As filed with the Securities and Exchange Commission on December 10, 1999
Registration No. 333-
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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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BLOUNT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 3420 63-0593908
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation Classification Number) Number)
or organization)
---------------
Richard H. Irving, III, Esq.
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116
(334) 244-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Copies to:
Kris F. Heinzelman, Esq.
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
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Names of Additional Registrants State or Other Jurisdiction of I.R.S. Employer
as Specified in Their Charters Incorporation or Organization Identification No.
- ------------------------------- ------------------------------ ------------------
Blount International, Inc. Delaware 63-0780521
BI Holdings Corp. Delaware 51-0045710
BI, L.L.C. Delaware 72-1364435
Omark Properties, Inc. Oregon 93-6026092
4520 Corp., Inc. Delaware 63-0732223
Gear Products, Inc. Oklahoma 73-0665381
Dixon Industries, Inc. Kansas 48-1025788
Frederick Manufacturing Corporation Delaware 36-3483812
Federal Cartridge Company Minnesota 41-0252320
Simmons Outdoor Corporation Delaware 65-0272347
CTR Manufacturing, Inc. North Carolina 56-1262120
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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered per Unit(2)(3) Price(2)(3) Fee(4)
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13% Senior Subordinated Notes due 2009(1).. $325,000,000 100% $325,000,000 $85,800
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(1) The Guarantees of Blount International, Inc., BI Holdings Corp., BI,
L.L.C., Omark Properties, Inc., 4520 Corp., Inc., Gear Products, Inc.,
Dixon Industries, Inc., Frederick Manufacturing Corporation, Federal
Cartridge Company, Simmons Outdoor Corporation, and CTR Manufacturing, Inc.
of the payment of principal, premium, if any, and interest on the Notes are
also being registered hereby. Pursuant to Rule 457(n), no registration fee
is required with respect to such Guarantees.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Exclusive of accrued interest, if any.
(4) Calculated pursuant to Rule 457.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated December 10, 1999
Prospectus
$325,000,000
[LOGO OF BLOUNT]
Exchange Offer for
13% Senior Subordinated Notes
due 2009
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This is an offer to exchange the outstanding, unregistered 13% Senior
Subordinated Notes due 2009 you now hold for new, substantially identical 13%
Senior Subordinated Notes due 2009 that will be free of the transfer
restrictions that apply to the old notes. This offer will expire at 5:00 p.m.,
New York City time, on , 2000 unless we extend it. Interest is payable
on August 1 and February 1 of each year, beginning February 1, 2000. We refer
to the old notes and the new notes collectively as the notes.
Blount may redeem all or part of these new notes on or after August 1, 2004.
Prior to August 1, 2002, Blount may redeem up to 35% of these new notes from
the proceeds of certain equity offerings. Redemption prices are specified in
this prospectus under "Description of Notes -- Optional Redemption."
These new notes will be unsecured and subordinate to all of our senior debt.
These new notes will be guaranteed by Blount's parent, Blount International,
Inc., and certain of our existing and future subsidiaries on a senior
subordinated basis as specified in this prospectus under "Description of
Notes."
See Risk Factors commencing on page 15 for a discussion of certain factors that
holders of old notes should consider in connection with the exchange offer and
investing in the new notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the new notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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, 2000
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT COVERS THE REGISTRATION OF AN AGGREGATE
PRINCIPAL AMOUNT OF $325,000,000 OF 13% SENIOR SUBORDINATED NOTES DUE 2009 OF
BLOUNT, INC., WHICH WE HEREINAFTER REFER TO AS THE NEW NOTES, THAT MAY BE
EXCHANGED FOR AN EQUAL PRINCIPAL AMOUNT OF BLOUNT'S OUTSTANDING 13% SENIOR
SUBORDINATED NOTES DUE 2009. THIS REGISTRATION ALSO COVERS THE REGISTRATION OF
THE NEW NOTES FOR RESALE BY LEHMAN BROTHERS INC. IN MARKET-MAKING TRANSACTIONS.
THE COMPLETE PROSPECTUS RELATING TO THE EXCHANGE OFFER FOLLOWS IMMEDIATELY
AFTER THIS EXPLANATORY NOTE. FOLLOWING THE EXCHANGE OFFER PROSPECTUS ARE
CERTAIN PAGES OF THE PROSPECTUS RELATING SOLELY TO SUCH MARKET-MAKING
TRANSACTIONS, INCLUDING ALTERNATE FRONT AND BACK COVER PAGES, AND ALTERNATE
SECTIONS ENTITLED "PROSPECTUS SUMMARY--RECAPITALIZATION TRANSACTIONS," "RISK
FACTORS--LIQUIDITY," "USE OF PROCEEDS," "PLAN OF DISTRIBUTION," "THE
RECAPITALIZATION TRANSACTIONS" AND "LEGAL MATTERS." IN ADDITION, THE MARKET-
MAKING PROSPECTUS WILL NOT INCLUDE THE FOLLOWING CAPTIONS (OR THE INFORMATION
SET FORTH UNDER SUCH CAPTIONS) IN THE EXCHANGE OFFER PROSPECTUS: "PROSPECTUS
SUMMARY--THE EXCHANGE OFFER," "--TAXATION," "RISK FACTORS--FAILURE TO EXCHANGE
YOUR OLD NOTES," "THE EXCHANGE OFFER" AND "CERTAIN INCOME TAX CONSIDERATIONS."
THE TABLE OF CONTENTS OF THE MARKET-MAKING PROSPECTUS WILL REFLECT THESE
CHANGES ACCORDINGLY.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information......i..
Forward-Looking Statements.......... iii
Prospectus Summary.................. 1
Risk Factors........................ 15
Use of Proceeds..................... 23
Capitalization...................... 23
Pro Forma Condensed Consolidated
Financial Statements............... 24
Selected Historical Consolidated
Financial Data..................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 31
The Exchange Offer.................. 42
Page
----
Business........................... 49
Management......................... 66
Principal Stockholders............. 74
The Recapitalization Transactions.. 75
Related Party Transactions......... 76
Description of Certain
Indebtedness...................... 81
Description of Notes............... 84
Certain Income Tax Considerations.. 133
Plan of Distribution............... 134
Legal Matters...................... 134
Independent Accountants............ 134
Index to Financial Statements...... F-1
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WHERE YOU CAN FIND MORE INFORMATION
We, Blount's parent, file annual, quarterly and current reports, proxy
statements and other documents with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. Our common stock is listed on the
New York Stock Exchange, Inc. You may read and copy any of those reports,
statements or other documents at the Commission's public reference room at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
offices of the Exchange at 20 Broad Street, New York, New York 10005. Please
call the Commission at 1-800-SEC-0330 for further information on the public
reference room. These filings are also available to the public from commercial
document retrieval services and at the Commission's Web site at
"http://www.sec.gov."
We intend to "incorporate by reference" in this prospectus reports that we
file with the Commission, which means that we intend to disclose important
information to you by referring you to those reports. The information
incorporated by reference is an important part of this prospectus; however, to
the extent that there are any inconsistencies between information presented in
this prospectus and information contained in incorporated documents filed with
the Commission before the date of this prospectus, the information in this
prospectus shall be deemed to supersede the earlier information. Information
that we file with the Commission after the date of this prospectus will
automatically update and supersede the information in this prospectus and any
earlier filed or incorporated information. Specifically, we are incorporating
by reference in this prospectus the following reports:
. our Annual Report on Form 10-K for the year ended December 31, 1998,
which was amended on July 15, 1999 on Form 10-K/A;
. our Current Reports on Form 8-K dated April 20, 1999, on Form 8-K/A
dated April 27, 1999 and on Form 8-K dated August 19, 1999;
. our Quarterly Report on Form 10-Q for the period ended March 31, 1999,
which was amended on Form 10-Q/A on July 15, 1999;
. our Quarterly Report on Form 10-Q for the period ended June 30, 1999;
and
. our Quarterly Report on Form 10-Q for the period ended September 30,
1999.
We are also incorporating any future filings made with the Commission under
Sections 13(a), 13(e), 14, or 15(d) of the Exchange Act until the termination
of the exchange offer.
i
You may request a copy of any of our filings with the Commission, or any of
the agreements or other documents that constitute exhibits to those filings, at
no cost, by writing or telephoning us at the following address or phone number:
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116
(334) 244-4000
Attention: Richard H. Irving, III -- General Counsel
So long as any of these new notes are outstanding, we will agree under the
notes indenture to furnish to the holders of these new notes the same
information that we are required to file with the Commission even if we cease
to be subject to the Exchange Act's reporting requirements.
ii
FORWARD-LOOKING STATEMENTS
The statements contained or incorporated by reference in this prospectus
that are not historical facts are "forward-looking statements," as that term is
defined in the Private Securities Litigation Reform Act of 1995. Those
statements include all discussions of strategy as well as statements that
contain such forward-looking expressions as "believes," "estimates," "expects,"
"intends," "may," "will," "should," or "anticipates" or the negative thereof.
In addition, from time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Furthermore, forward-looking
statements may be included in our filings with the Commission as well as in
press releases or oral presentations made by or with the approval of one of our
authorized executive officers.
We caution you to bear in mind that forward-looking statements, by their
very nature, involve assumptions and expectations and are subject to risks and
uncertainties. Although we believe that the assumptions and expectations
reflected in the forward-looking statements contained in this prospectus are
reasonable, no assurance can be given that those assumptions or expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations are disclosed in this
prospectus, including those in the sections entitled "Prospectus Summary,"
"Risk Factors," "Management Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and other sections of this prospectus and in
the documents incorporated by reference in this prospectus. Forward-looking
statements in this prospectus include, among others, expectations regarding our
ability to:
. obtain additional financing for working capital, capital expenditures or
other purposes or to avoid negative effects on our operations caused by
our substantial leverage;
. meet restrictions imposed by the terms of our indebtedness;
. realize our cost reduction goals;
. successfully identify, complete and integrate future acquisitions;
. mitigate the effects of pending or future litigation on our earnings and
financial condition;
. maintain relationships with key customers and suppliers;
. minimize the impact of foreign economic or political crises on our
foreign sales;
. successfully complete Year 2000 compliance efforts or avoid business
interruptions or shutdowns, reputational harm or legal liability should
third parties fail to remedy their Year 2000 problems;
. continue to compete successfully with companies that have greater
financial resources, lower costs, superior technology or more favorable
operating conditions than we do; and
. minimize the impact of future environmental liabilities that we may
have.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
these factors and the cautionary statements contained throughout this
prospectus.
----------------
Oregon(R), ICS, Silver Streak(R), CCI(R), Speer(R), RCBS(R), Outers(R),
Weaver(R), Simmons(R), Federal(R), Hydro-Ax(R), Prentice(R), INTENZ(TM),
Dixon(R), ZTR(R), Redfield(R), Ram-Line(R), Champion(R), Premium(R), Gold
Medal(R), Classic(R), Gold Dot(R), Clean-Fire(R) and CTR(R) are registered or
pending trademarks of Blount, Inc. or its subsidiaries.
iii
PROSPECTUS 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 prospectus. Unless the context otherwise requires, any
reference in this prospectus to "we," "our," or "Blount International" means
Blount International, Inc., both before and after the merger with Red Dog
Acquisition, Corp.; "Blount" means Blount, Inc., the issuer of the notes and
the wholly owned subsidiary of Blount International; "Red Dog Acquisition"
means Red Dog Acquisition, Corp. and "Lehman Brothers Merchant Banking
Partners" means Lehman Brothers Merchant Banking Partners II L.P. and its
affiliated co-investors.
Unless otherwise indicated, the industry data that appear in this prospectus
are derived from publicly available sources that we believe are reliable but
that we have not independently verified. You should pay special attention to
the section entitled "Risk Factors" for a discussion of certain factors that
holders of old notes should consider in connection with the exchange offer.
The Company
Company Overview
We are an international industrial company with leadership positions in
three business segments: Outdoor Products, Sporting Equipment, and Industrial
and Power Equipment. Our focus is on manufacturing and marketing branded
products in substantial niche markets serving industrial companies and
consumers. Our consolidated sales for the nine months ended September 30, 1999
of $587.9 million were derived from our three business segments: Outdoor
Products--$243.2 million, Sporting Equipment--$240.0 million, and Industrial
and Power Equipment--$104.7 million.
We have achieved growth in operating income for seven consecutive years. Our
success can be attributed to a number of factors:
. Our focus on the development, manufacturing and marketing of consumable
products and products requiring frequent replacement;
. Our development of a collection of strong brand names and the associated
high customer loyalty;
. Our focus on creating a diverse customer base, which helps protect our
overall financial performance from a market downturn in any one segment;
. Our ability to achieve operating efficiencies and control costs;
. Our success in acquiring and integrating companies, products and assets
that are related to our existing business segments; and
. Our development of significant barriers to entry through capital
investments we have made in some of our business segments and through
our related technical expertise.
We intend to continue the growth of each of our business segments and
related businesses by capitalizing on these strengths and by executing our
strategy.
Outdoor Products
Our Outdoor Products segment (37.9% of consolidated sales for the year ended
December 31, 1998) is comprised of the Oregon Cutting Systems Division, which
we refer to as OCSD, Dixon Industries, Inc., and Frederick Manufacturing
Corporation. OCSD produces a wide variety of saw chain, guide bars, drive
sprockets
1
and accessories for use primarily on portable gasoline and electric chain saws,
and mechanical timber harvesting equipment. Dixon manufactures zero turning
radius lawn mowers and related equipment. Frederick is principally a supplier
of replacement accessories for lawn mowers.
