations, including a minimum
interest coverage ratio and a maximum leverage ratio. In addition, the Senior
Credit Facility contains affirmative and negative covenants customary for
financings of that type, including, among other things, limitations on the
Company's ability to incur additional indebtedness and make acquisitions and
capital expenditures. A failure to comply with such covenants could lead to an
event of default thereunder, which could result in an acceleration of such
indebtedness. Such an acceleration would constitute an event of default under
the Indenture relating to the Exchange Notes. If an event of default exists on
Designated Senior Debt, subordination provisions in the Indenture may restrict
payments to holders of the Exchange Notes until holders of Senior Debt are
paid in full or such default is cured or waived or has ceased to exist. In
addition, the Indenture restricts, among other things, the Company's ability
to incur additional indebtedness, sell assets, create liens or other
encumbrances, make certain payments and dividends or merge or consolidate. A
failure to comply with the restrictions in the Indenture could result in an
event of default under the Indenture. See "Description of Senior Credit
Facility" and "Description of the Exchange Notes--Certain Covenants."
Fraudulent Transfer
A significant portion of the net proceeds of the Offering were paid as a
dividend to the Parent and used to consummate the Merger. Under applicable
provisions of the United States Bankruptcy Code or comparable provisions of
state fraudulent transfer or conveyance laws, if the Company, at the time it
issued the Notes, (i) incurred such indebtedness with intent to hinder, delay
or defraud creditors or (ii)(a) received less than reasonably equivalent value
or fair consideration for incurring such indebtedness and (b)(1) was insolvent
at the time of incurrence, (2) was rendered insolvent by reason of such
incurrence (and the application of the proceeds thereof), (3) was engaged or
was about to engage in a business or transaction for which the assets
remaining with the Company constituted unreasonably small capital to carry on
its businesses or (4) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they mature, then, in each case,
a court of competent jurisdiction could void, in whole or in part, the Notes,
or, in the alternative, subordinate the Notes to existing and future
indebtedness of the Company. The measure of insolvency for purposes of the
foregoing will vary depending upon the law applied in such case. Generally,
however, the Company would be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than all of its assets at fair
valuation or if the present fair saleable value of its assets was less than
the amount that would be required to pay the probable liability on its
existing debts, including contingent liabilities, as they become absolute and
matured. The Company believes that, for purposes of all such insolvency,
bankruptcy and fraudulent transfer or conveyance laws, the Notes were issued
without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith and that the Company, after the issuance of the
Notes and the application of the proceeds thereof, was solvent, will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with the Company's view.
Limitations on Change of Control
In the event of a Change of Control, the Issuers will be required to make an
offer for cash to repurchase the Exchange Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, and Liquidated Damages, if
any, thereon to the repurchase date. The provisions of the Indenture may not,
however, afford holders of the Exchange Notes protection in the event of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders of
Exchange Notes, if such transaction does not result in a Change of Control. A
Change of Control will result in an event of default under the Senior Credit
Facility and may result in a default under other indebtedness of the Company
that may be incurred in the future. The Senior Credit Facility will prohibit
the purchase of outstanding Exchange Notes prior to repayment of the
borrowings under the Senior Credit Facility, and any exercise by the holders
of the Exchange Notes of their right to require the Issuers to repurchase the
Exchange Notes will cause an event of default under the Senior Credit
Facility. In addition, prior to repurchasing the Exchange Notes upon
15
a Change of Control, the Company must either repay all outstanding
indebtedness under the Senior Credit Facility or obtain the consent of the
lenders. If the Company does not obtain such consent or repay its outstanding
indebtedness under the Senior Credit Facility, the Company would remain
effectively prohibited from offering to purchase the Exchange Notes. Finally,
there can be no assurance that the Company will have the financial resources
necessary or be able to arrange financing to repay obligations under the
Senior Credit Facility and the Indenture or to repurchase the Exchange Notes
upon a Change of Control. See "Description of the Exchange Notes--Repurchase
at the Option of Holders--Change of Control."
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has been no public market for the Notes.
The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. The holders of Notes (other than any such holder that is
an "affiliate" of either Alliance or ALC within the meaning of Rule 405 under
the Securities Act) who are not eligible to participate in the Exchange Offer
are entitled to certain registration rights, and the Issuers are required to
file a Shelf Registration Statement with respect to such Notes. The Exchange
Notes are new securities for which there currently is no market. The Exchange
Notes are eligible for trading by qualified buyers in the Private Offerings,
Resale and Trading though Automated Linkages (PORTAL) market. The Issuers do
not intend to apply for listing of the Exchange Notes on any securities
exchange or for quotation through the National Association of Securities
Dealers Automated Quotation System. Although the Exchange Notes are eligible
for trading through PORTAL, the Exchange Notes may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar securities, the Company's performance and other factors.
The Issuers have been advised by the Initial Purchasers that they currently
intend to make a market in the Exchange Notes as permitted by applicable law
and regulations; however, the Initial Purchasers are not obligated to do so
and any such market-making activities, if commenced, may be discontinued at
any time without notice. In addition, such market-making activities may be
limited during the Exchange Offer and pendency of the Shelf Registration
Statement. Therefore, there can be no assurance that an active market for any
of the Exchange Notes will develop, either prior to or after the Issuers'
performance of their obligations under the Registration Rights Agreement. See
"Description of the Exchange Notes."
The Exchange Notes generally will be permitted to be resold or otherwise
transferred (subject to the restrictions described under "Description of
Exchange Notes") by each holder without the requirement of further
registration. The Exchange Notes, however, will also constitute a new issue of
securities with no established trading market. The Exchange Offer will not be
conditioned upon any minimum or maximum aggregate principal amount of Notes
being tendered for exchange. No assurance can be given as to the liquidity of
the trading market for the Exchange Notes, or, in the case of non-exchanging
holders of Notes, the trading market for the Notes following the Exchange
Offer.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such
liquidity and trading markets independently of the financial performance of,
and prospects for, the Company.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Issuers of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Issuers are under no duty to give notification of
defects or irregularities with respect to the tenders of Notes for exchange.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange
16
Offer, certain registration rights under the Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Notes could be adversely
affected. See "The Exchange Offer."
COMPANY-SPECIFIC RISKS
Appliance Co. Transaction
The Company has mutual supply agreements with Appliance Co. that terminate
in 1999 (subject to certain extension rights). Pursuant to such agreements,
(i) the Company purchases commercial small-chassis frontload washers and
dryers from Appliance Co.'s Searcy, Arkansas facility and (ii) Appliance Co.
purchases consumer topload washers from the Company's Ripon, Wisconsin
facility (the "Appliance Co. Supply Agreement"). Consumer topload washers sold
to Appliance Co. currently comprise a substantial percentage of the unit
volume of the Ripon facility and represented approximately 22% of 1997 net
sales. Upon the termination of the Appliance Co. Supply Agreement, the Company
will experience a significant decline in unit volume. This volume decline may
result in an increase in the Company's average cost per unit, due to, among
other factors, unabsorbed manufacturing overhead, reduced raw materials
purchasing scale and reduced manufacturing efficiency. See "--Ripon
Transition" and "Business--Ripon Transition;--Appliance Co. Transaction."
The Company relies on Appliance Co. to supply it with commercial small-
chassis frontload washers and dryers and will continue to rely on Appliance
Co. until the Company has established manufacturing capability for such
products at the Ripon facility (expected to be September 1998 and 1999 for
frontload washers and dryers, respectively). Products sourced from Appliance
Co. represented 9% of the Company's 1997 net sales. In the event Appliance Co.
is unable or unwilling to continue to manufacture commercial small-chassis
frontload washers and dryers for the Company, it could have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that Appliance Co. will continue to
supply products that are consistent with the Company's standards or that any
disagreements will not result therefrom. In this regard, the Company has
occasionally received and may in the future receive shipments of products from
Appliance Co. that fail to conform with the Company's quality control
standards. In such event, the Company risks the loss of revenue from the sale
of such frontload washers and dryers. The failure of Appliance Co. to supply
frontload washers and dryers that conform to the Company's standards could
have a material adverse effect on the Company's business, financial condition
and results of operations, as well as on its reputation in the marketplace.
See "Ripon Transition" and "Business--Ripon Transition." For a discussion of
pending litigation with Appliance Co., see "Business--Appliance Co.
Transaction."
Ripon Transition
The Company expects to establish manufacturing capability at the Ripon
facility for commercial small-chassis frontload washers by September 1998 and
for dryers by September 1999. Full implementation of the Company's plan to
introduce small-chassis frontload washer and dryer production and to cease
production of consumer topload washers for Appliance Co. is expected to
require aggregate capital expenditures of approximately $13.0 million in 1998
and 1999 and result in aggregate nonrecurring expenses (such as plant
reconfiguration expenses, severance expenses and manufacturing start-up
expenses) of approximately $5.0 million in 1998 and 1999. There can be no
assurance, however, that the reconfiguration of the Ripon plant will be
completed on time or will not exceed estimated costs. In addition, there can
be no assurance that the Ripon plant will not experience any production
problems once reconfiguration is completed and frontload washer and
17
dryer production begins. To the extent that such transition is not completed
in a timely manner or within expected costs or to the extent that production
problems occur, it could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Ripon
Transition;--Appliance Co. Transaction."
Dependence Upon Significant Customers
The Company's top ten equipment customers (excluding Appliance Co.)
accounted for approximately 27% of 1997 net sales, of which no single customer
accounted for more than 8% of net sales for such period. While the Company
believes its relationships with such customers are stable, many arrangements
are by purchase order and are terminable at will at the option of either
party. In addition, Appliance Co. accounted for 22% of 1997 net sales. The
Company's business also depends upon the financial viability of its customers.
A significant decrease or interruption in business from the Company's
significant customers could result in loss of future business and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Appliance Co. Transaction," "Business--Appliance
Co. Transaction."
Possible Fluctuations in the Cost of Raw Materials; Possible Loss of
Suppliers
The major raw materials and components the Company purchases for its
production process are motors, stainless steel, aluminum, electronic controls,
corrugated boxes and plastics; in addition, the Company externally sources
finished frontload washers and dryers from Appliance Co. The price and
availability of these raw materials and components are subject to market
conditions affecting supply and demand. Raw material costs increased
significantly in 1995 due to increases in commodity prices and as a result of
such increase, the 1995 results of the Company were adversely affected. There
can be no assurance that increases in raw material or component costs (to the
extent the Company is unable to pass on such higher costs to customers) or
future price fluctuations in raw materials will not have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that the loss of suppliers
or a significant delay in the supply of externally manufactured finished goods
from Appliance Co. or of components would not have a material adverse effect
on the Company's business, financial condition and results of operations. See
"--Appliance Co. Transaction," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Manufacturing."
Competition
Within the North American stand alone commercial laundry equipment industry,
the Company competes with several large competitors. With respect to
laundromats, the Company's principal competitors include Wascomat (the
exclusive North American distributor of Electrolux AB products), Maytag
Corporation and The Dexter Company. In multi-housing, key competitors include
Maytag Corporation and Whirlpool Corporation. In on-premise laundry, the
Company competes primarily with Pellerin Milnor Corporation, American Dryer
Corporation and Wascomat. There can be no assurance that significant new
competitors or increased competition from existing competitors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Certain of the Company's principal competitors have greater financial
resources and/or are less leveraged than the Company and may be better able to
withstand market conditions within the commercial laundry industry. There can
be no assurance that the Company will not encounter increased competition in
the future, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Competition."
Absence of Recent Independent Operating History
The Company has benefited in the past from Raytheon's procurement leverage
with respect to insurance selection, travel services, telecommunications and
computer hardware and operating systems, audit, tax, banking
18
and legal services and retirement/benefits plan selection. No long-term
agreement exists or is contemplated between Raytheon and the Company for the
supply of such services subsequent to the consummation of the Transactions.
While management believes the Company will be able to procure adequate
replacement services from third-party suppliers, there can be no assurance
that such services will be obtained at favorable prices. As part of the
Transactions, the Company and Raytheon entered into a transition services
agreement pursuant to which Raytheon will continue to provide the Company with
certain of such services for a period of at least 90 days after the closing of
the Transactions. See "Certain Relationships and Related Transactions--
Transition Services Agreement."
Foreign Sales Risk
Sales of equipment to international customers represented approximately
13.0% of 1997 net sales and may increase in the future. Demand for the
Company's products are and may be affected by economic and political
conditions in each of the countries in which it sells its products and by
certain other risks of doing business abroad, including fluctuations in the
value of currencies (which may affect demand for products priced in United
States dollars), import duties, changes to import and export regulations
(including quotas), possible restrictions on the transfer of funds, labor or
civil unrest, long payment cycles, greater difficulty in collecting accounts
receivable and the burdens and cost of compliance with a variety of foreign
laws. Changes in policies by foreign governments could result in, for example,
increased duties, higher taxation, currency conversion limitations, or
limitations on imports or exports, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Risks Relating to Asset Backed Facility
The Company offers an extensive financing program to end-users, primarily
laundromat owners, to assist in their purchases of new equipment from the
Company's distributors or, in the case of route operators, from the Company.
Typical terms include 2-7 year loans with an average principal amount of
approximately $50,000. At the Closing, the Company entered into a five year
Asset Backed Facility to finance both new equipment loans as well as the
future sale of trade receivables through off-balance sheet bankruptcy remote
subsidiaries (the "Financing Subsidiaries"). A significant increase in the
cost of funding the Financing Subsidiaries could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, if certain limits in the size of the Asset Backed
Facility are reached (either overall size or certain sublimits), additional
indebtedness may be required to fund the financing programs. The Company's
inability to incur such indebtedness to fund the financing programs could
result in the loss of sales and have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Significant Transactions--Equipment Financing Program,"
"Business--Sales and Marketing--Equipment Financing" and "Description of Asset
Backed Facility."
Dependence on Key Personnel
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an
orderly fashion should the need arise, the loss of such key personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management--Directors and Executive Officers."
Labor Relations
Approximately 634 of the Company's employees at its Wisconsin facilities are
represented by The United Steel Workers of America. The Company is
periodically in negotiations with The United Steel Workers of America, and the
collective bargaining agreement covering employees at its Wisconsin facilities
expires in February 1999. Although the Company expects to renew the existing
agreement or negotiate a new agreement without a work stoppage, there can be
no assurance that the Company can successfully negotiate a new
19
agreement or that work stoppages by certain employees will not occur. Any such
work stoppages could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company believes
that its relations with its union employees are generally satisfactory, there
can be no assurance that the Company will not at some point be subject to work
stoppages by some of its employees and, if such events were to occur, that
there would not be a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Employees."
Computer System; Year 2000 Issue
The Company is evaluating the extent to which its computer operating systems
will be disrupted upon the turn of the century as a result of the widely-known
dating system flaw inherent in most operating systems (the "Year 2000 Issue").
While the Company believes that new software being installed into its computer
system will address the Year 2000 Issue, there can be no assurance that the
new software will be installed in time to remedy the Year 2000 Issue, that the
Company's computer operating systems will not be disrupted upon the turn of
the century or that such modifications will not require unanticipated capital
expenditures. Any such disruption, whether caused by the Company's systems or
those of any of its suppliers or customers, could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Controlling Shareholders
The Securityholders beneficially own substantially all of the outstanding
membership interests of the Parent and collectively control the affairs and
policies of the Company, including the ability to amend the Company's
Certificate of Formation and the LLC Agreement (as defined). Circumstances may
occur in which the interests of the Securityholders could be in conflict with
the interests of the holders of the Exchange Notes. In addition, the
Securityholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders
of the Notes. See "Security Ownership."
Environmental, Health and Safety Requirements
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of wastewater and storm water and the
disposal of solid and hazardous wastes. The Company is also subject to
liability for the investigation and remediation of environmental contamination
(including contamination caused by other parties) at the properties it owns or
operates and at other properties where the Company or predecessors have
arranged for the disposal of hazardous substances. As a result, the Company is
involved, from time to time, in administrative and judicial proceedings and
inquiries relating to environmental matters. There can be no assurance that
the Company will not be involved in such proceedings in the future and that
the aggregate amount of future clean-up costs and other environmental
liabilities will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Environmental
Liabilities" and "Business--Environmental, Health and Safety Matters."
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect
the demand for, the Company's products. The Company cannot predict the
environmental liabilities that may result from legislation or regulations
adopted in the future, the effect of which could be retroactive. Nor can the
Company predict how existing or future laws and regulations will be
administered or interpreted or what environmental conditions may be found to
exist at the Company's facilities or at other properties where the Company or
its predecessors have arranged for the disposal of hazardous substances. The
enactment of more stringent laws or regulations or stricter interpretation of
existing laws and regulations could require expenditures by the Company, some
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Environmental,
Health and Safety Matters."
20
Pursuant to the Merger Agreement, and subject to certain time and dollar
limitations, Raytheon has agreed to indemnify the Company for environmental
liabilities arising from the operations of the Company and its predecessors
prior to the Merger. In addition to the Raytheon indemnification, with respect
to the Marianna, Florida facility, a former owner of the property has agreed
to indemnify the Company for certain environmental liabilities. In the event
that Raytheon or the former owner fail to honor their respective obligations
under these indemnifications, such liabilities could be borne directly by the
Company and could have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on Trademarks and Other Intellectual Property
The Company holds numerous United States and foreign trademarks that
management believes have significant value and are important in the marketing
of its products to customers. The Company owns numerous United States and
foreign patents and has patent applications pending in the United States and
abroad. In addition, the Company owns United States (federal and state) and
foreign registered trade names and service marks and has applications for the
registration of trade names and service marks pending in the United States and
abroad. The Company also owns several United States copyright registrations
and a wide array of unpatented proprietary technology and know-how. Further,
the Company licenses certain intellectual property rights from third parties.
The Company's ability to compete effectively with other companies depends,
to a significant extent, on its ability to maintain the proprietary nature of
its owned and licensed intellectual property. Although the Company's
trademarks are currently registered with the United States Patent and
Trademark Office and in all 50 states and are registered or have applications
pending in 58 foreign countries, there can be no assurance that the Company's
trademarks cannot be circumvented, do not or will not violate the proprietary
rights of others or that the Company would not be prevented from using its
trademarks if challenged. Any challenge to the Company for its use of its
trademarks could have a material adverse effect on the Company's business,
financial condition and results of operations, as a result of either a
negative ruling with regard to the Company's use, validity or enforceability
of its trademarks or because of the time consumed and the legal costs of
defending against such a claim. In addition, there can be no assurance that
the Company will have the financial resources necessary to enforce or defend
its trademarks. In addition, there can be no assurance as to the degree of
protection offered by the various patents, the likelihood that patents will be
issued for pending patent applications or, with regard to the licensed
intellectual property, that the licenses will not be terminated. If the
Company were unable to maintain the proprietary nature of its intellectual
property, such loss could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Patents and Trademarks."
21
THE TRANSACTIONS
OVERVIEW
On May 5, 1998, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") among Bain LLC, RCL Acquisitions, L.L.C., a Delaware limited
liability company ("MergeCo"), the Parent and Raytheon, MergeCo was merged
with and into the Parent (the "Merger") with the Parent being the surviving
entity. Prior to the Merger, Raytheon owned 100% of the equity securities of
the Parent and Bain LLC, the BRS Investors and the Management Investors owned
100% of the equity securities of MergeCo. As a result of the Merger (i)
Raytheon's limited liability company interest in the Parent was converted into
the right to receive (a) an aggregate amount of cash equal to $339.5 million,
subject to pre-closing and post-closing adjustments (which at Closing were
estimated to result in a reduction of $24.8 million, substantially all of
which was due to working capital levels) (b) a Junior Subordinated Promissory
Note from the Parent in the original principal amount of $9.0 million which
matures in 2009 (the "Seller Subordinated Note"), (c) preferred membership
interests of the Parent with a liquidation value of approximately $6.0 million
which are mandatorily redeemable in 2009 (the "Seller Preferred Equity") and
(d) Common Units (as defined) of the Parent representing 7% of the total
common membership interests of the Parent and (ii) Bain LLC's, the BRS
Investors' and the Management Investors' limited liability company interests
in MergeCo were converted into the right to receive up to 93% of the total
common membership interests of the Parent. Pursuant to the Merger Agreement,
immediately following the Merger, the corporate name of the Parent was changed
to "Alliance Laundry Holdings LLC."
The Merger Agreement contains various other provisions customary for
transactions of this size and type, including representations and warranties
with respect to the condition and operations of the business, covenants with
respect to the conduct of the business prior to the Closing (as defined) and
various closing conditions.
The transactions contemplated by the Merger Agreement were funded by: (i)
$200.0 million of term loan borrowings by the Company pursuant to the Senior
Credit Facility; (ii) the Offering, with aggregate gross proceeds of $110.0
million (substantially all of the amounts in clauses (i) and (ii) were
distributed to the Parent to fund the Merger and related fees and expenses);
(iii) the issuance by the Parent of the Seller Subordinated Note to Raytheon
in the original principal amount of $9.0 million; (iv) the issuance by the
Parent of the Seller Preferred Equity with a liquidation value of
approximately $6.0 million; (v) the Investors Equity Contribution; and (vi)
the Raytheon Equity. Each of the Transactions was conditioned upon
consummation of each of the others, and consummation of each of the
Transactions occurred simultaneously.
Simultaneous with the consummation of each of the other Transactions (the
"Closing"), the Parent contributed (the "Parent Contribution") substantially
all of its assets and liabilities to the Company. Immediately after the
consummation of the Transactions, the Company became the only direct
subsidiary of the Parent and succeeded to substantially all of the assets and
liabilities of the Parent.
SENIOR CREDIT FACILITY
In connection with the Transactions, the Company entered into a credit
agreement (the "Senior Credit Facility") with a syndicate of financial
institutions (the "Lenders") for which Lehman Brothers Inc. acted as arranger
and Lehman Commercial Paper Inc. acted as syndication agent. The Senior Credit
Facility is comprised of a term loan facility aggregating $200.0 million (the
"Term Loan Facility") and a $75.0 million revolving credit facility (the
"Revolving Credit Facility"), which was made available in conjunction with the
issuance of the Notes. The Term Loan Facility requires no principal payments
during the first two years and amortizes at the rate of $1.0 million per year
for years three through five, $40.0 million for year six and $157.0 million
for year seven. The borrowings under the Term Loan Facility, together with the
aggregate gross proceeds from the issuance of the Notes and from the Investors
Equity Contribution, were used to consummate the Merger and pay fees and
expenses in connection with the Transactions. In addition, the Revolving
Credit Facility provides financing for future working capital and other
general corporate purposes. See "Description of Senior Credit Facility."
22
ASSET BACKED FACILITY
In connection with the Transactions, the Company, through the Financing
Subsidiaries, entered into a $250.0 million Asset Backed Facility to finance
trade receivables and notes receivable related to equipment loans. The Company
offers equipment financing to end-users of its commercial laundry equipment to
assist in their purchases of new equipment from the Company's distributors or,
in the case of route operators, from the Company. See "Description of Asset
Backed Facility."
23
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer. The sources and uses of funds from the proceeds from the
Offering, the Investors Equity Contribution and borrowings under the Senior
Credit Facility as of May 5, 1998 are set forth below:
MAY 5, 1998
---------------------
(DOLLARS IN MILLIONS)
SOURCES OF FUNDS
Senior Credit Facility(/1/):
Revolving Credit Facility...................... $ --
Term Loan Facility............................. 200.0
9 5/8% Senior Subordinated Notes due 2008........ 110.0
Seller Subordinated Note(/2/).................... 9.0
Seller Preferred Equity(/2/)..................... 6.0
Raytheon Equity(/2/)............................. 3.5
Investors Equity Contribution(/3/)............... 47.1
------
Total sources of funds(/4/).................... $375.6
======
USES OF FUNDS
Merger consideration(/3/)(/4/)................... $333.2
Fees and expenses of the Transactions............ 22.1
Notes received from management(/5/).............. 1.8
Excess cash to fund working capital(/4/)......... 18.5
------
Total uses of funds............................ $375.6
======
- --------
(1) The Company received commitments of up to $275.0 million for the Senior
Credit Facility, of which $200.0 million was in the form of a Term Loan
Facility and $75.0 million was in the form of a Revolving Credit Facility
maturing in 2003. At May 5, 1998, the Company borrowed $200.0 million
under the Term Loan Facility and had no amounts outstanding under the
Revolving Credit Facility. The Term Loan Facility requires no principal
payments during the first two years and amortizes at the rate of $1.0
million per year for years three through five, $40.0 million for year six
and $157.0 million for year seven. See "Description of Senior Credit
Facility."
(2) The Seller Subordinated Note and the Seller Preferred Equity issued by the
Parent and the Raytheon Equity represent non-cash Merger consideration
paid to Raytheon. The Seller Subordinated Note pays interest-in-kind and
is not redeemable until 2009 or upon a change of control or an initial
public offering. The Seller Preferred Equity does not accrete or accrue or
pay dividends and is mandatorily redeemable in 2009 or upon a change of
control or an initial public offering.
(3) Reflects the issuance of membership interests in the Parent to the
Securityholders in exchange for a capital contribution of $47.1 million.
(4) The Merger consideration of $358.0 is subject to pre-closing and post-
closing adjustments estimated as of May 5, 1998 to result in a reduction
of $24.8 million, substantially all of which was due to changes in working
capital levels. In addition, as a result of this reduction, the Company
did not sell any notes receivable or accounts receivable to generate funds
for use as of the Closing.
(5) The Parent loaned approximately $1.8 million to the Management Investors
to finance a portion of their purchase of membership interests in the
Parent.
24
CAPITALIZATION
The following table sets forth as of March 29, 1998 the historical
capitalization of the Parent and pro forma capitalization of the Company as
adjusted to give effect to the Transactions, including the sale of the Notes
pursuant to the Offering, as if they had occurred on March 29, 1998. This
table should be read in conjunction with the "Selected Historical Combined
Financial Data" and "Unaudited Pro Forma Combined Financial Data" and the
historical combined financial statements of the Company and notes related
thereto included elsewhere in this Offering Memorandum.
MARCH 29, 1998
-----------------------
PARENT COMPANY
(HISTORICAL) (PRO FORMA)
------------ ----------
(DOLLARS IN MILLIONS)
Long-term debt:
Senior Credit Facility:
Revolving Credit Facility(/1/).................... $ -- $ 5.1
Term Loan Facility................................ -- 200.0
9 5/8% Senior Subordinated Notes due 2008........... -- 110.0
------ -------
Total long-term debt.............................. -- 315.1
------ -------
Parent company investment/(members' defi-
cit)(/2/)(/3/)....................................... 135.8 (166.0)
------ -------
Total capitalization.............................. $135.8 $ 149.1
====== =======
- --------
(1) The Revolving Credit Facility provides for revolving loans in the
aggregate principal amount of $75.0 million and matures in 2003. Pursuant
to the Merger Agreement, the cash Merger consideration was reduced by
$24.8 million at the Closing, primarily due to changes in working capital
levels. This working capital adjustment is subject to review provisions of
the Merger Agreement, and therefore the impact of these adjustments has
not been reflected in the March 29, 1998 pro forma capitalization. If the
impact of these adjustments were to be recorded, revolver borrowings would
be reduced and excess cash would be recorded to fund future working
capital requirements.
(2) Reflects the net distribution to the Parent to fund the Transactions. See
"Unaudited Pro Forma Combined Balance Sheet" and the notes related
thereto.
(3) The pro forma Parent's members' deficit is estimated to be $181.0 million,
which is $15.0 million greater than the Company's pro forma deficit due to
the $9.0 million Seller Subordinated Note and the $6.0 million mandatorily
redeemable Seller Preferred Equity, neither of which was contributed to
the Company.
25
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The Unaudited Pro Forma Combined Financial Data are based on the historical
combined financial statements of the Parent as adjusted to give effect to the
Transactions. Since following the Transactions, the Parent is a holding
company with no operations other than those of the Company and its
subsidiaries, the historical combined financial statements of the Parent
represent the historical financial position and results of operations of the
Company. The pro forma adjustments were applied to the historical combined
financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets
and liabilities has not been impacted by the Transactions.
The following Unaudited Pro Forma Combined Balance Sheet as of March 29,
1998 gives effect to the Transactions as if they had occurred on such date.
The following Unaudited Pro Forma Combined Statements of Income for the year
ended December 31, 1997 and the quarter ended March 29, 1998 give effect to
the Transactions as if they had occurred on January 1, 1997 and January 1,
1998, respectively. See "The Transactions." The Unaudited Pro Forma Combined
Statements of Income are for informational purposes only and do not purport to
represent what the Company's results of operations would have been if the
Transactions had occurred as of the dates indicated or what such results will
be for any future periods. The Unaudited Pro Forma Combined Financial Data are
based upon assumptions the Company believes are reasonable and should be read
in conjunction with the historical combined financial statements and the notes
related thereto included elsewhere in this Offering Memorandum.
26
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 29, 1998
PARENT COMPANY*
-------------------------------------- ---------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA PRO FORMA
---------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash........................................................................ $ 1,607 $ -- $ 1,607 $ 1,607
Accounts receivable, net.................................................... 5,872 -- 5,872 5,872
Inventory, net.............................................................. 36,350 -- 36,350 36,350
Deferred taxes.............................................................. 7,880 (7,880)(/2/) -- --
Prepaid expenses............................................................ 2,265 -- 2,265 2,265
-------- --------- --------- ---------
Total current assets...................................................... 53,974 (7,880) 46,094 46,094
Notes receivable............................................................ 4,917 (1,270)(/1/) 3,647 3,647
Property, plant and equipment, net.......................................... 66,810 -- 66,810 66,810
Goodwill, net............................................................... 50,944 -- 50,944 50,944
Debt issuance costs......................................................... -- 16,239 (/1/) 16,239 16,239
Other assets................................................................ 6,337 177 (/1/) 6,514 6,514
-------- --------- --------- ---------
Total assets.............................................................. $182,982 $ 7,266 $ 190,248 $ 190,248
======== ========= ========= =========
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES AND EQUITY
Current liabilities:
Accounts payable............................................................ $ 20,477 -- $ 20,477 $ 20,477
Other current liabilities................................................... 20,292 -- 20,292 20,292
-------- --------- --------- ---------
Total current liabilities................................................. 40,769 -- 40,769 40,769
Deferred compensation......................................................... -- 341 (/1/) 341 341
Deferred taxes................................................................ 6,389 (6,389)(/2/) -- --
Long-term debt:
Senior Credit Facility...................................................... -- 205,146 (/1/) 205,146 205,146
Senior Subordinated Notes................................................... -- 110,000 (/1/) 110,000 110,000
Seller Subordinated Note.................................................... -- 9,000 (/1/) 9,000 --
-------- --------- --------- ---------
Total liabilities......................................................... 47,158 318,098 365,256 356,256
Mandatorily redeemable Seller Preferred Equity................................ -- 6,000 (/1/) 6,000 --
Equity:
Common membership interests................................................. -- 47,100 (/1/) 50,645 --
3,545 (/1/)
Notes receivable from management............................................ -- (1,763)(/1/) (1,763) --
Parent company investment/
Retained earnings (deficit)................................................. 135,824 (363,932)(/3/) (229,890) --
(341)(/1/)
50 (/1/)
(1,491)(/2/)
-------- --------- --------- ---------
Total equity (deficit).................................................... 135,824 (316,832) (181,008) --
-------- --------- --------- ---------
Contributed capital (deficit)................................................. -- -- -- (166,008)
-------- --------- --------- ---------
Total liabilities, mandatorily redeemable securities and equity............... $182,982 $ 7,266 $ 190,248 $ 190,248
- --------------------------------------------------
======== ========= ========= =========
- --------
* Immediately prior to the Merger, the Parent formed the Company as a wholly-
owned subsidiary with a $1 capital contribution and simultaneously with the
consummation of the Merger contributed all of its assets and substantially
all of its liabilities to the Company.
27
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) Reflects the consummation of the Transactions as well as fees and expenses
related thereto.
(DOLLARS
IN
THOUSANDS)
----------
Sources of Funds:
Senior Credit Facility:
Revolving Credit Facility(d).................................. $ 5,146
Term Loan Facility............................................ 200,000
9 5/8% Senior Subordinated Notes due 2008....................... 110,000
Asset Backed Facility(a)........................................ 1,143
Seller Subordinated Note........................................ 9,000
Seller Preferred Equity......................................... 6,000
Raytheon Equity(b).............................................. 3,545
Investors Equity Contribution(c)................................ 47,100
--------
Total sources of funds(d)................................... $381,934
========
Uses of Funds:
Merger consideration(d)......................................... $358,045
Financing related fees.......................................... 16,239
Fees and expenses related to the Merger......................... 5,887
Notes received from management(e)............................... 1,763
--------
Total uses of funds(d)...................................... $381,934
========
(a) Concurrent with the Transactions, on a pro forma basis at March 29,
1998, the Company would have sold an incremental $1.3 million of
eligible notes receivable under the Asset Backed Facility and would
have received cash proceeds of $1.1 million. As a result, the Company
would have recognized a gain of $0.1 million and recorded an asset of
$0.2 million, which includes a residual interest in the transferred
notes receivable of $0.1 million and an interest receivable of $0.1
million.
(b) Reflects certain common membership interests retained by Raytheon.
(c) Reflects the issuance of membership interests in the Parent to the
Securityholders in exchange for a capital contribution of $47.1
million.
(d) In connection with the Transactions, the Parent redeemed Raytheon's
membership interests having a fair value of $354.5 million subject to
pre- and post-closing working capital adjustments. Raytheon would have
received $339.5 million in cash, a $9.0 million Seller Subordinated
Note and $6.0 million of Seller Preferred Equity while retaining a $3.5
million common membership interest in the Parent. However, pursuant to
the Merger Agreement, the cash Merger consideration was reduced by
$24.8 million at Closing due primarily to changes in working capital
levels. This working capital adjustment is subject to review provisions
of the Merger Agreement, and therefore, the impact of these adjustments
has not been reflected in the March 29, 1998 pro forma combined balance
sheet. If the impact of these adjustments were to be reflected in the
pro forma combined balance sheet, merger consideration and revolver
borrowings would be reduced and excess cash would be recorded.