The Outdoor Products segment has EBITDA (as defined) margins averaging
approximately 25% over the last four years. This profitability has been driven
by several factors, including:
. The high level of sales (75% of OCSD's saw chain sales and 90% of
Frederick's lawn mower accessory sales) to the replacement market and
its comparatively high margins;
. Cost reductions resulting from continual process improvement;
. The responsive product design and delivery cycle at OCSD that allows it
to meet its customers' needs in a timely manner; and
. Dixon's ability to sell directly to dealers.
Sporting Equipment
Our Sporting Equipment segment (34.5% of consolidated sales for the fiscal
year ended December 31, 1998), which focuses on ammunition and accessories for
law enforcement and shooting sports, is comprised of the Federal Cartridge
Company, the Sporting Equipment Division, or SED, and Simmons Outdoor
Corporation. The acquisition of Federal, completed in November 1997, both
complemented and significantly expanded the Sporting Equipment segment's
product offerings, placing us among the leading producers of ammunition
products in the United States.
The Sporting Equipment segment posted an EBITDA margin of 15% for the nine
months ended September 30, 1999. This profitability was driven by a number of
factors, including:
. Integration of the manufacturing, sales and distribution processes of
Federal and SED;
. Cost savings resulting from increased scale in the purchasing of raw
materials; and
. Critical mass achieved in providing broader product offerings to
customers.
Industrial and Power Equipment
Our Industrial and Power Equipment segment (27.6% of consolidated sales for
the fiscal year ended December 31, 1998) is comprised of the Forestry and
Industrial Equipment Division, or FIED, CTR Manufacturing, Inc., and Gear
Products, Inc. FIED manufactures a wide variety of loaders and feller bunchers.
CTR manufactures delimbers, slashers and grapples. Gear Products manufactures
rotational bearings, winches, hydraulic motors and swing drives.
Although the financial performance of the Industrial and Power Equipment
segment has been adversely affected over the last twelve months by a severe
downturn in the pulp industry, the segment's operating performance has
historically been strong. Over the past four years, for example, EBITDA margins
have averaged approximately 16%. This profitability has been driven by several
factors, including:
. Success in profitably introducing new products;
. Emphasis on cost control and continual process improvements;
. A strong replacement parts business with a one-day fill rate of
approximately 90%; and
. The ability to acquire and integrate businesses successfully, as we did
with the CTR acquisition.
2
Company Strategy
Over the last several years we have focused on the following strategic
tenets, which have helped give us profitable, growing positions of leadership
in each of our three business segments:
. Seek leadership positions in a manageable number of substantial niche
markets;
. Develop new products;
. Search for new acquisition opportunities;
. Expand our international presence;
. Reduce costs; and
. Maintain a balanced diversification with respect to geography,
cyclicality, customer base, distribution channels and product lines.
By continuing to focus on these strategic tenets, we continue to grow each
of our business segments in a highly disciplined manner.
The Recapitalization Transactions
This exchange offer is related to a series of recapitalization transactions
which also included: our merger with Red Dog Acquisition, a subsidiary of
Lehman Brothers Merchant Banking Partners; the issuance of the old notes; an
equity contribution from Lehman Brothers Merchant Banking Partners and some
members of our senior management; and our borrowings pursuant to our new credit
facilities. The recapitalization transactions were completed simultaneously or
within a short time of each other on August 19, 1999, as described under the
section in this prospectus entitled "The Recapitalization Transactions--The
Merger."
On April 18, 1999, we entered into a merger agreement with Red Dog
Acquisition pursuant to which it was contemplated that we would merge with Red
Dog Acquisition and be the surviving corporation of this merger. The merger
agreement called for all of our issued and outstanding shares of common stock
to be converted into, at the election of the stockholders but subject to
proration, either $30.00 or two shares of the surviving corporation. Lehman
Brothers Merchant Banking Partners and some members of senior management of the
surviving corporation now own approximately 87.6% of the surviving corporation,
with our shareholders prior to the recapitalization owning approximately 12.4%.
Red Dog Acquisition received an equity contribution of approximately $417.5
million from Lehman Brothers Merchant Banking Partners, less the amount of the
equity investments made by members of our senior management, which were
approximately $13.6 million. In addition, Blount entered into new senior
secured credit facilities in an aggregate principal amount of $500.0 million,
which included term loan facilities in an aggregate principal amount of $400.0
million and a $100.0 million revolving credit facility. The term loan
facilities were used to fund payment of the cash consideration in the merger,
to repay a portion of our indebtedness outstanding prior to the consummation of
the recapitalization transactions and to pay the fees and expenses incurred in
connection with all of the recapitalization transactions. The revolving credit
facility was available to provide any additional funding necessary for the
merger and we expect it will continue to be available for general corporate
purposes, including funding our current working capital requirements.
Lehman Brothers Merchant Banking Partners is a $2.0 billion institutional
merchant banking fund focused on investments in established operating
companies.
3
The following table sets forth the sources and uses of funds in connection
with the recapitalization transactions, which occurred on August 19, 1999:
(dollars in millions)
Sources of Funds Amount
- ------------------------------ --------
Cash Sources:
Existing Blount Cash (1).... $ 35.4
New Credit Facilities:
Revolving Credit Facility
(2)....................... 0.0
Term Loan Facilities....... 400.0
Notes....................... 325.0
Equity Contribution:
Lehman Brothers Merchant
Banking Partners.......... 403.9
Blount Senior Management... 13.6
--------
Total Cash Sources........ $1,177.9
Other Sources:
7% Notes.................... 150.0
Retained Equity Interest.... 44.5
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Total Sources............. $1,372.4
========
Uses of Funds Amount
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Cash Uses:
Repurchase of Blount International, Inc. Shares................. $1,068.5
Settlement of Stock Options..................................... 51.4
Repayment of Blount, Inc. Debt (3).............................. 10.5
Estimated Fees & Expenses....................................... 47.5
--------
Total Cash Uses.......................... $1,177.9
Other Uses:
7% Notes................................... 150.0
Retained Equity Interest................... 44.5
--------
Total Uses............................... $1,372.4
========
- --------
(1) Does not include $3.3 million of restricted cash as described in note 3.
(2) The revolving credit facility has availability of up to $100.0 million,
none of which was drawn at closing. Letters of credit issued under the
revolving credit facility were less than $11.5 million at closing, which
reduced availability under the revolving credit facility.
(3) Represents repayment of $13.8 million of certain industrial development
revenue bonds, notes payable and lease obligations of Blount and its
subsidiaries, net of associated restricted cash of $3.3 million which was
released to fund repayment of a portion of this indebtedness.
Please refer to the section entitled "The Recapitalization Transactions,"
which appears later in this prospectus, for additional information.
4
Organizational Chart
The following sets forth a summary of our organizational structure and
primary brands, as well as our ownership and capitalization structure:
- ------------------------
Lehman Brothers Merchant
Banking Partners and 87.6%
Management
- ------------------------
--------------------------
Blount International, Inc.
(Guarantor)
--------------------------
- ------------------------ |
Rollover Public |
Common Shareholders 12.4% |
- ------------------------ | ---------------------
| 100% New Credit Facilities
| ---------------------
--------------------------
Blount, Inc. ---------------------
(Issuer) 7% Notes
-------------------------- ---------------------
|
| 100% ---------------------
| Notes
| ---------------------
|
__________________________|__________________________
| | |
| | |
| | |
------------------ ------------------ ------------------
Outdoor Products Sporting Equipment Industrial & Power
Equipment
------------------ ------------------ ------------------
---------------------- ------------------ ---------------------
Oregon Cutting Systems Sporting Equipment Forestry & Industrial
Division Division Equipment Division
---------------------- ------------------ ---------------------
. Hydro-Ax Timber
. Oregon Saw Chain, Bars . CCI/Speer Sporting Harvesting Tractors
& Accessories Ammunition . Prentice Loaders and
. ICS Concrete Cutting . RCBS Reloading Track Feller Bunchers
Systems Equipment
. Outers Gun Care
Accessories
. Weaver Optic Products
. Redfield Optic Pruducts
. Ram-Line Gun Accessories
---------------------- ------------------ ---------------------
---------------------- ------------------ ---------------------
Dixon Industries Federal Cartridge CTR Manufacturing, Inc.
Company
---------------------- ------------------ ---------------------
. Dixon Zero Turning . Federal Shotshell & . CTR Slashers,
Radius Lawnmowers Other Ammunition Delimbing Systems,
. Champion Clay Targets and Grapples
---------------------- ------------------ ---------------------
---------------------- ------------------ ---------------------
Frederick Manufacturing Simmons Outdoor Gear Products, Inc.
Corp. Corp.
---------------------- ------------------ ---------------------
. Silver Streak . Simmons Sports . Gears & Rotational
Lawnmower Parts & Optics Pruducts Bearings
Accessories . Hydraulic Pumps and
Motors
---------------------- ------------------ ---------------------
5
The Exchange Offer
Capitalized terms used in this summary are defined in the "Description of
Notes--Certain Definitions" section of this prospectus.
The Exchange Offer............ We are offering to exchange pursuant to the
exchange offer an aggregate principal amount of
up to $325,000,000 principal amount of the new
notes for a like principal amount of the old
notes. Blount will issue the new notes on or
promptly after the exchange date. As of the
date of this prospectus, $325,000,000 aggregate
principal amount of the old notes is
outstanding. The terms of the new notes are
identical in all material respects to the terms
of the old notes for which they may be
exchanged pursuant to the exchange offer,
except that the new notes have been registered
under the Securities Act and are issued free
from any covenant regarding registration,
including terms providing for an increase in
the interest rate on the old notes upon a
failure to file or have declared effective an
exchange offer registration statement or to
consummate the exchange offer by certain dates.
The new notes will evidence the same debt as
the old notes and will be issued under and be
entitled to the same benefits under the notes
indenture as the old notes. The issuance of the
new notes and the exchange offer are intended
to satisfy certain of our obligations under the
registration rights agreement. See "The
Exchange Offer" and "Description of the Notes."
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time on , 2000 unless
extended by us in our sole discretion (but in
no event to a date later than , 2000). See
"The Exchange Offer--Expiration Date;
Extensions; Amendments."
Exchange Date................. The date of acceptance for exchange of the old
notes and the consummation of the exchange
offer will be the first business day following
the expiration date unless extended. See "The
Exchange Offer--Terms of the Exchange."
Conditions of the Exchange Our obligation to consummate the exchange offer
Offer......................... will be subject to certain conditions. See "The
Exchange Offer--Conditions to the Exchange
Offer." We reserve the right to terminate or
amend the exchange offer at any time prior to
the expiration date.
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
expiration date; otherwise, all tenders will be
irrevocable. See "The Exchange Offer--
Withdrawal of Tenders."
Procedures for Tendering See "The Exchange Offer--Procedures for
Notes......................... Tendering."
6
Taxation...................... The exchange of old notes for new notes
pursuant to the exchange offer will not result
in any income, gain or loss to holders who
participate in the exchange offer or to us for
federal income tax purposes. See "Certain
Income Tax Considerations."
Resale........................ We are making the exchange offer in reliance on
the position of the staff of the Commission as
set forth in certain no-action letters
addressed to other parties in other
transactions. However, we have not sought our
own no-action letter and there can be no
assurance that the staff of the Commission
would make a similar determination with respect
to the exchange offer as in such other
transactions. Based on these interpretations by
the staff of the Commission, we believe that
new notes issued pursuant to this exchange
offer in exchange for old notes may be offered
for resale, resold and otherwise transferred by
a holder thereof other than (i) a broker-dealer
who purchased such old notes directly from us
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or
(ii) a person that is an "affiliate" (as
defined in Rule 405 of the Securities Act) of
ours without compliance with the registration
and prospectus delivery provisions of the
Securities Act; provided that such new notes
are acquired in the ordinary course of such
holder's business and that such holder is not
participating and has no arrangement or
understanding with any persons to participate,
in the distribution of such new notes. Holders
of old notes accepting the exchange offer will
represent to us in the letter of transmittal
that such conditions have been met. Any holder
who participates in the exchange offer for the
purpose of participating in a distribution of
the new notes may not rely on the position of
the staff of the Commission as set forth in
these no-action letters and would have to
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any secondary resale
transaction. A secondary resale transaction in
the United States by a holder who is using the
exchange offer to participate in the
distribution of new notes must be covered by a
registration statement containing the selling
securityholder information required by Item 507
of Regulation S-K of the Securities Act. Each
broker-dealer (other than an "affiliate" of
ours) that receives new notes for its own
account pursuant to the exchange offer must
acknowledge that it acquired the old notes as
the result of market-making activities or other
trading activities and will deliver a
prospectus in connection with any resale of
such new notes. The letter of transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This prospectus, as it may be
amended or supplemented from time to time, may
be used by a broker-dealer in connection with
resales of new notes received in exchange for
old notes where such old notes were acquired by
such broker-dealer as a result of market-making
7
activities or other trading activities. See
"Plan of Distribution." Any broker-dealer who
is an affiliate of ours may not rely on such
no-action letters and must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any secondary resale
transaction. See "The Exchange Offer--Purpose
of the Exchange Offer."
Remaining Old Notes........... Holders of old notes who do not tender their
old notes in the exchange offer or whose old
notes are not accepted for exchange will
continue to hold such old notes and will be
entitled to all the rights and preferences, and
will be subject to the limitations, applicable
thereto under the notes indenture. All
untendered and tendered but unaccepted old
notes (collectively, the remaining old notes)
will continue to bear legends restricting their
transfer. In general, the old notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. To the extent that the exchange offer is
effected, the trading market, if any, for
remaining old notes could be adversely
affected. See "Risk Factors--Factors Relating
to the Notes and the Exchange Offer--Failure to
Exchange Your Old Notes" and "The Exchange
Offer--Terms of the Exchange."
Exchange Agent................ The exchange agent with respect to the exchange
offer is United States Trust Company of New
York. The address and telephone number of the
exchange agent are set forth in "The Exchange
Offer--Exchange Agent."
Use of Proceeds............... There will be no proceeds to Blount from the
exchange pursuant to the exchange offer. See
"Use of Proceeds."
The New Notes
Securities Offered............ $325,000,000 in principal amount of 13% Senior
Subordinated Notes due 2009, which we refer to
as the new notes.
Issuer........................ Blount, Inc.
Guarantors.................... Initially, the guarantors of these new notes
will be Blount International and certain of our
subsidiaries. If Blount cannot make payments on
these new notes when they are due, the
guarantors must make them after making prior
payment of all senior debt of the guarantors.
Maturity...................... August 1, 2009.
Interest Rate and Payment Annual rate--13%.
Dates.........................
Payment frequency--every six months on February
1 and August 1.
First payment--February 1, 2000.
8
Optional Redemption........... On or after August 1, 2004, Blount may redeem
some or all of these new notes at any time at
the redemption prices listed in the
"Description of Notes--Optional Redemption"
section of this prospectus.
Before August 1, 2002, Blount may redeem up to
35% of the notes with the proceeds of certain
offerings of equity at 113% of principal
amount, plus accrued and unpaid interest and
additional cash interest, if any. See
"Description of Notes--Optional Redemption."
Mandatory Offer to If we sell certain assets or experience
Repurchase.................... specific kinds of changes of control, Blount
must offer to purchase these new notes at the
prices listed in the "Description of Notes--
Repurchase at the Option of Holders" section of
this prospectus.
Ranking....................... These new notes will be general unsecured
obligations of Blount:
. subordinate in right of payment to all of
Blount's existing and future senior debt,
including indebtedness under the new
credit facilities and $150 million of 7.0%
Senior Notes, which we refer to as the
7.0% notes;
. pari passu in right of payment with the
old notes and any future senior
subordinated indebtedness of Blount; and
. unconditionally guaranteed on a senior
subordinated basis by the guarantors.
At September 30, 1999, after giving effect to
the recapitalization transactions, Blount and
the guarantors had $879.7 million of
indebtedness outstanding, consisting of $543.7
million of senior debt, $325.0 million of the
old notes, $10.5 million of industrial
development revenue bonds and $0.5 million of
other long-term debt.
Borrowings under the new credit facilities are
secured by substantially all of our assets and
the assets of Blount and certain of its
subsidiaries (including the capital stock of
Blount and certain of its subsidiaries).
Blount's 7.0% notes share equally and ratably
in certain of the collateral securing the new
credit facilities. See "Risk Factors--Factors
Relating to Our Company and the
Recapitalization Transactions--Substantial
Leverage" and "--Factors Relating to the Notes
and the Exchange Offer--Subordination."
Basic Covenants of Blount will issue the new notes under the notes
Indenture..................... indenture among Blount, the guarantors and
United States Trust Company of New York, as
trustee, pursuant to which the old notes were
issued.
9
The notes indenture will, among other things,
restrict our ability and the ability of our
restricted subsidiaries to:
. borrow money and issue preferred stock;
. pay dividends on or purchase our stock or
our restricted subsidiaries' stock;
. make investments;
. use assets as security in other
transactions;
. sell certain assets or merge with or into
other companies;
. enter into certain types of transactions
with affiliates;
. limit dividends or other payments to us;
and
. enter into sale and leaseback
transactions.
In the future, certain of our subsidiaries that
we designate as unrestricted subsidiaries will
not be subject to many of the covenants in the
notes indenture. More detailed information with
respect to these covenants is set forth in the
"Description of Notes--Certain Covenants"
section of this prospectus.
No Prior Market............... The new notes are new securities and there is
currently no established market for them. No
assurance can be given as to the liquidity of
the trading market for the new notes following
the exchange offer. Blount does not intend to
apply for a listing of the new notes on any
securities exchange or on any automated dealer
quotation system. Lehman Brothers Inc., the
initial purchaser of the old notes, has advised
Blount that it may make a market in the new
notes. However, the initial purchaser is not
obligated to do so, and any market making with
respect to the new notes may be discontinued at
any time without notice.
10
SUMMARY PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary pro forma condensed consolidated
financial and other data of Blount International which have been derived by the
application of pro forma adjustments to Blount International's historical
audited and unaudited consolidated financial statements included elsewhere
herein. The pro forma financial statements have been prepared giving effect to
the recapitalization transactions, accounting for them as a recapitalization
under generally accepted accounting principles and giving effect to the other
adjustments described in the notes accompanying the pro forma financial
statements found elsewhere in this prospectus. Accordingly, the historical
basis of Blount International's assets and liabilities has not been impacted by
the recapitalization transactions.
The pro forma condensed consolidated statements of income give effect to the
recapitalization transactions as if such transactions were completed as of
January 1, 1998. The pro forma condensed consolidated financial data do not
purport to represent what Blount International's results of operations would
actually have been had the recapitalization transactions in fact occurred on
such dates or to project Blount International's results of operations for any
future period or date.
You should read this data in conjunction with Blount International's
historical financial statements and the notes to those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein.
Nine Months
Ended Year Ended
September 30, December 31,
---------------- ------------
1999 1998
---------------- ------------
(Dollars in millions)
Pro Forma Statements of income data:
Sales........................................... $587.9 $831.9
Income from operations.......................... 61.2 115.5
Interest expense................................ (72.6) (96.9)
Income (loss) before income taxes and
extraordinary loss............................. (11.1) 18.9
Income (loss) before extraordinary loss......... (8.1) 11.7
Other data:
EBITDA (1)...................................... $ 84.9 $145.8
Depreciation and amortization (2)............... 23.4 30.0
Property, plant and equipment additions......... 12.5 21.7
Cash interest expense (3)....................... 68.8 91.8
At September 30,
1999
----------------
(Dollars in
millions)
Actual Condensed balance sheet data:
Working capital................................. $233.1
Total assets.................................... 735.5
Total debt...................................... 879.9
Stockholders' deficit........................... (326.4)
(1) EBITDA represents income from continuing operations before income taxes and
extraordinary loss, interest expense, interest income, depreciation and
amortization (excluding amortization charged to interest expense). EBITDA
should not be considered an alternative to, or more meaningful than, (a)
operating income, as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance or (b) cash
flows from operating, financing or investing activities, as determined in
accordance with generally accepted accounting principles, as a measure of
liquidity. EBITDA is presented as additional information because management
believes it is a useful indicator of the ability to meet debt service.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to similarly titled measures of
other companies.
11
A pretax amount of approximately $3.1 million representing severance of
certain corporate office employees and write-off of existing deferred
financing costs was reflected as an expense to Blount in the period the
recapitalization transactions were completed and has not been included as a
pro forma adjustment in the pro forma condensed consolidated statements of
income.
(2) Depreciation and amortization does not include amortization of deferred
financing fees and original issue discount, which are accounted for in
interest expense.
(3) For purposes of this computation, cash interest expense consists of pro
forma interest expense before amortization of deferred financing costs and
certain non-cash items.
12
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary historical condensed consolidated financial data of
Blount International for the years ended December 31, 1998 and 1997, for the
ten months ended December 31, 1996, and for the years ended the last day of
February of 1996 and 1995, are derived from the consolidated financial
statements of Blount International for such years and period which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The summary
historical condensed consolidated financial data for the twelve months ended
December 31, 1996 and for the nine months ended September 30, 1999 and 1998 are
derived from unaudited consolidated financial statements of Blount
International and, in the opinion of management, reflect all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
data presented for such periods. The following information should be read in
conjunction with the consolidated financial statements and the notes thereto
and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, both of which are included elsewhere.
For the
For the For the 12 months For the 12 months ended
9 months ended ended 10 months ended the last day of
September 30, December 31, December 31, February,
---------------- ----------------------- --------------- ----------------
1999 1998 1998 1997 1996(1) 1996(1) 1996 1995
------- ------- ------ ------ ------- --------------- ------- -------
(Dollars in millions)
Statements of Income Data:
Sales........................................... $ 587.9 $ 631.4 $831.9 $716.9 $649.3 $526.7 $ 644.3 $ 588.4
Income (loss) from operations................... (11.1) 84.0 113.7 99.4 92.4 75.0 90.5 76.6
Interest expense, net........................... (17.5) (9.1) (11.8) (7.0) (7.5) (5.6) (7.4) (8.5)
Income (loss) from continuing operations before
income taxes and extraordinary loss............ (28.3) 75.2 102.2 93.7 85.4 69.6 83.7 67.4
Income (loss) from continuing operations before
extraordinary loss............................. (24.9) 46.7 63.3 59.1 53.8 44.0 53.6 40.7
Net income (loss)............................... (24.9) 44.7 61.3 59.1 55.2 45.4 53.6 40.7
Other Data:
EBITDA (2)...................................... $ 12.6 $ 106.6 $144.0 $125.4 $115.8 $ 94.3 $ 112.9 $ 98.4
Net cash provided by (used in) operating
activities..................................... (28.9) 43.8 88.9 80.3 87.5 83.2 40.2 34.7
Net cash used in investing activities........... (15.1) (31.4) (37.2) (149.4) (19.3) (16.9) (50.8) (17.0)
Net cash provided by (used in) financing
activities..................................... 29.2 (7.6) (11.4) 15.2 (22.0) (22.2) (18.2) (28.4)
Depreciation and amortization (3)............... 24.8 23.0 30.9 25.0 23.3 19.2 22.2 22.9
Property, plant and equipment additions
excluding acquisitions......................... 12.7 15.4 21.7 18.7 21.3 18.7 18.7 9.7
Property, plant and equipment additions from
acquisitions................................... 0.0 0.0 0.0 59.8 0.0 0.0 0.6 5.0
Ratio of earnings to fixed charges (4).......... 7.3x 7.4x 9.2x 8.1x 8.2x 7.4x 6.2x
Balance Sheet Data (at end of applicable period):
Working capital................................. $ 233.1 $ 217.4 $232.2 $171.1 $166.2 $166.2 $ 136.2 $ 123.3
Total assets.................................... 735.5 667.4 668.8 637.8 533.8 533.8 546.5 520.8
Total debt...................................... 879.9 162.5 162.3 140.3 85.8 85.8 107.6 106.0
Stockholders' equity (deficit).................. (326.4) 341.7 354.6 316.1 290.8 290.8 255.0 207.7
- --------
(1) In April 1996, Blount International changed its fiscal year from one ending
on the last day of February to one ending on December 31. Unaudited
financial data for the twelve months ended December 31, 1996 is presented
in the table above for comparative purposes.
(2) EBITDA represents income from continuing operations before income taxes and
extraordinary loss, interest expense, interest income, depreciation and
amortization (excluding amortization charged to interest expense). EBITDA
should not be considered as an alternative to, or more meaningful than, (a)
operating income, as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance or (b) cash
flows from operating, financing or investing activities, as determined in
accordance with generally accepted accounting principles, as a measure of
liquidity. EBITDA is presented as additional information because management
believes it is a useful indicator of the ability to meet debt service.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to similarly titled measures of
other companies.
13
The following table shows all adjustments between income (loss) from
continuing operations before extraordinary loss and EBITDA:
Reconciliation of Income (Loss) From Continuing Operations Before Extraordinary
Loss
to EBITDA
(amounts in millions)
For the
For the For the 12 months 12 months ended
9 months ended ended For the the last day of
September 30, December 31, 10 months ended February,
---------------- ----------------------- --------------- -----------------
1999 1998 1998 1997 1996(1) 12/31/96(1) 1996 1995
------- ------- ------ ------ ------- --------------- -------- -------
Income (loss) from
continuing operations
before extraordinary
loss................... $ (24.9) $ 46.7 $ 63.3 $ 59.1 $ 53.8 $44.0 $ 53.6 $ 40.7
Provision (benefit) for
income taxes........... (3.4) 28.5 38.9 34.6 31.6 25.6 30.1 26.7
Depreciation and
amortization (excluding
amortization charged to
interest expense)...... 23.4 22.3 30.0 24.7 22.9 19.1 21.8 22.5
Interest expense........ 20.5 10.8 14.3 9.5 9.9 7.9 10.8 11.1
Interest income......... (3.0) (1.7) (2.5) (2.5) (2.4) (2.3) (3.4) (2.6)
------- ------- ------ ------ ------ ----- -------- -------
EBITDA.................. $ 12.6 $ 106.6 $144.0 $125.4 $115.8 $94.3 $ 112.9 $ 98.4
======= ======= ====== ====== ====== ===== ======== =======
(3) Includes amortization of deferred financing fees and original issue
discount.