(e) The Parent loaned approximately $1.8 million to the Management
Investors to finance a portion of their purchase of common membership
interests in the Parent.
(2) Represents the elimination of deferred taxes recorded in the historical
financial statements. Historical amounts represent the Company's tax
attributes as a division of Raytheon as calculated on a separate return
basis. As the Company and the Parent are limited liability companies, the
individuals or entities who ultimately hold common membership interests in
these limited liabilities companies are responsible for income taxes. As a
result, the Company will not reflect a provision for income taxes or the
effects of deferred taxes in its financial statements. Subject to certain
limitations, the Company anticipates that it will distribute
28
amounts necessary to pay income taxes related to its operations should the
Securityholders have income tax obligations related to the ownership of
their common membership interests. For income tax purposes, the tax basis of
the Company's assets was stepped up to fair market value on the date of the
Transactions for the Securityholders. If the Company were to reflect income
taxes in its financial statements, a deferred tax asset of approximately
$85.0 million would have been recorded on a pro forma basis as of March 29,
1998 as a result of these book/tax basis differences. This deferred tax
asset would be reduced by a valuation allowance of approximately the same
amount since the realizability of the asset does not meet the requirements
for recognition under Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes."
(3) Represents the net change in retained earnings (deficit) as a result of
the redemption and subsequent retirement of existing membership interests in
conjunction with the Merger.
(DOLLARS
IN
THOUSANDS)
----------
Redemption of membership interests and distributions to Raytheon. $(339,500)
Issuance of Seller Preferred Equity.............................. (6,000)
Issuance of Seller Subordinated Note............................. (9,000)
Transfer of Raytheon retained interest to common membership equi-
ty.............................................................. (3,545)
Estimated fees and expenses related to the Merger................ (5,887)
---------
$(363,932)
=========
29
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
PRO FORMA SUPPLEMENTAL PRO FORMA
HISTORICAL* ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- ----------- --------- ------------ -----------
(DOLLARS IN THOUSANDS)
Net sales............... $347,709 $ (1,163)(/1/) $346,546 $(3,633)(/6/) $342,913
Cost of sales........... 263,932 -- 263,932 (2,028)(/7/) 261,904
-------- -------- -------- ------- --------
Gross profit.......... 83,777 (1,163) 82,614 (1,605) 81,009
Selling, general and
administrative expense. 41,070 (130)(/2/) 41,940 (971)(/8/) 40,969
1,000 (/3/)
-------- -------- -------- ------- --------
Operating income...... 42,707 (2,033) 40,674 (634) 40,040
Interest expense........ -- 31,287 (/4/) 31,287 -- 31,287
-------- -------- -------- ------- --------
Income before taxes..... 42,707 (33,320) 9,387 (634) 8,753
Provision for income
taxes.................. 16,431 (16,431)(/5/) -- -- --
-------- -------- -------- ------- --------
Net income.............. $ 26,276 $(16,889) $ 9,387 $ (634) $ 8,753
======== ======== ======== ======= ========
EBITDA.................. $ 57,152 $ 55,119 $ 54,485
EBITDA margin........... 16.4% 15.9% 15.9%
Depreciation and
amortization........... $ 14,445 $ 14,445 $ 14,445
Ratio of Adjusted EBITDA to cash
interest expense...................................................... 1.9x
- --------
* The historical combined statement of income represents the results of
operations of the Parent. Since following the Transactions the Parent became
a holding company with no operations other than those of the Company and its
subsidiaries, the Unaudited Pro Forma Combined Statement of Income represents
the results of operations of the Company.
30
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
QUARTER ENDED MARCH 29, 1998
PRO FORMA
HISTORICAL* ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
Net sales....................... $83,295 $ (518)(/1/) $82,777
Cost of sales................... 63,945 -- 63,945
------- ------- -------
Gross profit................... 19,350 (518) 18,832
Selling, general and
administrative expense......... 10,580 (67)(/2/) 10,763
250 (/3/)
------- ------- -------
Operating income............... 8,770 (701) 8,069
Interest expense................ -- 7,662 (/4/) 7,662
------- ------- -------
Income before taxes............. 8,770 (8,363) 407
Provision for income taxes...... 3,385 (3,385)(/5/) --
------- ------- -------
Net income...................... $ 5,385 $(4,978) $ 407
======= ======= =======
EBITDA.......................... $12,497 $11,796
EBITDA margin................... 15.0% 14.3%
Depreciation and amortization... $ 3,727 $ 3,727
Ratio of EBITDA to
cash
interest expense.. 1.7x
- --------
* The historical combined statement of income represents the results of
operations of the Parent. Since following the Transactions the Parent
became a holding company with no operations other than those of the Company
and its subsidiaries, the Unaudited Pro Forma Combined Statement of Income
represents the results of operations of the Company.
31
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(1) Represents the reduction in gain recorded on the sale of notes receivable
originated in the equipment financing program, as follows:
QUARTER
YEAR ENDED ENDED
DECEMBER 31, MARCH 29,
1997 1998
------------ ---------
Historical gain on equipment financing program..... $(6,220) $(2,433)
Estimated gain under the Asset Backed Facility..... 5,057 1,915
------- -------
Net decrease in net sales........................ $(1,163) (518)
======= =======
The Company recognizes a gain when notes receivable originated by the
Company are sold to the Financing Subsidiaries. If the Asset Backed Facility
had been in place for all of 1997 and in the quarter ended March 29, 1998,
the pro forma gain would have been lower than the gain recognized by the
Company under its historical program principally as a result of two factors:
(i) the historical program borrowed at a lower interest rate and (ii) the
advance rate for notes receivable under the Asset Backed Facility is limited
to 90% of eligible notes receivable, as compared to a 100% advance rate
under the historical program. These two factors are partially offset by (x)
the impact of using estimates (when determining the gain to be recorded
under the Asset Backed Facility) that reflect the performance of equipment
loans similar to those expected to be sold under the Asset Backed Facility
and (y) in 1997, the impact of the additional pro forma gain from sales of
notes receivable that were precluded from being sold as a result of having
reached the maximum availability under the historical program. The interest
earned on the Company's 10% retained interest will be recorded as income as
cash proceeds are received in subsequent years. If the Asset Backed Facility
had been in place for all of 1997 or for the quarter ended March 29, 1998,
the December 31, 1997 and March 29, 1998 balance sheets would have included
an asset totaling approximately $9.6 million and $5.3 million, respectively,
related to the residual interest in the notes that had been sold; such asset
would have been funded from operating cash flow.
(2) Represents the reduction in loss recorded on the sale of trade
receivables, as follows:
QUARTER
YEAR ENDED ENDED
DECEMBER 31, MARCH 29,
1997 1998
------------ ---------
Historical loss on the trade receivables financing
program........................................... $(3,440) $(694)
Estimated loss under the Asset Backed Facility .... 3,310 627
------- -----
Net decrease in selling, general and administra-
tive expense.................................... $ (130) (67)
======= =====
The Company recognizes a loss on trade receivables sold to the Financing
Subsidiaries. The pro forma loss is less than the historical loss as the
advance rate for trade receivables under the Asset Backed Facility is
limited to 85% compared to a 100% advance rate under the historical program.
The impact of this lower advance rate is partially offset by the higher
interest rate in the Asset Backed Facility. If the Asset Backed Facility had
been in place for all of 1997 or for the quarter ended March 29, 1998, the
December 31, 1997 and March 29, 1998 balance sheets would have included an
asset totaling approximately $11.2 million and $9.4 million, respectively,
related to the residual interest in the trade receivables that had been
sold; such asset would have been funded from operating cash flow.
(3) Represents the $1.0 million annual management fee to be paid to Bain for
consulting and financial services to be provided to the Company. See
"Certain Relationships and Related Transactions--Management Services
Agreement."
(4) The increase in pro forma interest expense as a result of the Transactions
is as follows:
32
QUARTER
YEAR ENDED ENDED
DECEMBER 31, MARCH 29,
1997 1998
------------ ---------
Senior Credit Facility:
Revolving Credit Facility(a)...................... $ 1,194 $ 207
Term Loan Facility(b)............................. 16,850 4,213
9 5/8% Senior Subordinated Notes due 2008(c)...... 10,588 2,647
------- ------
Cash interest expense............................... 28,632 7,067
Non-cash interest expense(d)........................ 2,655 595
------- ------
Net increase in interest expense.................. $31,287 $7,662
======= ======
(a) Represents interest and commitment fees on the $75.0 million Revolving
Credit Facility using an assumed interest rate of 8.175% (LIBOR plus
2.375%, assuming an average annual outstanding balance of $10.9 million
for 1997 and $5.8 million for the quarter ended March 29, 1998).
(b) Represents interest on the Term Loan Facility using an assumed interest
rate of 8.425% (LIBOR plus 2.625%).
(c) Represents interest on the Notes using an interest rate of 9.625%.
(d) Represents amortization of $16.2 million in deferred financing costs
utilizing a weighted average maturity of 6.7 years.
An increase or decrease in the assumed weighted average interest rate on the
Senior Credit Facility of 0.125% would change pro forma interest expense by
$0.3 million for the year ended December 31, 1997.
(5) Represents the elimination of the historical provision for income tax.
Historical amounts represent the Company's tax attributes as a division of
Raytheon as calculated on a separate return basis. As the Parent and the
Company are both limited liability companies, the individuals or entities
who ultimately hold common membership interests in these limited liability
companies are responsible for income taxes. Subject to certain limitations,
the Company anticipates that it will distribute amounts necessary to pay
income taxes related to its operations should the Securityholders have
income tax obligations related to the ownership of their common membership
interests. If the Company was a tax paying entity and were to record a
provision for income taxes, the pro forma provision for income taxes would
be based on: (i) the historical tax provision using historical amounts; (ii)
the direct tax effects of the pro forma transactions and offering
adjustments described herein at an estimated 38.5% effective tax rate; and
(iii) the direct tax effects of the amortization of the step-up in basis for
income tax purposes resulting from the Investors Equity Contribution,
estimated at a 38.5% effective tax rate. As a result of the incremental
interest expense and the deductibility of the amortization of the step-up in
basis for tax purposes, on a pro forma basis, the Company would have
recorded a tax loss in 1997 and for the quarter ended March 29, 1998.
(6) Under the terms of the Appliance Co. Supply Agreement, the Company sells
consumer topload washers to Appliance Co. at a negligible margin to cost,
whereas sales to Raytheon's former consumer appliance business generated
modest margins. The adjustment reflects the revenues that the Company would
have realized from sales of consumer topload washers to Raytheon's former
consumer appliance business from January 1, 1997 to September 10, 1997 under
the terms of the Appliance Co. Supply Agreement had the Appliance Co.
Transaction occurred on January 1, 1997. See "Business--Appliance Co.
Transaction."
(7) Represents the elimination of $0.9 million of one-time transition costs
incurred in connection with the Appliance Co. Transaction and approximately
$1.1 million of costs that would have been reimbursed under the terms of the
Appliance Co. Supply Agreement had the Appliance Co. Transaction occurred on
January 1, 1997. See "Business--Appliance Co. Transaction."
(8) Under the terms of the Appliance Co. Supply Agreement, the Company charges
Appliance Co. for certain engineering costs incurred by the Company for the
production of consumer topload washers sold to Appliance Co. The adjustment
reflects the amount that would have been charged to Raytheon's former
consumer appliance business from January 1, 1997 to September 10, 1997 under
the terms of the Appliance Co. Supply Agreement had the Appliance Co.
Transaction occurred on January 1, 1997. See "Business--Appliance Co.
Transaction."
33
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table sets forth selected historical combined financial data
of the Company for the five years ended December 31, 1997 and for the quarters
ended March 30, 1997 and March 29, 1998. Since following the Transactions the
Parent is a holding company with no operations other than those of the Company
and its subsidiaries, the historical combined financial statements of the
Parent represent the historical results of operations of the Company. The
selected historical combined financial data for the fiscal year ended December
31, 1993 was derived from unaudited combined financial statements of the
Company. The selected historical combined financial data for the four years
ended December 31, 1997 were derived from the audited combined financial
statements of the Company which for the three years ended December 31, 1997
are included elsewhere in this Offering Memorandum, together with the report
thereon of Coopers & Lybrand, L.L.P., independent accountants. The selected
historical combined financial data of the Company for the quarters ended March
29, 1998 and March 30, 1997 were derived from unaudited financial statements
that were prepared on the same basis as the audited financial statements and
that, in the opinion of management, include normal recurring adjustments and
adjustments necessary for a fair presentation of the combined results of
operations and financial condition of the Company as it operated as a unit of
Raytheon. The selected historical combined financial data for the quarter
ended March 29, 1998 are not necessarily indicative of the results for the
full year. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical combined financial statements and the notes
related thereto of the Company included elsewhere in this Offering Memorandum.
YEARS ENDED DECEMBER 31, QUARTERS ENDED
------------------------------------------------ -------------------
MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
STATEMENT OF INCOME:
Net sales............... $232,703 $267,445 $324,529 $318,263 $347,709 $80,475 $83,295
Cost of sales........... 176,961 208,543 259,272 246,017 263,932 61,881 63,945
-------- -------- -------- -------- -------- ------- -------
Gross profit............ 55,742 58,902 65,257 72,246 83,777 18,594 19,350
Selling, general and
administrative expense. 30,272 29,782 35,360 34,464 41,070 9,128 10,580
Nonrecurring costs(/1/). -- -- 574 3,704 -- -- --
-------- -------- -------- -------- -------- ------- -------
Operating income........ 25,470 29,120 29,323 34,078 42,707 9,466 8,770
Other income, net....... 318 312 778 685 -- -- --
Interest expense........ -- -- -- -- -- -- --
Income before taxes..... 25,788 29,432 30,101 34,763 42,707 9,466 8,770
-------- -------- -------- -------- -------- ------- -------
Provision for income
taxes(/2/)............. 9,169 11,265 11,545 13,408 16,431 3,643 3,385
-------- -------- -------- -------- -------- ------- -------
Net income.............. $ 16,619 $ 18,167 $ 18,556 $ 21,355 $ 26,276 $ 5,823 $ 5,385
======== ======== ======== ======== ======== ======= =======
OTHER OPERATING DATA:
EBITDA(/3/)............. $ 33,962 $ 37,573 $ 41,522 $ 49,612 $ 57,152 $12,466 $12,497
EBITDA Margin(/4/)...... 14.6% 14.0% 12.8% 15.6% 16.4% 15.5% 15.0%
Depreciation and
amortization........... $ 8,174 $ 8,141 $ 10,847 $ 11,145 $ 14,445 $ 3,000 $ 3,727
Capital
expenditures(/5/)...... 5,985 11,579 16,177 22,030 22,623 7,949 1,457
Ratio of earnings to
fixed charges(/6/)..... 131.2x 149.6x 153.0x 96.8x 108.8x 95.7x 88.7x
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit).............. $ 78,920 $ (5,222) $ 66,673 $ 23,899 $ 15,434 $13,205
Total assets............ 163,509 201,496 220,063 185,197 193,257 182,982
Total debt.............. 3,493 1,400 1,100 1,000 -- --
Parent company
investment............. 121,908 93,335 175,317 141,546 148,573 135,824
34
- --------
(1) Nonrecurring costs associated primarily with reductions in work force. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
(2) Subsequent to the consummation of the Transactions, the Company is not a
tax paying entity. Historical amounts represent the Company's tax attributes
as a division of Raytheon as calculated on a separate return basis. See
"Unaudited Pro Forma Combined Financial Data."
(3) "EBITDA," as presented, represents income before income taxes plus
depreciation and amortization, interest expense and nonrecurring costs (as
described above). EBITDA is included because management believes that such
information provides an additional basis for evaluating the Company's
ability to pay interest, repay debt and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income as a measure of the Company's operating results and
cash flows as a measure of the Company's liquidity. Because EBITDA is not
calculated identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
(4) Represents EBITDA as a percentage of net sales.
(5) Excludes purchase of assets related to the November 1994 acquisition of
the business of UniMac. For each of the five years ended December 31, 1997,
capital expenditures excluding those relating to major new products,
significant product redesign and major capacity additions, would have been
less than $10.0 million.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
on all indebtedness and the estimated interest portion of rental expense.
The Company had no significant interest or rental expense for the periods
presented.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations covers periods before the consummation of the Transactions. In
connection with the Transactions, the Company has entered into financing
arrangements and significantly altered its capital structure. As a result of
the Transactions, the Company is operating as a stand alone entity for the
first time, and the historical combined financial statements and notes related
thereto reflect management's estimates of certain costs associated with
operating as a stand alone entity and reflect taxes that are not applicable to
the Company following the consummation of the Transactions. Additionally,
since September 10, 1997 the Company has sold consumer laundry equipment to
Appliance Co. at negligible margins to cost compared to modest margins for
sales to Raytheon's consumer appliance business in prior periods. Accordingly,
the results of operations for the periods subsequent to the consummation of
the Transactions will not necessarily be comparable to prior periods. See "The
Transactions," "Capitalization," "Unaudited Pro Forma Combined Financial
Data," "Selected Historical Combined Financial Data," "Description of Senior
Credit Facility," "Description of Asset Backed Facility" and the historical
combined financial statements and notes related thereto included elsewhere in
this Offering Memorandum.
OVERVIEW
The Company believes it is the leading designer, manufacturer and marketer
of stand alone commercial laundry equipment in North America and a leader
worldwide. Under the well-known brand names of Speed Queen, UniMac and
Huebsch, the Company produces a full line of commercial washing machines and
dryers with load capacities from 16 to 250 pounds. The Company's commercial
products are sold to three distinct customer groups: (i) laundromats; (ii)
multi-housing laundries, consisting primarily of common laundry facilities in
apartment buildings, universities and military installations; and (iii) on-
premise laundries, consisting primarily of in-house laundry facilities of
hotels, hospitals, nursing homes and prisons. In addition, pursuant to the
Appliance Co. Supply Agreement, the Company supplies consumer washing machines
to the consumer appliance business of Appliance Co. for sale at retail.
Internationally, the Company has developed targeted opportunities, generating
equipment sales of $45.5 million in 1997. The Company's net sales have grown
at a compound annual rate of 10.6% to $347.7 million in 1997 from $232.7
million in 1993. For this same period operating income has grown at a compound
annual rate of 13.8% to $42.7 million in 1997 from $25.5 million in 1993.
SIGNIFICANT TRANSACTIONS
Appliance Co. Transaction
The Company's former parent, Raytheon, sold its consumer appliance business
to Appliance Co. on September 10, 1997. In connection with the Appliance Co.
Transaction, the Company entered into a two year agreement to supply consumer
topload washers to Appliance Co. at selling prices that approximate cost.
Prior to this supply agreement, transfers of product to Raytheon's consumer
appliance business generated modest margins; in addition, in 1997, the Company
incurred $0.9 million of transition costs associated with the Appliance Co.
Transaction and $2.1 million of costs which would have been reimbursed under
the terms of the Appliance Co. Supply Agreement. If this supply agreement had
been in place for the full year of 1997, net sales would have been lower by
approximately $3.6 million and operating income would have been lower by
approximately $0.6 million. Accordingly, the results of operations for the
periods subsequent to the Appliance Co. Transaction will not necessarily be
comparable to prior periods. A similar supply agreement is in place for the
Company to purchase commercial small-chassis frontload washers and dryers from
Appliance Co. for one year and two years, respectively.
Ripon Transition
The Company is in the process of establishing at its Ripon facility the
capability to manufacture small-chassis frontload washers and dryers beginning
in September 1998 and September 1999, respectively; until such time, the
Company will continue to source these products from Appliance Co. Similarly,
the Company
36
anticipates that Appliance Co. will no longer purchase consumer topload
washers from the Company after September 1999. The Company's plan to introduce
small-chassis frontload washer and dryer production and to cease production of
consumer topload washers for Appliance Co. (the "Transition Plan") is expected
to require aggregate capital expenditures of approximately $13.0 million in
1998 and 1999 and nonrecurring expenses (such as plant reconfiguration,
severance expenses and manufacturing start-up expenses) of approximately $5.0
million in 1998 and 1999.
Equipment Financing Program
Since 1992, the Company has provided equipment financing to laundromat
owners, multi-housing route operators and on-premise laundry operators. From
1992 to January 1996, the Company provided financing through several external
sources. Under these programs, the Company originated financing transactions
and sold the notes receivable and the servicing rights to third parties.
In January 1996, the Company developed an in-house program to replace its
external financing programs, thereby retaining the benefits and risks
associated with these financings. As notes receivable in this program were
sold to the Company's Financing Subsidiaries, the Company recognized a gain in
accordance with generally accepted accounting principles.
Subsequent to March 29, 1998, the Company received a prepayment of notes
receivable from a large customer totaling approximately $42.7 million. The
notes receivable had been sold by the Company to its Financing Subsidiaries.
The Company anticipates that it will reduce second quarter earnings by
approximately $1.0 million to reflect the write-off of the asset recorded when
the Company sold such notes receivable to the Financing Subsidiaries.
RESULTS OF OPERATIONS
The following table sets forth the Company's historical net sales for the
periods indicated:
YEARS ENDED DECEMBER
31, QUARTERS ENDED
----------------------- -----------------------------
1995 1996 1997 MARCH 30, 1997 MARCH 29, 1998
------- ------ ------ -------------- --------------
(DOLLARS IN MILLIONS)
Net sales
Commercial laundry
equipment............ $ 213.4 $209.1 $239.3 $ 52.6 $51.7
Appliance Co. consumer
laundry equipment.... 79.4 77.0 76.9 19.6 23.3
Service parts......... 31.8 32.1 31.6 8.3 8.3
------- ------ ------ ------ -----
$ 324.5 $318.3 $347.7 $ 80.5 $83.3
======= ====== ====== ====== =====
The following table sets forth certain condensed historical financial data
for the Company expressed as a percentage of net sales for each of the periods
indicated:
YEARS ENDED DECEMBER
31, QUARTERS ENDED
----------------------- -----------------------------
1995 1996 1997 MARCH 30, 1997 MARCH 29, 1998
------- ------ ------ -------------- --------------
Net sales............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......... 79.9% 77.3% 75.9% 76.9% 76.8%
Gross profit.......... 20.1% 22.7% 24.1% 23.1% 23.2%
Selling, general and
administrative
expense.............. 10.9% 10.8% 11.8% 11.3% 12.7%
Nonrecurring costs.... 0.2% 1.2% 0.0% 0.0% 0.0%
Operating income...... 9.0% 10.7% 12.3% 11.8% 10.5%
37
QUARTER ENDED MARCH 29, 1998 COMPARED TO QUARTER ENDED MARCH 30, 1997
Net sales. Net sales for the quarter ended March 29, 1998 increased $2.8
million, or 3.5%, to $83.3 million from $80.5 million for the quarter ended
March 30, 1997. This increase was due to an increase in consumer laundry
equipment sales of $3.7 million, partially offset by slightly lower commercial
laundry equipment sales. The decrease in commercial laundry equipment sales
was due to a decrease of $3.7 million in sales to international customers as
the Company's products (priced in U.S. dollars) became less competitive due to
unfavorable exchange rate movements. The international sales decrease was
partially offset by increases of (i) $1.4 million in North America equipment
sales and (ii) $1.4 million due to increased volume of equipment financing
promissory notes originated and sold through the Company's off-balance sheet
equipment financing program.
Gross profit. Gross profit for the quarter ended March 29, 1998 increased
$0.8 million, or 4.1%, to $19.4 million from $18.6 million for the quarter
ended March 30, 1997. Gross profit as a percentage of net sales increased to
23.2% for the quarter ended March 29, 1998 from 23.1% for the quarter ended
March 30, 1997. This increase was primarily attributable to manufacturing
efficiencies and growth in the Company's equipment financing program,
partially offset by a decrease in Appliance Co. consumer laundry selling
prices under the Appliance Co. Supply Agreement, increased depreciation, and
one time warranty costs of $0.4 million related to a new product introduction.
Selling, general and administrative expense. Selling, general and
administrative expense for the quarter ended March 29, 1998 increased $1.5
million, or 15.9%, to $10.6 million from $9.1 million for the quarter ended
March 30, 1997. Selling, general and administrative expense as a percentage of
net sales increased to 12.7% for the quarter ended March 29, 1998 from 11.3%
for the quarter ended March 30, 1997. The increase in selling, general and
administrative expense was primarily due to an increase of $1.0 million in
selling and distribution expense and $0.4 million in administrative expense.
Operating income. As a result of the foregoing operating income for the
quarter ended March 29, 1998 decreased $0.7 million, or 7.4%, to $8.8 million
from $9.5 million for the quarter ended March 30, 1997. Operating income as a
percentage of net sales decreased to 10.5% for the quarter ended March 29,
1998 from 11.8% for the quarter ended March 30, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales for 1997 increased $29.4 million, or 9.3%, to $347.7
million from $318.3 million for 1996. This increase was due to an increase in
commercial laundry sales of $30.2 million partially offset by slight
reductions in Appliance Co. consumer laundry equipment sales and service
parts. The increase in commercial laundry equipment sales consisted of
increases of: (i) $14.7 million in laundromat sales due to the inclusion of a
full year of sales to a new laundromat customer compared to two months in the
prior year as well as increased sales to existing and other new customers;
(ii) $4.7 million in multi-housing customer sales primarily due to increased
sales to key customers under supply agreements; (iii) $3.7 million in on-
premise laundry sales due in part to the Company's new product offerings in
1996 and 1997; (iv) $5.6 million due to increased volume of equipment
financing promissory notes originated and sold pursuant to the Company's off-
balance sheet equipment financing program; and (v) $1.5 million in other
commercial laundry equipment sales.
Gross profit. Gross profit for 1997 increased $11.6 million, or 16.0%, to
$83.8 million from $72.2 million for 1996. Gross profit as a percentage of net
sales increased to 24.1% for 1997 from 22.7% for 1996. This increase was
primarily attributable to an increase in commercial laundry equipment sales
volume and related efficiencies, manufacturing cost reductions and growth in
the Company's equipment financing program, which were partially offset by a
decrease in Appliance Co. consumer laundry equipment selling prices under the
Appliance Co. Supply Agreement, costs related to the Appliance Co.
Transaction, new product start-up costs as well as increased depreciation.
38
Selling, general and administrative expense. Selling, general and
administrative expense for 1997 increased $6.6 million, or 19.2%, to $41.1
million from $34.5 million for 1996. Selling, general and administrative
expense as a percentage of net sales increased to 11.8% for 1997 from 10.8%
for 1996. The increase in selling, general and administrative expense was
primarily due to a $3.4 million loss on sale recognized in connection with the
increased level of trade receivables sold through the Company's Financing
Subsidiaries, an increase of $1.9 million in selling and distribution expense
resulting from increased sales and an increase of $1.3 million in engineering
expense principally to support new product introductions.
Operating income. Operating income for 1997 increased $8.6 million, or
25.3%, to $42.7 million from $34.1 million for 1996. Operating income as a
percentage of net sales increased to 12.3% for 1997 from 10.7% for 1996. The
increase in operating income was primarily due to the factors discussed above;
in addition, nonrecurring costs of $3.7 million were incurred in 1996
primarily associated with the elimination of certain redundant processes as
part of the consolidation of Raytheon's appliance businesses, which included
the Company. See Note G to the Company's historical combined financial
statements and notes related thereto included elsewhere herein.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales. Net sales for 1996 decreased $6.2 million, or 1.9%, to $318.3
million from $324.5 million for 1995. This decrease was due to declines in
commercial laundry equipment sales of $4.3 million and in Appliance Co.
consumer laundry equipment sales of $2.4 million, partially offset by a slight
increase in sales of service parts. The decrease in commercial laundry
equipment sales was due to decreases of (i) $8.6 million in sales to Maytag
Corporation, a competitor of the Company, which terminated its supply
agreement with UniMac after the Company's acquisition of the washer-extractor
business of UniMac and (ii) $8.8 million in sales to international customers
as the Company's products became less competitive due to unfavorable exchange
rate movements and newly instituted importation duties that no longer apply to
the Company's products. This decrease was partially offset by increases of:
(i) $3.5 million in laundromat sales principally as a result of sales to a new
customer beginning in the fourth quarter of 1996; (ii) $6.4 million in multi-
housing laundry sales due to increased sales to key customers under supply
agreements; and (iii) $3.4 million in on-premise laundry sales due in part to
the Company's new product offerings in 1996. The decrease in Appliance Co.
consumer laundry equipment sales was primarily the result of lower unit
volume.
Gross profit. Gross profit for 1996 increased $7.0 million, or 10.7%, to
$72.2 million from $65.3 million for 1995. Gross profit as a percentage of net
sales increased to 22.7% for 1996 from 20.1% for 1995. The increase in gross
profit, despite lower net sales, was primarily attributable to manufacturing
process improvements and lower material purchase costs for aluminum, motors,
corrugated boxes and plastics. Material purchase costs had increased
significantly in 1995 due to increases in commodity prices and returned to
historical levels in 1996.
Selling, general and administrative expense. Selling, general and
administrative expense for 1996 decreased $0.9 million, or 2.5%, to $34.5
million from $35.4 million for 1995. Selling, general and administrative
expense as a percentage of net sales decreased to 10.8% for 1996 from 10.9%
for 1995. The decrease in selling, general and administrative expense was
primarily due to reductions in work force implemented in 1995 and 1996.
Operating income. Operating income for 1996 increased $4.8 million, or
16.4%, to $34.1 million from $29.3 million for 1995. Operating income as a
percentage of net sales increased to 10.7% for 1996 from 9.0% for 1995. The
increase in operating income was primarily due to the factors discussed above,
partially offset by the impact of nonrecurring costs of $3.7 million incurred
in 1996 (primarily associated with the consolidation of Raytheon's appliance
businesses, which included the Company), compared to $0.6 million of
nonrecurring severance and benefit costs incurred in 1995 associated with
reductions in work force. See Note G to the Company's historical combined
financial statements and notes related thereto included elsewhere herein.
39
LIQUIDITY AND CAPITAL RESOURCES
Post-Transactions
Following the Transactions, the Company's principal sources of liquidity are
cash flow generated from operations and borrowings under the $75.0 million
Revolving Credit Facility. The Company's principal uses of liquidity are to
meet debt service requirements, finance the Company's capital expenditures and
provide working capital. The Company expects that capital expenditures in 1998
will not exceed $15.0 million. The Company expects that ongoing requirements
for debt service, capital expenditures and working capital will be funded by
internally generated cash flow and borrowings under the Revolving Credit
Facility. The Company has incurred substantial indebtedness in connection with
the Transactions. Following the Transactions, the Company has approximately
$310.0 million of combined indebtedness outstanding. The Company's debt
service obligations could have important consequences to holders of the
Exchange Notes. See "Risk Factors--Risks Relating to the Exchange Notes--
Substantial Leverage."
At May 5, 1998, after giving effect to the Transactions, the Company
borrowed $200.0 million under the Term Loan Facility, issued $110.0 million of
the Notes and had additional availability of approximately $75.0 million under
the Revolving Credit Facility.
The $200.0 million Term Loan Facility amortizes quarterly and is repayable
in the following aggregate annual amounts:
AMOUNT DUE
----------
(DOLLARS
YEAR IN
---- MILLIONS)
1............................ $ 0.0
2............................ $ 0.0
3............................ $ 1.0
4............................ $ 1.0
5............................ $ 1.0
6............................ $ 40.0
7............................ $157.0
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain debt incurrences, asset sales and a portion of Excess Cash
Flow (as defined in the Senior Credit Facility). The Revolving Credit Facility
will terminate in 2003. See "Description of Senior Credit Facility."
Concurrent with the Closing of the other Transactions, the Company entered
into the Asset Backed Facility, which provides $250.0 million of off-balance
sheet financing for trade receivables and equipment loans. The finance
programs have been and will continue to be structured in a manner that
qualifies for off-balance sheet treatment in accordance with generally
accepted accounting principles. It is expected that under the Asset Backed
Facility, the Company will continue to act as originator and servicer of the
equipment financing promissory notes and the trade receivables. See
"Description of Asset Backed Facility."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Exchange Notes), or to fund planned capital
expenditures, will depend upon its future performance, which, in turn, is
subject to general economic, financial, competitive and other factors that are
beyond its control. Based upon the current level of operations and anticipated
growth, management believes that future cash flow from operations, together
with available borrowings under the Revolving Credit Facility, will be
adequate to meet the Company's anticipated requirements for capital
expenditures, working capital, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
continue to generate sufficient cash flow from operations in the future to
service its debt and make necessary capital expenditures after satisfying
certain liabilities arising in the ordinary course of business. If unable to
do so, the Company may be required to refinance
40
all or a portion of its existing debt, including the Exchange Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing would be available or that any such sales of assets or
additional financing could be obtained. See "Risk Factors--Risks Relating to
the Exchange Notes--Substantial Leverage."
Historical
Historically, the Company's principal sources of funds have been operations
and short-term funding from Raytheon. The Company's principal uses of funds
have been capital expenditures and distributions to Raytheon as described
below.
Cash generated from operations for the quarter ended March 29, 1998, of
$19.0 million was principally derived from net income and the sale of trade
and notes receivable pursuant to the Company's off-balance sheet financing
facilities. During the first quarter, the maximum availability under the off-
balance sheet equipment financing facility was increased by $24.5 million from
its previous limit allowing the Company to sell during the first quarter
additional notes receivable previously retained.
The Company's cash generated from operations during the year ended December
31, 1997 of $40.1 million decreased from $77.2 million for the year ended
December 31, 1996. The decrease is primarily attributable to the one time
impact in 1996 of the initial sale of $56.7 million of trade receivables
through the Company's off-balance sheet financing facility and to the higher
levels of notes receivable retained at December 31, 1997. These impacts were
partially offset by a decrease in inventory levels in 1997. The Company
retained a portion of notes receivable eligible for sale under its off-balance
sheet equipment financing facility at December 31, 1997, as a result of having
reached the maximum availability under that facility. Inventory decreased
during the year ended December 31, 1997 principally due to the transfer of
consumer laundry finished goods inventory to Appliance Co. at the time of the
Appliance Co. transaction. The Company generated cash from operations of $17.5
million during the year ended December 31, 1995 impacted principally by net
income, depreciation and changes in trade and notes receivable and inventory
balances.
Historically, cash has been transferred between the Company and Raytheon
based on the Company's cash position. For the quarter ended March 29, 1998 and
the years ended December 31, 1997 and 1996, respectively, the Company
transferred cash to Raytheon of $18.1 million, $19.2 million and $55.1 million
(including dividends of $7.7 million), respectively. The substantial transfer
in 1996 was attributable to the cash generated from the initial sale of trade
receivables through the Company's off-balance sheet financing facility. During
the year ended December 31, 1995, cash of $63.4 million (net of dividends of
$6.3 million) was transferred to the Company from Raytheon to help fund
operations.
Capital Expenditures
The Company's capital expenditures for the quarters ended March 29, 1998 and
March 30, 1997 were approximately $1.5 million and $7.9 million, respectively.
For the years ended December 31, 1997, 1996 and 1995, capital expenditures
were approximately $22.6 million, $22.0 million and $16.2 million,
respectively. For all periods presented, capital expenditures included
investments for major new product updates and designs (approximately $16.4
million) and modernization programs at all three of the Company's
manufacturing facilities, primarily related to increasing production capacity
and reducing manufacturing cost (approximately $22.9 million). Other capital
expenditures of $21.5 million for the three years ended December 31, 1997
included ongoing cost improvements and maintenance programs.
41
YEAR 2000
The Company is evaluating the extent to which its computer operating systems
will be disrupted upon the turn of the century as a result of the Year 2000
Issue. While the Company believes that new software being installed into its
computer system will address the Year 2000 Issue, there can be no assurance
that the new software will be installed in time to remedy the Year 2000 Issue
or that the Company's computer operating systems will not be disrupted upon
the turn of the century. Any such disruption, whether caused by the Company's
systems or those of any of its suppliers or customers, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Company-Specific Risks--Computer System; Year
2000 Issue."
ENVIRONMENTAL LIABILITIES
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect
the demand for, the Company's products. The Company cannot predict the
environmental liabilities that may result from legislation or regulations
adopted in the future, the effect of which could be retroactive. Nor can the
Company predict how existing or future laws and regulations will be
administered or interpreted or what environmental conditions may be found to
exist at Company facilities or at other properties where the Company or
predecessors have arranged for the disposal of hazardous substances. The
enactment of more stringent laws or regulations or stricter interpretation of
existing laws and regulations could require expenditures by the Company, some
of which could be material. See "Business--Environmental, Health and Safety
Matters."
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which changes the manner in which public
companies report information about their operating segments. SFAS No. 131,
which is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers, and the
geographic locations in which the entity holds assets and reports revenue. The
Company will adopt SFAS No. 131 for the fiscal year ended December 31, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employees Disclosures about
Pensions and Other Postretirement Benefits." The new requirements require
increased disclosures for public entities. SFAS No. 132 only affects
disclosure issues and does not change any existing measurements or recognition
provisions previously required. The statement is effective for fiscal years
beginning after December 15, 1997. Reclassification for earlier periods is
required for comparative purposes. The Company will adopt SFAS No. 132 for the
fiscal year ended December 31, 1998.
42
BUSINESS
Alliance believes it is the leading designer, manufacturer and marketer of
stand alone commercial laundry equipment in North America and a leader
worldwide. Under the well-known brand names of Speed Queen, UniMac and
Huebsch, the Company produces a full line of commercial washing machines and
dryers with load capacities from 16 to 250 pounds. The Company believes it has
had the leading market share in the North American stand alone commercial
laundry equipment industry for the last five years and has progressively
increased its market share from approximately 21% in 1993 to 38% in 1997. The
Company attributes its industry leading position to: (i) the quality,
reliability and functionality of its products; (ii) the breadth of its product
offerings; (iii) its extensive distributor network and strategic alliances
with key customers; and (iv) its substantial investment in new product
development and manufacturing capabilities. As a result of its market
leadership, the Company has an installed base of equipment that it believes is
the largest in the industry and that generates significant recurring sales of
replacement equipment and service parts. Internationally, the Company has
developed targeted opportunities, generating equipment sales of $45.5 million
in 1997. In addition, pursuant to an agreement, the Company supplies consumer
washing machines to a large consumer appliances company ("Appliance Co.") for
sale at retail. For 1997, the Company generated net sales of $347.7 million
and EBITDA (as defined) of $57.2 million.
The Company believes it has developed the most extensive distribution
networks to each of the three distinct customer groups within the North
American stand alone commercial laundry equipment industry: (i) laundromats;
(ii) multi-housing laundries, consisting primarily of common laundry
facilities in apartment buildings, universities and military installations;
and (iii) on-premise laundries, consisting primarily of in-house laundry
facilities in hotels, hospitals, nursing homes and prisons. The Company
estimates that in over 80% of the North American market its laundromat and on-
premise laundry distributors are either the number one or number two
distributor for their respective selling regions. In addition, the Company's
in-house sales force has developed superior relationships with leading route
operators that own, install and maintain commercial laundry equipment in
multi-housing laundries, a critical factor in enabling the Company to grow its
market share. Internationally, the Company sells its laundry equipment through
distributors and to retailers.
With an investment of over $70.0 million since 1994, the Company has
substantially completed the development of many new products, the redesign of
existing products and the modernization of its three manufacturing facilities
in Wisconsin, Florida and Kentucky. Since January 1, 1997, the Company has
introduced new product designs and new product models that comprise over 85%
of its current product offerings. The Company believes its considerable
investment in its product line and manufacturing capabilities has strengthened
and will continue to enhance its market leadership position.
COMPANY STRENGTHS
MARKET LEADER WITH SIGNIFICANT INSTALLED BASE. The Company believes it led
the North American industry in sales to all customer groups, with a 38% market
share overall in 1997. The Company's market share has increased progressively
during the last five years for each customer group. As a result of its leading
market position, the Company has achieved superior brand recognition and
extensive distribution capabilities. The Company's market position has also
allowed it to establish what it believes to be the largest installed base in
its industry, which generates a significant level of recurring sales of
replacement equipment and service parts and provides a platform for sales
growth.
INDUSTRY-LEADING PRODUCT OFFERING. The Company believes its product line
leads the industry in reliability, breadth of offerings, functionality and
advanced features. Its development team of more than 120 engineers and
technical personnel, together with its marketing and sales personnel, work
with the Company's major customers to redesign and enhance the Company's
products to better meet customer needs. For example, the Company has
introduced since January 1, 1997 new product designs and new product models
that comprise over 85% of its current product offerings; the Company's new
products emphasize efficiency and new technology, facilitating ease of use as
well as improving performance and reliability. In addition, the Company
43
believes it is the only manufacturer in North America to produce a full
product line (including washers, dryers, washer-extractors and tumblers for
all customer groups), thereby providing customers with a single source for all
their stand alone commercial laundry equipment needs.
EXTENSIVE AND LOYAL DISTRIBUTION NETWORKS. The Company believes it has
developed the industry's most extensive North American distribution networks.
The Company estimates its distributors are either the number one or number two
distributor for their respective selling regions in over 80% of the North
American market. Most of the Company's distributors have been customers for
over ten years. In addition, through its in-house sales force the Company has
developed excellent relationships with industry-leading route operators, who
are direct customers of the Company. The Company believes its strong
relationships with its customers are based, in part, on the quality, breadth
and performance of its products and on its comprehensive value-added services.
LEADING NATIONAL BRANDS. The Company markets and sells its products under
the widely recognized brand names Speed Queen, UniMac and Huebsch. A survey
commissioned by the Company in 1993 of more than 1,000 commercial laundry
distributors and end-users ranked Speed Queen as the leader in terms of brand
awareness and as an industry leader for quality and reliability. In the same
study, UniMac was ranked a leading brand in the stand alone on-premise laundry
industry; Huebsch and Speed Queen ranked first and second, respectively, in
customer satisfaction.
STRONG AND INCENTIVIZED MANAGEMENT TEAM. Led by Chief Executive Officer
Thomas L'Esperance, the Company believes it has assembled the strongest
management team in the commercial laundry equipment industry. The Company's
seven executive officers have over 80 years of combined experience in the
commercial laundry equipment and appliance industries. This management team
has executed numerous strategic initiatives, including: (i) ongoing
refinements to its product offerings; (ii) the development of strategic
alliances with key customers; (iii) the implementation of manufacturing cost
reduction and quality improvement programs; and (iv) the acquisition and
successful integration of the commercial washer-extractor business of the
UniMac Company ("UniMac"). In addition, senior management (the "Management
Investors") owns approximately 19% of the Company on a diluted basis.
BUSINESS STRATEGY
The Company's strategy is to achieve profitable growth by offering a full
line of the most reliable and functional stand alone commercial laundry
equipment, along with comprehensive value-added services. The key elements of
the Company's strategy are as follows:
OFFER FULL LINE OF SUPERIOR PRODUCTS AND SERVICES. The Company seeks to
satisfy all of a customer's stand alone commercial laundry equipment needs
with its full line of products and services. The Company seeks to compete with
other manufacturers in the commercial laundry equipment industry by
introducing new products, features and value-added services tailored to meet
evolving customer requirements. In 1997, for example, the Company began field
tests for a new line of small-chassis frontload washers, offering multi-
housing laundries increased water and energy efficiency. In addition, in 1997,
the Company introduced its Automatic Balance System for topload washers,
providing industry-leading out-of-balance handling; Alliance's new topload
washers generate a higher g-force, thereby reducing moisture left in the
laundry and drying time, ultimately reducing operating costs for the Company's
customers.
DEVELOP AND STRENGTHEN ALLIANCES WITH KEY CUSTOMERS. The Company has
developed and will continue to pursue long-term alliances and multi-year
supply agreements with key customers. The Company is the predominant supplier
of new laundry equipment to Coinmach Corporation ("Coinmach"), the largest and
fastest growing operator of multi-housing laundries in North America.
Similarly, the Company is the supplier of substantially all of the laundry
equipment purchased by SpinCycle, Inc. ("SpinCycle"), an emerging leader in
the North American laundromat industry.
CONTINUOUSLY IMPROVE MANUFACTURING OPERATIONS. The Company seeks to
continuously enhance its product quality and reduce costs through refinements
to manufacturing processes. The Company achieves such
44
improvements through collaboration among key customers and its engineering and
marketing personnel. Since 1995, the Company has progressively reduced
manufacturing costs through improvements in raw material usage and labor
efficiency, among other factors. These improvements are driven in part by the
Company's goalsharing programs, through which the Company's manufacturing
teams share in a portion of the cost reductions they achieve.
INDUSTRY OVERVIEW
The Company estimates that North American stand alone commercial laundry
equipment sales were approximately $500.0 million in 1997, of which the
Company's equipment sales represented approximately $187.0 million. The
Company believes that North American sales of stand alone commercial laundry
equipment have grown at a compound annual rate of approximately 4.5% since
1993. North American commercial laundry equipment sales historically have been
relatively insulated from business and economic cycles, given that economic
conditions do not tend to affect the frequency of use, or replacement, of
laundry equipment. Management believes industry growth will be sustained by
continued population expansion and by customers increasingly "trading up" to
equipment with enhanced functionality, raising average selling prices.
Manufacturers of stand alone commercial laundry equipment compete on their
ability to satisfy several customer criteria, including: (i) equipment
reliability and durability; (ii) performance criteria such as water and energy
efficiency, load capacity and ease of use; (iii) availability of innovative
technologies such as cashless payment systems and advanced electronic
controls, which improve ease of use and management audit capabilities; and
(iv) value-added services such as rapid spare parts delivery, equipment
financing and computer aided assistance in the design of commercial laundries.
Outside of the stand alone commercial laundry equipment market, the Company
does not participate in manufacturing or selling commercial dry cleaning
equipment or custom engineered, continuous process laundry systems. Each of
these other markets is distinct from the stand alone commercial laundry
equipment market, employing different technologies and distribution networks
and serving different customer groups.
CUSTOMER CATEGORIES. Each of the stand alone commercial laundry equipment
industry's three primary customer groups--laundromat operators, multi-housing
laundry operators and on-premise laundry operators--is served through a
different distribution channel and has different requirements with respect to
equipment load capacity, performance and sophistication. For example,
equipment purchased by multi-housing route operators is most similar to
consumer machines sold at retail, while equipment purchased by laundromats and
on-premise laundries has greater durability, delivers increased capacity and
provides superior cleaning and drying capabilities.
LAUNDROMATS. Management estimates that laundromats accounted for
approximately 52% of North American stand alone commercial laundry equipment
sales in 1997. These approximately 35,000 facilities typically provide walk-
in, self-service washing and drying. Laundromats primarily purchase commercial
topload washers, washer-extractors and tumblers. Washer-extractors and
tumblers are larger-capacity, higher-performance washing machines and dryers,
respectively. Laundromats have historically been owned and operated by sole
proprietors. Laundromat owners typically rely on distributors to provide
equipment, technical and repair support and broader business services. For
example, distributors may host seminars for potential laundry proprietors on
laundromat investment opportunities. Independent proprietors also look to
distributors and manufacturers for equipment financing. Given the laundromat
owner's reliance on the services of its local distributor, the Company
believes that a strong distributor network in local markets differentiates
manufacturers in serving this customer group.
In addition to distributor relationships, the Company believes laundromat
owners choose among different manufacturers' products based on, among other
things: (i) availability of equipment financing; (ii) reputation, reliability
and ease and cost of repair; (iii) the water and energy efficiency of the
products (approximately 22% to 25% of annual gross wash and dry income of
laundromats is consumed by utility costs, according to the Coin Laundry
Association ("CLA")); and (iv) the efficient use of physical space in the
store (since 15% to 20% of annual gross income of laundromats is expended for
rent according to the CLA).
45
MULTI-HOUSING LAUNDRIES. Management believes that multi-housing laundries
accounted for approximately 26% of North American stand alone commercial
laundry equipment sales in 1997. These laundries include common laundry
facilities in multi-family apartment and condominium complexes, universities
and military installations.
Most products sold to multi-housing laundries are small-chassis topload and
frontload washers and small-chassis dryers similar in appearance to those sold
at retail to the consumer market but offering a variety of enhanced durability
and performance features. For example, topload washers sold to multi-housing
laundries typically last up to 12,000 cycles, approximately twice as long as
the expected life of a consumer machine.
Multi-housing laundries are managed primarily by route operators who
purchase, install and service the equipment under contract with building
management. Route operators pay rent (which may include a portion of the
laundry's revenue) to building management. Route operators are typically
direct customers of commercial laundry equipment manufacturers such as the
Company and tend to maintain their own service and technical staffs. Route
operators compete for long-term contracts on the basis of, among other things:
(i) the reputation and durability of their equipment; (ii) the level of
maintenance and quality of repair service; (iii) the ability of building
management to audit laundry equipment revenue; and (iv) the water and energy
efficiency of products.
The Company believes reliability and durability are key criteria for route
operators in selecting equipment, as they seek to minimize the cost of
repairs. The Company also believes route operators prefer water and energy
efficient equipment that offers enhanced electronic monitoring and tracking
features demanded by building management companies. Given their investments in
spare parts inventories and in technician training, route operators are
reluctant to change equipment suppliers. Therefore, the Company believes an
installed base gives a commercial laundry equipment manufacturer a competitive
advantage.
ON-PREMISE LAUNDRIES. Management believes that on-premise laundries
accounted for approximately 22% of North American stand alone commercial
laundry equipment sales in 1997. On-premise commercial laundries are located
at a wide variety of businesses that wash or process textiles or laundry in
large quantities, such as hotels and motels, hospitals, nursing homes, sports
facilities, car washes and prisons.
Most products sold to on-premise laundries are washer-extractors and
tumblers, primarily in larger capacities up to 250 pounds. These machines
process significantly larger loads of textiles in shorter times than equipment
typically sold to laundromats or multi-housing customer groups. Effective and
rapid washing (i.e., reduced cycle time) of hotel sheets, for example, reduces
both a hotel's linen requirements and labor costs of washing and drying
linens. The Company believes that in a typical hotel on-premise laundry, up to
50% of the cost of operations is labor.
On-premise laundries typically purchase equipment through a distributor who
provides a range of selling and repair services on behalf of manufacturers. As
with laundromats, the Company believes a strong distributor network is a
critical element of sales success. On-premise laundries select their equipment
based on the availability of specified product features, including, among
other things: (i) reputation and reliability of products; (ii) load capacity
and cycle time; (iii) water and energy efficiency; and (iv) ease of use. In
addition, the availability of technical support and service is important to an
on-premise laundry's selection of an equipment supplier.
TRENDS AND CHARACTERISTICS
Growth Drivers. The Company believes that continued population expansion in
North America has and will drive steady demand for garment and textile
laundering by all customer groups purchasing commercial laundry equipment. The
Company believes population growth has historically supported replacement and
some modest growth in the installed base of commercial laundry equipment.
According to the U.S. Census Bureau, the United States population has grown at
a compound annual rate of 0.9% since 1988 and is projected to grow at
approximately 1.0% per year on average over the next ten years.
46
In addition, customers are increasingly "trading up" to equipment with
enhanced functionality, raising average selling prices. For example, national
customers in the laundromat and multi-housing customer groups are more likely
to take advantage of recently available electronic features, which the Company
believes provide such customers with a competitive advantage. Moreover,
customers are moving towards equipment with increased water and energy
efficiency as the result of government and consumer pressure and a focus on
operating cost containment.
Limited Cyclicality. North American commercial laundry equipment sales
historically have been relatively insulated from business and economic cycles
because economic conditions do not tend to affect the frequency of use, or
replacement, of laundry equipment. Management believes industry growth will be
sustained by continued population expansion and by customers increasingly
"trading up" to equipment with enhanced functionality, raising average selling
prices. Under all economic conditions, owners of commercial laundries
typically delay equipment replacement until such equipment can no longer be
economically repaired or until competition forces the owner to upgrade such
equipment to provide improved appearance or functionality. The economic life
of such equipment and thus timing of replacement of such equipment are also
generally unaffected by economic conditions; the economic life of stand alone
commercial laundry equipment is generally 7-14 years.
International Growth. The Company anticipates growth in demand for
commercial laundry equipment in international markets, especially in
developing countries where laundry machine penetration remains low. As of
1995, only 40% of the population of South America and 20% of the Asian
population had a washer in their home, compared to over 70% in North America,
according to market research company The Freedonia Group.
Reducing Customer Operating Costs. The time required to wash and dry a given
load of laundry (i.e., cycle time) has a significant impact on the economics
of a commercial laundry operation. Accordingly, commercial laundry equipment
manufacturers produce equipment that provides progressively shorter cycle
times through improved technology and product innovation to decrease labor
costs and increase the volume of laundry that can be processed in a given time
period. Examples of methods of reducing cycle time are: (i) increasing the
fill, wash and drain rates; (ii) increasing water extraction capability by
increasing spin rate; and (iii) decreasing the number of unfinished wash
cycles by improving out-of-balance performance.
PRODUCTS
OVERVIEW. The Company offers a full line of stand alone commercial laundry
washers and dryers, with service parts and value-added services supporting its
products, under the Speed Queen, Huebsch and UniMac brands throughout North
America and in over sixty foreign countries. The Company's products range from
small washers and dryers primarily for use in laundromats and multi-housing
laundry rooms to large laundry equipment with load capacities of up to 250
pounds used in on-premise laundries. The Company also benefits from domestic
and international sales of service parts for its large installed base of
commercial laundry equipment. Internationally, the Company sells laundry
equipment under the Speed Queen and private label brands. In addition, the
Company produces consumer laundry washers for Appliance Co. under a supply
agreement. See "--Appliance Co. Transaction."
WASHERS. Washers, including consumer products sold to Appliance Co.,
represented approximately 63% of 1997 net sales and include washer-extractors,
topload washers and frontload washers.
Washer-Extractors. The Company manufactures washer-extractors, its largest
washer products, to process from 18 to 250 pounds of laundry per load. Washer-
extractors extract water from laundry with spin speeds that produce over
300g's of centrifugal force, thereby reducing the time and energy costs for
the drying cycle. Sold under the Speed Queen, UniMac and Huebsch brands, these
products represented approximately 24% of 1997 net sales. Washer-extractors
that process up to 80 pounds of laundry per load are sold to laundromats, and
washer-extractors that process up to 250 pounds of laundry per load are sold
to on-premises laundries. Washer-extractors are built to be extremely durable
due to the enormous g-force generated by spinning several hundred pounds of
water-soaked laundry, to the constant use of the equipment and to the high
cost of failure to the user.
47
In 1997, the Company introduced new features and increased capacity for
washer-extractors. The Company believes this redesign further strengthens the
Speed Queen and UniMac brands of on-premise laundry equipment as the leading
products within the industry. Increased capacity models allow the Company to
address a broader on-premise laundry customer base. The redesigned line
combines greater productivity at less cost with more options to meet the
demands of on-premise laundry customers, including improved features such as
the Ultra-soft wash cycle, which allows laundering of the most delicate hand-
washable draperies or bedspreads.
Topload Washers. Topload washers are small-chassis washers with the
capability to process up to 18 pounds of laundry per load with spin speeds
that produce up to 150g's. Sold primarily to multi-housing laundries and
laundromats under the Speed Queen and Huebsch brands, these products
represented approximately 17% of 1997 net sales. In addition, the Company's
sales of consumer washers to Appliance Co. represented approximately 22% of
1997 net sales.
In 1997, the Company introduced its Automatic Balance System ("ABS"), which
it believes provides the industry-leading out-of-balance handling. New topload
washers with ABS deliver higher g-force, reducing moisture left in the
laundry, thereby reducing drying time and energy usage.
Frontload Washers. In October 1997, the Company began field tests of a new
small-chassis frontload washer with the capability to process up to 18 pounds
of laundry per load. Frontload washers are sold under the Speed Queen brand to
laundromat and multi-housing customers. The frontload washer's advanced design
uses 28% less water compared to commercial topload washers. Furthermore,
decreased usage of hot water and superior water extraction in the high g-force
spin cycle reduce energy consumption. This new frontload washer is available
with front controls (front accessibility complies with Americans with
Disabilities Act regulations) and can be purchased with a matching small-
chassis dryer (single or stacked). The Company will source frontload washers
from Appliance Co. through September 1998. See "--Appliance Co. Transaction"
and "--Ripon Transition."
DRYERS. Dryers represented approximately 26% of 1997 net sales and include
tumbler dryers, standard dryers and stacked dryers. The Company also sells a
new line of stacked frontload washers and dryers.
Tumbler Dryers. Tumblers are very large dryers with the capability of drying
up to 170 pounds of laundry per load. Tumblers represented approximately 17%
of 1997 net sales. Tumblers are sold primarily to laundromats and on-premise
laundries under all three of the Company's brands. The Company's new tumbler
dryer design, introduced in October 1997, features commonality of internal
components between models, reducing parts inventory and improving
serviceability. These units have 33% to 50% fewer moving parts as compared to
their previous design. In addition, these tumblers reduce drying time using
22% less energy as compared to their previous design. The Company's new
product offering expands the capacity range of the tumbler dryer line to
include the 25 pound single dryer, which is popular in foreign markets.
Standard Dryers. Standard dryers are small capacity dryers with the
capability to process up to 18 pounds of laundry per load. Sold under the
Speed Queen and Huebsch brands, standard dryers (including stacked dryers)
represented approximately 9% of 1997 net sales. In 1997, the Company
introduced its newly designed standard dryer, which serves the multi-housing
and international consumer markets. The Company believes the dryer's increased
capacity, measuring 7.1 cubic feet, is among the largest in the industry. The
size of the loading door opening has also been increased to improve loading
accessibility. The Company believes that the increased drying capacity and
enhanced operational convenience that these improvements provide are critical
factors to a customer's product satisfaction. The Company will source its
standard and stacked dryers from Appliance Co. until September 1999. See "--
Appliance Co. Transaction" and "--Ripon Transition."
Stacked Dryers and Stacked Frontload Washers and Dryers. To enable its
multi-housing customers to conserve valuable floor space, the Company offers a
stacked unit consisting of two 18 pound standard dryers and will offer a
stacked unit consisting of an 18 pound frontload washer paired with an 18
pound standard dryer. The Company believes it will be the only manufacturer of
stacked frontload washer and dryer units.
48
SERVICE PARTS. The Company benefits from the recurring sales of service
parts to its large installed base. Such sales accounted for approximately 9%
of 1997 net sales. The Company offers immediate response service whereby many
of its parts are available on a 24-hour turnaround for emergency repair parts
orders.
OTHER VALUE-ADDED SERVICES. The Company believes its customers attach
significant importance to the value-added services it provides. The Company
offers services that it believes are significant drivers of high customer
satisfaction, such as equipment financing (which accounted for approximately
2% of 1997 net sales), laundromat site selection assistance, investment
seminar training materials, computer-aided commercial laundry room design,
sales and service training for distributors, technical support and service
training material. In addition, the Company believes it offers an unmatched
range of complementary customer services and support, including toll-free
technical support and on-call installation and repair service through its
highly trained distributors. The Company believes its extensive service
capabilities, in addition to the dependability and functionality of its
products, will continue to differentiate its products from the competition.
CUSTOMERS
The Company's customers include more than: (i) 120 distributors to
laundromats; (ii) 110 distributors to on-premise laundries; (iii) 110 route
operators serving multi-housing laundries; and (iv) 75 international
distributors serving more than 60 countries.
The Company's top ten equipment customers (excluding Appliance Co.)
accounted for approximately 27% of 1997 net sales. Coinmach, the largest
multi-housing route operator in the United States, Macke Laundry Service, L.P.
(which was acquired by Coinmach in early 1998), Lead Laundry Equipment and
SpinCycle, an emerging leader in the laundromat industry, were the Company's
largest customers (excluding Appliance Co.), none of which individually
accounted for more than 8% of 1997 net sales. In addition, sales to Appliance
Co. accounted for 22% of 1997 net sales. See "--Appliance Co. Transaction."
SALES AND MARKETING
SALES FORCE. The Company's sales force of approximately 30 is structured to
serve the needs of each customer group. In addition, the Company, through a
staff of approximately 40 professionals, provides customers and distributors
with a wide range of value-added services such as laundromat site selection
assistance, investment seminar training materials, computer-aided commercial
laundry room design, sales and service training and technical support.
MARKETING PROGRAMS. The Company supports its sales force and distributors
through a balanced marketing program of advertising and industry trade shows.
Advertising expenses totaled $3.4 million in 1997 and included a variety of
forms, from print and electronic media to direct mail. In addition, Company
representatives attended over 40 trade shows in 1997 to introduce new
products, maintain contact with customers, develop new customer relationships
and generate demand for the Company's products.
EQUIPMENT FINANCING. The Company, through the Financing Subsidiaries, offers
an extensive off-balance sheet equipment financing program to end-users,
primarily laundromat owners, to assist in their purchases of new equipment.
Typical terms include 2-7 year loans with an average principal amount of
approximately $50,000. Management believes that the Company's off-balance
sheet equipment financing program is among the industry's most comprehensive
and that the program is an important component of its marketing activities. In
addition, this service provides the Company with stable, recurring income.
The program is structured to minimize risk of loss. The Company adheres to
strict underwriting procedures, including comprehensive applicant credit
analysis (generally including credit bureau, bank, trade and landlord
references, site analysis including demographics of the location and multiple
year pro-forma cash flow projections), the receipt of collateral and
distributor assistance in remarketing collateral in the event of default. As a
result of these risk management tools, losses from the program have been
minimal. Net write-offs inclusive of loans sold to third parties since the
inception of the program in 1992 have been approximately 0.1% as of
49
December 31, 1997. In addition, pursuant to the Merger Agreement, Raytheon has
indemnified the Company for substantially all of the liabilities that might
arise from recourse to the Company in the event of default on existing
portfolios of loans sold prior to Closing. See "Certain Relationships and
Related Transactions" and "Description of Asset Backed Facility."
RESEARCH AND DEVELOPMENT
The Company's engineering organization is staffed with over 120 engineers
and technical support staff. The Company's recent research and development
efforts have focused primarily on continuous improvement in the reliability,
performance, capacity, energy and water conservation, sound levels and
regulatory compliance of its commercial laundry equipment. The Company's
engineers and technical personnel, together with its marketing and sales
personnel, collaborate with the Company's major customers to redesign and
enhance its products to better meet customer needs. Research and development
spending has increased from $4.8 million in 1994 to $7.6 million in 1997. The
Company has developed numerous proprietary innovations that the Company uses
in select products. Over the past two years, the Company has rolled out its
MicroMaster line of electronically controlled tumblers and washer-extractors
under the Speed Queen brand as well as its CardMate Plus debit card cashless
system designed to replace coin payment systems. The Company believes this
array of new products allows it to continue to be an innovative leader in
electronic controls equipment. The Company believes improvements made to
existing products and the introduction of new products have supported the
Company's market leadership position.
COMPETITION
Within the North American stand alone commercial laundry equipment industry,
the Company competes with several large competitors. The Company believes,
however, it is the only participant in the North American stand alone
commercial laundry equipment industry to serve significantly all three
customer groups with a full line of washer-extractors, washers, tumbler dryers
and standard dryers. With respect to laundromats, the Company's principal
competitors include Wascomat (the exclusive North American distributor of
Electrolux AB products), Maytag Corporation and The Dexter Company. In multi-
housing, the principal competitors include Maytag Corporation and Whirlpool
Corporation. In on-premise laundry, the Company competes primarily with
Pellerin Milnor Corporation, American Dryer Corporation and Wascomat. The
Company does not believe that a significant new competitor has entered the
North American stand alone commercial laundry equipment industry during the
last ten years, however there can be no assurance that significant new
competitors or existing competitors will not compete for the business of
different customer groups in the future. Consequently, there can be no
assurance that the Company will be able to compete effectively in the future.
Certain of the Company's principal competitors have greater financial
resources and/or are less leveraged than the Company and may be better able to
withstand market conditions within the commercial laundry industry. There can
be no assurance that the Company will not encounter increased competition in
the future, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
MANUFACTURING
The Company owns and operates three manufacturing facilities in Wisconsin,
Florida and Kentucky--with an aggregate of more than 800,000 square feet. The
facilities are organized to focus on specific product segments, although each
facility serves multiple customer groups. The Ripon plant presently produces
the Company's topload washers and is expected to produce the Company's other
small-chassis products: frontload washers, beginning in the fall of 1998, and
dryers, beginning in fall of 1999. The Company's large-chassis products are
produced in Marianna (washer-extractors) and Madisonville (tumblers). The
Company's manufacturing plants primarily engage in fabricating, machining,
painting, assembly and finishing operations. The Company also operates four
regional distribution centers, of which three are owned and one is leased. The
Company believes that existing manufacturing facilities provide adequate
production capacity to meet expected product demand. See "--Ripon Transition."
50
The Company purchases substantially all raw materials and components from a
variety of independent suppliers. Key material inputs for manufacturing
processes include motors, stainless steel, aluminum, electronic controls,
corrugated boxes and plastics; in addition, the Company externally sources
finished frontload washers and dryers. The Company believes there are readily
available alternative sources of raw materials from other suppliers. The
Company has developed long-term relationships with many of its suppliers and
has sourced materials from nine of its ten largest suppliers for at least five
years.
The Company is committed to achieving continuous improvement in all aspects
of its business in order to maintain its industry leading position. All of the
Company's manufacturing facilities are ISO 9001 certified.
PROPERTIES
The following table sets forth certain information regarding significant
facilities operated by the Company as of December 31, 1997:
APPROXIMATE
LOCATION FUNCTION/PRODUCTS SQUARE FEET OWNED/LEASED
-------- ----------------------------- ----------- ------------
Production Facilities
Ripon, WI............... Manufacture Small Washers 425,400 Owned
Marianna, FL............ Manufacture Washer-Extractors 222,200 Owned(/1/)
Madisonville, KY........ Manufacture Tumbler Dryers 152,700 Owned
Omro, WI................ Die Cast Facility 37,200 Leased(/2/)
---------
Subtotal 837,500
Regional Distribution
Centers
Ripon, WI............... Washers, Dryers, Tumblers 138,700 Owned
Ripon, WI............... Service Parts 60,800 Owned
Madisonville, KY........ Tumblers 80,000 Leased(/3/)
Marianna, FL............ Washers, Washer-Extractors 37,000 Owned
---------
Subtotal 316,500
Other
Ripon, WI............... Div. Support 65,700 Owned
Engineering, Procurement 43,100 Owned
---------
Subtotal 108,800
---------
Total 1,262,800
=========
- --------
(1) The Marianna building is owned, however, the land is leased from the city
of Marianna.
(2) This facility is leased for the Company through July, 1998 at which time
it is anticipated that the transition to outsourced aluminum die castings
will be completed.
(3) Up to 80,000 square feet of warehouse space is available and is rented on
an as needed basis. Currently 40,000 square feet is rented.
The Company believes existing manufacturing facilities provide adequate
production capacity to meet product demand. See "--Ripon Transition."
APPLIANCE CO. TRANSACTION
On September 10, 1997, Raytheon (the former parent of the Company) completed
the sale of its consumer appliances business to Appliance Co. (the "Appliance
Co. Transaction"). Prior to the Appliance Co. Transaction, Raytheon owned two
plants that manufactured laundry equipment for both consumer and commercial
use on the same production lines: (i) a facility in Searcy, Arkansas that
manufactures small-chassis frontload washers and dryers and (ii) a facility in
Ripon, Wisconsin that manufactures small-chassis topload washers. In
connection with the Appliance Co. Transaction, Raytheon sold the Searcy
facility to Appliance Co. and retained the Ripon facility. In addition,
Appliance Co. entered into a supply agreement (the "Appliance Co. Supply
Agreement") to purchase consumer topload washers from the Company until
September 1999 (subject
51
to certain extension rights), and the Company entered into a supply agreement
with Appliance Co. to purchase commercial small-chassis frontload washers and
dryers until September 1998 and September 1999, respectively. Under both
supply agreements, products are sold at prices that approximate cost.