(4) Coverage of fixed charges is determined by dividing income from continuing
operations before income taxes and extraordinary loss, interest expense,
debt expense amortization, and the interest portion of rental expense
deemed representative of the interest factor by the sum of interest
expense, capitalized interest, debt expense amortization and the portion of
rental expense deemed representative of the interest factor. For the nine
months ended September 30, 1999, earnings available for fixed charges,
after $71.5 million of expenses related to the recapitalization, were
inadequate to cover fixed charges by $28.3 million.
14
RISK FACTORS
You should carefully consider the following factors, together with the
other information contained in this prospectus, before determining whether to
participate in the exchange offer or invest in the new notes.
Factors Relating to Our Company and the Recapitalization Transactions
Substantial Leverage--Our substantial leverage may adversely affect our
operations and prevent us from fulfilling our obligations under the notes.
As of September 30, 1999, after giving effect to the recapitalization
transactions, we had approximately $1,061.9 million of total liabilities,
$879.9 million of total debt and a stockholders' deficit of $326.4 million.
This substantial leverage may have important consequences for us, including
the following:
. our ability to obtain additional financing for working capital, capital
expenditures or other purposes may be impaired or that kind of financing
may not be on terms favorable to us;
. a substantial portion of our cash flow available from operations will be
dedicated to the payment of principal and interest expense, which will
reduce the funds that would otherwise be available to us for operations
and future business opportunities;
. a substantial decrease in net operating income and cash flows or an
increase in expenses may make it difficult for us to meet our debt
service requirements or force us to modify our operations; and
. our substantial leverage may make us more vulnerable to economic
downturns and competitive pressure.
In addition, substantial leverage will have a negative effect on our net
income. Pro forma income before extraordinary loss for the 1998 fiscal year
would have been $11.7 million as compared to $63.3 million for the same period
on a historical basis, and pro forma interest expense for the 1998 fiscal year
would have been approximately $96.9 million compared to $14.3 million for the
same period on a historical basis. Further, pro forma net loss for the nine
month period ended September 30, 1999 would have been $8.1 million as compared
to net income of $24.9 million for the same period on a historical basis, and
pro forma interest expense for the nine month period ended September 30, 1999
would have been approximately $72.6 million compared to $20.5 million for the
same period on a historical basis.
The new credit facilities and the notes indenture contain restrictions that
may affect our operations, including our and certain of our subsidiaries'
ability to incur indebtedness or make acquisitions or capital expenditures.
However, these restrictions do not fully prohibit us or our subsidiaries from
incurring indebtedness and this indebtedness may be substantial. The terms of
Blount's revolving credit facility allow Blount to incur additional
indebtedness of up to $100.0 million and this indebtedness would be senior to
these new notes and the guarantees thereof. If we, Blount or any of our
subsidiaries incur additional indebtedness, the risks outlined above could
worsen.
Restrictive Covenants--The terms of Blount's indebtedness contain a number of
restrictive covenants, the breach of which could result in acceleration of
the notes.
The terms of Blount's indebtedness contain a number of restrictive
covenants, the breach of which could result in acceleration of the notes. The
notes indenture and the new credit facilities, among other things, restrict
our and certain of our subsidiaries' ability to:
. borrow money and issue preferred stock;
. guarantee indebtedness of others;
. pay dividends on or purchase our stock or our restricted subsidiaries'
stock;
. make investments;
15
. use assets as security in other transactions;
. sell certain assets or merge with or into other companies;
. enter into sale and leaseback transactions;
. enter into certain types of transactions with affiliates;
. limit dividends or other payments to us;
. enter into new businesses; and
. make certain payments in respect of subordinated indebtedness.
Blount's 7.0% notes restrict, among other things, our ability and the
ability of our subsidiaries, including Blount, to use assets as security in
other transactions, sell certain assets or merge with or into other companies
and enter into sale and leaseback transactions. See "Description of Certain
Indebtedness" and "Description of Notes--Certain Covenants."
The new credit facilities also prohibit Blount from prepaying principal in
respect of the notes and restrict our ability to engage in any business or
operations other than those incidental to our ownership of the capital stock of
Blount. In addition, the new credit facilities require us to maintain certain
financial ratios and satisfy certain financial condition tests, a number of
which get more restrictive over time, that may require that Blount take action
to reduce debt or to act in a manner contrary to our business objectives. Our
ability to meet those financial ratios and tests can be affected by events
beyond our control, and there can be no assurance that we will meet those
ratios and tests. A breach of any of these covenants could result in a default
under any or all of the new notes, the new credit facilities or Blount's 7.0%
notes. Upon the occurrence of an event of default under the new credit
facilities or Blount's 7.0% notes, the lenders or the holders, as the case may
be, could elect to declare all amounts outstanding under the new credit
facilities or Blount's 7.0% notes, as the case may be, together with any
accrued interest and commitment fees, to be immediately due and payable. If
Blount were unable to repay those amounts, the lenders under the new credit
facilities or the holders of Blount's 7.0% notes, as the case may be, could
enforce the guarantee from Blount's guarantors and proceed against the
collateral securing the new credit facilities or Blount's 7.0% notes, as the
case may be. If the amounts outstanding under the new credit facilities or
Blount's 7.0% notes were to be accelerated, holders of the 7.0% notes could
accelerate the payment thereof. If indebtedness under the new credit facilities
or Blount's 7.0% notes were to be accelerated, the assets of the applicable
guarantors could be insufficient to repay in full that indebtedness and
Blount's other indebtedness, including the notes. See "Description of Certain
Indebtedness."
Cost Reductions--We might not achieve our cost reduction goals.
Our business strategy includes the reduction of operating costs. Management
has identified additional cost reductions related to the recapitalization
transactions that are not included in pro forma income before extraordinary
loss and pro forma EBITDA. These cost reductions include organizational
consolidations, addressing operating inefficiencies from integration of
manufacturing activities, facilities rationalization, development and
integration of new systems and elimination of general and administrative
redundancies. Although these cost reductions are expected to be realized in
part during 1999 and in full over the two years thereafter, there can be no
assurance that we will be successful in reducing such costs. See "Business--
Company Strategy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Financial Condition, Liquidity and Capital
Resources--Following the Recapitalization Transactions."
Additional Acquisitions--Our future growth strategy may include additional
acquisitions which involve financial, operational and legal risks.
One of our business strategies has been to acquire operations and assets
that complement existing operations or would help us move into new markets and
we may in the future make additional acquisitions if similar opportunities are
identified. Any of these acquisitions may involve financial, operational and
legal risks.
16
These risks include the difficulty of assimilating operations, systems and
personnel of the acquired businesses and maintaining uniform standards,
controls, procedures and policies. Any future acquisitions would likely result
in an increase in expenses. In addition, competition from other potential
buyers could reduce the number of acquisition opportunities available to us due
to price inflation resulting from the bidding process. Moreover, our past
success in making acquisitions and in integrating acquired businesses does not
necessarily mean we will be successful in identifying potential acquisitions,
completing those acquisitions and integrating businesses in the future. See
"Business--Acquisitions and Dispositions" and "Business--Company Strategy."
Further if we choose to expand our international presence, some of these
acquisitions may also involve companies or assets abroad. Significant expansion
into international markets could involve risks including new and different
legal, tax, accounting and regulatory requirements as well as risks associated
with exchange rates. There can be no assurance that any such future
acquisitions will not have a material adverse effect on our operating results.
See "Business--Company Strategy."
Litigation--We may have litigation liabilities that could adversely affect our
earnings and financial condition.
Our historical business operations have resulted in a number of litigation
matters, including litigation involving personal injury or death as a result of
alleged design or manufacturing defects of our products. Some of these product
liability suits seek significant or unspecified damages for serious personal
injuries for which there are retentions or deductible amounts under our
insurance policies. In the future we may face additional lawsuits. While it is
difficult to predict the amount and type of litigation that we may be presented
with, future suits could include litigation related to the portion of our sales
coming from ammunition products for firearms. Future litigation and insurance
and other related costs could result in future liabilities that are significant
and which could be material. We cannot assure you that existing or future
litigation matters will not have a material adverse effect on our consolidated
financial condition or operating results. See "Business--Legal Proceedings."
Key Customers and Suppliers--Any loss of a few key customers and suppliers
would substantially decrease our sales.
In 1998, approximately 16% of the sales by the Outdoor Products segment were
to one customer, 20% of the sales of the Sporting Equipment segment were to one
customer, and 27% of the sales of the Industrial and Power Equipment segment
were to two customers. While we expect these business relationships to
continue, the loss of any of these customers would most likely substantially
decrease our sales.
Each of our business segments purchases some important materials from a
limited number of suppliers that meet quality criteria. We do not generally
operate under long-term written supply contracts with our suppliers. Although
alternative sources of supply are available, the sudden elimination of certain
suppliers could result in manufacturing delays, a reduction in product quality
and a possible loss of sales in the near term.
Cyclicality--Industrial and Power Equipment sales are influenced by the
economic cycle of the forestry industry.
The results of operations of our Industrial and Power Equipment segment are
closely linked to the strength of the forestry industry. In the past, the
strength of the forestry industry has been cyclical, experiencing recurring
periods of economic growth and slowdown which, correspondingly, have impacted
the amount of our Industrial and Power Equipment segment sales and caused the
amounts of the sales to vary significantly. Most recently, a key indicator of
this segment's market, namely the price of Northern Bleached Softwood Kraft,
called "pulp," declined 11-23% from an average of $598 per metric ton in the
fourth quarter of 1997 to an average of $460 per metric ton in the first
quarter, $500 per metric ton in the second quarter, and $533 per metric ton in
the third quarter of 1999, resulting in the depressed market conditions
characterized by sales declines in our Industrial and Power Equipment segment
of over 50% in our most important market (the southeastern United States)
during the first nine months of 1999 compared to the first nine months of 1998
and extremely aggressive competition for available sales. If this slowdown
continues, it will be unlikely for this segment to achieve historical levels of
sales and sales growth.
17
Foreign Sales--We have substantial foreign sales which are subject to changes
in local economic or political conditions, the imposition of currency
exchange restrictions, unexpected changes in regulatory environments and
potentially adverse tax consequences.
In 1998, approximately 25% of our sales by country of destination occurred
outside of the United States. International sales are subject to inherent
risks, including changes in local economic or political conditions, the
imposition of currency exchange restrictions, unexpected changes in regulatory
environments and potentially adverse tax consequences. Under some
circumstances, these factors could have a significant adverse impact on our
business or results of operations. In addition, some of our sales and expenses
are frequently denominated in local currencies which can be affected by
fluctuations in currency exchange rates in relation to the U.S. dollar.
Although we have taken measures to mitigate our exchange rate risks, no
assurance can be given that these measures will eliminate or substantially
reduce foreign exchange risks. For example, though our 1998 sales to Southeast
Asia and to South America were only a small part of our total sales
(approximately 2% and 3%, respectively), recent economic and political turmoil
in those areas did nevertheless have an effect on our ability to achieve sales
levels in those areas that are comparable to those achieved in prior years.
Firearm Ammunition Regulation--Regulation of firearm ammunition could
restrict our manufacture and sale of ammunition or decrease demand for
ammunition.
Bills have been introduced in Congress in the past several years that would
restrict or result in decreased levels of manufacturing and sales of handgun
ammunition, including bills to regulate or prohibit the manufacture,
importation and sale of some ammunition or to impose increased or new taxes on
handgun ammunition. If enacted, these bills would restrict us from
manufacturing or selling some types of ammunition or result in increased
ammunition prices discouraging consumers from purchasing our handgun
ammunition. In addition, some states have enacted, and others are considering,
legislation restricting or prohibiting the ownership, use or sale of some
categories of firearms and ammunition. Regulatory proposals, even if never
enacted, may affect firearms, and consequently, ammunition sales as a result
of consumer perceptions.
Controlling Stockholder--Stockholders other than Lehman Brothers Merchant
Banking Partners have little or no influence.
Lehman Brothers Merchant Banking Partners owns approximately 85.3% of our
outstanding shares. Lehman Brothers Merchant Banking Partners has the power to
control our direction and policies, the election of all of our directors and
the outcome of any matter requiring stockholder approval, including adopting
amendments to our certificate of incorporation and approving mergers or sales
of all or substantially all of our assets. The directors elected by Lehman
Brothers Merchant Banking Partners have the authority to make decisions
affecting the appointment of our new management and capital structure,
including the issuance of additional capital stock, the implementation of
stock repurchase programs and the declaration of dividends. Stockholders other
than Lehman Brothers Merchant Banking Partners have little or no influence on
decisions regarding such matters.
In addition, the existence of a controlling stockholder of us may have the
effect of making it virtually impossible for a third party to acquire, or of
discouraging a third party from seeking to acquire, us without the consent of
Lehman Brothers Merchant Banking Partners. A third party would be required to
negotiate any such transaction with Lehman Brothers Merchant Banking Partners
and the interests of such persons may be different from the interests of our
other stockholders.
Year 2000--Our Year 2000 compliance efforts may require substantial resources
and failure by us or certain third parties to be Year 2000 compliant poses
certain risks.
We recognize that we, like all other businesses, are at risk if key
suppliers in utilities, communications, transportation, banking and government
are not ready for the year 2000. It is also possible that our computer,
software application, internal accounting, customer billing and other business
systems, working either alone or in conjunction with those of third parties
with whom we do business, will not accept input of, store, manipulate and
output dates in the year 2000 or after without error. If any of this were to
happen, we may suffer business interruptions or shutdown, reputational harm or
legal liability and, as a result, material financial loss.