On April 17, 1998, Appliance Co. filed suit in the United States District
Court for the Southern District of New York against Raytheon and the Company
seeking (i) declaratory relief that the Company is bound by a non-compete
agreement between Appliance Co. and Raytheon that prohibits the participation
by Raytheon and corporate affiliates of Raytheon in the consumer retail
distribution laundry market, and (ii) unspecified damages from Raytheon and
the Company for breach of the non-compete agreement. On June 2, 1998,
Appliance Co. filed an amended complaint reiterating the allegations of the
original complaint and also asserting that, by virtue of the manner in which
they consummated the sale of the Company by Raytheon, both the Company and
Bain Capital, Inc. tortiously interfered with the non-compete agreement
between Appliance Co. and Raytheon. Appliance Co. now claims to be entitled to
damages in excess of $100 million and also contends that, if the Company is
not bound by the non-compete agreement, then Appliance Co. should also be
relieved of any obligations under the non-compete agreement. Raytheon has
agreed to pay the attorney's fees and costs incurred by the Company and Bain
in contesting this lawsuit. The defendants dispute all Appliance Co.
allegations and deny that Appliance Co. is entitled to any damages. There can
be no assurance, however, that the Company will prevail in the lawsuit and,
accordingly, the Company may be prohibited for some period of time from
participating in the consumer retail distribution laundry market. The Company
does not currently participate in this market.
Previously, in early 1998, Appliance Co. alleged that Raytheon had breached
certain of its obligations under the sale agreement governing the Appliance
Co. Transaction and under the Appliance Co. Supply Agreement, primarily
relating to the establishment of full volume production of frontload washers
at Appliance Co.'s Searcy facility. The Company is being indemnified by
Raytheon with respect to this dispute and believes that the dispute will be
resolved without any material monetary obligation to the Company.
RIPON TRANSITION
The Company is in the process of establishing at its Ripon facility the
capability to manufacture small-chassis frontload washers and dryers beginning
in September 1998 and September 1999, respectively; until such time, the
Company will continue to source these products from Appliance Co. Similarly,
the Company expects Appliance Co. to begin producing topload washers at its
own facilities in September 1999. The Company's plan to introduce small-
chassis frontload washer and dryer production and to cease production of
consumer topload washers for Appliance Co. (the "Transition Plan") is expected
to require aggregate capital expenditures of approximately $13.0 million in
1998 and 1999 and nonrecurring expenses (such as plant reconfiguration,
severance expenses and manufacturing start-up expenses) of approximately $5.0
million in 1998 and 1999. The Company is confident in its ability to
successfully execute the Transition Plan for the following reasons: (i) except
for certain discrete improvements, the Company is replicating production
processes, equipment and tooling that its own engineers designed and installed
in the Searcy facility and (ii) the Company will benefit from experience in
the Searcy facility to improve upon existing designs and manufacturing
processes at the Ripon facility.
Consumer topload washers sold to Appliance Co. accounted for a substantial
percentage of the unit volume of the Ripon facility and represented
approximately 22% of 1997 net sales. The Company expects the decline in
topload washer production volume at the Ripon facility resulting from
termination of the Appliance Co. Supply Agreement will be offset in part by
the introduction of dryer and frontload washer production and by growth in
sales to other customers.
After implementation of the Transition Plan, the Company believes the Ripon
facility will be the world's largest facility dedicated to manufacturing
small-chassis commercial laundry equipment, comprised of three "focused
factories," each with its own dedicated manufacturing and engineering teams.
The Company believes the implementation of the Transition Plan will enable it
to respond more flexibly and rapidly to customer
52
requirements with product changes as a result of (i) improved communication
and coordination among the design, engineering, marketing and sales
organizations centralized at the Ripon facility and (ii) the ability to
concentrate exclusively on medium volume, higher margin products.
NEW BUSINESS OPPORTUNITIES
The Company is evaluating a number of new business opportunities. For
example, the Company sees a potential opportunity to become a full-line
supplier of environmentally safe dry-cleaning equipment as the dry-cleaning
industry comes under increasing regulatory and consumer pressure to provide
environmentally friendly services. The cornerstone of this strategy is the
development of a CO/2/-based dry cleaning machine, based on a technology for
which the Company holds one of only two North American licenses. The Company
is also evaluating certain opportunities to increase sales of existing
products in international markets.
PATENTS AND TRADEMARKS
The Company's trademarks are currently registered with the United States
Patent and Trademark Office and in all 50 states and registered or
applications are pending in 58 foreign countries. Management believes that
such trademarks have significant value and are important in the marketing of
its products to customers. The Company owns numerous United States and foreign
patents and has patent applications pending in the United States and abroad.
In addition, the Company owns United States (federal and state) and foreign
registered trade names and service marks and has applications for the
registration of trade names and service marks pending in the United States and
abroad. The Company also owns several United States copyright registrations
and a wide array of unpatented proprietary technology and know-how. Further,
the Company licenses certain intellectual property rights from third parties.
The Company's ability to compete effectively with other companies depends, to
a significant extent, on its ability to maintain the proprietary nature of its
owned and licensed intellectual property.
LEGAL PROCEEDINGS
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
Company cannot predict the outcome of these matters, in the opinion of
management, any liability arising thereunder will not have a material adverse
effect on the Company's business, financial condition and results of
operations after giving effect to provisions already recorded. In addition,
the Company is currently involved in litigation with Appliance Co. which the
Company believes will not result in material monetary obligation to the
Company, even if determined adversely to the Company. See "Business--Appliance
Co. Transaction."
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water and the
disposal of hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates
and at other properties where the Company or predecessors have arranged for
the disposal of hazardous substances. As a result, the Company is involved,
from time to time, in administrative and judicial proceedings and inquires
relating to environmental matters. There can be no assurance that the Company
will not be involved in such proceedings in the future and that the aggregate
amount of future clean-up costs and other environmental liabilities will not
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company believes that its facilities and
operations are in material compliance with all environmental, health and
safety laws.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect
the demand for, the Company's products. The Company cannot predict the
environmental liabilities that may result
53
from legislation or regulations adopted in the future, the effect of which
could be retroactive. Nor can the Company predict how existing or future laws
and regulations will be administered or interpreted or what environmental
conditions may be found to exist at the Company's facilities or at other
properties where the Company or its predecessors have arranged for the
disposal of hazardous substances.
Certain environmental investigatory and remedial work is underway or planned
at, or relating to, the Company's Marianna, Florida, Omro, Wisconsin and
Ripon, Wisconsin manufacturing facilities. With respect to the Marianna
facility, such work is being conducted by a former owner of the property and
is being funded through an escrow account, the balance of which the Company
believes to be adequate. With respect to the Omro facility, such work is being
conducted by Raytheon at Raytheon's sole cost and expense. With respect to the
Ripon facility, such work will be conducted by the Company, subject to the
Raytheon indemnification described below.
Pursuant to the Merger Agreement, and subject to certain time and dollar
limitations, Raytheon has agreed to indemnify the Company for environmental
liabilities arising from the operations of the Company and its predecessors
prior to the Merger. In addition to the Raytheon indemnification, with respect
to the Marianna, Florida facility, a former owner of the property has agreed
to indemnify the Company for certain environmental liabilities. In the event
that Raytheon or the former owner fail to honor their respective obligations
under these indemnifications, such liabilities could be borne directly by the
Company and could be material.
EMPLOYEES
As of April 1998, the Company had approximately 1,743 full-time employees.
Approximately 634 of the Company's employees at its Ripon, Wisconsin and Omro,
Wisconsin facilities are represented by The United Steel Workers of America.
The Company is periodically in negotiations with The United Steel Workers of
America. The Company considers its overall relations with its work force to be
satisfactory. The Company's current contract with The United Steel Workers of
America for its Ripon and Omro employees is set to expire in February 1999.
54
MANAGEMENT
MANAGERS AND EXECUTIVE OFFICERS
The representatives to the Board of Managers and executive officers of the
Company following the Merger are as follows:
NAME AGE POSITION
---- --- --------
Thomas F. L'Esperance... 49 Chief Executive Officer and Manager
Jeffrey J. Brothers..... 51 Senior Vice President, Sales and Marketing
Bruce P. Rounds......... 42 Vice President, Chief Financial Officer
Herman W. Beach......... 51 Vice President, Washer-Extractor/Tumbler Operations
R. Scott Gaster......... 45 Vice President, Washer and Dryer Operations
Robert T. Wallace....... 42 Vice President, Controller
Scott L. Spiller........ 47 Vice President, Law and Human Resources
Edward W. Conard........ 41 Manager
Robert C. Gay........... 46 Manager
Stephen C. Sherrill..... 43 Manager
Stephen M. Zide......... 38 Manager
THOMAS F. L'ESPERANCE has been Chief Executive Officer of the Company since
March 1996. He had served as President of the Amana Home Appliance Company
from 1993 to 1996 and was President of Caloric Corporation, a manufacturer of
appliances, for two years prior thereto.
JEFFREY J. BROTHERS has been Senior Vice President of Sales and Marketing of
the Company since October 1989. He has been employed with the Company since
1977. Mr. Brothers has been involved in sales for the Company since 1983 and
has held other positions such as Manager of Distribution Development, Plant
Controller and Financial Analyst.
BRUCE P. ROUNDS joined the Company in 1989 as Vice President of Finance and
was promoted to his current position in February 1998. He held the position of
Vice President, Business Development, for the Company from 1996 to 1998.
Before coming to the Company, he served in a variety of capacities for eight
years at Mueller Company and for three years with Price Waterhouse. He is a
Certified Public Accountant.
HERMAN W. BEACH has worked for Raytheon and the Company for nearly 20 years
and has held his current position since April 1996. His employment with
Raytheon began in the Missile Systems Company for two years. His career with
the Company began in 1980 with positions in Human Resources and Strategic
Planning. Mr. Beach's prior work experiences include the Tennessee Valley
Authority and H.D. Lee Company.
R. SCOTT GASTER joined the Company as Vice President, Procurement and
Materials, in June 1995. He took on the added responsibility of Vice President
of Washer and Dryer Operations in July 1997. Mr. Gaster has also retained his
former purchasing responsibilities. Prior to joining the Company, he was
employed by GKN Automotive, Inc. from 1979 to 1995 in such positions as
Director of Procurement and Logistics, Corporate Purchasing Agent and
Purchasing Manager.
ROBERT T. WALLACE has been Vice President, Controller, of the Company since
June 1996. He held positions as Controller and Manager-Reporting and Analysis
for the Company from 1990 to 1996. Mr. Wallace's previous experience includes
two years as Controller of Alcolac (chemicals), four years as Manager of
Reporting and Analysis with Mueller Company, five years with Ohmeda and two
years with Price Waterhouse. He is a Certified Public Accountant.
55
SCOTT L. SPILLER has been Vice President of Law & Human Resources, and
General Counsel of the Company since March 1998. His prior experience includes
ten years as General Counsel and Secretary of the Company and four years as
Associate Counsel of Winchester Group, Olin Corporation.
EDWARD W. CONARD serves as a Manager following the Merger. He has been a
Managing Director of Bain since March 1993. From 1990 to 1992, Mr. Conard was
a director of Wasserstein Perella, an investment banking firm that specializes
in mergers and acquisitions. Previously, he was a Vice President of Bain &
Company, where he headed the management consulting firm's operations practice
area. Mr. Conard also serves as a director of Waters Corporation, Details
Holdings Corp., Details, Inc. and Cambridge Automotive.
ROBERT C. GAY serves as a Manager following the Merger. Mr. Gay has been a
Managing Director of Bain since 1993 and has been a General Partner of Bain
Venture Capital since 1989. From 1988 through 1989, Mr. Gay was a principal of
Bain Venture Capital. Mr. Gay is Vice Chairman of the Board of Directors of
IHF Capital, Inc., parent of ICON Health & Fitness Inc. Mr. Gay also serves as
a director of Alliance Entertainment Corp., GT Bicycles, Inc., Physio-Control
International Corporation, Cambridge Industries, Inc., Nutraceutical
Corporation, American Pad & Paper Company, GS Technologies and Small Fry Snack
Foods Limited.
STEPHEN C. SHERRILL serves as a Manager following the Merger. Mr. Sherrill
has been a principal of Bruckmann, Rosser, Sherrill & Co., L.P. since its
formation in 1995. Mr. Sherrill was an officer of Citicorp Venture Capital,
Ltd. from 1983 through 1994. Mr. Sherrill is a director of Galey & Lord, Inc.,
Jitney-Jungle Stores of America, Inc., Restaurant Associates Corp., B & G
Foods, Inc., Windy Hill Pet Food Company, Inc. and HealthPlus Corporation.
STEPHEN M. ZIDE serves as a Manager following the Merger and has been an
Associate at Bain since August 1997. Previously, he was a partner at the law
firm of Kirkland & Ellis from 1992 to 1995. Mr. Zide also serves as a director
of Details Holdings Corp. and Details, Inc.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company or its
predecessor for 1997 of those persons who served as (i) the chief executive
officer during 1997 and (ii) the other four most highly compensated executive
officers of the Company or its predecessor for 1997 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
--------------------------- ---- --------- -------- ---------------
Thomas F. L'Esperance............... 1997 250,000 90,000 60,000(/1/)
R. Scott Gaster..................... 1997 131,700 15,000 14,700(/1/)
Jeffrey J. Brothers................. 1997 123,012 17,000 14,645(/1/)
Herman W. Beach..................... 1997 120,696 17,000 14,369(/1/)
Bruce P. Rounds..................... 1997 119,700 17,000 14,963(/1/)
- --------
(1)Represents payments under retention agreements from Raytheon.
EMPLOYMENT AGREEMENT
In connection with the Merger, the Company entered into an employment
agreement with Thomas F. L'Esperance. Such agreement provides for: (i) a five
year employment term; (ii) a minimum base salary and bonus following the end
of each fiscal year so long as the Company employs Mr. L'Esperance; (iii)
severance benefits; (iv) non-competition, non-solicitation and confidentiality
agreements; and (v) other terms and conditions of Mr. L'Esperance's
employment.
56
EXECUTIVE UNIT PURCHASE AGREEMENT
In connection with the Merger, MergeCo entered into Executive Unit Purchase
Agreements with certain members of management of the Company (each, an
"Executive"). Such agreements govern the sale to the Executives of common
membership interests of MergeCo in exchange for cash and/or a promissory note
from the Executive and provide for repurchase rights and restrictions on
transfer of the common units. In connection with the Merger, the Executives'
membership interests in MergeCo were converted into common membership
interests of the Parent.
DEFERRED COMPENSATION AGREEMENT
In connection with the Merger, Raytheon, the Company and the Parent entered
into Deferred Compensation Agreements with certain Executives whereby the
Company assumed certain long term compensation obligations earned by
management under programs established by Raytheon. Such agreements provide for
the deferral of compensation until the earlier of (i) the payment of a lump
sum (the "Benefit Amount") to the Executive ten years after the date of such
agreement, regardless of whether the Executive is employed by the Company as
of such date or (ii) the payment of the Benefit Amount upon the occurrence of
certain events described therein.
PENSION PLAN
Substantially all eligible salaried employees of the Company, including
executive officers of the Company, are covered under the Alliance Laundry
Systems Retirement Income Plan (the "Pension Plan"). The cost of the Pension
Plan is borne entirely by the Company. Annual amounts of normal retirement
pension commencing at age 65 based on the highest consecutive sixty months of
compensation over the prior ten years of service are illustrated in the
following table:
PENSION PLAN TABLE
YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 15 20 25 30 35 40
------------ ------- ------- ------- ------- ------- -------
$ 50,000........................ 9,450 12,600 14,700 16,800 18,900 21,000
75,000........................ 15,669 20,892 24,373 27,855 31,377 34,819
100,000........................ 22,419 29,892 34,873 39,855 44,837 49,819
150,000........................ 35,919 47,892 55,873 63,855 71,837 79,819
200,000........................ 49,419 65,892 76,873 87,855 98,837 109,819
300,000........................ 76,419 101,892 118,873 135,855 152,837 169,819
400,000........................ 103,419 137,872 160,873 183,855 206,837 229,819
500,000........................ 130,419 173,892 202,873 231,855 260,837 289,819
The annual pension amount is equal to the participant's highest consecutive
sixty months of compensation over the prior ten years of service less the
participant's primary social security amount, multiplied by 1.8% for each of
the first 20 years of service and multiplied by 1.2% for each year of Benefit
Service in excess of 20. The participant's final average earnings is defined
generally as a the highest consecutive five year average of the participant's
base salary and bonus during the last ten years. The amount of earnings that
can be recognized for plan purposes is limited by the IRS to $160,000 in 1998.
A participant vests in his benefits accrued under the Pension Plan after five
years of service.
Respective years of benefit service under the Pension Plan, through December
31, 1997, are as follows: Mr. L'Esperance 0; Mr. Gaster 0; Mr. Brothers 19;
Mr. Beach 18; and Mr. Rounds 7. Mr. L'Esperance will be covered under Raytheon
plans through April 1998, at which time he will become a participant under the
Pension Plan.
57
SAVINGS PLANS
Substantially all of the salaried employees, including executive officers of
the Company, participate in a 401(k) savings plan established by the Company
(the "Company 401(k) Plan"). Prior to the transaction, such employees
participated in a 401(k) plan and an ESOP sponsored by Raytheon. As part of
the Transactions, Raytheon transferred the account balances associated with
the Company employees in the Raytheon 401(k) plan to the Company 401(k) Plan.
Employees are permitted to defer a portion of their income under the Company
401(k) Plan and the Company will match such contribution. The matching
contribution is consistent with that under the prior Raytheon plan which
provided a matching contribution equal to 50% of the first 6% of the
employee's contribution. In addition, employees received a contribution under
the Raytheon ESOP equal to 0.5% of W-2 pay. This contribution is made as a
supplemental contribution to the Company 401(k) Plan in the form of a
discretionary cash contribution (instead of membership interests).
COMPENSATION OF MANAGERS
The Company will reimburse Managers for any out-of-pocket expenses incurred
by them in connection with services provided in such capacity. In addition,
the Company may compensate Managers for services provided in such capacity.
58
SECURITY OWNERSHIP
The Parent owns all of the outstanding equity interests of the Company. The
following table sets forth certain information regarding the approximate
beneficial ownership of the Parent's common equity interests held by (i) each
person (other than Managers and executive officers of the Company) known to
the Company to own more than 5% of the outstanding common membership interests
of the Company and (ii) certain Managers of the Company. The Parent's common
equity interests are comprised of four classes of membership units including
Class A, Class L, Class B and Class C.
PERCENTAGE OF
COMMON MEMBERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER INTERESTS
- ------------------------------------ -----------------
Bain Funds(/1/)(/2/).......................................... 55.0%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
BRS Investors(/3/)............................................ 27.7%
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Management Investors(/4/)..................................... 9.4%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Raytheon Company.............................................. 7.0%
141 Spring Street
Lexington, Massachusetts 02173
Edward Conard(/1/)(/2/)(/5/).................................. 55.0%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Robert Gay(/1/)(/2/)(/5/)..................................... 55.0%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Stephen Sherrill(/3/)(/6/).................................... 27.7%
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Stephen Zide(/1/)(/2/)........................................ 16.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
- --------
(1) Amounts shown reflect interests in Bain/RCL, L.L.C. which beneficially
owns 55.9% of the outstanding common membership interests of the Company
through its ownership of Class A and Class L membership units in the
Parent.
(2) Amounts shown reflect the aggregate interests held by Bain Capital Fund V,
L.P. ("Fund V"), Bain Capital Fund V-B, L.P. ("Fund V-B"), BCIP Trust
Associates II ("BCIP Trust"), BCIP Trust Associates II-B
59
("BCIP Trust II-B"), BCIP Associates II ("BCIP") and BCIP Associates II-B
("BCIP II-B") (collectively, the "Bain Funds"), for the Bain Funds and
Messrs. Conard and Gay and the aggregate interests held by BCIP Trust, BCIP
Trust II-B, BCIP and BCIP II-B for Mr. Zide.
(3) Amounts shown reflect the aggregate interests held by Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS"), BCB Family Partners, L.P., NAZ Family
Partners, L.P., Paul D. Kaminski, Bruce C. Bruckmann, Donald J. Bruckmann,
Harold O. Rosser, Stephen C. Sherrill, H. Virgil Sherrill, Nancy A. Zweng,
John Rice Edmonds, Susan Kaider, Marilena Tibrea, Walker C. Simmons and
MLPF&S Custodian FBO Paul Kaminski (collectively, the "BRS Investors.")
(4) Includes Class A and Class L membership units in the Parent but excludes
Class B and Class C membership units which are subject to vesting and
generally have no voting rights, representing approximately 11% of
Parent's membership units on a fully diluted basis.
(5) Messrs. Conard and Gay are each Managing Directors of Bain Capital
Investors V, Inc., the sole general partner of Bain Capital Partners V,
L.P. ("BCPV"), and are limited partners of BCPV, the sole general partner
of Fund V and Fund V-B. Accordingly Messrs. Conard and Gay may be deemed
to beneficially own the interests owned by Fund V and Fund V-B. Messrs.
Conard and Gay are each general partners of BCIP, BCIP II-B, BCIP Trust
and BCIP Trust II-B and, accordingly, may be deemed to beneficially own
the interests owned by BCIP, BCIP II-B, BCIP Trust and BCIP Trust II-B.
Each such person disclaims beneficial ownership of any such shares in
which he does not have a pecuniary interest.
(6) Mr. Sherrill is a director of BRSE Associates, Inc., the sole general
partner of BRS Partners, L.P., the sole general partner of BRS and,
accordingly, may be deemed to beneficially own the interests owned by BRS.
Mr. Sherrill disclaims beneficial ownership of any such shares in which he
does not have a pecuniary interest.
60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PARENT SECURITYHOLDERS AGREEMENT
Upon the consummation of the Merger, the Parent, Raytheon and the
Securityholders entered into a securityholders agreement (the "Securityholders
Agreement"). The Securityholders Agreement: (i) restricts the transfer of the
equity interests of the Parent; (ii) grants tag-along rights on certain
transfers of equity interests of the Parent; (iii) requires the
Securityholders to consent to a sale of the Parent to an independent third
party if such sale is approved by certain holders of the then outstanding
equity interests of the Parent; and (iv) grants preemptive rights on certain
issuances of equity interests of the Parent. Certain of the foregoing
provisions of the Securityholders Agreement will terminate upon the
consummation of an Initial Public Offering or a Liquidity Event (each as
defined in the Securityholders Agreement).
MANAGEMENT SERVICES AGREEMENT
In connection with the Transactions, the Company entered into a Management
Services Agreement with Bain pursuant to which Bain agreed to provide: (i)
general executive and management services; (ii) identification, support,
negotiation and analysis of acquisitions and dispositions; (iii) support,
negotiation and analysis of financial alternatives; and (iv) other services
agreed upon by the Company and Bain. In exchange for such services, Bain will
receive (i) an annual management fee of $1.0 million, plus reasonable out-of-
pocket expenses (payable quarterly) and (ii) a transaction fee in an amount in
accordance with the general practices of Bain at the time of the consummation
of any additional acquisition or divestiture by the Company and of each
financing or refinancing. The Management Services Agreement has an initial
term of ten years subject to automatic one-year extensions unless the Company
or Bain provides written notice of termination.
PARENT REGISTRATION RIGHTS AGREEMENT
Upon the consummation of the Merger, the Parent, Raytheon and the
Securityholders, entered into a registration rights agreement (the "Parent
Registration Rights Agreement"). Under the Parent Registration Rights
Agreement, the holders of a majority of the Registrable Securities (as defined
in the Parent Registration Rights Agreement) owned by Bain LLC have the right,
subject to certain conditions, to require the Parent to register any or all of
their common equity interests of the Parent under the Securities Act at the
Parent's expense. In addition, all holders of Registrable Securities are
entitled to request the inclusion of any common equity interests of the Parent
subject to the Parent Registration Rights Agreement in any registration
statement at the Parent's expense whenever the Parent proposes to register any
of its common equity interests under the Securities Act. In connection with
all such registrations, the Parent has agreed to indemnify all holders of
Registrable Securities against certain liabilities, including liabilities
under the Securities Act.
PARENT AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
Bain LLC, the BRS Investors, the Management Investors and Raytheon
(collectively, the "Members") have entered into an Amended and Restated
Limited Liability Company Agreement (the "LLC Agreement"). The LLC Agreement
governs the relative rights and duties of the Members.
Membership Interests. The ownership interests of the members in the Parent
consist of preferred units (the "Preferred Units") and common units (the
"Common Units"). The Common Units represent the common equity of the Company.
Holders of the Preferred Units are entitled to return of capital contributions
prior to any distributions made to holders of the Common Units.
Distributions. Subject to any restrictions contained in any financing
agreements to which the Parent or any of its Affiliates (as defined in the LLC
Agreement) is a party, the Board of Managers (the "Board") may make
distributions, whether in cash, property or securities of the Parent, at any
time or from time to time in the following order of priority:
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First, to the holders of Preferred Units, an amount determined by the
aggregate Unreturned Capital (as defined and described in the LLC
Agreement).
Second, to the holders of Class L Common Units (the "Class L Units"), the
aggregate unpaid amount accrued on such Class L Units on a daily basis, at
a rate of 12% per annum.
Third, to the holders of Class L Units, an amount determined by the
aggregate Unreturned Capital.
Fourth, to the holders of Common Units, an amount equal to the amount of
such distribution that has not been distributed pursuant to clauses First
through Third above.
The Parent may distribute to each holder of units within 75 days after the
close of each fiscal year such amounts as determined by the Board to be
appropriate to enable each holder of units to pay estimated income tax
liabilities.
Management. The Board consists of five individuals (each a
"Representative"). Pursuant to the Securityholders Agreement, the holder of
the majority of the Common Units held by the BRS Investors appointed one
Representative. The members of the Parent holding a majority of the Bain Units
(as defined in the LLC Agreement) appointed the remaining Representatives. The
initial Board consists of Messrs. L'Esperance, Conard, Gay, Zide and Sherrill.
TRANSITION SERVICES AGREEMENT
Upon consummation of the Merger, the Company and Raytheon entered into a
Transition Services Agreement (the "Transition Services Agreement") pursuant
to which Raytheon provides to the Company certain services that it had
previously provided to the Company's predecessor, Raytheon Commercial Laundry
LLC. Such transitional services are to be provided for at least 90 days and
include general accounting, legal and computer systems support, and the data
related thereto, as well as various other transitional services.
PARENT SELLER SUBORDINATED NOTE
Upon the consummation of the Merger, the Parent issued a Junior Subordinated
Promissory Note (the "Seller Subordinated Note") in the principal amount of
$9.0 million due August 21, 2009, to Raytheon. Pursuant to the terms of the
Seller Subordinated Note, interest accrues at the rate of 19.0% per annum
until the eighth anniversary of the date of issuance of the Seller
Subordinated Note and at a rate of 13.0% thereafter. The Seller Subordinated
Note is subordinated in priority and subject in right and priority of payment
to certain indebtedness described therein.
PARENT SELLER PREFERRED EQUITY
Upon the consummation of the Merger, the Parent issued mandatorily
redeemable preferred membership interests (the "Seller Preferred Equity") with
a liquidation value of $6.0 million to Raytheon. The Seller Preferred Equity
does not accrete, accrue or pay dividends and is redeemable at the earlier of
(i) a Change of Control (as defined therein), (ii) any initial public offering
or (iii) 2009. The holders of the Seller Preferred Equity are entitled to
receive distributions from the Parent in an amount equal to their Unreturned
Capital (as defined therein) prior to distributions in respect of any other
membership interests of the Parent. See "--Parent Amended and Restated Limited
Liability Company Agreement."
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DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the Transactions, the Company entered into a credit
agreement (the "Senior Credit Facility") with a syndicate of financial
institutions (the "Lenders") for which Lehman Brothers Inc. acted as arranger
and Lehman Commercial Paper Inc. acted as syndication agent. The following is
a summary of the material terms and conditions of the Senior Credit Facility
and is subject to the detailed provisions of the Senior Credit Facility and
the various related documents entered into in connection therewith.
Loans; Interest Rates. The Senior Credit Facility is comprised of a $200.0
million Term Loan Facility and a $75.0 million Revolving Credit Facility,
which were made available in conjunction with the issuance of the Senior
Subordinated Notes. The proceeds of the Senior Credit Facility, together with
the proceeds of this Offering, provided a portion of the financing for the
Transactions and certain expenses related to the Transactions and provide
financing for future working capital and other general corporate purposes.
The Term Loan Facility was available for one drawing on the date of the
Closing and will be repaid in full at the end of seven years. The Revolving
Credit Facility is available on a revolving basis during the period commencing
on the date of the Closing and ending on the date that is five years after the
date of the Closing. The Term Loan Facility bears interest, at the Company's
election, at either the Base Rate plus a margin ranging from 1.125% to 1.625%
or the Eurodollar Rate plus a margin ranging from 2.125% to 2.625%. The
Revolving Credit Facility bears interest, at the Company's election, at either
the Base Rate plus a margin ranging from 0.625% to 1.375% or the Eurodollar
Rate plus a margin ranging from 1.625% to 2.375%.
Repayment. The principal amounts of the Term Loan Facility are repayable in
quarterly installments in the following approximate aggregate annual amounts:
YEAR AMOUNT
---- ------
1......................................... $ 0
2......................................... 0
3......................................... 1,000,000
4......................................... 1,000,000
5......................................... 1,000,000
6......................................... 40,000,000
7......................................... 157,000,000
Security. The obligations under the Senior Credit Facility and the related
documents are secured by a first priority lien upon substantially all of the
real and personal property of the Company and its Domestic Subsidiaries (other
than the Financing Subsidiaries) and a pledge of all of the capital stock of
the Company's subsidiaries (provided that no lien will be granted on the
assets of foreign subsidiaries and no capital stock of foreign subsidiaries
will be pledged).
Guarantees. The obligations of the Company under the Senior Credit Facility
are guaranteed by the Parent and substantially all of the Company's
subsidiaries (other than the Financing Subsidiaries) (provided that no
guarantee by a foreign subsidiary shall be made).
Prepayments. The Company will be required to make prepayments, with
customary exceptions, on loans under the Senior Credit Facility in an amount
equal to 100% of the net proceeds of the incurrence of certain indebtedness,
100% of the net proceeds received by the Company and its subsidiaries (other
than certain net proceeds reinvested in the business of the Company or its
subsidiaries) from the disposition of certain assets (and certain recovery
events in connection therewith) including proceeds from the sale of stock of
any of the Company's subsidiaries and 75% of excess cash flow (which
percentage may be reduced to 50% under certain circumstances).
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Conditions and Covenants. The obligations of the lenders under the Senior
Credit Facility are subject to the satisfaction of certain conditions
precedent, including consummation of the Offering, customary for similar
credit facilities or otherwise appropriate under the circumstances. The
Company and each of its subsidiaries are subject to certain negative covenants
contained in the Senior Credit Facility, including without limitation
covenants that restrict, subject to specified exceptions: (i) the incurrence
of additional indebtedness and other obligations and the granting of
additional liens; (ii) mergers, consolidations, amalgamations, liquidations,
dissolutions and dispositions of assets; (iii) investments, loans and
advances; (iv) dividends, stock repurchases and redemptions; (v) prepayment or
repurchase of other indebtedness and amendments to certain agreements
governing indebtedness, including the Indenture and the Notes; (vi) engaging
in transactions with affiliates; (vii) capital expenditures; (viii) sales and
leasebacks; (ix) changes in fiscal periods; (x) changes of lines of business;
and (xi) entering into agreements which prohibit the creation of liens or
limit the Company's subsidiaries ability to pay dividends. The Senior Credit
Facility also contains customary affirmative covenants, including compliance
with environmental laws, maintenance of corporate existence and rights,
maintenance of insurance, property and interest rate protection, financial
reporting, inspection of property, books and records, and the pledge of
additional collateral and guarantees from certain new subsidiaries. In
addition, the Senior Credit Facility requires the Company to maintain
compliance with certain specified financial covenants including maximum
capital expenditures, a maximum ratio of total debt to EBITDA (as defined in
the Senior Credit Facility) and a minimum interest coverage ratio. Certain of
these financial, negative and affirmative covenants are more restrictive than
those set forth in the Indenture.
Events of Default. The Senior Credit Facility also includes events of
default that are typical for senior credit facilities and appropriate in the
context of the Transactions, including, without limitation, nonpayment of
principal, interest, fees or reimbursement obligations with respect to letters
of credit, violation of covenants, inaccuracy of representations and
warranties in any material respect, cross default to certain other
indebtedness and agreements, bankruptcy and insolvency events, material
judgments and liabilities, defaults or judgements under ERISA and change of
control. The occurrence of any of such events of default could result in
acceleration of the Company's obligations under the Senior Credit Facility and
foreclosure on the collateral securing such obligations, which could have
material adverse results to holders of the Exchange Notes.
64
DESCRIPTION OF ASSET BACKED FACILITY
In connection with the Transactions, a special purpose single member limited
liability company (the "SPE") that is a Subsidiary of the Company entered into
a $250.0 million revolving loan agreement (the "Asset Backed Facility") with
Lehman Commercial Paper Inc. (the "Facility Lender"), an affiliate of Lehman
Brothers Inc., an Initial Purchaser of the Notes. The SPE is operated in a
fashion intended to ensure that its assets and liabilities are distinct from
those of the Company and its other affiliates, and its assets are not
available to satisfy claims of creditors of the Company and its other
subsidiaries. As a result of the foregoing, the SPE was not consolidated as a
part of the financial statements of the Company. The SPE constitutes an
"Unrestricted Subsidiary" and a "Securitization Entity" under the Indenture.
In addition, the transactions described in this section constitute "Qualified
Securitization Transactions" under the Indenture.
The Company sells certain eligible trade receivables and certain eligible
equipment loans to the SPE. For financial reporting purposes, the transfer of
trade receivables and equipment loans from the Company to the SPE is recorded
as a sale and results in the derecognition of trade receivables and equipment
loans from the financial statements of the Company.
The following is a summary of the material terms and conditions of the Asset
Backed Facility and is subject to the detailed provisions of the Asset Backed
Facility and the various related documents entered into in connection
therewith.
Facility Amount. The Asset Backed Facility is a $250.0 million facility,
with sublimits of $100.0 million for loans on eligible trade receivables and
$200.0 million for loans on eligible equipment loans. The amount of loans may
be increased or decreased, subject to certain standard conditions precedent.
The Asset Backed Facility has a term of five years. The obligation of the SPE
under the Asset Backed Facility is a recourse obligation of the SPE.
Advance Rate. Loans under the Asset Backed Facility are secured by a pledge
of receivables owned by the SPE. With respect to loans secured by trade
receivables, the Facility Lender will make loans up to but not exceeding 85%
of the outstanding amount of eligible trade receivables. With respect to loans
secured by equipment loans, the Facility Lender will make loans up to but not
exceeding the lesser of 90% of the outstanding principal balance of eligible
equipment loans or 90% of the market value with respect to eligible equipment
loans, as determined by the Facility Lender in its reasonable discretion. The
eligibility of both trade receivables and equipment loans is subject to
certain concentration and other limits. In addition, after 24 months in the
Asset Backed Facility, an otherwise eligible equipment loan will no longer be
considered an eligible equipment loan, subject to two automatic six-month
extensions upon payment of a fee if such equipment loans have not been
securitized or otherwise disposed of by the SPE.
Interest Rate. The interest rate of loans under the Asset Backed Facility is
generally equal to one-month LIBOR (adjusted for reserves, if applicable) plus
1.00% per annum.
Credit Enhancement. The SPE provides additional credit enhancement to the
Facility Lender (consisting of an irrevocable letter of credit, an
unconditional lending commitment of the Lenders under the Senior Credit
Facility or a cash collateral account) in an amount not to exceed 10% of the
aggregate principal amount of loans outstanding under the Asset Backed
Facility up to $125.0 million and 5% of the aggregate principal amount of
loans outstanding above $125 million. The additional credit enhancement is
provided by the Lenders. The Company is obligated under the reimbursement
provisions of the Senior Credit Facility to reimburse the Lenders for any
drawings on the credit enhancement by the Facility Lender. If the credit
enhancement is not replenished by the Company after a drawing, the Facility
Lender will not be obligated to make further loans under the Asset Backed
Facility and the Asset Backed Facility will begin to amortize. In addition, at
any time when (i) the aggregate principal amount of loans outstanding under
the Asset Backed Facility exceeds $125.0 million and (ii) the delinquency or
default ratios with respect to trade receivables or equipment loans exceed
certain specified levels (an "Excess Spread Sweep Event"), and for four months
after a cure of such excess delinquency or default
65
ratios, the collections on the equipment loans (after payment of accrued
interest on the loans under the Asset Backed Facility) will be directed into
an excess spread sweep account in the name of the Facility Lender until the
amount on deposit in such account is equal to five percent of the aggregate
principal amount of loans outstanding under the Asset Backed Facility.
Collateral. In order to secure payment of principal and of interest on the
loans and other amounts owing to the Facility Lender under the Asset Backed
Facility documents, the SPE has assigned, pledged, and granted to the Facility
Lender a security interest in all of its right, title and interest in, to and
under trade receivables and equipment loans originated by the Company and
related assets. The Facility Lender will release its security interest in some
or all of such collateral under certain specified conditions.
Prepayment. Early repayment of the loans under the Asset Backed Facility
will be required upon the occurrence of certain "events of default," which
include: (i) default in the payment of any principal of or interest on any
loan under the Asset Backed Facility when due, (ii) the bankruptcy of the SPE,
the Company or the issuer of the letter of credit or provider of the line of
credit, (iii) any materially adverse change in the properties, business,
condition or prospects of the SPE or the Company, or any other condition which
constitutes a material impairment of the SPE's ability to perform it
obligations under the Asset Backed Facility and related documents, (iv)
specified defaults by the SPE or the Company on certain of their respective
obligations, (v) delinquency, dilution or default ratios on pledged
receivables exceeding certain specified ratios in any given month, (vi) the
ratio of (a) the indebtedness of the Company and its subsidiaries minus
indebtedness subordinated to the loans under the Asset Backed Facility to (b)
the sum of the tangible net worth of the Company and its subsidiaries and the
amount of debt subordinated to the loans under the Asset Backed Facility
exceeding a specified amount and (vii) a number of other specified events.
The SPE expects to effect term securitizations of equipment loans on a
periodic basis and to use the proceeds to repay the loans under the Asset
Backed Facility. There is no assurance, however, that such securitizations
will be at an equivalent advance rate or that the cost of funds will be
equivalent to or more favorable than the cost of funds under the Asset Backed
Facility. In addition, no sooner than the date which is three months prior to
the time that an equipment loan will cease to be eligible for financing, or
will have a substantially reduced value, under the Asset Backed Facility, the
SPE will cause such equipment loan to be included (and may include other
specified equipment loans) in a term securitization or to be otherwise
disposed of on terms and conditions as favorable to the SPE as are obtainable
in the market.
66
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
among the Company and United States Trust Company of New York, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of 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 and the Registration Rights Agreement are available to Holders as
set forth below under "--Additional Information." The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions." For purposes of this summary, the term "Company" refers only to
Alliance Laundry Systems LLC and not to any of its Subsidiaries.
ALC is a wholly owned subsidiary of the Company that was incorporated in
Delaware for the purpose of serving as a co-issuer of the Notes in order to
facilitate the Offering. The Company believes that certain prospective
purchasers of the Exchange Notes may be restricted in their ability to
purchase debt securities of limited liability companies, such as the Company,
unless such debt securities are jointly issued by a corporation. ALC will not
have any business operations or assets and will not have any revenues. As a
result, prospective purchasers of the Notes should not expect ALC to
participate in servicing the interest, principal obligations and Liquidated
Damages, if any, on the Notes. See "--Certain Covenants."
The Exchange Notes will be general unsecured obligations of the Issuers and
will be subordinated in right of payment to all current and future Senior
Debt, including permitted borrowings under the Senior Credit Facility. The
Exchange Notes will rank pari passu in right of payment with all senior
subordinated Indebtedness of the Issuers issued in the future, if any, and
senior in right of payment to all subordinated Indebtedness of the Issuers
issued in the future, if any. As of May 5, 1998, on a pro forma basis giving
effect to the application of the net proceeds from the Offering, the Company
would have had Senior Debt of approximately $200.0 million. The Indenture will
permit the incurrence of additional indebtedness, including additional Senior
Debt, subject to certain restrictions, in the future. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
As of the date of the Indenture, all of the Issuers' Subsidiaries will be
Restricted Subsidiaries, other than the SPE, Alliance Commercial Appliances
Receivables LLC, Alliance Commercial Appliances Finance LLC and Alliance
Laundry S.A. However, under certain circumstances, the Issuers will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $200.0
million, of which $110.0 million will be issued in the Offering, and will
mature on May 1, 2008. Interest on the Exchange Notes will accrue at the rate
of 9 5/8% per annum and will be payable semi-annually in arrears on May 1 and
November 1, commencing on November 1, 1998, to Holders of record on the
immediately preceding April 15 and October 15. Additional Exchange Notes may
be issued from time to time after the Offering, subject to the provisions of
the Indenture described below under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock." Interest on the
Exchange 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 and
Liquidated Damages thereon, if any, on the Exchange Notes will be payable at
the office or agency of the Issuers maintained for such purpose within the
City and State of New York or, at the option of the Issuers, payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
Holders of the Exchange Notes at
67
their respective addresses set forth in the register of Holders of Notes;
provided that all payments of $1,000 or more principal, premium, if any,
interest and Liquidated Damages, if any, with respect to Exchange Notes the
Holders of which have given wire transfer instructions to the Issuers at least
ten business days prior to the applicable payment date 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 Issuers, the
Issuers' office or agency in New York will be the office of the Trustee
maintained for such purpose. The Exchange Notes will be issued in
denominations of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Exchange
Notes, Liquidated Damages, if any, Change of Control Payments or other
obligations of the Issuers in respect of the Notes (collectively, the "Senior
Subordinated Note Payments") will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Issuers in a liquidation or
dissolution of any Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, an
assignment for the benefit of creditors or any marshalling of such Issuer's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt, whether or not such claim is allowed
under applicable law) before the Holders of Senior Subordinated Notes will be
entitled to receive any payment with respect to the Senior Subordinated Notes,
and until all Obligations with respect to Senior Debt are paid in full in
cash, any distribution to which the Holders of Senior Subordinated Notes would
be entitled shall be made to the holders of Senior Debt (except that Holders
of Senior Subordinated Notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Issuers also may not make any Senior Subordinated Note Payment or any
deposit pursuant to provisions described under "--Legal Defeasance and
Covenant Defeasance" (except in Permitted Junior Securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from a representative of
the holders of any Designated Senior Debt. Payments on the Senior Subordinated
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived or has ceased to exist or such
Designated Senior Debt has been discharged or repaid in full in cash and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received or has ceased to exist or such
Designated Senior Debt has been discharged or repaid in full in cash, unless
the maturity of any Designated Senior Debt has been accelerated. No new period
of payment blockage may be commenced unless and until (i) 360 days have
elapsed since the commencement of the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been waived for a period of not less than 180 days.
The Indenture further requires that the Issuers promptly notify holders of
Senior Debt if payment of the Senior Subordinated Notes is accelerated because
of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Issuers who are holders of Senior Debt.
68
After giving effect to the Transactions, including the Offering and the
application of the proceeds therefrom, the principal amount of Senior Debt
outstanding at May 5, 1998 was approximately $200.0 million. The Indenture
limits, subject to certain limitations, the amount of additional Indebtedness,
including Senior Debt, that the Issuers and their subsidiaries can incur. See
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Senior Credit Facility and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Issuers as "Designated Senior Debt."
"Permitted Junior Securities" means Equity Interests in or debt securities
of any Issuer or any Guarantor that are issued pursuant to a plan of
reorganization of such Issuer or such Guarantor and are subordinated to all
Senior Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Senior
Subordinated Notes are subordinated to Senior Debt pursuant to Article 10 of
the Indenture so long as (i) the effect of the issuance of such Equity
Interests or debt securities is not to cause the Senior Subordinated Notes (or
the relevant Senior Subordinated Note Guarantee) to be treated as part of the
same class of claims or any class of claims pari passu with, or senior to,
such Senior Debt pursuant to such plan of reorganization and (ii) the rights
of the holders of such Senior Debt are not altered or impaired without their
consent.
"Senior Debt" means (i) all Indebtedness outstanding under Senior Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and the Note Guarantees and (iii) all Obligations of the
Company and any Note Guarantor with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include (w)
any liability for federal, state, local or other taxes owed or owing by the
Issuers, (x) any Indebtedness of the Company or any Guarantor to any of their
Subsidiaries or other Affiliates (other than Indebtedness of the Company or
any Note Guarantor to Sankaty Partners representing Sankaty Partners'
participation in any one or more of the Senior Credit Facilities where Sankaty
Partners is one of the institutional lenders to such Senior Credit
Facilities), (y) any trade payables or (z) any Indebtedness that is incurred
in violation of the restrictions described under "Incurrence of Indebtedness
and Issuance of Preferred Stock" below; provided that Indebtedness under
Senior Credit Facilities will be Senior Debt if the holders of such Senior
Debt shall have received a written certificate from an officer of the Company
to the effect that the incurrence of such Indebtedness does not (or in the
case of up to $75.0 million of revolving credit Indebtedness available to be
borrowed under the Senior Credit Facility after the date of the initial
borrowing thereunder, that the incurrence of such entire committed amount
would not) violate the Indenture.
PARENT GUARANTEE
The obligations of the Issuers under the Senior Subordinated Notes and the
Indenture are guaranteed (the "Parent Guarantee") on a senior subordinated
basis by the Parent. The Parent Guarantee is subordinated in right of payment
to all Senior Debt of the Parent to the same extent that the Senior
Subordinated Notes are subordinated to Senior Debt of the Issuers. Since the
Parent is a holding company with no significant operations, the Parent
Guarantee provides little, if any, additional credit support for the Senior
Subordinated Notes, and investors should not rely on the Parent Guarantee in
evaluating an investment in the Senior Subordinated Notes.
NOTE GUARANTEES
After the date of the Indenture, the Issuers will cause each newly acquired
or created Domestic Subsidiary (each, a "Note Guarantor"), to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Subsidiary will guarantee (each, a "Note Guarantee") payment of the Senior
Subordinated Notes. Each such Note Guarantor as primary obligor and not merely
as surety, will jointly and severally, irrevocably and fully and
unconditionally Guarantee, on a senior subordinated basis, the performance and
punctual payment when due, whether at Stated Maturity, by acceleration or
otherwise, of all obligations of the Issuers under the Indenture
69
and the Senior Subordinated Notes, whether for principal of or interest on the
Senior Subordinated Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantors will agree to pay, in addition
to the amount stated above, any and all expenses (including reasonable counsel
fees and expenses) incurred by the Trustee or the Holders in enforcing any
rights under the Note Guarantees.
The obligations of each Note Guarantor will be limited to the maximum
amount, as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor, result in the obligations of such Note
Guarantor under the Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each such Note Guarantee shall be a continuing Guarantee and shall (i)
remain in full force and effect until payment in full of the principal amount
of all outstanding Senior Subordinated Notes (whether by payment at maturity,
purchase, redemption, defeasance, retirement or other acquisition) and all
other Guaranteed Obligations then due and owing, unless earlier terminated as
described below, (ii) be binding upon such Note Guarantor and (iii) inure to
the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assignees.
The Indenture provides that, subject to the provisions described in the next
succeeding paragraph, no Note Guarantor may consolidate or merge with or into
(whether or not such Note Guarantor is the surviving Person) another Person
unless (i) the Person formed by or surviving any such consolidation or merger
(if other than a Note Guarantor or the Company) assumes all the obligations of
such Note Guarantor under the Note Guarantee, the Registration Rights
Agreement and the Indenture pursuant to a supplemental indenture, in form
reasonably satisfactory to the Trustee, and (ii) if such merger or
consolidation is with a Person other than the Company or a Restricted
Subsidiary, (x) immediately after such transaction, no Default or Event of
Default exists and (y) the Company will, at the time of such transaction after
giving pro forma effect thereto, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Notwithstanding the preceding paragraph, concurrently with any sale or
disposition (by merger or otherwise) of any Note Guarantor in accordance with
the terms of the Indenture (including the covenant described under "--Asset
Sales") by the Company or a Restricted Subsidiary to any Person that is not an
Affiliate of the Company, such Note Guarantor will automatically and
unconditionally be released from all obligations under its Note Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "--
Repurchase at the Option of Holders--Asset Sales."
In addition, any Note Guarantee of any Note Guarantor will be automatically
and unconditionally released and discharged upon the merger or consolidation
of such Note Guarantor with and into the Company or another Note Guarantor
that is the surviving Person in such merger or consolidation.
"Guarantors" means each of (i) the Parent and (ii) any Subsidiary that
executes a Note Guarantee in accordance with the provisions of the Indenture,
and their respective successors and assigns.
OPTIONAL REDEMPTION
The Exchange Notes are not redeemable at the Issuers' option prior to May 1,
2003. Thereafter, the Exchange Notes are subject to redemption at any time at
the option of the Issuers, 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 and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on May 1 of the years
indicated below:
YEAR REDEMPTION PRICE
---- ----------------
2003.................................. 104.813%
2004.................................. 103.208%
2005.................................. 101.604%
2006 and thereafter................... 100.000%
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Notwithstanding the foregoing, at any time prior to May 1, 2001, the Issuers
may on any one or more occasions redeem up to 35% of the aggregate principal
amount of Senior Subordinated Notes issued under the Indenture at a redemption
price of 109.625% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the redemption date, with
the net cash proceeds of any Equity Offerings; provided that at least 65% of
the aggregate principal amount of Senior Subordinated Notes issued under the
Indenture remains outstanding immediately after each occurrence of such
redemption (excluding Notes held by the Issuers and their Subsidiaries); and
provided, further, that each such redemption shall occur within 45 days of the
date of the closing of such Equity Offering.
If less than all of the Senior Subordinated Notes are to be redeemed at any
time, selection of Senior Subordinated Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Senior Subordinated Notes are
listed, or, if the Senior Subordinated Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Senior Subordinated 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 Subordinated Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Senior
Subordinated Note is to be redeemed in part only, the notice of redemption
that relates to such Senior Subordinated Note shall state the portion of the
principal amount thereof to be redeemed. A new Senior Subordinated 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
Subordinated Note. Senior Subordinated Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Senior Subordinated Notes or portions of them called for
redemption.
At any time prior to May 1, 2003, the Senior Subordinated Notes may also be
redeemed, as a whole but not in part, at the option of the Issuers upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days
prior notice (but in no event may any such redemption occur more than 90 days
after the occurrence of such Change of Control) mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
redemption (the "Redemption Date").
"Applicable Premium" means, with respect to any Senior Subordinated Note on
any Redemption Date, the greater of (i) 1.0% of the principal amount of such
Senior Subordinated Note or (ii) the excess of (A) the present value at such
Redemption Date of (1) the redemption price of such Senior Subordinated Note
at May 1, 2003 (such redemption price being set forth in the table above) plus
(2) all required interest payments due on such Senior Subordinated Note
through May 1, 2003 (excluding accrued but unpaid interest), computed using a
discount rate equal to the Treasury Rate at such Redemption Date plus 75 basis
points over (B) the principal amount of such Senior Subordinated Note, if
greater.
"Treasury Rate" means 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
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date to May 1, 2003; provided, however, that if the
period from the Redemption Date to May 1, 2003 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 period from the Redemption Date to May 1, 2003 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
Except as set forth below under "--Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
71
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior
Subordinated Notes will have the right to require the Issuers to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Senior Subordinated 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 and
Liquidated Damages thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within ten days following any Change of Control, the
Issuers will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Senior Subordinated 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 such notice. The Issuers
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
Subordinated Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment all Senior Subordinated Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Senior Subordinated Notes or portions thereof so tendered
and (iii) deliver or cause to be delivered to the Trustee the Senior
Subordinated Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Senior Subordinated Notes or portions
thereof being purchased by the Issuers. The Paying Agent will promptly mail to
each Holder of Senior Subordinated Notes so tendered the Change of Control
Payment for such Senior Subordinated Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Senior Subordinated Note equal in principal amount to any
unpurchased portion of the Senior Subordinated Notes surrendered, if any;
provided that each such new Senior Subordinated Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any
event within 90 days following a Change of Control, the Issuers will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the
repurchase of Senior Subordinated Notes required by this covenant. The Issuers
will publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Senior Subordinated Notes to
require that the Issuers repurchase or redeem the Senior Subordinated Notes in
the event of a takeover, recapitalization or similar transaction.
The Senior Credit Facility limits the ability of the Issuers to purchase any
Senior Subordinated Notes and also provides that certain change of control
events with respect to the Company would constitute a default thereunder. Any
future credit facilities or other agreements relating to Senior Debt to which
the Issuers become a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Issuers is prohibited
from purchasing Senior Subordinated Notes, the Issuers could seek the consent
of its lenders to the purchase of Senior Subordinated Notes or could attempt
to refinance the borrowings that contain such prohibition. If the Issuers do
not obtain such a consent or repay such borrowings, the Issuers will remain
prohibited from purchasing Senior Subordinated Notes. In such case, the
Issuers' failure to purchase tendered Senior Subordinated Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute as default under the Senior Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments
to the Holders of Senior Subordinated Notes. See "--Subordination."
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control (i) if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the
72
requirements set forth in the Indenture applicable to a Change of Control
Offer made by the Issuers and purchases all Senior Subordinated Notes validly
tendered and not withdrawn under such Change of Control Offer or (ii) the
Issuers exercise their option to purchase all the Senior Subordinated Notes
upon a Change of Control as described above under the caption "Optional
Redemption."
Asset Sales
The Indenture provides 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 Managers 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 therefore received by the Company or such Restricted Subsidiary,
as the case may be, is in the form of cash or Cash Equivalents; provided that
the amount of (x) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary
from further liability and (y) any securities, notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are immediately converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries are permitted to consummate an Asset Sale without
complying with the prior paragraph if (i) the Company or the applicable
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets or
other property sold, issued or otherwise disposed of (as evidenced by a
resolution of the Company's Board of Managers set forth in an Officers'
Certificate delivered to the Trustee) and (ii) at least 75% of the
consideration for such Asset Sale constitutes a controlling interest in a
Permitted Business, long-term assets used or useful in a Permitted Business
and/or cash or Cash Equivalents; provided that any cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted to be consummated under this paragraph shall
constitute Net Proceeds subject to the provisions of the next succeeding
paragraph.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (i) to repay Senior
Debt and, in the case of any Senior Debt under any revolving credit facility,
effect a corresponding commitment reduction under such credit facility, (ii)
to the acquisition of a controlling interest in a Permitted Business, the
making of a capital expenditure or the acquisition of other Additional Assets
or (iii) a combination of prepayment and investment permitted by the forgoing
clauses (i) and (ii). Pending the final application of any such Net Proceeds,
the Company may temporarily reduce revolving credit borrowings 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 $10.0 million, the Issuers will be required to make an offer to all
Holders of Senior Subordinated Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Senior Subordinated Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture (the first date the aggregate
of all such Net Proceeds is equal to $10.0 million or more shall be deemed an
"Asset Sale Offer Trigger Date"). Each Asset Sale Offer will be mailed to the
record Holders as shown on the register of Holders within 25 days following
the Asset Sale Offer Trigger Date, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice
of the Asset Sale Offer, Holders may elect to tender their Senior Subordinated
Notes in whole or in part in integral multiples of $1,000 in exchange for
cash. To the extent that any Excess Proceeds remain after consummation of an
Asset Sale Offer, the Company may use such Excess Proceeds for any purpose
73
not otherwise prohibited by the Indenture. If the aggregate principal amount
of Senior Subordinated Notes tendered into such Asset Sale Offer surrendered
by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Senior Subordinated 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.
The Issuers 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 Senior Subordinated Notes pursuant to an Asset Sale Offer. To
the extent that the provisions of any securities laws or regulations conflict
with the Asset Sale provisions of the Indenture, the Issuers shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Asset Sale provisions of the Indenture by
virtue thereof.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides 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 any of its Restricted Subsidiaries) 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 or to the Company or a Restricted Subsidiary 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 or any direct or indirect parent
of the Company or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary); (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 Subordinated Notes or any guarantee thereof, 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 clauses (ii), (iii), (iv), (vi), (vii), (viii) and (ix) of the
next succeeding paragraph), is less than the sum, without duplication, of
(i) 50% of the Consolidated Net Income of the Company and its Restricted
Subsidiaries 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 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
proceeds (including the fair market value of property other than cash
(determined in good faith by the Board of Managers as evidenced by a
certificate filed with the Trustee, except that in the event the value of
any non-cash consideration shall be $15.0 million or more, the value shall
be as determined based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national
74
standing)) received by the Company since the date of the Indenture as a
contribution to its common equity capital or from the issue or sale of
Equity Interests (other than Disqualified Stock) of the Company (excluding
any net proceeds from an Equity Offering or capital contribution to the
extent used to redeem Notes in accordance with the optional redemption
provisions of the Notes) or from the issue or sale 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), 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 cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any), plus (iv) any dividends
(the fair market value of property other than cash shall be determined in
good faith by the Board of Managers as evidenced by a certificate filed
with the Trustee, except that in the event the value of any non-cash
consideration shall be $15.0 million or more, the value shall be as
determined based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing) received by the
Company or a Restricted Subsidiary after the date of the Indenture from an
Unrestricted Subsidiary of the Company, to the extent that such dividends
were not otherwise included in Consolidated Net Income of the Company for
such period, plus (v) to the extent that any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary after the date of the Indenture, if
as a result of such redesignation, (x) the Fixed Charge Coverage Ratio of
the Company on a pro forma basis is lower than such ratio immediately prior
thereto, then the lesser of (A) the fair market value of the Company's
Investment in such Subsidiary as of the date of such redesignation or (B)
such fair market value as of the date on which such Subsidiary was
originally designated as an Unrestricted Subsidiary or (y) the Fixed Charge
Coverage Ratio of the Company on a pro forma basis is equal to or higher
than such ratio immediately prior thereto, the fair market value of the
Company's Investment in such Subsidiary as of the date of such
redesignation; provided, further that any increase in the amount of
Restricted Payments permitted to be incurred as a result of application of
subparagraphs (iii), (iv) or (v) above related to dividends, returns of
capital or redesignation of foreign joint ventures shall be reduced by the
difference between (A) the fair market value of any equipment (as
determined by sales by the Company of comparable equipment to unaffiliated
third parties) transferred to such joint ventures in reliance on
subparagraph (xii) of the covenant entitled "Transactions with Affiliates"
and (B) the value received by the Company or any Restricted Subsidiary from
such joint venture with respect to such equipment transfer.
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 Equity Interests of the Company or subordinated
Indebtedness of the Company or any Guarantors in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
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 (ii) of the
preceding paragraph provided that no Default or Event of Default shall have
occurred and be continuing immediately after such transaction; (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 Equity Interests on a pro rata
basis; (v) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Parent, the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to any management agreement,
stock option agreement or similar agreement; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $5.0 million in the aggregate since the date of the Indenture
(and shall be increased by the amount of any net cash proceeds to the Company
from (x) sales of Equity Interests of the Parent to management employees
subsequent to the date of the Indenture and (y) any "key-man" life insurance
policies which are used to make such redemptions or repurchases) and no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; provided further, that the cancellation of
Indebtedness owing to the Company from members of management of the
75
Company or any of its Restricted Subsidiaries in connection with such a
repurchase of Capital Stock of the Parent will not be deemed to constitute a
Restricted Payment under the Indenture; (vi) the making of distributions,
loans or advances to the Parent in an amount not to exceed $1.5 million per
annum in order to permit the Parent to pay required and ordinary operating
expenses of the Parent (including, without limitation, directors' fees,
indemnification obligations, professional fees and expenses, but excluding any
payments on or repurchases of the Seller Subordinated Note or the Seller
Preferred Equity); (vii) distributions to the Parent to fund the required tax
obligations of the Parent or its members related to income generated by the
Company and its Restricted Subsidiaries and taxable to such members, including
the tax distributions contemplated by Article IV of the LLC Agreement as in
effect on the date of the Indenture; (viii) repurchases of Capital Stock
deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; (ix) distributions to the
Parent to fund the Transactions (as described under "Use of Proceeds"); (x)
distributions to the Parent to purchase or redeem the Seller Subordinated Note
and the Seller Preferred Equity pursuant to change of control provisions
contained in the governing instrument relating thereto; provided, however,
that (x) no offer or purchase obligation may be triggered in respect of such
Seller Subordinated Note or Seller Preferred Equity unless a corresponding
obligation also arises with respect to the Notes and (y) in any event, no
repurchase or redemption of any such Seller Subordinated Note or Seller
Preferred Equity may be consummated unless and until the Issuers shall have
satisfied all repurchase obligations with respect to any required purchase
offer made with respect to the Notes; provided, however, that such purchases
or redemption of the Seller Subordinated Note or the Seller Preferred Equity
shall be included in the calculation of the amount of Restricted Payments and
provided that no Default or Event of Default shall have occurred and be
continuing as a consequence thereof; and (xi) if no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof, other Restricted Payments in an aggregate amount not to exceed $5.0
million since the date of the Indenture. In addition, any dividend which is
declared but not paid shall not be included in the calculation of Restricted
Payments under clause (c), and any dividend which is declared and paid shall
be included only once in the calculation of Restricted Payments under clause
(c).
The Board of Managers 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 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
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 Managers 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 $15.0 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 provides that the Issuers will not, and will not permit any of
their Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Issuers will not issue any
Disqualified Stock and will not permit any of their Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company or
any Guarantor may incur
76
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
or preferred stock if (i) no Default or Event of Default shall have occurred
and be continuing at the time of or as a consequence of the incurrence of any
such Indebtedness or the issuance of any such Disqualified Stock and (ii) 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 2.0 to
1.0, 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 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 the guarantee thereof by the
Guarantors) of Indebtedness and letters of credit under one or more Senior
Credit Facilities; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Restricted Subsidiaries thereunder) outstanding under all Senior Credit
Facilities after giving effect to such incurrence does not exceed an amount
equal to the greater of (x) $275.0 million less the aggregate amount of all
repayments of any term Indebtedness and all commitment reductions of any
revolving indebtedness, in each case, under one or more Senior Credit
Facilities pursuant to clause (i) of the third paragraph of the covenant
described above under the caption "--Asset Sales" and (y) the Company's
Borrowing Base;
(ii) the incurrence by the Issuers of Indebtedness represented by the
Notes and the Guarantees thereof by the Guarantors in an aggregate
principal amount of $110.0 million outstanding on the date of the
Indenture;
(iii) the incurrence by a Restricted Subsidiary that is a Foreign
Subsidiary and is not a Guarantor of the Senior Subordinated Notes in an
amount at any one time outstanding that does not exceed (x) $3.0 million
plus (y) the Borrowing Base of such Restricted Subsidiary; provided, that
none of the Company or any other such Restricted Subsidiary shall be
obligated, directly or indirectly, to pay principal, premium, interest or
other amounts thereon or in respect thereof (including by way of net worth
requirements, equity keepwells, etc.);
(iv) the incurrence by the Company and its Subsidiaries of other
Indebtedness outstanding on the date of the Indenture for so long as such
Indebtedness remains outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness (including Capitalized Lease Obligations) to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount outstanding not
to exceed the greater of (x) $10.0 million and (y) 7.5% of Total Assets at
the time of any incurrence thereof (including any Refinancing Indebtedness
with respect thereto) (which amount may, but need not, be incurred in whole
or in part under the Senior Credit Facilities);
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including,
without limitation, letters of credit in respect of workers' compensation
claims or self-insurance, or other indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
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(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with an industrial revenue bond in an
aggregate principal amount not to exceed $10.0 million for the expansion of
the Company's Madisonville, Kentucky facility;
(x) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (ii) and (iv) of this
paragraph or any Indebtedness issued to so refund, refinance or replace
such Indebtedness;
(xi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
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
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 Restricted Subsidiary thereof and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be, that was not permitted by this clause (xi);
(xii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred in the normal course of business
and not for speculative purposes used for fixing or hedging currency or
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding provided,
however, that in the case of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risks with respect to
Indebtedness, the notional principal amount of any such Hedging Obligation
does not exceed the principal amount of the Indebtedness to which such
Hedging Obligation relates;
(xiii) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of this
covenant;
(xiv) 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 that was not permitted by this clause (xiv);
(xv) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with respect
to the Company and its other Restricted Subsidiaries (except for Standard
Securitization Undertakings and Limited Originator Recourse); and
(xvi) the incurrence by the Company or any of its Restricted Subsidiaries
that is a Guarantor of additional Indebtedness and/or the issuance of
Disqualified Stock in an aggregate principal amount or aggregate
liquidation value, as applicable (or accreted value, as applicable) at any
time outstanding, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xvi), not to exceed $30.0 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 (xvi) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify or later reclassify such item of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount and the payment
of interest on any Indebtedness in the form of additional Indebtedness with
the same terms will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant; provided, in each such case, that the amount
thereof is included in Fixed Charges of the Company as accrued.
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Liens
The Indenture provides that the Company will not and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or otherwise cause or suffer to exist or become effective any Lien of any kind
securing Indebtedness or trade payables (other than Permitted Liens) upon any
of their property or assets, now owned or hereafter acquired, unless (i) in
the case of Liens securing Indebtedness that is expressly subordinated or
junior in right of payment to the Notes, the Notes are secured on a senior
basis to the obligations so secured until such time as such obligations are no
longer secured by a Lien and (ii) in all other cases, the Notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides 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. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Senior Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained
in the Senior Credit Facility as in effect on the date of the Indenture, (c)
the Indenture and the Notes, (d) applicable law, (e) 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, (f) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (g) 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, (h) any
agreement for the sale of a Restricted Subsidiary that restricts distributions
by that Restricted Subsidiary pending its sale, (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive,
taken as a whole, than those contained in the agreements governing the
Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to
be incurred pursuant to the provisions of the covenant described above under
the caption "Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness, (k) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business,
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business, (m) any
Purchase Money Note, or other Indebtedness or other contractual requirements
of a Securitization Entity in connection with a Qualified Securitization
Transaction; provided that such restrictions apply only to such Securitization
Entity, (n) other Indebtedness of a Restricted Subsidiary that is a Guarantor
permitted to be incurred subsequent to the date of the Indenture pursuant to
the provisions of the covenant described above under the caption "Incurrence
of Indebtedness and Issuance of Preferred Stock"; provided that any such
restrictions are ordinary and customary with respect to the type of
Indebtedness or preferred stock being incurred or issued (under the relevant
circumstances), and (o) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the
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contracts, instruments or obligations referred to in clauses (a) through (n)
above; provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are, in the
good faith judgment of the Company's Board of Managers, no more restrictive
with respect to such dividend and other payment restrictions than those
contained in the dividend or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
Merger, Consolidation, or Sale of Assets
The Indenture provides that neither Issuer may consolidate or merge with or
into (whether or not such Issuer 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
such Issuer) 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 Issuers under the Registration Rights Agreement, the Senior
Subordinated Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately prior thereto
and 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
Restricted Subsidiary of the Company and except in the case of a merger
entered into solely for the purpose of reincorporating the Company in another
jurisdiction, 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 will immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, (x) 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" or (y) the Fixed Charge Coverage
Ratio for the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) would be greater than such
ratio for the Company or such surviving entity immediately prior to such
transaction.