18
Competition--Competition may adversely affect our business, operating results
or financial condition.
Most of the markets in which we operate are competitive. We believe that
design features, product quality, customer service and price are the principal
factors considered by customers in each of our business segments. Some of our
competitors may have greater financial resources, lower costs, superior
technology or more favorable operating conditions than we do. There can be no
assurance that we will be able to compete successfully with our existing or any
new competitors or that competitive pressures that we face will not materially
and adversely affect our business, operating results or financial condition.
Environmental Liabilities--We face potential exposure to environmental
liabilities.
We are subject to various U.S. and foreign environmental laws and
regulations relating to the protection of the environment, including those
governing discharges of pollutants into the air and water, the management and
disposal of hazardous substances and the cleanup of contaminated sites.
Violations of these laws could result in the assessment of significant civil or
criminal penalties, claims by third parties for personal injury and property
damage, requirements to investigate and remediate contamination and the
imposition of natural resource damages. Furthermore, under certain
environmental laws, current and former owners and operators of contaminated
property or parties who sent waste to the site can be held liable for cleanup,
regardless of fault.
Future events, such as new information concerning past releases of hazardous
substances, changes in existing environmental laws or their interpretation, and
more rigorous enforcement by regulatory authorities, may require additional
expenditures to modify operations, install pollution control equipment, cleanup
contaminated sites or curtail our operations. These expenditures could have a
material adverse effect on our business, financial condition and results of
operations. See "Business--Environmental Matters" and "Business--Legal
Proceedings."
Factors Relating to the Notes and the Exchange Offer
Failure to Exchange Your Old Notes--If you fail to exchange your old notes,
they will continue to be restricted securities and may become less liquid.
Old notes which you do not tender or we do not accept will, following the
exchange offer, continue to be restricted securities and you may not offer or
sell them except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act of 1933 and applicable state securities law. We will
issue new notes in exchange for the old notes pursuant to the exchange offer
only following the satisfaction of the procedures and conditions set forth in
"The Exchange Offer--Procedures for Tendering." Such procedures and conditions
include timely receipt by the exchange agent of such old notes and of a
properly completed and duly executed letter of transmittal.
Because we anticipate that most holders of old notes will elect to exchange
such old notes, we expect that the liquidity of the market for any old notes
remaining after the completion of the exchange offer may be substantially
limited. Any old notes tendered and exchanged in the exchange offer will reduce
the aggregate principal amount of the old notes outstanding. Following the
exchange offer, if you did not tender your old notes you generally will not
have any further registration rights, and such old notes will continue to be
subject to certain transfer restrictions. Accordingly, the liquidity of the
market for such old notes could be adversely affected. The old notes are
currently eligible for sale pursuant to Rule 144A and Regulation S through the
Private Offerings, Resale and Trading through Automated Linkages market of the
National Association of Securities Dealers, Inc.
19
Subordination--Your right to receive payment on the notes is subordinated to
Blount's senior debt. Further, the guarantees of the notes are subordinated
and junior to all the guarantors' existing and future obligations and the new
credit facilities. The majority of our subsidiaries' assets and capital stock
is pledged to secure obligations under the new credit facilities and the 7.0%
notes.
The notes and the guarantees of the notes will not be secured by any assets
and will rank behind all of Blount's and the guarantors' existing secured
indebtedness and senior debt, including the new credit facilities and Blount's
7.0% notes. With respect to any future debt of Blount or the guarantors, the
notes and the guarantees of the notes will rank equally with any senior
subordinated indebtedness of Blount or the guarantors and will be subordinated
to all secured indebtedness and senior debt of Blount or the guarantors. In the
event of a bankruptcy, liquidation, receivership, administration or
reorganization or similar proceeding relating to Blount or any of the
guarantors, holders of the notes will participate with all other holders of
Blount's and the guarantors' indebtedness in the assets remaining after Blount
and the guarantors have paid all of the obligations under Blount's and any of
its guarantors' senior debt and to certain other statutorily preferred
creditors. In any of these cases, those assets may be insufficient to pay all
of Blount's or its guarantors' creditors and holders of the notes are likely to
receive less, ratably, than the lenders under the new credit facilities and
7.0% notes. See "Description of Certain Indebtedness."
The new credit facilities are secured by liens on all of the outstanding
shares of capital stock and intercompany debt of our direct and indirect
domestic subsidiaries (and on 65% of the outstanding shares of certain of
Blount's first-tier foreign subsidiaries) and the inventory, accounts
receivable and other major assets of Blount International, Blount and its
domestic subsidiaries. The holders of Blount's 7.0% notes share equally and
ratably with the lenders under the new credit facilities in the liens on
certain of our assets. Therefore, the lenders under the new credit facilities
and the holders of the 7.0% notes, and the holders of any other secured debt
that Blount or its subsidiaries may incur in the future, will have claims with
respect to these assets that have priority over the claims of holders of the
notes. All payments on the notes and the guarantees will be blocked in the
event of a payment default under the new credit facilities, the 7% notes and
any other designated senior debt as that term is defined in the notes
indenture, and may be blocked for up to 179 consecutive days in the event of
certain non-payment defaults under the new credit facilities, the 7% notes and
any other designated senior debt. In addition, upon any distribution to
Blount's creditors or the creditors of the guarantors in a bankruptcy,
liquidation, receivership, administration or reorganization or similar
proceeding relating to Blount or the guarantors of their property, the lenders
under the new credit facilities and the holders of Blount's 7.0% notes will be
entitled to be paid in full in cash before any payment may be made with respect
to the notes or the guarantees. See "Description of Certain Indebtedness."
The new notes and the guarantees are subordinated to approximately $545.0
million of senior debt, including approximately $395.0 million of outstanding
borrowings under the new credit facilities and $150.0 million under Blount's
7.0% notes. The new notes will rank pari passu with any old notes remaining
outstanding after the exchange offer.
Holding Company Structure--Our holding company structure may limit your
recourse to the assets of Blount and the guarantors.
Substantially all of our operating assets are held in Blount and its
subsidiaries and Blount must rely principally on cash generated from the
operations of certain subsidiaries to pay the principal of and interest on the
new notes. Your right as a holder of the notes to participate in the assets of
any non-guarantor subsidiary upon its liquidation or reorganization will be
effectively junior to the claims of that non-guarantor subsidiary's own
creditors whether or not their claims are secured by liens on those assets.
While we and all of Blount's existing domestic subsidiaries will guarantee
the notes, none of Blount's existing foreign subsidiaries will guarantee the
notes. We will not permit any of our non-guarantor restricted subsidiaries to
guarantee or pledge any assets to secure the payment of any credit facility of
Blount International or any restricted subsidiary of Blount International
unless that restricted subsidiary is a guarantor of the notes or that
restricted subsidiary becomes a guarantor. Any existing or future non-guarantor
subsidiary of Blount International that we properly designate as an
unrestricted subsidiary or a receivables subsidiary will not guarantee the
notes.
20
Assuming we had completed the offering of the old notes on September 30,
1999, the old notes are effectively junior to approximately $15.1 million of
indebtedness and other liabilities (including trade payables) of these non-
guarantor subsidiaries. Blount's existing non-guarantor subsidiaries generated
approximately 21% of our consolidated sales in the nine-month period ended
September 30, 1999 and held approximately 10% of our consolidated assets as of
September 30, 1999. See "Business--Company Strategy" and "Description of
Notes."
Voidable Guarantees--Federal and state statutes permit courts, under specific
circumstances, to void guarantees and require the return of payments received
from guarantors.
Under the U.S. Bankruptcy Code and comparable provisions of state fraudulent
transfer laws, a court has the power to void a guarantee, or to subordinate
claims in respect of a guarantee to all other debts of the guarantor, if, among
other things, at the time the guarantor incurred the indebtedness evidenced by
its guarantee, it received less than reasonably equivalent value or fair
consideration for the incurrence of the guarantee, and either:
. was insolvent or rendered insolvent by reason of that incurrence; or
. was engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay as those debts mature.
In addition, the court may void any payment by that guarantor pursuant to
its guarantee and require the return of that payment to the guarantor or to a
fund for the benefit of the creditors of the guarantor.
The measures of insolvency for these purposes will vary depending upon the
law applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
. the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts as they become due.
On the basis of our historical financial results, recent operating history
and other factors, we believe that we and each of Blount's subsidiaries that
has guaranteed the notes, after giving effect to that guarantee, will not be
insolvent, will not have unreasonably small capital for the business in which
we or it is engaged and will not have incurred debts beyond its ability to pay
as those debts mature. However, we cannot assure you of the particular standard
that might be applied by a court in making its determinations or that a court
would agree with our conclusions in this regard.
Change of Control--Blount may not be able to purchase your notes upon a change
of control.
Upon the occurrence of specified change of control events as set forth in
the notes indenture, Blount is required to offer to purchase each holder's
notes at a price of 101% of their principal amount plus accrued and unpaid
interest and liquidated damages, if any, to the date of purchase. However,
Blount may not have sufficient financial resources to purchase all of the notes
that holders may tender to Blount upon a change of control. The occurrence of a
change of control would also constitute an event of default under the new
credit facilities. The new credit facilities will also prohibit any change of
control related purchase, in which event Blount would be in default on the
notes. In addition, important corporate events, such as leveraged
recapitalizations that would increase the level of Blount's indebtedness, would
not constitute a "change of control" under the terms of the notes indenture.
See "Description of Notes--Repurchase of the Option of Holders--Change of
Control" and "Description of Certain Indebtedness--New Credit Facilities."
21
Liquidity--Loss of liquidity may make it difficult for you to sell your new
notes and could result in increased volatility of market prices.
There is no established trading market for the new notes and we cannot
assure you that an active or liquid trading market will develop for them. The
liquidity of any market for the new notes will depend upon the number of
holders of the new notes, our own financial performance, the market for similar
securities, the interest of securities dealers in making a market in the new
notes and other factors.
Historically, the market for high-yield debt securities, such as the new
notes, has been subject to disruptions that have caused substantial volatility
in the prices of those securities. The trading price of the new notes also
could fluctuate in response to such factors as period-to-period variations in
our operating results, developments in the manufacturing industry in general
and the outdoor products, sporting equipment, and industrial and power
equipment industries in particular, and changes in securities analysts'
recommendations regarding our securities.
22
USE OF PROCEEDS
Blount will not receive any proceeds from the exchange offer.
CAPITALIZATION
The following table sets forth as of September 30, 1999, our actual
capitalization as adjusted to give effect to the recapitalization transactions.
The table should be read in conjunction with the "Pro Forma Consolidated
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
As of September 30, 1999
------------------------
Actual
------
(dollars in millions)
New Debt
New Credit Facilities
Revolving Credit Facility (1)...................... $ --
Term Loan Facilities............................... 395.0
13% Senior Subordinated Notes due 2009............. 325.0
Existing Debt
7% Senior Notes due 2005(2).......................... 148.7
Other Debt (3)....................................... 11.2
-------
Total Debt....................................... 879.9
Total Stockholders' Equity (Deficit)............. (326.4)
-------
Total Capitalization............................. $ 553.5
=======
- --------
(1) The revolving credit facility has availability of up to $100.0 million,
none of which was drawn at closing. Letters of credit issued under the
revolving credit facility were less than $11.5 million at closing, which
reduced the availability under the revolving credit facility by that
amount.
(2) Amount shown is net of original issue discount.
(3) Other debt is comprised of certain industrial development revenue bonds,
notes payable and lease purchase obligations of $11.2 million (which equals
$7.9 million when netted against $3.3 million of restricted cash).
23
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following pages set forth the unaudited pro forma condensed consolidated
statements of income of Blount International which have been derived by the
application of pro forma adjustments to Blount International's historical
audited and unaudited consolidated statements of income included elsewhere
herein. The pro forma statements of income have been prepared giving effect to
the recapitalization transactions, accounting for them as a recapitalization
under generally accepted accounting principles and giving effect to the other
adjustments described in the notes accompanying these pro forma statements of
income. Accordingly, the historical basis of Blount International's assets and
liabilities has not been impacted by the recapitalization transactions.
The pro forma condensed consolidated statements of income give effect to the
recapitalization transactions as if such transactions were completed as of
January 1, 1998. The pro forma condensed consolidated financial data do not
purport to represent what Blount International's results of operations would
actually have been had the recapitalization transactions in fact occurred on
such dates or to project Blount International's result of operations for any
future period or at any future date. All of the pro forma adjustments are
described more fully in the accompanying notes. The pro forma adjustments are
based upon preliminary estimates and certain assumptions that we believe are
reasonable in the circumstances. In our opinion, all adjustments have been made
that are necessary to present fairly the pro forma data.
You should read this data in conjunction with Blount International's
historical financial statements and the notes to those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
24
BLOUNT INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(Dollars in millions, except per share data)
Pro Forma
-------------------------
As
Historical Adjustments(1) Adjusted
---------- -------------- ----------
Sales................................... $ 831.9 $ 831.9
Cost of sales........................... 573.6 573.6
---------- ----------
Gross profit............................ 258.3 258.3
Selling, general and administrative
expenses............................... 143.7 $ (1.5)(2) 142.2
Infrequent or non-recurring items:
Strategic review costs (merger and
related expenses).................... 0.3 (0.3)(2) 0.0
Plant closing expenses and
organizational consolidation costs .. 0.6 0.6
---------- ------ ----------
Income from operations.................. 113.7 1.8 115.5
Interest expense........................ (14.3) (82.6)(3) (96.9)
Interest income......................... 2.5 (2.5)(3) 0.0
Other income, net....................... 0.3 0.3
---------- ------ ----------
Income before income taxes and
extraordinary loss..................... 102.2 (83.3) 18.9
Provision for income taxes.............. 38.9 (31.7)(4) 7.2
---------- ------ ----------
Income before extraordinary loss........ $ 63.3 $(51.6) $ 11.7
========== ====== ==========
Earnings per share before extraordinary
loss:
Basic................................. $ .85 $ .38
========== ==========
Diluted............................... $ .82 $ .38
========== ==========
Shares for EPS computations:
Basic EPS--Weighted average shares
outstanding.......................... 74,743,294 30,795,984
Dilutive effect of stock options...... 2,044,420
---------- ----------
Diluted EPS........................... 76,787,714 30,795,984
========== ==========
EBITDA(5)............................... $ 144.0 $ 1.8 $ 145.8
========== ====== ==========
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income.
25
BLOUNT INTERNATIONAL
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in millions, except per share data)
Pro Forma
--------------------------
As
Historical Adjustments(1) Adjusted
---------- -------------- ----------
Sales................................... $ 587.9 $ 587.9
Cost of sales........................... 419.4 419.4
---------- ----------
Gross profit............................ 168.5 168.5
Selling, general and administrative
expenses............................... 100.5 $ (0.8)(2) 99.7
Infrequent or non-recurring items:
Strategic review costs (merger and
related expenses).................... 74.6 (71.5)(2) 3.1
Plant closing expenses and
organizational consolidation costs... 3.0 3.0
Non-cash charitable contributions..... 1.5 1.5
---------- ------- ----------
Income (loss) from operations........... (11.1) 72.3 61.2
Interest expense........................ (20.5) (52.1)(3) (72.6)
Interest income......................... 3.0 (3.0)(3) 0.0
Other expense, net...................... 0.3 0.3
---------- ------- ----------
Loss before income taxes................ (28.3) 17.2 (11.1)
Benefit for income taxes................ (3.4) 0.4 (4) (3.0)
---------- ------- ----------
Net loss................................ $ (24.9) $ 16.8 $ (8.1)
========== ======= ==========
Earnings (loss) per share:
Basic................................. $ (0.37) $ (0.26)
========== ==========
Diluted............................... $ (0.37) $ (0.26)
========== ==========
Shares for EPS computations:
Basic EPS--Weighted average shares
outstanding.......................... 67,315,172 30,795,984
Dilutive effect of stock options......
---------- ----------
Diluted EPS........................... 67,315,172 30,795,984
========== ==========
EBITDA(5)............................... $ 12.6 $ 72.3 $ 84.9
========== ======= ==========
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income.
26
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(1) A pretax amount of approximately $3.1 million representing severance of
certain corporate office employees and write-off of existing deferred financing
costs was reflected as an expense to Blount in the period the recapitalization
transactions were completed and has not been included as a pro forma adjustment
in the pro forma condensed consolidated statements of income.
(2) To recognize payroll cost savings from the elimination of the office of
the Chairman of Blount and eliminate non-recurring strategic review costs
(merger expenses) as follows:
Nine Months
Year Ended Ended
December 31, September 30,
------------ -------------
1998 1999
------------ -------------
(Dollars in millions)
Elimination of payroll costs of the office of the
Chairman of Blount................................ $(1.5) $ (0.8)
Strategic review costs (merger and related
expenses)......................................... (0.3) (71.5)
----- ------
Adjustments to income from operations and EBITDA... $(1.8) $(72.3)
===== ======
The duties of the Chairman previously performed by Mr. Blount have been
assumed by Mr. Panettiere who is now Chairman, President and Chief Executive
Officer. Management believes that no other amounts would have been affected as
a result of this change.
Strategic review costs (merger and related expenses) in a pre-tax amount of
approximately $71.5 million representing transaction fees and costs not
capitalized and the settlement of outstanding stock options were reflected as
an expense to Blount in the period the recapitalization transactions were
completed.
(3) Adjustments to reflect the estimated increase in interest expense and
reduction in interest income resulting from the recapitalization transactions.
Interest rates assumed on the new indebtedness were 8.63%, 9.38% and 13.0% on
the Tranche A senior term loans, Tranche B senior term loans and senior
subordinated notes, respectively.
The pro forma adjustments to interest expense for the periods presented
reflect the following items:
Nine Months
Year Ended Ended
December 31, September 30,
------------ -------------
1998 1999
------------ -------------
(Dollars in millions)
Interest expense on existing senior debt ($150
million at 7%).................................... $(10.5) $ (7.9)
Interest expense on new Tranche A senior term loans
($55 million at 8.63%)............................ (4.7) (3.6)
Interest expense on new Tranche B senior term loans
($340 million at 9.38%)........................... (31.9) (23.9)
Interest expense on new senior subordinated notes
($325 million at 13.0%)........................... (42.2) (31.7)
Amortization of new deferred financing costs....... (3.7) (2.8)
Other interest expense............................. (3.9) (2.7)
------ ------
Total pro forma interest expense................. (96.9) (72.6)
Less historical interest expense................... (14.3) (20.5)
------ ------
Pro Forma Adjustment............................... $(82.6) $(52.1)
====== ======
An increase in the assumed interest rates on the senior term loans of 0.125%
would increase the pro forma interest expense by $0.5 million for 1998, and
$0.4 million for the nine months ended September 30, 1999.
(4) Adjustments to reflect the estimated income tax effect at 38% of the pro
forma deductible adjustments described in notes (2) and (3).
27
(5) EBITDA represents income from continuing operations before income taxes
and extraordinary loss, interest expense, interest income, depreciation and
amortization (excluding amortization charged to interest expense). EBITDA
should not be considered as an alternative to, or more meaningful than, (i)
operating income, as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance or (ii) cash
flows from operating, financing, or investing activities, as determined in
accordance with generally accepted accounting principles, as a measure of
liquidity. EBITDA is presented as additional information because management
believes it is a useful indication of the ability to meet debt service and
because it is expected that certain debt covenants will utilize EBITDA to
measure compliance with such covenants. Because EBITDA is not calculated
identically by all companies, the presentation herein may not be comparable to
similarly titled measures of other companies.
The following table shows all adjustments between income (loss) before
extraordinary loss and EBITDA:
Reconciliation of Income (Loss) Before Extraordinary Loss to EBITDA
Nine Months
Year Ended Ended
December 31, September 30,
------------ -------------
1998 1999
------------ -------------
(Dollars in millions)
Income (loss) before extraordinary loss............ $ 63.3 $(24.9)
Provision (benefit) for income taxes............... 38.9 (3.4)
Depreciation and amortization (excluding
amortization charged to interest expense)......... 30.0 23.4
Interest expense................................... 14.3 20.5
Interest income.................................... (2.5) (3.0)
------ ------
EBITDA............................................. $144.0 $ 12.6
====== ======
28
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical condensed consolidated financial data of
Blount International for the years ended December 31, 1998 and 1997, for the
ten months ended December 31, 1996, and for the years ended the last day of
February of 1996 and 1995, are derived from the consolidated financial
statements of Blount International for such years and period which have been
audited by PricewaterhouseCoopers LLP, independent accountants. The selected
historical condensed consolidated financial data for the twelve months ended
December 31, 1996 and for the nine months ended September 30, 1999 and 1998 are
derived from unaudited consolidated financial statements of Blount
International and, in the opinion of management, reflect all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
data presented for such periods. The following information should be read in
conjunction with the consolidated financial statements and the notes thereto
and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, both of which are included elsewhere.
For the
12 months
ended
For the For the 12 months For the the last day
9 months ended ended 10 months of
September 30, December 31, ended February,
---------------- ----------------------- December 31, --------------
1999 1998 1998 1997 1996(1) 1996(1) 1996 1995
------- ------- ------ ------ ------- ------------ ------ ------
(Dollars in millions)
Statements of Income
Data:
Sales.................. $ 587.9 $ 631.4 $831.9 $716.9 $649.3 $526.7 $644.3 $588.4
Income (loss) from
operations............ (11.1) 84.0 113.7 99.4 92.4 75.0 90.5 76.6
Interest expense, net.. (20.5) (10.8) (11.8) (7.0) (7.5) (5.6) (7.4) (8.5)
Income (loss) from
continuing operations
before income taxes
and extraordinary
loss.................. (28.3) 75.2 102.2 93.7 85.4 69.6 83.7 67.4
Income (loss) from
continuing operations
before extraordinary
loss.................. (24.9) 46.7 63.3 59.1 53.8 44.0 53.6 40.7
Net income (loss)...... (24.9) 44.7 61.3 59.1 55.2 45.4 53.6 40.7
Other Data:
EBITDA(2).............. $ 12.6 $ 106.6 $144.0 $125.4 $115.8 $ 94.3 $112.9 $ 98.4
Net cash provided by
(used in) operating
activities............ (28.9) 43.8 88.9 80.3 87.5 83.2 40.2 34.7
Net cash used in
investing activities.. (15.1) (31.4) (37.2) (149.4) (19.3) (16.9) (50.8) (17.0)
Net cash provided by
(used in) financing
activities............ 29.2 (7.6) (11.4) 15.2 (22.0) (22.2) (18.2) (28.4)
Depreciation and
amortization(3)....... 24.8 23.0 30.9 25.0 23.3 19.2 22.2 22.9
Property, plant and
equipment additions
excluding
acquisitions.......... 12.7 15.4 21.7 18.7 21.3 18.7 18.7 9.7
Property, plant and
equipment additions
from acquisitions..... 0.0 0.0 0.0 59.8 0.0 0.0 0.6 5.0
Ratio of earnings to
fixed charges(4)...... 7.3x 7.4x 9.2x 8.1x 8.2x 7.4x 6.2x
Balance Sheet Data (at
end of applicable
period):
Working capital........ $ 233.1 $ 217.4 $232.2 $171.1 $166.2 $166.2 $136.2 $123.3
Total assets........... 735.5 667.4 668.8 637.8 533.8 533.8 546.5 520.8
Total debt............. 879.9 162.5 162.3 140.3 85.8 85.8 107.6 106.0
Stockholders' equity
(deficit)............. (326.4) 341.7 354.6 316.1 290.8 290.8 255.0 207.7
- --------
(1) In April 1996, Blount International changed its fiscal year from one ending
on the last day of February to one ending on December 31. Unaudited
financial data for the twelve months ended December 31, 1996 is presented
in the table above for comparative purposes.
(2) EBITDA represents income from continuing operations before income taxes and
extraordinary loss, interest expense, interest income, depreciation and
amortization (excluding amortization charged to interest expense). EBITDA
should not be considered as an alternative to, or more meaningful than, (a)
operating income, as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance or (b) cash
flows from operating, financing or investing activities, as determined in
accordance with generally accepted accounting principles, as a measure of
liquidity. EBITDA is presented as additional information because management
believes it is a useful indicator of the ability to meet debt service.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to similarly titled measures of
other companies.
29
The following table shows all adjustments between income (loss) from
continuing operations before extraordinary loss and EBITDA:
Reconciliation of Income (Loss) From Continuing Operations Before Extraordinary
Loss
to EBITDA
(amounts in millions)
For the
12 months
For the ended
9 months For the 12 months the last day
ended ended For the of
September 30, December 31, 10 months February,
-------------- ----------------------- ended -------------
1999 1998 1998 1997 1996(1) 12/31/96(1) 1996 1995
------ ------ ------ ------ ------- ----------- ------ -----
Income (loss) from
continuing operations
before extraordinary
loss................... $(24.9) $ 46.7 $ 63.3 $ 59.1 $ 53.8 $44.0 $ 53.6 $40.7
Provision (benefit) for
income taxes........... (3.4) 28.5 38.9 34.6 31.6 25.6 30.1 26.7
Depreciation and
amortization (excluding
amortization charged to
interest expense)...... 23.4 22.3 30.0 24.7 22.9 19.1 21.8 22.5
Interest expense........ 20.5 10.8 14.3 9.5 9.9 7.9 10.8 11.1
Interest income......... (3.0) (1.7) (2.5) (2.5) (2.4) (2.3) (3.4) (2.6)
------ ------ ------ ------ ------ ----- ------ -----
EBITDA.................. $ 12.6 $106.6 $144.0 $125.4 $115.8 $94.3 $112.9 $98.4
====== ====== ====== ====== ====== ===== ====== =====
(3) Includes amortization of deferred financing fees and original issue
discount.
(4) Coverage of fixed charges is determined by dividing income from continuing
operations before income taxes and extraordinary loss, interest expense,
debt expense amortization, and the interest portion of rental expense
deemed representative of the interest factor by the sum of interest
expense, capitalized interest, debt expense amortization and the portion of
rental expense deemed representative of the interest factor. For the nine
months ended September 30, 1999, earnings available for fixed charges,
after $71.5 million of expenses related to the recapitalization, were
inadequate to cover fixed charges by $28.3 million.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
financial statements included elsewhere in this prospectus.
General
We are an international industrial company operating in three business
segments: Outdoor Products, Sporting Equipment, and Industrial and Power
Equipment. These represent three distinct businesses, with no significant
intercompany sales between the three businesses. The table below presents our
operating results by segment.