Notwithstanding the foregoing, the Company is permitted to reorganize as a
corporation in accordance with the procedures established in the Indenture,
provided that the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that such reorganization is not adverse to holders of the Senior Subordinated
Notes (it being recognized that such reorganization shall not be deemed
adverse to the holders of the Senior Subordinated Notes solely because (i) of
the accrual of deferred tax liabilities resulting from such reorganization or
(ii) the successor or surviving corporation (a) is subject to income tax as a
corporate entity or (b) is considered to be an "includible corporation" of an
affiliated group of corporations within the meaning of the Code or any similar
state or local law) and certain other conditions are satisfied.
The entity or the Person formed by or surviving any consolidation or merger
(if other than the Company) will succeed to, and be substituted for, and may
exercise every right and power of, the Issuers under the Indenture, but, in
the case of a lease of all or substantially all its assets, neither Issuer
will be released from the obligation to pay the principal of and interest on
the Senior Subordinated Notes.
Transactions with Affiliates
The Indenture provides 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
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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 $3.0 million, a resolution of
the Board of Managers 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 Managers and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 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.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions: (i) 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, (ii) transactions exclusively between or among the
Company and/or its Restricted Subsidiaries provided such transactions have not
otherwise been prohibited by the Indenture, (iii) payment of reasonable
directors fees to Persons who are not otherwise Affiliates of the Company,
(iv) transactions effected as part of a Qualified Securitization Transaction,
(v) Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments," (vi) reasonable
fees and compensation paid to and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Subsidiary as
determined in good faith by the Company's Board of Managers or senior
management, (vii) the payment of consulting and advisory fees, annual
management fees and related expenses to the Principals made pursuant to any
financial advisory, financing, underwriting or placement agreement or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which are approved by the
Board of Managers of the Company or such Restricted Subsidiary in good faith,
(viii) any agreement as in effect on the date of the Indenture or any
amendment thereto or any transaction contemplated thereby (including pursuant
to any amendment thereto) in any replacement agreement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the date of the Indenture, (ix) payments or loans to employees or consultants
which are approved by the Board of Managers of the Company in good faith, (x)
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the date of the Indenture and any
similar agreements which it may enter into thereafter; provided, however, that
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under, any future amendment to any such existing
agreement or under any similar agreement entered into after the date of the
Indenture shall only be permitted by this clause (x) to the extent that the
terms of any such amendment or new agreement are not otherwise disadvantageous
to the Holders of the Notes in any material respect, (xi) transactions with
customers, clients, suppliers, joint venture partners or purchasers or sellers
of goods or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of the Indenture which are fair to the
Company or its Restricted Subsidiaries, in the good faith determination of the
Board of Managers of the Company or the senior management thereof, or are on
terms at least as favorable as might reasonably have been obtained at such
time from an unaffiliated party and (xii) in the case of foreign joint
ventures, transfers of equipment for sale outside of North America in exchange
for value not less than the Company's cost of producing such equipment.
No Senior Subordinated Debt
The Indenture provides that (i) the Issuers will not, directly or
indirectly, incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to
the Notes and (ii) no Guarantor will incur any Indebtedness that is
subordinate or junior in right of payment to its Guarantor Senior Debt and
senior in any respect in right of payment to such Guarantor's Guarantee.
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Limitation on Issuances of Guarantees of Indebtedness
The Indenture will provide that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to guarantee or pledge any assets to
secure the payment of any other Indebtedness of the Company unless such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for the Guarantee of the payment of the
Senior Subordinated Notes by such Restricted Subsidiary, which Guarantee shall
be senior to or pari passu with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness, unless such other Indebtedness is
Senior Debt, in which case the Guarantee of the Senior Subordinated Notes may
be subordinated to the Guarantee of such Senior Debt to the same extent as the
Senior Subordinated Notes are subordinated to such Senior Debt.
Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon any sale, exchange or transfer, to any Person not
an Affiliate of the Company, of all of the Company's stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of
the Indenture. The form of such Guarantee will be attached as an exhibit to
the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole and ALC will not own any operating assets or other properties or
conduct any business other than to serve as an Issuer and obligor on the
Senior Subordinated Notes.
Payments for Consent
The Indenture provides 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 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 Subordinated Notes unless such
consideration is offered to be paid or is paid to all Holders of the Senior
Subordinated 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.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Senior Subordinated Notes are outstanding, the Issuers will
furnish to the Holders of Senior Subordinated 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 Issuers 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 Issuers and its consolidated
Subsidiaries (showing in reasonable detail, either on the face of the
financial statements or in the footnotes thereto the financial condition and
results of operations of the Issuers and their Restricted Subsidiaries
separate from the financial condition and results of operations of the
Unrestricted Subsidiaries of the Issuers) and, with respect to the annual
information only, a report thereon by the Issuers' certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Issuers were required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. For so long as the Parent is a Guarantor of the Notes,
the Indenture will permit the Issuers to satisfy its obligations in this
covenant with respect to financial information relating to the Issuers by
furnishing financial information relating to the Parent; provided that the
same is accompanied by consolidating information that explains in reasonable
detail the differences between the information relating to the Parent, on the
one hand, and the information relating to the Issuers and their Restricted
Subsidiaries on a stand-alone basis, on the other hand. In addition, following
the consummation of the exchange offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the
Commission, the Issuers will file a copy
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of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, the Issuers and the Guarantors have agreed that,
for so long as any Notes remain outstanding, they will furnish to the Holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Senior Subordinated Notes (whether or
not prohibited by the subordination provisions of the Indenture); (ii) default
in payment when due of the principal of or premium, if any, on the Senior
Subordinated Notes (whether or not prohibited by the subordination provisions
of the Indenture); (iii) failure by the Issuers or any of their Restricted
Subsidiaries to comply with the provisions described under the captions "--
Change of Control," or "--Merger, Consolidation or Sale of Assets;" (iv)
failure by the Issuers or any of their Restricted Subsidiaries for 30 days
after written notice by the Trustee or Holders of at least 25% in principal
amount of the then outstanding Notes to comply with the provisions described
under the captions "--Asset Sales," "--Restricted Payments" or "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; (v) failure by the Issuers
or any of their Restricted Subsidiaries for 30 days after written notice by
the Trustee or Holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes for 60 days after notice to comply with
any of its other agreements in the Indenture or the Senior Subordinated Notes;
(vi) 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 Subsidiaries (other than a
Securitization Entity) (or the payment of which is guaranteed by the Company
or any of its Subsidiaries (other than a Securitization Entity)) 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 $10.0 million or more; (vii) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating
in excess of $10.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (viii) certain events of bankruptcy or insolvency
with respect to the Issuers or any of their Subsidiaries; and (ix) except as
permitted by the Indenture, any Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or any Guarantor, or any Person acting on behalf of
any Guarantor, shall deny or disaffirm its obligations under its Guarantee.
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
Subordinated Notes may declare all the Senior Subordinated 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 Issuers, any Restricted Subsidiary of the Company that constitutes a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Senior
Subordinated Notes will become due and payable without further action or
notice. Holders of the Exchange Notes may not enforce the Indenture or the
Exchange Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Senior Subordinated Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Senior Subordinated
Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Senior Subordinated Notes waive any existing
83
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 Subordinated 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.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Issuers,
as such, shall have any liability for any obligations of the Company under the
Senior Subordinated Notes, the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Senior
Subordinated Notes by accepting a Senior Subordinated Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Senior Subordinated 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 Issuers may, at their option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Subordinated
Notes and to have each Guarantor's obligations discharged with respect to its
Guarantee ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Senior Subordinated Notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages, if any, on
such Senior Subordinated Notes when such payments are due from the trust
referred to below, (ii) the Issuers' obligations with respect to the Senior
Subordinated Notes concerning issuing temporary Senior Subordinated Notes,
registration of Senior Subordinated Notes, mutilated, destroyed, lost or
stolen Senior Subordinated 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 Issuers'
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Issuers may, at their option and at any
time, elect to have the obligations of the Issuers and each Guarantor 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 Subordinated 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 Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Subordinated 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 and Liquidated Damages, if any, on the outstanding Senior
Subordinated Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Issuers must specify whether the Senior
Subordinated Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Issuers have 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 Subordinated 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 Issuers 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
Subordinated Notes will not recognize income, gain or loss for federal income
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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 Issuers or any of their
Subsidiaries are a party or by which the Issuers or any of their Restricted
Subsidiaries are bound; (vi) the Issuers must have delivered to the Trustee an
Opinion of Counsel (subject to customary qualifications and assumptions) to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
the Issuers must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by the Issuers with the intent of preferring the
Holders of Senior Subordinated Notes over the other creditors of the Issuers
or with the intent of defeating, hindering, delaying or defrauding creditors
of the Issuers or others; and (viii) the Issuers 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 the Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange 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 or
the Senior Subordinated Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Senior
Subordinated Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Subordinated Notes), and any existing default or compliance with
any provision of the Indenture or the Senior Subordinated Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Senior Subordinated Notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange for,
Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Subordinated Notes held by a non-consenting
Holder): (i) reduce the principal amount of Senior Subordinated Notes whose
Holders must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or change the fixed maturity of any Senior Subordinated Note or
alter the provisions with respect to the redemption of the Senior Subordinated
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 Subordinated Note,
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Senior Subordinated Notes (except a
rescission of acceleration of the Senior Subordinated Notes by the Holders of
at least a majority in aggregate principal amount of the Senior Subordinated
Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Subordinated Note payable in money other
than that stated in the Senior Subordinated Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Senior Subordinated Notes to receive payments of principal of or
premium, if any, or interest on the Senior
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Subordinated Notes, (vii) waive a redemption payment with respect to any
Senior Subordinated Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders") or (viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Subordinated Notes, the Issuers and the Trustee may amend or supplement the
Indenture or the Senior Subordinated Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Subordinated Notes in
addition to or in place of certificated Senior Subordinated Notes, to provide
for the assumption of the Issuers' obligations to Holders of Senior
Subordinated Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets, to add additional guarantees with
respect to the Senior Subordinated Notes, including any new Senior
Subordinated Note Guarantees, to make any change that would provide any
additional rights or benefits to the Holders of Senior Subordinated Notes or
that does not adversely affect the 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.
In addition, any amendment to the provisions of Article 10 of the Indenture
(which relate to subordination) will require the consent of the Holders of at
least 75% in aggregate principal amount of the Notes then outstanding if such
amendment would adversely affect the rights of Holders of Senior Subordinated
Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, 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 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 Subordinated Notes, unless
such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture and Exchange and Registration Rights Agreement without charge by
writing to Alliance Laundry Systems LLC, P.O. Box 990, Ripon, WI 54971-0990,
Attention: Chief Financial Officer.
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.
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"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Permitted Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary of the Company; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of the Company; provided, however, that, in the
case of clauses (ii) and (iii), such Restricted Subsidiary is primarily
engaged in a Permitted Business.
"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.
"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 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 Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--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 Restricted 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 (a) that have a fair market value in excess of $1.0 million or
(b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing,
the following items shall not be deemed to be Asset Sales: (i) a transfer of
assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary
to the Company or to another Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments," (iv) the sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the
compromise or collection thereof, (v) the factoring of accounts receivable
arising in the ordinary course of business pursuant to arrangements customary
in the industry, (vi) the licensing of intellectual property, (vii) disposals
or replacements of obsolete, uneconomical, negligible, worn out or surplus
property in the ordinary course of business, (viii) sales of equipment loans
on a non-recourse basis to a third party in an amount at least equal to 75% of
the fair market value thereof, and (ix) sales of receivables, equipment loans
and related assets (including contract rights) of the type specified in the
definition of "Qualified Securitization Transaction" to a Securitization
Entity for the fair market value thereof, including consideration in the
amount specified in the proviso to the definition of Qualified Securitization
Transaction.
"Borrowing Base" means, with respect to any Person, the sum of (x) up to 90%
of the net book value of the non-affiliated accounts receivable of such Person
in accordance with GAAP and (y) up to 60% of the net book value of the
inventory of such Person in accordance with GAAP.
"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.
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"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 (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months 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 Senior Credit Facility or with any domestic commercial bank
having capital and surplus in excess of $500 million and a Thompson 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, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Corporation and in each case maturing within six months after the
date of acquisition and (vi) money market funds at least 95% of the assets of
which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of
this definition.
"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), whether or not otherwise in compliance with the
provisions of the Indenture (other than the Principals and their Related
Parties), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of the first transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above) becomes 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), directly or indirectly, of more of the Voting Stock of
the Company (measured by voting power rather than number of shares) than is at
the time "beneficially owned" (as defined above) by the Principals and their
Related Parties in the aggregate or (iv) the first day on which a majority of
the members of the Board of Managers of the Company or the Parent are not
Continuing Managers (as defined below).
Clause (i) of 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 Restricted
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 Subordinated Notes to require the Issuers to repurchase such
Senior Subordinated 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
Restricted Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (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, including foreign
withholding taxes to the extent paid, based on income or profits of such
Person and its Restricted 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
Restricted Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of 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, 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
88
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
Restricted Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income, plus (v) one time non-cash legal, accounting and debt
issuance charges resulting from the Transactions, minus (vi) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Consolidated Cash
Flow shall exclude the amortization of debt issuance costs.
"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 Wholly Owned 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
principles shall be excluded, (v) any one time non-cash charges relating to
the Transition Plan in an amount not to exceed $5.0 million shall be excluded,
and (vi) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its
Subsidiaries.
"Continuing Managers" means, as of any date of determination, any member of
the Board of Managers of the Company who (i) was a member of such Board of
Managers on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Managers with the approval of a majority of the
Continuing Managers who were members of such Board at the time of such
nomination or election or (iii) was nominated by a Principal pursuant to the
Securityholders Agreement.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"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, at the option of the holder thereof), 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 Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Issuers to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuers
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"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).
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"Equity Offering" means any offering of Qualified Capital Stock of the
Parent, the Company or any successor thereto; provided that, in the event of
any Equity Offering by the Parent, the Parent contributes to the common equity
capital of the Company (other than as Disqualified Stock) the portion of the
net cash proceeds of such Equity Offering necessary to pay the aggregate
redemption price (plus accrued interest and Liquidated Damages thereon, if
any, to the redemption date) of the Notes to be redeemed pursuant to the
preceding paragraph.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior 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, amortization of 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, 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) and (ii) the consolidated
interest 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)
all dividend payments, whether or not in cash, 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 of
the Company (other than Disqualified Stock) or to the Company or a Restricted
Subsidiary of the Company. Fixed Charges shall exclude the amortization of
debt issuance costs.
"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
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
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, Consolidated Cash Flow
and Fixed Charges shall be calculated after giving effect on a pro forma basis
for the period of such calculation to (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 as if such transaction had 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. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company consistent with Article 11 of Regulation S-
X, promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date of the Indenture.
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"Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company that
is not organized under the laws of the United States of America or any state
thereof or the District of Columbia and (b) any Restricted Subsidiary of the
Company that has no material assets other than securities of one or more
Foreign Subsidiaries, and other assets relating to an ownership interest in
any such securities or Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to depreciation, amortization or other expenses recorded as a
result of the application of purchase accounting in accordance with Accounting
Principles Board Opinion Nos. 16 and 17.
"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, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or 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 currency exchange rates.
"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 (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 such Person of any indebtedness of any other Person
(but excluding, with respect to Indebtedness of a Qualified Securitization
Entity, any Limited Originator Recourse or Standard Securitization
Undertakings that might be deemed to constitute guarantees). The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness issued with original issue discount,
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. For
purposes of calculating the amount of Indebtedness of a Securitization Entity
outstanding as of any date, the face or notional amount of any interest in
receivables or equipment that is outstanding as of such date shall be deemed
to be Indebtedness but any such interests held by Affiliates of such
Securitization Entity shall be excluded for purposes of such calculation.
"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 Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect 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
91
sale or disposition equal to the fair market value of the Equity Interests of
such 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."
"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).
"Limited Originator Recourse" means a reimbursement obligation to the
Company or a Restricted Subsidiary in connection with a drawing on a letter of
credit, revolving loan commitment, cash collateral account or other such
credit enhancement issued to support Indebtedness of a Securitization Entity
under a facility for the financing of trade receivables and the warehousing of
equipment loans and leases; provided that the available amount of any such
form of credit enhancement at any time shall not exceed 10.0% of the principal
amount of such Indebtedness at such 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 Senior Debt under one or more of
the Company's Senior 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 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 (other
than the Notes being offered hereby) 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.
"Parent" means Alliance Laundry Holdings LLC, a Delaware limited liability
company, or any corporation as successor thereto.
"Permitted Business" means the lines of business conducted by the Company
and its Subsidiaries on the date hereof and businesses that are reasonably
similar, ancillary or related thereto or which constitute a reasonable
extension or expansion thereof.
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"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is a Note Guarantor
(whether existing on the date of the Indenture or created thereafter); (ii)
any Investment in Cash Equivalents; (iii) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (x) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or (y) 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 and Note
Guarantor of the Company; (iv) any 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"; (v) any acquisition of assets solely
in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (vi) Hedging Obligations permitted under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; (vii) any
Investment by the Company or a Subsidiary of the Company in a Securitization
Entity or any Investment by a Securitization Entity in any other Person in
connection with a Qualified Securitization Transaction; provided that any
Investment in a Securitization Entity is in the form of a Purchase Money Note
or an equity interest and (viii) 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 (viii) that
are at the time outstanding, not to exceed the greater of (x) $7.5 million and
(y) 7.5% of Total Assets.
"Permitted Liens" means (i) Liens securing Senior Debt (including the Senior
Credit Facilities); (ii) Liens in favor of the Company and any Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
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 incurred
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance or other kinds of social
security, or to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business; (vi) purchase money Liens to finance
property or assets of the Company or any Restricted Subsidiary of the Company
acquired in the ordinary course of business; provided, however, that (A) the
related purchase money Indebtedness shall not exceed the cost of such property
or assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and assets so
acquired and (B) the Lien securing such Indebtedness shall be created within
90 days of such acquisition; (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 liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (x) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (xi) easements, rights-of-way, zoning and
similar restrictions and other similar encumbrances or title defects incurred
or imposed, as applicable, in the ordinary course of business and consistent
with industry practices which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto (as such property is used by the Company or its
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or such Subsidiaries; provided, however, that any such Liens are not
incurred in connection with any borrowing of money or any commitment to loan
any money or to extend any credit; (xii) Liens on assets transferred to a
Securitization Entity or on assets of a Securitization Entity, in either case
incurred in connection with a Qualified Securitization Transaction; (xiii)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of
93
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; (xiv) Liens on assets of Guarantors to
secure Senior Debt of such Guarantors that were permitted by the Indenture to
be incurred; (xv) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries; (xvi) any interest or title of
a lessor under any Capital Lease Obligation; (xvii) Liens upon specific items
of inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created for the
account of such Person to facilitate the purchase, shipment or storage of such
inventory or other goods; (xviii) Liens securing reimbursement obligations
with respect to commercial letters of credit which encumber documents and
other property relating to such letters of credit and products and proceeds
thereof; (xix) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset and
set-off; (xx) Liens securing Hedging Obligations which Hedging Obligations
relate to Indebtedness that is otherwise permitted under the Indenture; (xxi)
leases or subleases granted to others that do not materially interfere with
the ordinary course of business of the Company and its Restricted
Subsidiaries; (xxii) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xxiii) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customer
duties in connection with the importation of goods; (xxiv) Liens securing
Indebtedness under Currency Agreements; and (xxv) Liens securing Indebtedness
of Restricted Subsidiaries that are Foreign Subsidiaries incurred in reliance
on clause (iii) of the second paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries or any Disqualified Stock of the Company
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of the Company
or any of its Restricted Subsidiaries (other than intercompany Indebtedness);
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 no
earlier than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Senior Subordinated Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Senior Subordinated Notes on terms at least as
favorable to the Holders of Senior Subordinated Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded or is Disqualified Stock; 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 or is Disqualified Stock.
"Principals" means Bain Capital, Inc., Bruckmann, Rosser, Sherrill & Co.,
L.P., their respective affiliates and executive officers of the Company as of
the date of the Indenture.
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Qualified
Securitization Transaction, which note shall be repaid from cash available to
the Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly
acquired equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted
Subsidiaries may sell, convey or otherwise transfer to (a) a Securitization
94
Entity (in the case of a transfer by the Company or any of its Restricted
Subsidiaries) and (b) any other Person (in case of a transfer by a
Securitization Entity), or may grant a security interest in, any receivables
or equipment loans (whether now existing or arising or acquired in the future)
of the Company or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such
receivables and equipment loans, all contracts and contract rights and all
Guarantees or other obligations in respect of such receivables and equipment
loans, proceeds of such receivables and equipment loans and other assets
(including contract rights) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving receivables and equipment (collectively,
"transferred assets"); provided that in the case of any such transfer by the
Company or any of its Restricted Subsidiaries, the transferor receives cash or
Purchase Money Notes in an amount which (when aggregated with the cash and
Purchase Money Notes received by the Company and its Restricted Subsidiaries
upon all other such transfers of transferred assets during the ninety days
preceding such transfer) is at least equal to 75% of the aggregate face amount
of all receivables so transferred during such day and the ninety preceding
days.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 60% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a 60% 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; provided that, on the date of
the Indenture, all Subsidiaries of the Company shall be Restricted
Subsidiaries (other than the SPE, Alliance Commercial Appliances Receivables
LLC, Alliance Commercial Appliances Finance LLC and Alliance Laundry S.A.).
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Restricted Subsidiary of the
Company makes an Investment and to which the Company or any Restricted
Subsidiary of the Company transfers receivables or equipment and related
assets) that engages in no activities other than in connection with the
financing of receivables or equipment and that is designated by the Board of
Managers of the Company (as provided below) as a Securitization Entity (a) no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any Restricted Subsidiary of the
Company other than pursuant to Standard Securitization Undertakings or Limited
Originator Recourse, (ii) is recourse to or obligates the Company or any
Restricted Subsidiary of the Company (other than the Securitization Entity) in
any way other than pursuant to Standard Securitization Undertakings or Limited
Originator Recourse or (iii) subjects any property or asset of the Company or
any Restricted Subsidiary of the Company (other than the Securitization
Entity), directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings or Limited Originator Recourse, (b) with which neither the
Company nor any Restricted Subsidiary of the Company has any material
contract, agreement, arrangement or understanding other than on terms no less
favorable to the Company or such Restricted Subsidiary than those that might
be obtained at the time from Persons that are not Affiliates of the Company,
other than fees payable in the ordinary course of business in connection with
servicing receivables of such entity and (c) to which neither the Company nor
any Restricted Subsidiary of the Company has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Managers of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Managers of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Seller Preferred Equity" means preferred membership interests with a
liquidation value of $6.0 million due August 21, 2009 issued by the Parent to
Raytheon.
95
"Seller Subordinated Note" means a junior subordinated promissory note in
the principal amount of $9.0 million due August 21, 2009 issued by the Parent
to Raytheon.
"Senior Credit Facility" means that certain Senior Credit Facility, dated as
of May 5, 1998, by and among the Company, General Electric Capital
Corporation, as administrative agent, and Lehman Commercial Paper Inc., as
syndication agent, providing for up to $75.0 million of revolving credit
borrowings and up to $200.0 million of term loan 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.
"Senior Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Senior 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.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"SPE" means the special purpose single member limited liability company that
is a Subsidiary of the Company and that entered into a $250.0 million
revolving loan agreement with Lehman Commercial Paper Inc. at the Closing.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company that are reasonably customary in receivables or equipment loan
transactions.
"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).
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet, except that calculations made for the purpose of
determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to goodwill,
deferred financing costs and other intangibles shown on the balance sheet as a
result of the application of purchase accounting in accordance with Accounting
Principles Board Opinion Nos. 16 and 17.
"Transition Plan" means the process by the Company of establishing at its
Ripon, Wisconsin facility the capability to manufacture small-chassis
frontload washers and dryers beginning in September 1998 and September 1999,
respectively, and to cease production of consumer topload washers for
Appliance Co.
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"Unrestricted Subsidiary" means each of the SPE, Alliance Commercial
Appliances Receivables LLC, Alliance Commercial Appliances Finance LLC and
Alliance Laundry S.A. In addition, "Unrestricted Subsidiary" means (i) any
Subsidiary that is designated by the Board of Managers 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; (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; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Managers 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 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 Managers 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, (ii) such Subsidiary shall execute a Note
Guarantee and deliver an opinion of counsel in accordance with the terms of
the Indenture and (iii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors or the Board of Managers of such Person, as the case may be.
"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.
97
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Issuers on May 5, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and in offshore transactions pursuant to
Regulation S under the Securities Act. As a condition to the Purchase
Agreement, the Issuers entered into the Registration Rights Agreement with the
Initial Purchasers pursuant to which the Issuers have agreed to: (i) to use
their respective best efforts to file with the Commission on or prior to 90
calendar days after the date of issuance of the Notes (the "Issue Date") a
registration statement on an appropriate form under the Securities Act (the
"Exchange Offer Registration Statement") relating to a registered exchange
offer (the "Exchange Offer") for the Notes under the Securities Act and (ii)
use their respective best efforts to cause the Exchange Offer Registration
Statement to become effective within 180 calendar days after the Issue Date.
Upon the effectiveness of the Exchange Offer Registration Statement, unless it
would not be permitted by applicable law or Commission policy, the Issuers
will promptly offer to exchange any and all of the outstanding Notes for the
Exchange Notes that are identical in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to
transfer restrictions) and that would be registered under the Securities Act.
The Issuers will keep the Exchange Offer open for not less than 20 days (or
longer, if required by applicable law) after the date on which notice of the
Exchange Offer is mailed to the holders of the Notes. For each Note
surrendered to the Issuers pursuant to the Exchange Offer, the holder of such
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Note. Interest on each Exchange Note will accrue from the date
of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Issuers believe that the
Exchange Notes would in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser
of Notes who is an "affiliate" of either Alliance or ALC or who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes: (i) will not be able to rely on the interpretation of the staff of the
Commission; (ii) will not be able to tender its Notes in the Exchange Offer;
and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes, unless such sale or transfer is made pursuant to an exemption from
such requirements.
If (i) the Issuers are not required to file the Exchange Offer Registration
Statement or permitted to effect the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy; or (ii) any Holder of
Transfer Restricted Securities notifies the Issuers prior to the 20th day
following commencement of the Exchange Offer that (a) it is prohibited by law
or Commission policy from participating in the Exchange Offer or (b) that it
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) that it is a Broker-Dealer and owns Notes acquired directly
from the Issuers or an affiliate of the Issuers, then the Issuers will file
with the Commission a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Transfer Restricted Securities by such holders
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note and each Exchange
Note, the Holder of which is subject to prospectus delivery requirements of
the Securities Act in order to sell such Note or Exchange Note, until the
occurrence of any of the following events: (i) the first date on which such
Note may be exchanged for an Exchange Note in the Exchange Offer, if following
such exchange such Holder would be entitled to resell such Exchange Note to
the public without complying with the prospectus delivery requirements of the
Securities Act; (ii) the date on which such Note has been registered pursuant
to an effective Shelf Registration Statement under the Securities Act and
disposed of in accordance with the "Plan of Distribution" section of the
Offering Memorandum contained in such Shelf Registration Statement; (iii) the
date on which such Note is sold to the public pursuant to Rule 144 under the
Securities Act or by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including delivery
of the Offering Memorandum contained therein); or (iv) such Note or Exchange
Note, as the case may be, shall have ceased to be outstanding.
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The Issuers will use their respective best efforts to cause the Exchange
Offer Registration Statement or, if applicable, the Shelf Registration
Statement (each, a "Registration Statement") to become effective under the
Securities Act by the Commission as soon as practicable after the filing
thereof but in no event later than 180 calendar days after the Issue Date.
Upon the effectiveness of the Exchange Offer Registration Statement, unless
it would not be permitted by applicable law or Commission policy, the Issuers
will promptly commence the Exchange Offer to enable each Holder of the Notes
(other than Holders who are affiliates (within the meaning of the Securities
Act) of either Alliance or ALC or underwriters (as defined in the Securities
Act) with respect to the Exchange Notes) to exchange the Notes for Exchange
Notes. If applicable, the Issuers shall keep the Shelf Registration Statement
continuously effective for, under certain circumstances, a maximum of two
years after the Issue Date.
In the event that, for any reason whatsoever: (a) the Issuers fail to file
any of the Registration Statements on or before the date specified for such
filing; (b) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); (c) the Issuers fail to consummate the Exchange
Offer within 30 Business Days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement; or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Exchange
and Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Issuers will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with
respect to the first 90 calendar day period, or any portion thereof,
immediately following the occurrence of a Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up
to a maximum amount of Liquidated Damages for all Registration Defaults of
$.50 per week per $1,000 principal amount of Notes. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
The Issuers (i) shall make available for a period of up to one year from the
consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale
of any such Exchange Notes and (ii) shall pay all expenses incident to the
Exchange Offer (including the expense of one counsel to the Holders covered
thereby) and will indemnify certain holders of the Notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Exchange and Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes in
the Exchange Offer will be required to make representations in the Letter of
Transmittal that (a) it is not an "affiliate" of either Alliance or ALC
(within the meaning of Rule 405 of the Securities Act); (b) it is not engaged
in and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Exchange Notes to be
issued in the Exchange Offer; (c) it is acquiring the Exchange Notes in its
ordinary course of business; and (d) if it is a Participating Broker-Dealer
holding Notes acquired for its own account as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes received in respect of such Exchange Notes
pursuant to the Exchange Offer. The Commission has taken the position and the
Issuers believe that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other than a resale
of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, the Issuers are required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes.
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If the holder is a Participating Broker-Dealer, it will be required to
include a representation in such Participating Broker-Dealer's letter of
transmittal with respect to the Exchange Offer that such Participating Broker-
Dealer has not entered into any arrangement or understanding with the Issuers
or any affiliate of the Issuers to distribute the Exchange Notes.
Holders of the Notes will be required to make certain representations to the
Issuers (as described above) in order to participate in the Exchange Offer and
will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells
Notes pursuant to the Shelf Registration Statement generally will be required
to be named as a selling securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Exchange and Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations).
For so long as the Notes are outstanding, the Issuers will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Registration Rights Agreement contains a
discussion of all material elements thereof, but does not purport to be
complete and is qualified in its entirety by reference to all provisions of
the Registration Rights Agreement. The Issuers will provide a copy of the
Registration Rights Agreement to holders of Notes identified to the Issuers by
any Initial Purchasers upon request.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Offering
Memorandum and in the Letter of Transmittal, the Issuers will accept any and
all Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Issuers will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Notes pursuant to the Exchange Offer. However, Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that: (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Notes; (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof; and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Offering Memorandum, $110,000,000 aggregate principal
amount of Notes were outstanding. The Issuers have fixed the close of business
on , 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Offering Memorandum and the Letter of
Transmittal will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Issuers intend to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Notes when, as
and if the Issuers have given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Issuers.
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If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Issuers will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Issuers, in their sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. Notwithstanding the foregoing,
the Company will not extend the Expiration Date beyond , 1998.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, in the next business day after the previously scheduled expiration
date.
The Issuers reserve the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest form their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on November 1, 1998. Interest on the Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 1 and
November 1 commencing on November 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the Issuers
the representations set forth in the eighth paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuers will
constitute agreement between such holder and the Issuers in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
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THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF
THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
maybe, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Offering Memorandum to establish accounts with respect
to the Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Notes by causing such Book-Entry Transfer
Facility to transfer such Notes into the Exchange Agent's account with respect
to the Notes in accordance with the Book-Entry Transfers Facility's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their accept-
ance of the Exchange Offer by causing DTC to transfer Notes to the Depositary
in accordance with DTC's ATOP procedures for transfer. DTC will then send an
Agent's Message to the Depositary.
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The term "Agent's Message" means a message transmitted by DTC, received by
the Depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Pen-Tab may enforce such agreement
against such participant. In the case of an Agent's Message relating to
guaranteed delivery, the term means a message transmitted by DTC and received
by the Depositary, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC
participant using ATOP must also properly complete and duly execute and
applicable Letter of Transmittal and deliver it to the Depositary. Pursuant to
authority granted by DTC, any DTC participant which has Notes credited to its
DTC account at any time (and thereby held of record by DTC's nominee) may
directly provide a tender as though it were the registered holder by so
completing, executing and delivering the applicable Letter of Transmittal to
the Depositary. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by the Issuers in their sole discretion, which determination
will be final and binding. The Issuers reserve the absolute right to reject
any and all Notes not properly tendered or any Notes the Issuers' acceptance
of which would, in the opinion of counsel for the Issuers, be unlawful. The
Issuers also reserves the right in their sole discretion to waive any defects,
irregularities or conditions of tender as to particular Notes. The Issuers'
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Notes must be cured within such time as the Issuers shall
determine. Although the Issuers intend, to notify holders of defects or
irregularities with respect to tenders of Notes, neither the Issuers, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
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Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Notes in the Exchange offer, a telegram, telex, letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Notes to be withdrawn (the
"Depositor"), (ii) identify the Notes to be withdrawn (including the
certificate number(s) and principal amount of such Notes, or, in the case of
Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Notes register the transfer of such Notes
into the name of the person withdrawing the tender and (iv) specify the name
in which any such Notes are to be registered, if different form that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Issuers, whose
determination shall be final and binding on all parties. Any Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Issuers, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuers or any of their respective subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Issuers, might materially impair the ability of the Issuers to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval the
Issuers shall, in their sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuers determine in their sole discretion that any of the conditions
are not satisfied, the Issuers may (i) refuse to accept any Notes and return
all tendered Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see "--
Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which
have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Offering Memorandum or of the
104
Letter of Transmittal and requests for Notice of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their respective affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuers however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only; (i) to the Company (upon redemption thereof or otherwise); (ii) so long
as the Notes are eligible for resale pursuant to Rule 144A, to a person inside
the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act
in a transaction meeting the requirements of Rule 144A, in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Issuers); (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act; or (iv) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Issuers believe that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of either Alliance or ACL within the meaning of Rule
405 under the Securities Act) who receives Exchange Notes in exchange for
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement or understanding with person
to participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange notes in the Exchange Offer for
the
105
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Notes,
where such Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Issuers in the Letter of Transmittal that (a) it is not an "affiliate"
of either Alliance or ALC (within the meaning of Rule 405 of the Securities
Act); (b) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer; (c) it is acquiring
the Exchange Notes in its ordinary course of business; and (d) if it is a
Participating Broker-Dealer holding Notes acquired for its own account as a
result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes received in
respect of such Exchange Notes pursuant to the Exchange Offer. As indicated
above, each Participating Broker-Dealer that receives and Exchange Note for
its own account in exchange for Notes must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-
Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel described
below) is based upon current provisions of the Internal Revenue Code of 1986,
as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the
Internal Revenue Service (the "Service") will not take a contrary view, and no
ruling from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Issuers
recommend that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Notes for Exchange
Notes, including the applicability and effect of any state, local or foreign
tax laws.
Kirkland & Ellis, special counsel to the Issuers, has advised the Issuers
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Notes for Exchange Notes pursuant to the
Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes received in respect of such Notes pursuant to the
Exchange Offer. This Offering Memorandum, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired as a result of market-making activities or other trading
activities. The Issuers have
106
agreed that for a period of up to one year from the consummation of the
Exchange Offer, it will make this Offering Memorandum, as amended or
supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale. In addition, until , 1998, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchaser or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation a under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Issuers believe that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of either Alliance or ACL within the meaning of Rule
405 under the Securities Act) who receives Exchange Notes in exchange for
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement or understanding with person
to participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction and such a secondary
resale transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K under the Securities Act, unless an
exemption from registration is otherwise available. Further, each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Issuers have agreed that, for a
period of up to one year from the consummation of the Exchange Offer, it will
make this Offering Memorandum available to any Participating Broker-Dealer for
use in connection with any such resale.
LEGAL MATTERS
Certain legal matters with respect to issuance of the Exchange Notes offered
hereby will be passed upon for the Issuers by Kirkland & Ellis, New York, New
York.
EXPERTS
The combined financial statements of the Company as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997,
included in this Offering Memorandum, have been included herein in reliance on
the report, which includes an explanatory paragraph regarding the fact that
the Company operated as a unit of Raytheon Company, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in auditing and accounting.
107
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants......................................... F-2
Combined Financial Statements:
Combined Statements of Assets, Liabilities and Parent Company Investment
at December 31, 1996 and 1997 and March 29, 1998 (Unaudited)........... F-3
Combined Statements of Income for the years ended December 31, 1995,
1996 and 1997, and for the quarters ended March 30, 1997 and March 29,
1998 (Unaudited)....................................................... F-4
Combined Statements of Parent Company Investment for the years ended
December 31, 1995, 1996 and 1997, and for the quarter ended March 29,
1998 (Unaudited)....................................................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997, and for the quarters ended March 30, 1997 and March 29,
1998 (Unaudited)....................................................... F-6
Notes to Combined Financial Statements.................................... F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Raytheon Company:
We have audited the accompanying combined statements of assets, liabilities
and parent company investment of the Commercial Laundry Business of Raytheon
Company ("Commercial Laundry" as defined in Note A) as of December 31, 1996
and 1997 and the related combined statements of income, parent company
investment, and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of
Commercial Laundry's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Commercial Laundry is an operating unit of Raytheon Company. As discussed in
Note A, certain costs and expenses presented in the financial statements
represent allocations and management's estimates of the costs of services
provided to Commercial Laundry by Raytheon Company. As a result, the financial
statements presented may not be indicative of the financial position or
results of operations that would have been achieved had Commercial Laundry
operated as a nonaffiliated entity.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Commercial
Laundry as of December 31, 1996 and 1997 and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 23, 1998
F-2
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
COMBINED STATEMENTS OF ASSETS, LIABILITIES
AND PARENT COMPANY INVESTMENT
(IN THOUSANDS)
DECEMBER 31, MARCH 29,
----------------- -----------
1996 1997 1998
ASSETS -------- -------- -----------
(UNAUDITED)
Current assets:
Cash........................................... $ 962 $ 1,208 $ 1,607
Accounts receivable (net of allowance for
doubtful accounts of $1,946, $4,495 and $4,712
at December 31, 1996 and 1997 and March 29,
1998, respectively)........................... 7,918 9,819 5,872
Inventory, net................................. 44,260 33,714 36,350
Deferred taxes................................. 8,361 7,860 7,880
Prepaid expenses............................... 1,044 1,732 2,265
-------- -------- --------
Total current assets......................... 62,545 54,333 53,974
Notes receivable................................. 4,403 12,424 4,917
Property, plant and equipment, net............... 63,730 69,701 66,810
Goodwill (net of accumulated amortization of
$3,247, $4,747 and $5,122 at December 31, 1996
and 1997 and March 29, 1998, respectively)...... 52,818 51,318 50,944
Other assets..................................... 1,701 5,481 6,337
-------- -------- --------
Total assets................................. $185,197 $193,257 $182,982
======== ======== ========
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Accounts payable............................... 17,881 17,410 20,477
Other current liabilities...................... 20,765 21,489 20,292
-------- -------- --------
Total current liabilities.................... 38,646 38,899 40,769
Deferred taxes................................. 4,005 5,785 6,389
Long-term debt................................. 1,000 -- --
Commitments and contingencies
Parent company investment........................ 141,546 148,573 135,824
-------- -------- --------
Total liabilities and parent company invest-
ment........................................ $185,197 $193,257 $182,982
======== ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-3
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, QUARTERS ENDED
-------------------------- -------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
(UNAUDITED)
Net sales:
Commercial laundry............ $213,381 $209,123 $239,255 $52,573 $51,725
Appliance Co. consumer
laundry...................... 79,382 76,992 76,853 19,637 23,296
Service parts................. 31,766 32,148 31,601 8,265 8,274
-------- -------- -------- ------- -------
324,529 318,263 347,709 80,475 83,295
Cost of sales................... 259,272 246,017 263,932 61,881 63,945
-------- -------- -------- ------- -------
Gross profit.................... 65,257 72,246 83,777 18,594 19,350
Selling, general and
administrative expense......... 35,360 34,464 41,070 9,128 10,580
Nonrecurring costs.............. 574 3,704 -- -- --
-------- -------- -------- ------- -------
Operating income............ 29,323 34,078 42,707 9,466 8,770
Other income, net............... 778 685 -- -- --
-------- -------- -------- ------- -------
Income before taxes......... 30,101 34,763 42,707 9,466 8,770
Provision for income taxes...... 11,545 13,408 16,431 3,643 3,385
-------- -------- -------- ------- -------
Net income.................. $ 18,556 $ 21,355 $ 26,276 $ 5,823 $ 5,385
======== ======== ======== ======= =======
The accompanying notes are an integral part of the combined financial
statements.
F-4
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
COMBINED STATEMENTS OF PARENT COMPANY INVESTMENT
(IN THOUSANDS)
DECEMBER 31,
---------------------------- MARCH 29,
1995 1996 1997 1998
-------- -------- -------- -----------
(UNAUDITED)
Parent company investment, beginning
of period........................... $ 93,335 $175,317 $141,546 $148,573
Net income........................... 18,556 21,355 26,276 5,385
Dividends............................ (6,317) (7,746) -- --
Net transfers (to)/from parent....... 69,743 (47,380) (19,249) (18,134)
-------- -------- -------- --------
Parent company investment, end of
period.............................. $175,317 $141,546 $148,573 $135,824
======== ======== ======== ========
The accompanying notes are an integral part of the combined financial
statements.
F-5
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, QUARTERS ENDED
--------------------------- -------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------- -------- -------- --------- ---------
(UNAUDITED)
Cash flows from operating
activities:
Net income.................. $18,556 $ 21,355 $ 26,276 $5,823 $ 5,385
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............. 10,847 11,145 14,445 3,000 3,727
(Gain) loss on sale of
property, plant and
equipment................ (30) (19) (32) (20) 40
Deferred income taxes..... (2,058) 1,073 2,281 2,281 584
Changes in assets and
liabilities:
Trade and notes
receivable............. (5,483) 50,461 (9,922) (7,145) 11,454
Inventory............... (6,646) (3,453) 10,546 718 (2,636)
Other assets............ 884 (2,019) (3,780) (4,415) (1,389)
Accounts payable........ 2,105 (2,054) (471) 4,019 3,067
Other current
liabilities............ (658) 703 724 (2,203) (1,197)
------- -------- -------- ------ -------
Net cash provided by
operating activities. 17,517 77,192 40,067 2,058 19,035
------- -------- -------- ------ -------
Cash flows from investing
activities:
Additions to property, plant
and equipment.............. (16,177) (22,030) (22,623) (7,949) (1,457)
Proceeds on disposal of
property, plant and
equipment.................. 430 853 3,051 1,308 955
Acquisition of business less
cash acquired.............. (65,100) -- -- -- --
------- -------- -------- ------ -------
Net cash (used in)
investing activities. (80,847) (21,177) (19,572) (6,641) (502)
------- -------- -------- ------ -------
Cash flows from financing
activities:
Transfers (to) from parent.. 69,743 (47,380) (19,249) 4,003 (18,134)
Dividend payments to parent. (6,317) (7,746) -- -- --
Increase (decrease) in long-
term debt.................. (300) (100) (1,000) -- --
------- -------- -------- ------ -------
Net cash provided by
(used in) financing
activities........... 63,126 (55,226) (20,249) 4,003 (18,134)
------- -------- -------- ------ -------
Increase (decrease) in cash... (204) 789 246 (580) 399
Cash at beginning of period... 377 173 962 962 1,208
------- -------- -------- ------ -------
Cash at end of period......... $ 173 $ 962 $ 1,208 $ 382 $ 1,607
======= ======== ======== ====== =======
Supplemental disclosures of
cash flow information:
Cash paid for:
Interest.................. $ 91 $ 70 $ 33 $ 20 $ --
The accompanying notes are an integral part of the combined financial
statements.
F-6
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
A. ACCOUNTING POLICIES:
Basis of Presentation
The Commercial Laundry Business of Raytheon Company ("Commercial Laundry")
is an operating unit of Raytheon Company (the "Parent"). Commercial Laundry
designs, manufactures and services a full line of commercial laundry equipment
for sale in the U.S. and for export to numerous international markets.
Commercial Laundry also manufactures consumer washing machines for sale to
Appliance Co. (see "Sale of Amana") and international customers. Commercial
Laundry produces all of its products in the U.S. at three manufacturing plants
located in Ripon, Wisconsin, Marianna, Florida and Madisonville, Kentucky. In
1996, Raytheon Appliances, S.A. was established to build, own and operate high
quality coin laundromats in Latin America.
All material intercompany transactions have been eliminated.
These financial statements present Commercial Laundry's combined results of
operations and its financial condition as it operated as a unit of the Parent,
including certain adjustments necessary for a fair presentation of the
business. The financial statements presented may not be indicative of the
results that would have been achieved had Commercial Laundry operated as an
unaffiliated entity.
Interim Financial Information
The combined financial statements of Commercial Laundry as of March 29, 1998
and for the quarters ended March 30, 1997 and March 29, 1998 are unaudited.
Adjustments consisting of normal recurring adjustments and adjustments
necessary to present the combined results of operations and financial
condition of Commercial Laundry as it operated as a unit of the Parent have
been made, which in the opinion of management are necessary for a fair
presentation. Results of operations for the quarter ended March 29, 1998 are
not necessarily indicative of the results that may be expected for the full
year or for any future period.
Background
Commercial Laundry originated from the acquisition of Speed Queen Company
("Speed Queen") by the Parent in October of 1979. Speed Queen operated as a
separate subsidiary of the Parent until March 31, 1996 when it was merged into
Amana Refrigeration, Inc. ("Amana"), a wholly-owned subsidiary of the Parent,
which manufactures and services home appliances. In connection with this
consolidation, the Speed Queen legal entity was dissolved and Amana
Refrigeration, Inc. was renamed Raytheon Appliances, Inc. On September 10,
1997, Raytheon Commercial Laundry was established as a limited liability
company (see "Sale of Amana").
Sale of Amana
Historically, Commercial Laundry reported as one of five operating units
comprising the Parent's appliances division. On September 10, 1997, the Parent
sold three of the five operating units of its appliances division to a large
consumer appliance company ("Appliance Co." or the "Appliance Co.
Transaction"). As a result of this sale, the Parent divested its consumer
appliance, heating and air conditioning, and commercial cooking operating
units, while retaining its commercial laundry and control systems operating
units. In connection with the sale, the Parent also sold to Appliance Co. a
laundry manufacturing plant in Searcy, Arkansas ("Searcy"). This plant was
acquired by the Parent as part of Speed Queen and has historically been
reported in the Commercial Laundry Business results. Searcy manufactures small
chassis dryers and front loading washing machines for both consumer and
commercial use (approximately 80% consumer and 20% commercial).
F-7
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
As Searcy was sold as part of the Appliance Co. Transaction, the plant's
operations have been excluded from the Commercial Laundry combined financial
statements. Specifically, sales and cost of sales related to consumer products
manufactured at Searcy and related service parts have been excluded. All
assets and liabilities of Searcy have been excluded from these financial
statements, except for certain tooling and dies which are specific to the
production of commercial laundry products and were retained by Commercial
Laundry subsequent to the sale. Production of commercial product by Searcy has
been reflected as being purchased by Commercial Laundry at standard cost for
all periods presented. Outstanding payables associated with these purchases
from Searcy of $1.5 million and $1.3 million are included in accounts payable
at December 31, 1996 and 1997, respectively.
On September 10, 1997, $10.4 million of consumer laundry inventory was
located at the Ripon plant. This inventory was sold by the Parent as part of
the Appliance Co. Transaction. Commercial Laundry recorded the transfer of
this inventory to its Parent at book value as a reduction to inventory and
parent company investment.
Effective September 10, 1997, in connection with the Appliance Co.
Transaction, Commercial Laundry and Appliance Co. entered into two supply
agreements. Under the first supply agreement, Commercial Laundry has agreed to
purchase small chassis front loading washing machines from Appliance Co. for
one year and small chassis dryers, stack dryers, and stack front loading
washer/dryer combinations for two years commencing on September 10, 1997.
Commercial Laundry has agreed to purchase a minimum of 144,000 machines over
the two year period at an approximate cost of $40 million. Failure to purchase
the minimum quantity in any twelve month period would result in damages due
Appliance Co. of $45 per unit of shortfall. Commercial Laundry is currently
developing the production capability to produce those products purchased from
Appliance Co. at its Ripon, Wisconsin facility.
Under a second agreement (the "Appliance Co. Purchase Agreement"), Appliance
Co. has agreed to purchase a specified quantity of top loading washing
machines from Commercial Laundry annually over the term of the agreement.
Commercial Laundry believes that Appliance Co. will ultimately seek
alternative sources for the production of top loading washing machines. The
loss of these revenues and related production is not expected to have a
material impact on the carrying value of recorded assets.
Cash Management
Under Commercial Laundry's cash management program, which is handled through
the treasury function of its parent, checks and amounts in transit are not
considered reductions of cash or accounts payable until presented to the
appropriate banks for payment. At December 31, 1996 and 1997 and March 29,
1998, checks and amounts in transit were $2.9 million, $3.8 million and $6.0
million, respectively.
Revenue Recognition
Commercial Laundry Revenue
Commercial Laundry revenue is recognized upon shipment. Commercial Laundry
revenues include sales of consumer laundry products to international
customers.
Appliance Co. Consumer Laundry Revenue
Commercial Laundry sells consumer laundry products manufactured at its
Ripon, Wisconsin plant to Appliance Co. and its predecessor Amana. Revenues
from consumer laundry sales to Amana have been
F-8
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
recognized upon shipment at standard cost plus 7% for all periods presented
prior to September 10, 1997. Subsequent to September 10, 1997, sales of
consumer laundry products are made to Appliance Co. at standard cost plus 0.6%
in accordance with the Appliance Co. Purchase Agreement.
Service Parts Revenue
Service parts revenue is recognized upon shipment.
Inventories
Inventories are stated at cost using the first-in, first-out method but not
in excess of net realizable value.
Warranty Liabilities
The cost of warranty obligations are estimated and provided for at the time
of sale. Standard product warranties cover most parts for two years (three
years for products sold beginning in June 1997) and certain parts for five
years.
Research and Development Expenses
Research and development expenditures are expensed as incurred. Research and
development costs were $5.8 million, $6.3 million, $7.6 million, $1.8 million
and $1.6 million in 1995, 1996 and 1997 and for the quarters ended March 30,
1997 and March 29, 1998, respectively.
Advertising Expenses
The Company expenses advertising costs as incurred. Commercial Laundry
incurred advertising expenses of $2.8 million, $3.0 million, $3.4 million,
$0.6 million and $0.5 million in 1995, 1996 and 1997 and for the quarters
ended March 30, 1997 and March 29, 1998, respectively.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Betterments and major
renewals are capitalized and included in property, plant and equipment while
expenditures for maintenance and repairs and minor renewals are charged to
expense. When assets are retired or otherwise disposed of, the assets and
related allowances for depreciation and amortization are eliminated and any
resulting gain or loss is reflected in other income.
Provisions for depreciation are computed generally on a declining-balance or
straight-line method. Depreciation provisions are based on the following
estimated useful lives: buildings 40 years; machinery and equipment (including
production tooling) 5 to 10 years. Leasehold improvements are amortized over
the lesser of the remaining life of the lease or the estimated useful life of
the improvement.
Intangibles
Goodwill represents the excess of the acquisition cost over the fair value
of the net assets acquired in purchase transactions, and is amortized using
the straight-line method over 40 years.
In 1996, Commercial Laundry purchased the LaveRap tradename and franchise
rights for use in developing high quality coin laundromats in Latin America.
These intangibles were recorded at a cost of $1.6 million and are being
amortized on a straight-line basis over 15 years. The net book value of these
intangibles is included in other assets.
Federal and Foreign Income Taxes
Historically, Commercial Laundry's operations have been included in the
consolidated income tax returns filed by the Parent. Income tax expense in
Commercial Laundry's statement of income is calculated on a separate
F-9
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
tax return basis as if Commercial Laundry had operated as a stand alone
entity. The provision for income taxes is calculated in accordance with
Statement of Financial Accounting Standards ("SFAS 109"), "Accounting for
Income Taxes, " which requires the recognition of deferred income taxes using
the liability method.
Parent Company Investment
Commercial Laundry receives short-term funding from its Parent to meet its
periodic cash flow needs. Commercial Laundry paid dividends from its earnings
to its Parent of $6.3 million and $7.7 million for 1995 and 1996,
respectively. No dividends were paid to its Parent in 1997 or for the quarter
ended March 29, 1998. Interest expense associated with the Parent's general
corporate debt has not been allocated to the combined financial statements.
Commercial Laundry participates in numerous benefit plans of the Parent (see
Note K). Certain services are provided to Commercial Laundry by its Parent,
primarily related to treasury, taxes, legal and risk management. The estimated
costs of such services have been included in these financial statements.
Management believes these allocations are reasonable. The Parent provides
certain supplemental services to Commercial Laundry related primarily to
general tax and legal, audit and human resources which are not material and
have been excluded from these financial statements. During a portion of 1996
and a portion of 1997, certain administrative services were performed by Amana
on behalf of Commercial Laundry. In 1996, these costs were not material and
were excluded from these financial statements. The estimated cost of these
services which consisted mainly of accounting and payroll services have been
reflected in the income statement in 1997.
All transfers to and from the Parent have been reported in the parent
company investment account.
Sales of Accounts Receivable and Notes Receivable (See Notes B and C)
Effective January 1, 1997, Commercial Laundry adopted Statement of Financial
Accounting Standards No. 125 ("SFAS 125"), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." According
to SFAS 125, a transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. Beginning in 1997, Commercial Laundry sold a significant
portion of accounts receivable and notes receivable to third parties through
special-purpose bankruptcy remote entities designed to meet the SFAS 125
requirements for sale treatment. Accordingly, Commercial Laundry removes these
receivables from its balance sheet at the time of transfer. The special-
purpose bankruptcy remote entities include Raytheon Commercial Appliances
Receivables Corporation ("RAYCAR") through which Commercial Laundry sells
eligible trade accounts receivable and Raytheon Commercial Appliances
Financing Corporation ("RAYCAF") through which Commercial Laundry sells
eligible notes receivable.
Under these arrangements Commercial Laundry acts as sub-servicer of the
accounts receivable and notes receivable sold. As sub-servicer, Commercial
Laundry continues to administer and collect amounts outstanding on such
receivables. At December 31, 1997 and March 29, 1998, Commercial Laundry had
collected approximately $7.2 million and $40.4 million of accounts receivable,
respectively, which were subsequently transferred through a monthly settlement
process. At the balance sheet dates, these amounts were recorded as an offset
to accounts receivable. At December 31, 1997 and March 29, 1998, Commercial
Laundry had collected approximately $1.9 million and $0.4 million of notes
receivable which were subsequently transferred to the buyers through a monthly
settlement process. At the balance sheet dates, these amounts were recorded as
accounts payable.
F-10
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
Long-term Debt
Long-term debt at December 31, 1996 consisted of industrial revenue bonds
with a face value of $1.0 million carrying interest at a variable rate per
annum equal to 60% of the prime rate. These bonds were repaid in full in May
1997.
Impairment of Long-Lived Assets
In 1996, Commercial Laundry adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." Adoption of SFAS 121 did not have a material impact
on Commercial Laundry's financial position or results of operations.
Risks and Uncertainties
The raw material component of Commercial Laundry's products consists mainly
of commodity materials such as steel, aluminum, copper, plastic and cardboard,
over which the company has limited control. Fluctuations in the costs of such
commodities can vary widely resulting in significant material cost variances.
Wage costs for certain employees at the Ripon plant are determined by a
collective bargaining agreement which expires on February 28, 1999. Wage
increases through the term of the current agreement are not expected to be
significant.
Commercial Laundry has obtained financing for its day to day operations from
its Parent (see "Parent Company Investment").
Credit Risk
Financial instruments that potentially subject Commercial Laundry to
concentrations of credit risk include trade accounts receivable and notes
receivable.
Concentrations of credit risk with respect to trade receivables and notes
receivable are limited because a large number of geographically diverse
customers make up Commercial Laundry's customer base, thus spreading the
credit risk. Commercial Laundry controls credit risk through credit approvals,
credit limits and monitoring procedures. Bad debt expenses have not been
material.
Reclassifications
Certain amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
which changes the manner in which public companies report information about
their operating segments. SFAS No. 131, which is based on the management
approach to segment reporting, establishes requirements to report selected
segment information quarterly and to report entity-wide disclosures about
products and services, major customers and the geographic locations in
F-11
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
which the entity holds assets and reports revenue. Commercial Laundry will
adopt SFAS No. 131 for its fiscal year ending December 31, 1998.
In February 1998, FASB issued SFAS No. 132, "Employees' Disclosures about
Pensions and Other Postretirement Benefits." The new requirements require
increased disclosures for public entities. SFAS No. 132 only affects
disclosure issues and does not change any existing measurement or recognition
provisions previously required. The statement is effective for fiscal years
beginning after December 15, 1997. Reclassification for earlier periods is
required for comparative purposes. Commercial Laundry will adopt SFAS No. 132
for its fiscal year ended December 31, 1998.
B. CUSTOMER FINANCING:
Since 1992, Commercial Laundry has offered a variety of equipment financing
programs (capital leases) to finance equipment purchases. These capital leases
are transferred immediately to third parties who administer the contracts and
earn all associated interest revenues ("External Financing"). These External
Financings have terms ranging from 2 to 7 years and carry market interest
rates as set by the third-party lender. These third parties have recourse
against Commercial Laundry ranging from 15% to 100%. Under these programs,
Commercial Laundry sold $48.0 million and $20.2 million during the years ended
1995 and 1996, respectively. At December 31, 1996 and 1997 and March 29, 1998,
the uncollected balance of leases with recourse under these programs was
$131.0 million, $102.4 million and $41.0 million, respectively.
In 1996, Commercial Laundry established an internal financing organization
to originate and administer promissory notes (the "Notes" or "Internal
Financing") for financing of equipment purchases and laundromat operations.
These notes typically have terms ranging from Prime plus 2% to Prime plus 3%
for variable notes and 11.5% to 14.5% for fixed notes. The average interest
rate for all notes ranges from 10.25% to 14.5% and have terms ranging from 2
to 7 years. All notes allow the holder to prepay outstanding principle amounts
without penalty, and are therefore subject to prepayment risk. Commercial
Laundry through its special-purpose bankruptcy remote entity, RAYCAF, has an
agreement with Falcon Asset Securitization Corporation (the "Bank"), a wholly-
owned subsidiary of First Chicago/NBD under which it sold (prior to the
Transactions) defined pools of notes receivable. Under the terms of the
agreement with the Bank, the Bank is paid interest based on the 30-day
commercial paper rate plus 0.3% (as of December 31, 1997 and as of March 29,
1998) and has recourse against Commercial Laundry ranging from 15% to 100%.
The Company, as servicing agent, retains collection and administrative
responsibilities for the Notes. In 1996 and 1997 under its financing program,
Commercial Laundry sold $55.9 million and $105.0 million, respectively. For
the quarter ended March 29, 1998, Commercial Laundry sold $43.5 million under
its financing program. Under the terms of Commercial Laundry's agreement with
the Bank, uncollected balances on notes receivable sold may not exceed $159.5
million at March 29, 1998 (increased in 1998 from the previous limit of $135.0
million). The total amount uncollected at December 31, 1996 and 1997 and at
March 29, 1998, was $52.0 million, $134.0 million and $154.9 million,
respectively.
Gains on sales of notes receivable in 1996 and 1997, and for the quarters
ended March 30, 1997 and March 29, 1998 of approximately $0.6 million, $6.2
million, $1.0 million and $2.4 million, respectively, are included in
Commercial Laundry revenues.
Subsequent to March 29, 1998 Commercial Laundry received a prepayment of
notes receivable from a large customer totaling approximately $42.7 million.
The impact of this prepayment will be recorded in Commercial Laundry's second
quarter results.
F-12
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
C. SALES OF ACCOUNTS RECEIVABLE:
Commercial Laundry has entered into an agreement through its special-purpose
bankruptcy remote entity, RAYCAR, with the Preferred Receivables Funding
Corporation, a wholly-owned subsidiary of First Chicago/NBD to sell certain
defined pools of trade accounts receivable. Under the terms of the agreement,
interest is charged based on the 30-day commercial paper rate plus 0.3% (as of
December 31, 1997). The interest rates are adjusted based on the Parent's debt
rating. The agreement contains recourse provisions ranging from 23% to 100%.
As collections reduce accounts receivable included in the pools, Commercial
Laundry sells additional accounts receivable to bring the amount sold up to
the maximum permitted by the agreement. Commercial Laundry, as servicing
agent, retains collection and administrative responsibility for the accounts
receivable. Under this agreement, Commercial Laundry sold $56.7 million,
$284.5 million and $37.3 million in 1996 and 1997, and during the quarter
ended March 29, 1998, respectively. Under the terms of the agreement,
uncollected balances on trade accounts receivable sold may not exceed $80
million (increased in 1998 from the previous limit of $60 million). The total
amount uncollected at December 31, 1996 and 1997, and March 29, 1998 was $56.7
million, $74.6 million and $63.0 million, respectively.
Losses on sales of trade accounts receivable of $3.4 million, $0.7 million
and $0.7 million in 1997 and for the quarters ended March 30, 1997 and March
29, 1998, respectively, are included in selling, general and administrative
expenses.
D. INVENTORIES:
Inventories consisted of the following at:
DECEMBER 31,
---------------- MARCH 29,
1996 1997 1998
------- ------- ---------
Materials and purchased parts....................... $15,354 $16,701 $16,579
Work in process..................................... 6,105 3,530 3,458
Finished goods...................................... 26,769 17,785 20,547
Less: inventory reserves............................ (3,968) (4,302) (4,234)
------- ------- -------
Total........................................... $44,260 $33,714 $36,350
======= ======= =======
E. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at:
DECEMBER 31,
------------------ MARCH 29,
1996 1997 1998
-------- -------- ---------
Land............................................. $ 536 $ 556 $ 550
Buildings and leasehold improvements............. 24,168 26,788 25,898
Machinery and equipment.......................... 112,956 137,245 138,214
-------- -------- --------
137,660 164,589 164,662
Less: accumulated depreciation................... (87,853) (98,555) (100,244)
-------- -------- --------
49,807 66,034 64,418
Construction in process.......................... 13,923 3,667 2,392
-------- -------- --------
Property, plant and equipment, net............... $ 63,730 $ 69,701 $ 66,810
======== ======== ========
F-13
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
Depreciation expense was $9.5 million, $9.5 million, $12.9 million, $2.6
million and $3.4 million for the years ended December 31, 1995, 1996 and 1997,
and for the quarters ended March 30, 1997 and March 29, 1998, respectively.
F. OTHER CURRENT LIABILITIES:
The major components of other current liabilities consisted of the following
at:
DECEMBER 31,
--------------- MARCH 29,
1996 1997 1998
------- ------- ---------
Warranty reserve...................................... $ 5,493 $ 4,748 $ 4,533
Workers' compensation................................. 1,585 1,585 1,585
Accrued sales promotion and cooperative advertising... 3,953 4,338 4,265
Salaries, wages and other employee benefits........... 6,775 5,878 4,768
Other current liabilities............................. 2,959 4,940 5,141
------- ------- -------
Total............................................. $20,765 $21,489 $20,292
======= ======= =======
G. NONRECURRING COSTS:
During 1996, Commercial Laundry incurred $3.7 million in costs associated
with severance and benefit payments to reduce headcount and eliminate certain
redundant processes as part of the consolidation of Speed Queen into Amana
Refrigeration, Inc. (see Note A).
H. FEDERAL AND FOREIGN INCOME TAXES:
Commercial Laundry's combined financial statements reflect a charge for
federal, state and foreign income taxes based on income as if Commercial
Laundry had been subject to income tax on a separate return basis. The charge
was computed in accordance with SFAS 109 and the charge is based on the
current tax rates.
YEARS ENDED DECEMBER
31, QUARTERS ENDED
------------------------ -------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------
Current income tax expense:
Federal and foreign............ $11,121 $10,081 $11,576 $2,570 $2,288
State.......................... 2,482 2,254 2,574 572 513
------- ------- ------- ------ ------
13,603 12,335 14,150 3,142 2,801
Deferred income tax expense
(benefit):
Federal and foreign............ (1,694) 883 1,877 411 481
State.......................... (364) 190 404 90 103
------- ------- ------- ------ ------
(2,058) 1,073 2,281 501 584
------- ------- ------- ------ ------
Net provision................ $11,545 $13,408 $16,431 $3,643 $3,385
======= ======= ======= ====== ======
F-14
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
The provision for income taxes for the years 1995 through 1997 and the
quarters ended March 30, 1997 and March 29, 1998 differs from the U.S.
statutory rate due to the following:
YEARS ENDED DECEMBER
31, QUARTERS ENDED
------------------------- -------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------
Tax at statutory rate........... $10,535 $12,167 $14,894 $3,301 $3,071
State income tax net of federal
tax benefit.................... 1,377 1,588 1,936 429 400
Other, net...................... (367) (347) (399) (87) (86)
------- ------- ------- ------ ------
$11,545 $13,408 $16,431 $3,643 $3,385
======= ======= ======= ====== ======
Current income tax expense amounts are included as a transfer to the Parent
in the parent company investment account. The effect of temporary differences
which give rise to deferred income tax balances was as follows:
DECEMBER 31,
-------------- MARCH 29,
1996 1997 1998
------ ------ ---------
Current deferred tax assets:
Inventory reserve................................... $1,774 $1,588 $1,879
Accounts receivable allowances...................... 1,274 2,384 2,403
Warranty reserve.................................... 2,172 1,878 1,793
Accrued vacation.................................... 736 435 435
Other reserves...................................... 2,405 1,575 1,370
------ ------ ------
8,361 7,860 7,880
Noncurrent deferred tax liabilities:
Depreciation and amortization....................... (4,005) (5,785) (6,389)
------ ------ ------
Net deferred tax assets........................... $4,356 $2,075 $1,491
====== ====== ======
I. EMPLOYEE STOCK PLANS:
As an operating unit of its Parent, Commercial Laundry has no employee stock
option plan; however, certain employees of Commercial Laundry participate in
the Parent's stock option plans. These plans provide for the grant of both
incentive and nonqualified options at an exercise price which is 100% of the
fair market value on the date of grant.
As of December 31, 1996 and 1997, the employees of Commercial Laundry held a
total of 117,411 and 214,088 options, respectively, to purchase the Parent's
stock (of which 73,661 and 95,928, respectively, were exercisable). The option
prices range from $16.52 to $52.56 at December 31, 1996 and $22.98 to $52.56
at December 31, 1997.
The Parent adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation," as of December 31, 1996. The pro forma impact of SFAS 123 on
grants to Commercial Laundry's employees was immaterial.
F-15
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
J. COMMITMENTS AND CONTINGENCIES:
At March 29, 1998, Commercial Laundry had commitments under long-term
operating leases requiring approximate annual rentals as follows:
March 30, 1998 through December 31, 1998.......................... $251
Year ending December 31, 1999..................................... 297
Year ending December 31, 2000..................................... 187
Year ending December 31, 2001..................................... 34
Year ending December 31, 2002..................................... 27
Thereafter........................................................ 75
----
$871
====
Rental expense for 1995, 1996, 1997, and for the quarters ended March 30,
1997 and March 29, 1998 amounted to $0.6 million, $1.1 million, $1.2 million,
$0.3 million and $0.3 million, respectively.
Commercial Laundry's Marianna, Florida plant is located on property leased
from the Marianna Municipal Airport Development Authority (acting on behalf of
the City of Marianna). The lease expires on February 28, 2005 and may be
renewed at Commercial Laundry's option for five additional consecutive ten
year terms.
Commercial Laundry has retention agreements with certain key executives,
managers and commissioned salespeople with remaining terms of approximately
two years. The Company's remaining aggregate commitment under these agreements
was $3.7 million at December 31, 1997 and March 29, 1998.
Historically, the Company has operated a die casting facility located in
Omro, Wisconsin. A certain level of environmental contamination has been
discovered at this site. The Parent has historically retained and will retain
all related liability and expense related to remediation of this site.