Blount International Operating Results By Segment
(Dollars in millions)
For the 12 months
For the 9 months ended ended
September 30, December 31,
------------------------ ----------------------
1999 1998 1998 1997 1996
----------- ----------- ------ ------ ------
Sales:
Outdoor Products............ $ 243.2 $ 236.2 $315.4 $319.3 $292.7
Sporting Equipment.......... 240.0 217.3 286.7 158.5 147.1
Industrial and Power
Equipment.................. 104.7 177.9 229.8 239.1 209.5
----------- ----------- ------ ------ ------
Total..................... $ 587.9 $ 631.4 $831.9 $716.9 $649.3
=========== =========== ====== ====== ======
Operating Income (loss):
Outdoor Products............ $ 53.6 $ 50.6 $ 68.4 $ 67.1 $ 61.4
Sporting Equipment.......... 28.7 24.3 36.1 18.1 19.8
Industrial and Power
Equipment.................. (5.7) 24.1 27.9 32.7 31.9
----------- ----------- ------ ------ ------
Total from Segments....... 76.6 99.0 132.4 117.9 113.1
Corporate Office Expenses... (13.1) (14.9) (18.7) (18.5) (20.7)
Merger and Related
Expenses................... (74.6) (0.1)
----------- ----------- ------ ------ ------
Total..................... $ (11.1) $ 84.0 $113.7 $ 99.4 $ 92.4
=========== =========== ====== ====== ======
We have made three acquisitions since January 1997, as part of our strategy to
expand profitably our leadership positions in our three business areas:
. In September 1998, we purchased certain operating assets of the Redfield
lines consisting of inventory (primarily rifle scopes, mounting systems
and related items), machinery and equipment, trademarks, sales
literature and patents for approximately $3.0 million. These Redfield
products, as part of our Sporting Equipment segment, contributed $0.4
million to our fiscal 1998 sales.
. In November 1997, we acquired Federal Cartridge Company (formerly
Federal-Hoffman, Inc.), a manufacturer of shotshell, centerfire and
rimfire cartridges, ammunition components and clay targets. The purchase
price was approximately $129.0 million, including a post-closing
adjustment and acquisition expenses. Federal, as a part of the Sporting
Equipment segment, contributed $14.5 million to our fiscal 1997 sales
and $145.1 million to our fiscal 1998 sales.
. In January 1997, we acquired the outstanding capital stock of the
Frederick Manufacturing Corporation and Orbex, Inc. for approximately
$19.0 million and retired existing debt of the acquired companies in the
amount of $5.8 million. The principal products of the acquired companies
are accessories for lawn mowers and sporting goods. Orbex, Inc. was
subsequently merged into Frederick Manufacturing Corporation, and, on a
combined basis, they contributed $21.9 million to our fiscal 1997 sales
and $24.0 million to our fiscal 1998 sales. These businesses have been
integrated into our Outdoor Products segment.
31
Operating Results
Nine Months Ended September 30, 1999 (Unaudited) Compared to the Comparable
Period of the Prior Year (Unaudited)
Sales for the three months and nine months ended September 30, 1999, were
$219.6 million and $587.9 million compared to $226.6 million and $631.4
million for the comparable periods of the prior year. Net loss for the third
quarter and first nine months of 1999 was $42.6 million and $24.9 million
compared to net income of $17.2 million and $44.7 million for the comparable
periods of the prior year. Last year's third quarter and first nine months
included an extraordinary loss on repurchase of debt of $2.0 million. These
results reflect a significant reduction in sales and operating income from the
Industrial and Power Equipment segment due to adverse market conditions,
manufacturing problems at the Prentice facility which adversely affected the
ability to ship products, and costs associated with the plant consolidation
and realignment program, and improved results from the Sporting Equipment
segment and the Outdoor Products segment. Corporate expenses include expenses
of $72.4 million and $74.6 million during the third quarter and first nine
months of 1999 associated with the merger and a donation of art with a book
value of $1.5 million in the first quarter. Excluding the expenses associated
with the merger and the donation of art, selling, general and administrative
expenses decreased by $1.2 million and $6.7 million during the third quarter
and first nine months of 1999, respectively, as compared to the same periods
in the prior year. These decreases reflect cost reduction efforts at each
segment and the corporate office. Higher interest expense during the three
months and nine months ended September 30, 1999, reflects higher long-term
debt levels during the current year resulting from the merger. Our effective
income tax rate was lower by 26.1% in the first nine months of 1999 as a
result of the donation of art and the non-deductible portion of the expenses
associated with the sale of Blount International. The principal reasons for
these results and the status of our financial condition are set forth below
and should be read in conjunction with our Annual Report on Form 10-K for the
year ended December 31, 1998.
Sales for the Outdoor Products segment for the third quarter and first nine
months of 1999 were $82.7 million and $243.2 million compared to $77.8 million
and $236.2 million during the third quarter and first nine months of 1998.
Operating income was $17.9 million and $53.6 million during the third quarter
and first nine months of 1999 compared to $17.4 million and $50.6 million in
the comparable periods of the prior year. Sales reflect a higher volume of
sales of lawn mowers and accessories and from flat to slightly lower sales of
other product lines as indicated in the following table (in millions):
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
% Increase % Increase
(Decrease) (Decrease)
1999 1998 in 1999 1999 1998 in 1999
----- ----- ---------- ------ ------ ----------
Chain saw components........... $53.2 $50.6 5.1% $148.1 $148.3 (0.1)%
Lawn mowers and accessories.... 20.0 17.2 16.3 65.3 56.8 15.0
Other.......................... 9.5 10.0 (5.0) 29.8 31.1 (4.2)
----- ----- ------ ------
Total segment sales.......... $82.7 $77.8 6.3% $243.2 $236.2 3.0%
===== ===== ====== ======
The improvement in operating income is primarily due to the higher sales of
lawn mowers and accessories, $2.7 million and $1.8 million higher sales to
Southeast Asia and Europe, respectively, during the third quarter of 1999 than
the comparable period of the prior year, and the positive effect of favorable
exchange rates of approximately $0.5 million and $2.1 million during the third
quarter and first nine months of 1999, respectively.
Sales for the Sporting Equipment segment were up significantly to $98.5
million and $240.0 million in the third quarter and first nine months of 1999
from $94.1 million and $217.3 million in the prior year. Operating income
decreased to $13.6 million in the current year's third quarter from $14.9
million for the same period during the prior year. For the first nine months
of the current year, operating income improved to $28.7 million from $24.3
million for the same period of the prior year. These results reflect a higher
volume, particularly for ammunition and related components and other products,
partially offset by competitive pricing actions required
32
during the quarter in one of this segment's products. Sales by the segment's
principal product groups were as follows (in millions):
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
% Increase % Increase
1999 1998 in 1999 1999 1998 in 1999
----- ----- ---------- ------ ------ ----------
Ammunition and related
products..................... $71.6 $70.5 1.6% $176.6 $164.4 7.4%
Sports optical products....... 13.3 13.6 (2.2) 30.0 26.6 12.8
Other......................... 13.6 10.0 36.0 33.4 26.3 27.0
----- ----- ------ ------
Total segment sales......... $98.5 $94.1 4.7% $240.0 $217.3 10.4%
===== ===== ====== ======
Additionally, in the second half of 1998, the Sporting Equipment segment
completed certain cost reduction activities by consolidating its raw materials
purchasing and sales and marketing organizations, transferring certain
production to lower cost facilities and eliminating certain outsourcing. The
estimated annual savings from these efforts are approximately $3.7 million,
approximately $2.6 million of which was realized in operating income in the
first nine months of 1999.
Our Industrial and Power Equipment segment is a cyclical, capital goods
business whose results are closely linked to the strength of the forestry
industry in general. A key indicator of this segment's market is the price of
Northern Bleached Softwood Kraft, or pulp, which declined 17% from an average
of $598 per metric ton in the fourth quarter of 1997 to an average of $498 per
metric ton in the first nine months of 1999 ($460 per metric ton in the first
quarter, $500 per metric ton in the second quarter, and $533 per metric ton in
the third quarter), resulting in the depressed market conditions characterized
by sales declines of over 50% in our most important market (the southeastern
United States) and the need to offer discounts in response to extremely
aggressive competition for available sales. Operating results for the
Industrial and Power Equipment segment were adversely affected by these poor
market conditions in the third quarter and first nine months of 1999. Sales by
the segment's principal product groups were as follows (in millions):
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
% Decrease % Decrease
1999 1998 in 1999 1999 1998 in 1999
----- ----- ---------- ------ ------ ----------
Timber harvesting and loading
equipment.................... $31.6 $46.7 (32.3)% $ 85.1 $155.4 (45.2)%
Gear components and rotation
bearings..................... 6.8 8.0 (15.0) 19.6 22.5 (12.9)
----- ----- ------ ------
Total segment sales......... $38.4 $54.7 (29.8)% $104.7 $177.9 (41.1)%
===== ===== ====== ======
This segment incurred an operating loss of $0.7 million and $5.7 million during
the third quarter and first nine months of 1999, respectively, compared to
operating income of $5.6 million and $24.1 million during the comparable
periods of 1998, primarily due to the sharply reduced demand and manufacturing
problems at the Prentice facility which adversely impacted our ability to ship
products in the quarter and increased costs. In response to the weak market
conditions, we have implemented a program of production consolidation and
realignments in this segment to lower costs and improve productivity. Manpower
has been reduced by 21% from a year earlier. One manufacturing facility was
closed during the first six months of 1999 with its production shifted to other
plants. Another small facility was closed during the third quarter of 1999 with
its production outsourced. Costs of $1.0 million and $3.0 million related to
these plant closings were charged to operations during the third quarter and
first nine months of 1999, respectively. Management anticipates an annual cost
savings of approximately $3.7 million beginning in the third quarter of 1999 as
a result of these actions. With recent pulp price increases, low pulp inventory
levels, increased demand for pulp and pulp products from the recovering
economies of Southeast Asia, and an improved order backlog, management is
cautiously optimistic of an improvement in the near future in this segment,
although the extent and timing of any improvement is highly uncertain. If the
current slowdown continues, it would be unlikely that this segment could
achieve historical levels of sales and profitability.
33
Our total backlog increased to $100.8 million at September 30, 1999, from
$61.3 million at December 31, 1998, and $73.8 million at September 30, 1998, as
follows (in millions):
Backlog
-------------------------------------------------------
September 30, 1999 December 31, 1998 September 30, 1998
------------------ ----------------- ------------------
Outdoor Products........ $ 41.4 $30.2 $30.9
Sporting Equipment...... 24.9 15.1 16.7
Industrial and Power
Equipment.............. 34.5 16.0 26.2
------ ----- -----
$100.8 $61.3 $73.8
====== ===== =====
Our management continuously reviews for potential cost reductions. In
addition to cost savings efforts commented on elsewhere within this section,
studies are underway to evaluate distribution processes and distribution
facility needs. These studies are expected to be completed in late 1999. While
no assurance can be given that savings could be achieved until these studies
are completed, management estimates that potential annual savings will range
from $2 million to $4 million with implementation expenses estimated to be $1.5
million to $2.5 million. Actual results could vary significantly from these
estimates.
Twelve Months Ended December 31, 1998 (Audited) Compared to Twelve Months
Ended December 31, 1997 (Audited)
Despite economic problems in some markets, we achieved record results in
1998. Sales in 1998 were $831.9 million compared to $716.9 million in 1997.
Income before extraordinary loss was $63.3 million in 1998 compared to $59.1
million in 1997. Net income of $61.3 million for 1998 reflects a net
extraordinary loss of $2.0 million on the redemption of long-term debt. The
higher sales and improved operating results in 1998 are primarily due to the
full year contribution to the Sporting Equipment segment by Federal Cartridge
Company which was acquired during the fourth quarter of 1997.
Selling, general and administrative expenses were 17% of sales in 1998
compared to 19% in 1997. Total selling, general and administrative expenses
increased by $10.0 million in 1998 primarily due to Federal being included in
operating results for the entire year. Higher interest expense in 1998 reflects
higher debt levels during the current year, principally due to the Federal
acquisition.
Total backlog was $61.3 million at December 31, 1998, compared to $117.9
million at December 31, 1997. The current year backlog is lower at each of our
operating segments with the largest decrease at the Industrial and Power
Equipment segment, principally reflecting reduced demand for timber harvesting
and industrial equipment. We expect that 1999 will be a challenging year as,
for the near term, poor economic conditions in Southeast Asia and the Far East
will likely continue to affect the Outdoor Products segment and low pulp prices
and high mill inventories will impact the demand for the Industrial and Power
Equipment segment's timber harvesting equipment. The Industrial and Power
Equipment segment has implemented production and cost control measures to help
mitigate the effect of the reduction in demand. In 1999, the Sporting Equipment
segment should continue to benefit from the acquisition of Federal and related
consolidation and cost reduction activities.
Sales and operating income for the Outdoor Products segment for 1998 were
$315.4 million and $68.4 million, respectively, compared to $319.3 million and
$67.1 million during 1997. The operating results for this segment reflect a
decrease in sales and operating income of $10.0 million and $1.3 million,
respectively, at our Oregon Cutting Systems Division and higher sales and
operating income at Dixon Industries, Inc. Oregon's 1998 results reflect an
approximate $11.5 million sales decrease in Southeast Asia and the Far East,
primarily due to the economic problems in those areas, which has contributed to
an approximate 4% reduction in the sales volume of cutting chain and chain saw
guide bars, Oregon's principal products. Oregon has foreign manufacturing or
distribution operations in Canada, Europe, Brazil, Japan and Russia. We
estimate that foreign currency exchange rates in 1998, as compared to 1997,
provided a favorable impact on operating income of
34
approximately $1.5 million. During 1998, operating income from Brazil was $3.1
million compared to $2.6 million during 1997. Dixon's sales and operating
income improved in 1998 compared to the prior year due to higher volume and
more favorable weather conditions.