Therefore, no costs related to clean up and maintenance of the contaminated
site are included in these financial statements. In December 1997, the Parent
announced it will close this facility located in Omro, Wisconsin (closing
scheduled for the second quarter of 1998). In the future, Commercial Laundry
will purchase its die casting components from a third-party. Costs associated
with closing the facility are not expected to have a material impact on
Commercial Laundry's results of operations.
In addition to the Omro facility, Commercial Laundry is involved in various
stages of investigation and cleanup relative to remediation of certain other
sites. All appropriate costs incurred in connection therewith have been
expensed. Due to the complexity of environmental laws and regulations, the
varying costs and effectiveness of alternative cleanup methods and
technologies, the uncertainty of insurance coverage, and the unresolved extent
of Commercial Laundry's responsibility, it is difficult to determine the
ultimate outcome of these matters. However, in the opinion of management, any
liability will not have a material affect on Commercial Laundry's financial
position, liquidity or results of operations after giving affect to provisions
already recorded.
Commercial Laundry adopted the American Institute of Certified Public
Accountants Statement of Position 96-1, Environmental Remediation Liabilities,
in 1997. The adoption of the standard did not have a material affect on
Commercial Laundry's financial position or results of operations.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against Commercial Laundry. While
the ultimate liability from these proceedings is difficult to determine, in
the opinion of management, any additional liability will not have a material
effect on Commercial Laundry's financial position, liquidity or results of
operations.
F-16
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
K. PENSION AND OTHER EMPLOYEE BENEFITS:
Commercial Laundry has several pension and retirement plans covering the
majority of employees. The major plans covering salaried and management
employees provide pension benefits that are based on the five highest
consecutive years of the employee's compensation in the ten years before
retirement. Plans covering hourly and union employees generally provide
benefits of stated amounts for each year of service, but in some cases can use
a final average pay based calculation. Commercial Laundry's funding policy for
the salaried plans is to contribute annually at a rate that is intended to
remain at a level percentage of compensation for the covered employees.
Commercial Laundry's funding policy on the hourly and union plans is to
contribute annually at a rate that is intended to remain level for the covered
employees. Unfunded prior service costs under the funding policy are generally
amortized over periods from 10 to 30 years.
Total pension expense for Commercial Laundry's plans was $0.3 million, $0.7
million and $0.2 million in 1995 through 1997, respectively, including the
following components:
YEARS ENDING DECEMBER 31: 1995 1996 1997
- ------------------------- ------ ------ ------
Service cost benefits
earned during the period. $1,057 $1,233 $1,118
Interest cost on projected
benefit obligation....... 1,403 1,590 1,650
Actual (gain)/loss on
assets................... (6,196) (4,508) (2,278)
Net amortization and
deferral................. 4,032 2,158 (315)
Curtailment adjustments... -- 213(/1/) --
------ ------ ------
Net periodic pension
costs.................... $ 296 $ 686 $ 175
====== ====== ======
Assumptions used in the
accounting were:
Discount rate........... 7.50% 7.75% 7.25%
Expected long-term rate
of return on assets.... 9.00% 9.25% 9.25%
Rate of increase in
compensation levels.... 4.50% 4.50% 4.50%
(1) Various plan curtailments were recognized as a result of workforce
reductions which were planned as part of the restructuring program.
The following table sets forth the funded status of Commercial Laundry's
over funded and under funded plans on a combined basis at December 31:
1996 1997
-------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation................................ $(19,174) $(23,269)
======== ========
Accumulated benefit obligation........................... $(20,471) $(24,812)
======== ========
Projected benefit obligation............................. $(22,992) $(27,546)
======== ========
Plan assets at fair value................................ 30,150 37,661
Projected benefit obligation less than plan assets....... 7,158 10,115
Unrecognized net (gain).................................. (8,799) (11,523)
Prior service cost not yet recognized in net periodic
pension cost............................................ 1,643 1,657
Unrecognized net (assets) at transition.................. (577) (467)
-------- --------
Prepaid (accrued) pension cost........................... $ (575) $ (218)
======== ========
F-17
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
Plan assets primarily include equity and fixed income securities.
Commercial Laundry's salaried pension plan provides that in the event of a
termination of the plan within three years after an involuntary change of
control of Commercial Laundry, the assets of the plan will be applied to
satisfy all liabilities to participants and beneficiaries in accordance with
Section 4044 of the Employee Retirement Income Security Act of 1974. Any
remaining assets will be applied on a pro rata basis to increase the benefits
to the participants and beneficiaries.
In addition to providing pension benefits, Commercial Laundry (through its
Parent) provides certain health care and life insurance benefits for retired
employees. Substantially, all of Commercial Laundry's employees may become
eligible for these benefits if they reach normal retirement age while working
for Commercial Laundry. Retiree health plans are paid for in part by employee
contributions, which are adjusted annually. Benefits are provided through
various insurance companies whose charges are based either on the benefits
paid during the year or annual premiums. Health benefits are provided to
retirees, their covered dependents, and beneficiaries. Retiree life insurance
plans are noncontributory and cover the retiree only.
In 1993, the Parent adopted Statement of Financial Accounting Standards No.
106 ("SFAS 106"), "Employer's Accounting for Postretirement Benefits Other
than Pensions," which requires recognition of an accumulated postretirement
benefit obligation for retiree costs existing at the time of implementation,
as well as an incremental expense recognition for changes in the obligation
attributable to each successive year. Past service costs are amortized over
the allowable 20 year period.
The net postretirement benefit cost for Commercial Laundry in 1995, 1996 and
1997 included the following components:
YEARS ENDING DECEMBER 31: 1995 1996 1997
- ------------------------- ---- ---- ----
Service cost benefits earned during the period................ $ 35 $ 45 $ 52
Interest cost on projected benefit obligation................. 109 110 107
Net amortization and deferral................................. 63 64 63
---- ---- ----
Net postretirement benefit costs.............................. $207 $219 $222
==== ==== ====
Assumptions used in the accounting were:
Discount rate............................................... 7.50% 7.75% 7.25%
Expected long-term rate of return on assets................. 8.50% 8.75% 8.75%
Rate of increase in compensation levels..................... 4.50% 4.50% 4.50%
Health care trend rate in the first year.................... 7.50% 7.00% 6.50%
Gradually declining to a trend rate in the years 2001 &
beyond of.................................................. 5.00% 5.00% 5.00%
F-18
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
The following amounts are recognized in the balance sheet at December 31:
1995 1996 1997
------- ------- -------
Accumulated postretirement benefit obligation:
Retirees......................................... $ (58) $ (255) $ (342)
Active employees eligible for benefits........... (111) (83) (63)
Active employees not yet eligible for benefits... (1,339) (1,006) (1,125)
------- ------- -------
Total obligation............................... (1,508) (1,344) (1,530)
Plan assets at fair value.......................... -- -- --
------- ------- -------
Total obligation (in excess of) plan assets........ (1,508) (1,344) (1,530)
Unrecognized net (gain)............................ 185 22 147
Unrecognized net obligation at transition.......... 1,000 942 893
------- ------- -------
Prepaid (accrued) postretirement benefit cost...... $ (323) $ (380) $ (490)
======= ======= =======
The effect of a one percentage point increase in
the assumed health care trend rate for each future
year on:
1) Aggregate of service and interest cost......... $ 8 $ 9 $ 9
2) Accumulated postretirement benefit obligation.. $ 83 $ 80 $ 92
Commercial Laundry's employees also participate in the Parent's Savings and
Investment Plan and the Parent's Employee Stock Ownership Plan.
Under the terms of the Savings and Investment Plan, a defined contribution
plan, covered employees are allowed to contribute up to 17 percent of their
pay up to a limit of $9,500. Commercial Laundry contributes amounts equal to
50 percent of the employee's contributions, up to a maximum of three percent
of the employee's pay. Total expense for the plan was $1.0 million in 1995,
1996 and 1997. In the quarters ended March 30, 1997 and March 29, 1998 the
expense totaled $0.2 million.
Commercial Laundry's annual contribution to the Employee Stock Ownership
Plan is approximately one half of one percent of salaries and wages, limited
to $150,000 of substantially all United States salaried and a majority of
hourly employees. The expense was $0.3 million, $0.1 million, $0.3 million,
$0.1 million and $0.1 million for 1995, 1996 and 1997, and for the quarters
ended March 30, 1997 and March 29, 1998, respectively.
Commercial Laundry's employees are covered under the Parent's workers
compensation program. Commercial Laundry's allocated expense for workers
compensation during the three years ended December 31, 1995, 1996 and 1997,
and the quarters ended March 30, 1997 and March 29, 1998 was $0.9 million,
$1.0 million, $0.8 million, $0.3 million and $0.3 million, respectively.
L. EXPORT SALES:
Export sales were $54.2 million, $45.4 million, $45.5 million, $11.7 million
and $8.0 million in 1995, 1996 and 1997, and for the quarters ended March 30,
1997 and March 29, 1998, respectively.
M. ACQUISITIONS:
In November 1994, Commercial Laundry expanded its commercial laundry product
line with the acquisition of UniMac, Inc., a manufacturer of front loading
washing machines, for $75.1 million in cash ($10.0 million paid in 1994 and
$65.1 million paid in 1995). Goodwill of $60.0 million is being amortized on a
straight-line basis over 40 years.
F-19
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
N. SUBSEQUENT EVENTS (UNAUDITED)
Merger of Business
The Parent and Raytheon Commercial Laundry LLC entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Bain LLC and RCL Acquisitions LLC
("MergerCo") pursuant to which, MergerCo was merged on May 4, 1998 with and
into Raytheon Commercial Laundry LLC (the "Merger") with Raytheon Commercial
Laundry LLC (renamed immediately following the Merger to "Alliance Laundry
Systems LLC") being the surviving entity. Prior to the Merger, Raytheon owned
100% of the equity securities of Raytheon Commercial Laundry LLC and Bain LLC,
the BRS Investors and certain members of management owned 100% of the equity
securities of MergerCo. As a result of the Merger (i) the Parent's limited
liability company interest in Commercial Laundry LLC was converted into the
right to receive (a) an aggregate amount of cash equal to $339.5 million,
subject to pre-closing and post-closing working capital adjustments, (b) a
Junior Subordinated Promissory Note from Alliance Laundry Systems LLC
("Alliance Laundry") in the original principal amount of $9.0 million which
matures in 2009, (c) preferred membership interests of Alliance Laundry with a
liquidation value of approximately $6.0 million which are mandatorily
redeemable in 2009 and (d) common units of Alliance Laundry representing 7% of
the total common membership interests of Alliance Laundry and (ii) Bain LLC's,
the BRS Investors' and certain members of management's limited liability
company interests in MergerCo were converted into 93% of the total common
membership interests of Alliance Laundry. The Merger has been accounted for as
a recapitalization.
The transactions contemplated by the Merger Agreement were funded in large
part through the issuance of various debt instruments including a $200.0
million term loan borrowing and the issuance of $110.0 million of senior
subordinated notes due in 2008. Also in conneciton with the Merger, Alliance
Laundry entered into a $250.0 million revolving loan agreement to finance
trade accounts receivable and notes receivable related to equipment loans.
This agreement was entered into through newly established special purpose
entities. Sales of accounts receivable and notes receivable subsequent to the
Merger will be transacted under these new arrangements (see notes B and C for
discussion of previous arrangements).
Litigation
On April 17, 1998, Appliance Co. filed suit in the United States District
Court for the Southern District of New York against Raytheon Company
("Raytheon") and Commercial Laundry seeking (i) declaratory relief that
Commercial Laundry is bound by a non-compete agreement between Appliance Co.
and Raytheon that prohibits the participation by Raytheon and corporate
affiliates of Raytheon in the consumer retail distribution laundry market, and
(ii) unspecified damages from Raytheon and Commercial Laundry for breach of
the non-compete agreement. On June 2, 1998, Appliance Co. filed an amended
complaint reiterating the allegations of the original complaint and also
asserting that, by virtue of the manner in which they consummated the sale of
Commercial Laundry by Raytheon, both Commercial Laundry and Bain Capital, Inc.
tortiously interfered with the non-compete agreement between Appliance Co. and
Raytheon. Appliance Co. now claims to be entitled to damages in excess of $100
million and also contends that, if Commercial Laundry (Alliance Laundry
subsequent to the Merger) is not bound by the non-compete agreement, then
Appliance Co. should also be relieved of any obligations under the non-compete
agreement. Raytheon has agreed to pay the attorneys' fees and costs incurred
by Alliance Laundry and Bain in contesting this lawsuit. The defendants
dispute all Appliance Co. allegations and deny that Appliance Co. is entitled
to any damages. There can be no assurance, however, that Alliance Laundry will
prevail in the lawsuit and, accordingly, Alliance Laundry may be prohibited
for some period of time from participating in the consumer retail distribution
laundry market. Alliance Laundry does not currently participate in this
market.
F-20
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
INFORMATION AS OF MARCH 29, 1998, AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998, IS UNAUDITED
Previously, in early 1998, Appliance Co. alleged that Raytheon had breached
certain of its obligations under the sale agreement governing the Appliance
Co. Transaction and under a related supply agreement, primarily relating to
the establishment of full volume production of frontload washers at Appliance
Co.'s Searcy facility. Alliance Laundry is being indemnified by Raytheon with
respect to this dispute and does not believe that the dispute will have a
material impact on Alliance Laundry's financial position.
F-21
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- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS OFFERING MEMORANDUM, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS OR THE INITIAL PURCHASERS. THIS OFFERING MEMORANDUM
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE EXCHANGE NOTES OFFERED HEREBY NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
EXCHANGE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS OFFERING MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS OFFERING MEMORANDUM OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
PAGE
----
Offering Memorandum Summary............................................... 1
Risk Factors.............................................................. 13
The Transactions.......................................................... 22
Use of Proceeds........................................................... 24
Capitalization............................................................ 25
Unaudited Pro Forma Combined Financial Data............................... 26
Selected Historical Combined Financial Data............................... 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 36
Business.................................................................. 43
Management................................................................ 55
Security Ownership........................................................ 59
Certain Relationships and Related Transactions............................ 61
Description of Senior Credit Facility..................................... 63
Description of Asset Backed Facility...................................... 65
Description of the Exchange Notes......................................... 67
The Exchange Offer ....................................................... 98
Certain United States Federal Income Tax Considerations................... 106
Plan of Distribution...................................................... 106
Legal Matters............................................................. 107
Experts................................................................... 107
Index to Combined Financial Statements.................................... F-1
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$110,000,000
[LOGO]
ALLIANCE
LAUNDRY SYSTEMS
ALLIANCE LAUNDRY SYSTEMS LLC
ALLIANCE LAUNDRY CORPORATION
OFFER TO EXCHANGE THEIR SERIES B
9 5/8% SENIOR SUBORDINATED
NOTES DUE 2008 FOR SERIES A
9 5/8% SENIOR SUBORDINATED
NOTES DUE 2008
-----------------
OFFERING MEMORANDUM
-----------------
LEHMAN BROTHERS
CREDIT SUISSE FIRST BOSTON
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCHEDULE I
COMMERCIAL LAUNDRY BUSINESS OF RAYTHEON COMPANY
SCHEDULE OF COMBINED VALUATION ACCOUNTS
(IN THOUSANDS)
ACCOUNTS RECEIVABLE:
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD EXPENSE DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
Year ended:
December 31, 1995................. $1,324 205 97 $1,432
December 31, 1996................. $1,432 643 129 $1,946
December 31, 1997................. $1,946 3,218 669 $4,495
Quarter ended:
March 30, 1997.................... $1,946 283 4 $2,225
March 29, 1998.................... $4,495 997 780 $4,712
INVENTORY:
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD EXPENSE DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
Year ended:
December 31, 1995................. $3,198 3,146 1,526 $4,818
December 31, 1996................. $4,818 836 1,686 $3,968
December 31, 1997................. $3,968 1,625 1,291 $4,302
Quarter ended:
March 30, 1997.................... $3,968 214 51 $4,131
March 29, 1998.................... $4,302 294 362 $4,234
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Raytheon Company:
In connection with our audits of the combined financial statements of the
Commercial Laundry Business of Raytheon Company as of December 31, 1996 and
1997, and for the three years then ended, we have also audited the financial
statement schedule referred to on page II-5 of this Form S-4.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included herein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 23, 1998
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of Alliance Laundry Systems LLC (the "Company") and Alliance Laundry
Holdings LLC (the "Parent") is a limited liability company organized under the
laws of the State of Delaware. Section 18-108 of the Delaware Limited
Liability Company Act (the "DLLCA") provides that, subject to such standards
and restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other persons from and
against any and all claims and demands whatsoever.
Section 6.4 of the Parent's Limited Liability Company Agreement (the "Parent
LLC Agreement") provides, among other things, that the Company shall indemnify
and hold harmless any Person (each an "Indemnified Person") to the fullest
extent permitted under the DLLCA, as the same exists or as thereafter amended,
substituted or replaced (but, in the case of any such amendment, substitution
or replacement only to the extent that such amendment, substitution or
replacement permits the Parent to provide broader indemnification rights than
the Parent is providing immediately prior to such amendment), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
excise taxes or penalties) reasonably incurred or suffered by such Person (or
one or more of such Person's Affiliates) by reason of the fact that such
Person is or was a Unitholder or is or was serving as a Representative,
officer, director, principal, member, employee or agent of the Parent or is or
was serving at the request of the Parent as a Representative, officer,
director, principal, member, employee or agent of another corporation,
partnership, joint venture, limited liability company, trust or other
enterprise; provided that (unless the Board otherwise consents) no Indemnified
Person shall be indemnified for any expenses, liabilities and losses suffered
that are attributable to such Indemnified Person's or its Affiliates' gross
negligence, willful misconduct or knowing violation of law or for any present
or future breaches of any representations, warranties or covenants by such
Indemnified Person or its Affiliates contained herein or in the other
agreements with the Parent. The Parent LLC Agreement further provides that
expenses, including attorneys' fees, incurred by any such Indemnified Person
in defending a proceeding shall be paid by the Parent in advance of the final
disposition of such proceeding, including any appeal therefrom, upon receipt
of an undertaking by or on behalf of such Indemnified Person to repay such
amount if it shall ultimately be determined that such Indemnified Person is
not entitled to be indemnified by the Parent.
The Parent LLC Agreement defines "Person" as an individual or a corporation,
partnership, limited liability company, trust, unincorporated organization,
association or other entity. The Parent LLC Agreement defines "Affiliate" of
any Person as any Person that directly or indirectly controls, is controlled
by, or is under common control with the Person in question. The Parent LLC
Agreement defines "Unitholder" as any owner of one or more Units as reflected
on the Parent's books and records. In addition, as used in the Parent LLC
Agreement, each member of the Parent's Board is referred to as a
"Representative". According to the LLC Agreement, the Parent shall have power
to purchase and maintain insurance on behalf of any Indemnified Party against
any expense, liability or loss incurred by such Person in any capacity or
arising out of its status as such, whether or not the Parent would have power
to indemnify against such liability or cost.
Section 4.3 of the Company's Limited Liability Company Agreement (the
"Company LLC Agreement") provides, among other things, that, except as limited
by law and subject to the provisions of Section 4.3, each person and entity
shall be entitled to be indemnified and held harmless on an as incurred basis
by the Company (but only after first making a claim for indemnification
available from any other source and only to the extent indemnification is not
provided by that source) to the fullest extent permitted under the DLLCA
(including indemnification for negligence, gross negligence and breach of
fiduciary duty to the extent so authorized) as amended from time to time (but,
in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than such law
permitted the Company to provide
II-1
prior to such amendment) against all losses, liabilities and expenses,
including attorneys' fees and expenses, arising from claims, actions and
proceedings in which such person or entity may be involved, as a party or
otherwise, by reason of his being or having been on the Board, a Participant
or officer of the Company, or by reason of his serving at the request of the
Company as a director, officer, manager, member, partner, employee or agent of
another limited liability company or of a corporation, partnership, joint
venture, trust or other enterprise, including a service with respect to an
employee benefit plan whether or not such person or entity continues to be
such at the time any such loss, liability or expense is paid or incurred. The
Company LLC Agreement further provides that the rights of indemnification
provided in Section 4.3 are in addition to any rights to which such person may
otherwise be entitled by contract or as a matter of law and shall extend to
his successors and assigns. In particular, and without limitation of the
foregoing, such person or entity shall be entitled to indemnification by the
Company against expenses (as incurred), including attorneys' fees and
expenses, incurred by such person or entity upon the delivery by such person
or entity to the Company of a written undertaking (reasonably acceptable to
the Board). The Company may, to the extent authorized from time to time by the
Board, grant rights to indemnification and to advancement of expenses to any
employee or agent of the Company to the fullest extent of the provisions of
Section 4.3 with respect to the indemnification and advancement of expenses of
the Board, Participants and officers of the Company.
The Company LLC Agreement defines "Participant" as a Member, a Terminated
Member or an Assignee. The Company LLC Agreement defines "Member" as the
Parent and any Person admitted to the Company as a Substituted Member or
Additional Member, but only so long as such Person is shown on the Company's
books and records as the owner of one or more Units. The Company LLC Agreement
defines "Terminated Member" as a Person who has ceased to be a Member pursuant
to Section 4.7 of the Company LLC Agreement. In addition, the Company LLC
Agreement defines "Assignee" as a Person or entity to whom a LLC interest has
been transferred in a Transfer described in Section 4.4, unless and until such
person or entity becomes a Member with respect to such LLC interest.
Alliance Laundry Corporation (the "Corporation") is a Delaware corporation.
Section 145 of the General Corporation Law of the State of Delaware provides
that a Delaware corporation may indemnify any person who were, are or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative of investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, were or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reasons of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
The Certificate of Incorporation of the Corporation provides that to the
fullest extent permitted by the General Corporation Law of the State of
Delaware as the same exists or may thereafter be amended, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for a breach
II-2
of fiduciary duty as a director. The Certificate of Incorporation of the
Corporation further provides that any repeal or modification of this provision
of the Certificate of Incorporation of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at
the time of such repeal or modification.
Article V of the Bylaws of the Corporation provides that each person who was
or is made a party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he, or
a person of whom he is the legal representative, is or was a director or
officer, of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Corporation to the fullest
extent which it is empowered to do so unless prohibited from doing so by the
General Corporation Law of the State of Delaware, as the same exists or may
thereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment) against all expense, liability and loss (including
attorneys' fees actually and reasonably incurred by such person in connection
with such proceeding) and such indemnification shall inure to the benefit of
his heirs, executors and administrators; provided, however, that, except as
provided in Section 2 of the Bylaws of the Corporation, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the Corporation. Article V of the Bylaws of the
Corporation further provides that the right to indemnification conferred in
Article V of the Bylaws of the Corporation shall be a contract right and,
subject to Sections 2 and 5 of the Bylaws of the Corporation, shall include
the right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition. The Corporation may, by
action of its board of directors, provide indemnification to employees and
agents of the Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Corporation's Bylaws provide for the maintenance of insurance under the
circumstances described in Section 145.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrants pursuant to the foregoing provisions, the registrants have been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
II-3
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
2.1 Agreement and Plan of Merger, dated as of February 21, 1998, by and
among Bain/RCL, L.L.C., RCL Acquisitions, L.L.C., Raytheon Commercial
Laundry LLC and Raytheon Company.**
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of May 2,
1998, by and among Bain/RCL, L.L.C., RCL Acquisitions, L.L.C., Raytheon
Commercial Laundry LLC and Raytheon Company.**
3.1 Certificate of Formation of Alliance Laundry Systems LLC.**
3.2 Amended and Restated Limited Liability Company Agreement of Alliance
Laundry Systems LLC.**
3.3 Certificate of Incorporation of Alliance Laundry Corporation.**
3.4 Bylaws of Alliance Laundry Corporation.**
4.1 Indenture, dated as of May 5, 1998.**
5.1 Opinion and Consent of Kirkland & Ellis.**
8.1 Opinion of Kirkland & Ellis as to federal income tax consequences.**
10.1 Purchase Agreement, dated as of May 5, 1998.**
10.2 Registration Rights Agreement, dated as of May 5, 1998.**
10.3 Credit Agreement, dated as of May 5, 1998.**
10.4 Loan and Security Agreement dated May 5, 1998.**
10.5 Amended and Restated Limited Liability Agreement of Alliance Laundry
Holdings LLC.**
10.6 Alliance Laundry Holdings LLC, Securityholders Agreement.**
10.7 Alliance Laundry Holdings LLC, Registration Rights Agreement.**
10.8 L'Esperance Employment Agreement dated May 5, 1998.**
10.9 L'Esperance Executive Unit Purchase Agreement.**
10.10 Gaster Executive Unit Purchase Agreement.**
10.11 Brothers Executive Unit Purchase Agreement.**
10.12 Beach Executive Unit Purchase Agreement.**
10.13 Rounds Executive Unit Purchase Agreement.**
10.14 Spiller Executive Unit Purchase Agreement.**
10.15 Wallace Executive Unit Purchase Agreement.**
10.16 L'Esperance Deferred Compensation Agreement.**
10.17 Gaster Deferred Compensation Agreement.**
10.18 Brothers Deferred Compensation Agreement.**
10.19 Beach Deferred Compensation Agreement.**
10.20 Rounds Deferred Compensation Agreement.**
10.21 Wallace Deferred Compensation Agreement.**
10.22 L'Esperance Retention Agreement, as amended.**
10.23 Gaster Retention Agreement, as amended.**
10.24 Brothers Retention Agreement, as amended.**
10.25 Beach Retention Agreement, as amended.**
10.26 Rounds Retention Agreement, as amended.**
10.27 Wallace Retention Agreement, as amended.**
10.28 L'Esperance Promissory Note.**
10.29 Gaster Promissory Note.**
10.30 Brothers Promissory Note.**
10.31 Beach Promissory Note.**
10.32 Rounds Promissory Note.**
10.33 Wallace Promissory Note.**
10.34 Management Services Agreement.**
10.35 Transition Services Agreement.**
10.36 Junior Subordinated Promissory Note.**
12.1 Statement of Computation of Ratios.**
21.1 Subsidiaries of Alliance Laundry Systems LLC.**
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Kirkland & Ellis (included in exhibits 5.1 and 8.1).**
24.1 Powers of Attorney (included in signature page).*
II-4
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
- --------
* Filed herewith
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Combined Schedule of Valuation Accounts
(C) REPORT OF INDEPENDENT ACCOUNTANTS
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering; and
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of the chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a) (3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by means of a post-
effective amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other information in
the prospectus is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to
include financial statements and information required by Section 10(a)(3) of
the Act or Rule 3-19 of this chapter is such financial statements and
information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 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 Securities 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 Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(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
this registration statement in reliance upon Rule 430A and contained in a
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 this
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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF RIPON, STATE OF
WISCONSIN, ON JUNE 15, 1998.
Alliance Laundry Systems LLC
/s/ Thomas F. L'Esperance
By: _________________________________
Name: Thomas F. L'Esperance
Title: President, Chief Executive
Officer and Manager
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ANY OF THOMAS F. L'ESPERANCE OR BRUCE P.
ROUNDS, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
ALLIANCE LAUNDRY SYSTEMS LLC), TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY SUBSEQUENT
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND
ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD
DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT
AND AGENT OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATION ON JUNE 15, 1998:
SIGNATURE CAPACITY
/s/ Thomas F. L'Esperance President, Chief Executive Officer
- ------------------------------------- and Manager (principal executive
THOMAS F. L'ESPERANCE officer)
/s/ Bruce P. Rounds Vice President/Chief Financial
- ------------------------------------- Officer (principal financial and
BRUCE P. ROUNDS accounting officer)
/s/ Edward W. Conard Manager
- -------------------------------------
EDWARD W. CONARD
/s/ Robert C. Gay Manager
- -------------------------------------
ROBERT C. GAY
/s/ Stephen C. Sherrill Manager
- -------------------------------------
STEPHEN C. SHERRILL
/s/ Stephen M. Zide Vice President and
- ------------------------------------- Manager
STEPHEN M. ZIDE
II-7
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF RIPON, STATE OF
WISCONSIN, ON JUNE 15, 1998.
Alliance Laundry Holdings LLC
/s/ Thomas F. L'Esperance
By: _________________________________
Name: Thomas F. L'Esperance
Title: President, Chief Executive
Officer and Manager
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ANY OF THOMAS F. L'ESPERANCE OR BRUCE P.
ROUNDS, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
ALLIANCE LAUNDRY HOLDINGS LLC), TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY SUBSEQUENT
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND
ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD
DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT
AND AGENT OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATION ON JUNE 15, 1998:
SIGNATURE CAPACITY
/s/ Thomas F. L'Esperance President, Chief Executive Officer
- ------------------------------------- and Manager (principal executive
THOMAS F. L'ESPERANCE officer)
/s/ Bruce P. Rounds Vice President/Chief Financial
- ------------------------------------- Officer (principal financial
BRUCE P. ROUNDS and accounting officer)
/s/ Edward W. Conard Manager
- -------------------------------------
EDWARD W. CONARD
/s/ Robert C. Gay Manager
- -------------------------------------
ROBERT C. GAY
/s/ Stephen C. Sherrill Manager
- -------------------------------------
STEPHEN C. SHERRILL
/s/ Stephen M. Zide Vice President and
- ------------------------------------- Manager
STEPHEN M. ZIDE
II-8
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF RIPON, STATE OF
WISCONSIN, ON JUNE 15, 1998.
Alliance Laundry Corporation
/s/ Thomas F. L'Esperance
By: _________________________________
Name: Thomas F. L'Esperance
Title: President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ANY OF THOMAS F. L'ESPERANCE OR BRUCE P.
ROUNDS, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES (INCLUDING HIS CAPACITY AS A DIRECTOR AND/OR OFFICER OF
ALLIANCE LAUNDRY CORPORATION), TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY SUBSEQUENT
REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT
OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND
PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND
ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD
DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT
AND AGENT OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATION ON JUNE 15, 1998:
SIGNATURE CAPACITY
/s/ Thomas F. L'Esperance President, Chief Executive Officer
- ------------------------------------- and Director (principal executive
THOMAS F. L'ESPERANCE officer)
/s/ Bruce P. Rounds Vice President/Chief Financial
- ------------------------------------- Officer (principal financial and
BRUCE P. ROUNDS accounting officer)
/s/ Edward W. Conard Director
- -------------------------------------
EDWARD W. CONARD
/s/ Robert C. Gay Director
- -------------------------------------
ROBERT C. GAY
/s/ Stephen C. Sherrill Director
- -------------------------------------
STEPHEN C. SHERRILL
/s/ Stephen M. Zide Vice President and
- ------------------------------------- Director
STEPHEN M. ZIDE
II-9
EXHIBITS INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
2.1 Agreement and Plan of Merger, dated as of February 21,
1998, by and among Bain/RCL, L.L.C., RCL Acquisitions,
L.L.C., Raytheon Commercial Laundry LLC and Raytheon
Company.**
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated
as of May 2, 1998, by and among Bain/RCL, L.L.C., RCL
Acquisitions, L.L.C., Raytheon Commercial Laundry LLC
and Raytheon Company.**
3.1 Certificate of Formation of Alliance Laundry Systems
LLC.**
3.2 Amended and Restated Limited Liability Company
Agreement of Alliance Laundry Systems LLC.**
3.3 Certificate of Incorporation of Alliance Laundry
Corporation.**
3.4 Bylaws of Alliance Laundry Corporation.**
4.1 Indenture, dated as of May 5, 1998.**
5.1 Opinion and Consent of Kirkland & Ellis.**
8.1 Opinion of Kirkland & Ellis as to federal income tax
consequences.**
10.1 Purchase Agreement, dated as of May 5, 1998.**
10.2 Registration Rights Agreement, dated as of May 5,
1998.**
10.3 Credit Agreement, dated as of May 5, 1998.**
10.4 Loan and Security Agreement dated May 5, 1998.**
10.5 Amended and Restated Limited Liability Agreement of
Alliance Laundry Holdings LLC.**
10.6 Alliance Laundry Holdings LLC, Securityholders
Agreement.**
10.7 Alliance Laundry Holdings LLC, Registration Rights
Agreement.**
10.8 L'Esperance Employment Agreement dated May 5, 1998.**
10.9 L'Esperance Executive Unit Purchase Agreement.**
10.10 Gaster Executive Unit Purchase Agreement.**
10.11 Brothers Executive Unit Purchase Agreement.**
10.12 Beach Executive Unit Purchase Agreement.**
10.13 Rounds Executive Unit Purchase Agreement.**
10.14 Spiller Executive Unit Purchase Agreement.**
10.15 Wallace Executive Unit Purchase Agreement.**
10.16 L'Esperance Deferred Compensation Agreement.**
10.17 Gaster Deferred Compensation Agreement.**
10.18 Brothers Deferred Compensation Agreement.**
10.19 Beach Deferred Compensation Agreement.**
10.20 Rounds Deferred Compensation Agreement.**
10.21 Wallace Deferred Compensation Agreement.**
10.22 L'Esperance Retention Agreement, as amended.**
10.23 Gaster Retention Agreement, as amended.**
10.24 Brothers Retention Agreement, as amended.**
10.25 Beach Retention Agreement, as amended.**
10.26 Rounds Retention Agreement, as amended.**
10.27 Wallace Retention Agreement, as amended.**
10.28 L'Esperance Promissory Note.**
10.29 Gaster Promissory Note.**
10.30 Brothers Promissory Note.**
10.31 Beach Promissory Note.**
10.32 Rounds Promissory Note.**
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
10.33 Wallace Promissory Note.**
10.34 Management Services Agreement.**
10.35 Transition Services Agreement.**
10.36 Junior Subordinated Promissory Note.**
12.1 Statement of Computation of Ratios.**
21.1 Subsidiaries of Alliance Laundry Systems LLC.**
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Kirkland & Ellis (included in exhibits 5.1
and 8.1).**
24.1 Powers of Attorney (included in signature page).*
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
- -------
* Filed herewith
** To be filed by amendment.
2