Sales and operating income for the Sporting Equipment segment were $286.7
million and $36.1 million, respectively, in 1998 compared to $158.5 million and
$18.1 million in 1997. The significant improvement in sales and operating
income reflect the sales and income added by Federal which was acquired during
the fourth quarter of 1997. Total sales and operating income at other Sporting
Equipment operations were flat in 1998 as compared to the prior year.
Sales and operating income for the Industrial and Power Equipment segment
were down to $229.8 million and $27.9 million, respectively, in 1998 from
$239.1 million and $32.7 million in 1997. The results for 1998 reflect reduced
demand for timber harvesting equipment resulting principally from sharply lower
pulp prices since mid-year and higher mill inventories, higher competitive
discounts and higher warranty costs. The operating results for this segment's
Gear Products, Inc. subsidiary improved slightly in 1998 compared to 1997.
Twelve Months Ended December 31, 1997 (Audited) Compared to Twelve Months
Ended December 31, 1996 (Unaudited)
In April 1996, we changed our fiscal year from one ending on the last day of
February to one ending on December 31. This discussion and analysis includes a
discussion of 1997 compared to the twelve-month period ended December 31, 1996
("1996").
Sales in 1997 were $716.9 million compared to $649.3 million in 1996. Income
from continuing operations improved to $59.1 million in 1997 from $53.8 million
during the prior year. Net income for 1996 included income of $1.4 million from
discontinued operations. The sales increase reflected higher sales in 1997 by
each operating segment, while the income increase resulted primarily from
improved performance by the Outdoor Products segment.
Selling, general and administrative expenses were 19% of sales in 1997
compared to 20% in 1996. Total selling, general and administrative expenses
increased by $4.6 million in 1997 principally due to the acquisitions of
Federal and Frederick Manufacturing Company and Orbex, Inc. See Note 4 of Notes
to Consolidated Financial Statements. Other income was higher in 1997 as a
result of gains on sales of securities.
Sales and operating income for the Outdoor Products segment for 1997 were
$319.3 million and $67.1 million, respectively, compared to $292.7 million and
$61.4 million during 1996. The operating results for this segment reflect an
increase in sales and operating income of $25.7 million and $7.2 million,
respectively, at Oregon and flat sales and lower operating income at Dixon.
Oregon's results reflect a 7% increase in the sales volume of cutting chain and
a 15% increase in the sales volume of chain saw guide bars, Oregon's two
principal products, partially offset by lower average selling prices, due to a
higher percentage of lower priced sales to original equipment manufacturers and
unfavorable exchange rates. Additionally, the acquisition of Frederick-Orbex
increased sales by 7.5% in 1997. Approximately 24% and 36% of Oregon's sales
and operating costs and expenses, respectively, were transacted in foreign
currencies in 1997. We estimate that unfavorable exchange rates in 1997, as
compared to 1996, reduced operating income by approximately $2.0 million.
During 1997, operating income from Brazil was $2.6 million compared to $0.3
million during 1996, principally as a result of improved economic conditions.
Dixon's operating results in 1997 compared to the prior year reflect the
effects of reduced volume and higher costs, partially offset by higher average
selling prices.
Sales for the Sporting Equipment segment were $158.5 million in 1997
compared to $147.1 million in 1996. Operating income was $18.1 million during
1997, compared to $19.8 million during 1996. Sales reflected a higher volume of
ammunition products sales and the contribution by Federal since acquisition in
November 1997, partially offset by a lower volume of sales of sports optics.
Operating income was lower in 1997 as lower
35
sports optics sales offset the effect of higher ammunition products sales.
Additionally, operating income for the prior year included the positive effect
of reduced environmental cost estimates of $1.9 million resulting from the
resolution of an environmental matter.
Sales and operating income for the Industrial and Power Equipment segment
were $239.1 million and $32.7 million, respectively, in 1997 compared to $209.5
million and $31.9 million in 1996. The higher sales during 1997 are principally
due to a higher volume of forestry equipment sold as a result of improved
market conditions and higher average selling prices. Operating income increased
by $0.8 million during 1997 as higher forestry equipment product and warranty
costs offset much of the effect of the sales increase. The operating results
for Gear continued to improve in 1997 as its sales and operating income
increased by 8% and 15%, respectively, primarily due to higher volume.
Financial Condition, Liquidity and Capital Resources
Historical
At September 30, 1999 we had senior notes outstanding in the principal
amount of $150.0 million which mature in 2005. We also had senior subordinated
notes outstanding in the principal amount of $325.0 million which mature in
2009 and senior term loans outstanding in the principal amount of $395.0
million which mature at various dates through 2006.
Cash balances at September 30, 1999, were $30.3 million compared to $45.1
million at December 31, 1998. Cash used in operating activities was $28.9
million in the first nine months of 1999 compared to cash provided by operating
activities of $43.8 million during the prior year's first nine months,
principally due to a net income decrease of $69.6 million. Working capital
increased to $233.1 million at September 30, 1999, compared to $232.2 million
at December 31, 1998. Accounts receivable increased by $49.4 million,
inventories by $3.3 million, notes payable and current maturities of long-term
debt by $22.7 million, accounts payable by $7.8 million, and accrued expenses
by $19.9 million. The higher inventories reflect increases of $4.8 million at
the Sporting Equipment segment resulting from a normal seasonal build-up in
anticipation of fourth quarter sales. The notes payable and current maturities
of long-term debt increase reflects $12.4 million of new term loans and $10.5
million of debt reclassified from long-term, principally industrial development
revenue bonds, which were redeemed on October 4, 1999. The accounts payable
increase reflects additional raw material purchases principally related to the
inventory increase. The increase in accrued expenses reflects the increased
interest on the additional debt and the balance of expenses associated with the
merger transaction. The accounts receivable increase reflects higher sales by
the Outdoor Products segment and Sporting Equipment segment as compared to the
fourth quarter of 1998 and longer terms used as a marketing tool by the
Sporting Equipment and Industrial and Power Equipment segments.
36
Accounts receivable at September 30, 1999, and December 31, 1998, and sales
by segment for the third quarter of 1999 compared to the fourth quarter of 1998
were as follows (in millions):
Increase
September 30, 1999 December 31, 1998 (Decrease)
------------------ ----------------- ---------
Accounts Receivable:
Outdoor Products............. $ 60.0 $ 56.7 $ 3.3
Sporting Equipment........... 85.0 41.5 43.5
Industrial and Power
Equipment................... 35.8 33.5 2.3
------ ------ -----
Total segment receivables.. $180.8 $131.7 $49.1
====== ====== =====
Three Months Ended
----------------------------------------------
Increase
September 30, 1999 December 31, 1998 (Decrease)
------------------ ----------------- ---------
Sales:
Outdoor Products............. $ 82.7 $ 79.2 $ 3.5
Sporting Equipment........... 98.5 69.5 29.0
Industrial and Power
Equipment................... 38.4 51.8 (13.4)
------ ------ -----
Total segment sales........ $219.6 $200.5 $19.1
====== ====== =====
Our Outdoor Products segment includes Oregon Cutting Systems, Frederick
Manufacturing and Dixon Industries. The higher sales by the Outdoor Products
segment are the principal reason for the increase in that segment's receivables
as compared to year-end. Because of the seasonal nature of the sporting
equipment business, the need to produce and ship efficiently in order to ensure
an adequate supply during peak sales periods and in response to competitor
programs, we offer extended payment terms within our Sporting Equipment segment
in advance of the fall hunting season. As a result, receivables tend to peak in
September and reach their low point in January. At September 30, 1999, extended
term receivables were $7.9 million greater than at December 31, 1998. In
addition, an unusually large payment ($4 million) due after December 31, 1998,
was received prior to December 31, 1998, from this segment's largest customer.
A similar advance payment was not received in the third quarter of 1999. The
remaining increase of approximately $31.6 million principally reflects the
increased sales in the third quarter of this year compared to the fourth
quarter of the prior year. The Industrial and Power Equipment segment sales
reflect the adverse market conditions described in "Operating Results".
Recently, this segment has begun to see improvement in its market as reflected
in the increased backlog of $24.9 million at September 30, 1999 compared to
$15.1 million at December 31, 1998. Sales increases at the end of the third
quarter are further evidence of this improvement. In response to the adverse
market conditions described in "--Nine Months Ended September 30, 1999
(Unaudited) Compared to the Comparable Period of the Prior Year," the
Industrial and Power Equipment segment began offering in the fourth quarter of
1998 payment terms of 90, 120 and, in some cases, 180 days to certain dealers
based on their financial strength. At September 30, 1999, there were
approximately $12.6 million in receivables with extended terms compared to
$14.5 million at December 31, 1998. Extended term receivables at September 30,
1999, represent 33% of third quarter 1999 sales while extended term receivables
at December 31, 1998, represent 28% of fourth quarter 1998 sales. The increased
sales at the end of the third quarter, slow collections and use of extended
terms have been the primary reasons for an increase in receivables of 7% since
year-end despite a 26% decrease in sales.
We have absorbed the increased receivables resulting from extended terms
through operating cash flows and, given the historically stronger second half
operating cash flows (in 1998, first half operating cash flows were $14.3
million and second half operating cash flows were $74.6 million), we expect
operating cash flows will be sufficient to cover any further increases until
market conditions in the Industrial and Power Equipment segment improve and
terms return to those normally extended. No material adverse effect on our
operations, liquidity or capital resources is expected as a result of the
extended terms.
37
Cash used in investing activities in the first nine months of 1999 was $15.1
million, reflecting principally purchases of property, plant and equipment of
$11.9 million. Cash provided by financing activities in the first nine months
of 1999 was $29.2 million, principally reflecting $697.4 million from the
issuance of senior subordinated notes and senior term loans, and capital
contribution of $417.5 million partially offset by the redemption of common
stock of $1,068.8 million, the payment of dividends of $7.8 million, and
payment of long-term debt of $7.7 million.
Following the Recapitalization Transactions
At September 30, 1999, as a result of the recapitalization transactions, we
had significant amounts of debt, with interest payments on the notes and
interest and principal payments under the new credit facilities representing
significant obligations for us. The notes require semi-annual interest payments
and the term loan facilities under the new credit facilities require payments
of principal commencing on approximately December 31, 1999. Interest on the
term loan facilities and amounts outstanding under the revolving credit
facility is payable in arrears according to varying interest periods. Our
remaining liquidity needs relate to working capital needs, capital expenditures
and potential acquisitions.
We intend to fund our working capital, capital expenditures and debt service
requirements through cash flows generated from operations and from the
revolving credit facility. The new credit facilities include two term loan
facilities in an aggregate principal amount of $400.0 million, comprised of a
$60.0 million Tranche A Term Loan and a $340.0 million Tranche B Term Loan, and
a $100.0 million revolving credit facility. The revolving credit facility has
an availability of up to $100.0 million, none of which was drawn at closing.
Letters of credit issued under the revolving credit facility were less than
$11.5 million at closing, which reduced the availability under the revolving
credit facility. The revolving credit facility will mature August 19, 2004. The
Tranche A Term Loan has a maturity of approximately five years, with quarterly
repayments that increase periodically from $2,000,000 beginning on December 31,
1999 to $3,750,000 by the maturity date, June 30, 2004. The Tranche B Term Loan
has a maturity of seven years, with quarterly repayments of $850,000 beginning
on December 31, 1999 until June 30, 2005 and then increasing to $80,000,000 on
September 30, 2005 until March 31, 2006, with a final payment of $80,450,000 on
the maturity date, June 30, 2006. We and all of Blount's domestic subsidiaries
guarantee Blount's obligations under the new credit facilities. Blount's
obligations and its domestic subsidiaries' guarantee obligations under the new
credit facilities are secured by a first priority security interest in
substantially all of their respective assets. Our guarantee obligations in
respect of the new credit facilities are secured by a pledge of all of Blount's
capital stock. The 7.0% notes share equally and ratably in certain of the
collateral securing the new credit facilities.
Management believes that cash generated from operations, together with
amounts under the revolving credit facility, will be sufficient to meet our
working capital, capital expenditure and other cash needs, including financing
for acquisitions, in the foreseeable future. There can be no assurance,
however, that this will be the case. We may also consider other options
available to us in connection with future liquidity needs.
Management expects to realize certain cost savings estimated to total
approximately $17.0 million within the first year following the closing of the
recapitalization. The following is a discussion of such estimated cost savings
as if they were achieved during the twelve months period ended September 30,
1999.
Elimination of certain corporate office expenses--We expect to generate $7.3
million of cost savings from the elimination of the Office of the Chairman and
the elimination of certain corporate functions. These savings exclude non-
recurring expenses estimated to be in the range of approximately $4.8-$5.7
million associated with the implementation of these cost savings programs and
which are expected to be incurred during the first year following the
recapitalization. The specific cost savings programs include the outsourcing of
certain benefit administrative activities, the outsourcing of the internal
audit department, the closing of a corporate administrative facility and the
discontinuing of certain charitable contributions. These programs began in
August 1999 and are expected to be completed in January 2000.
38
Facilities consolidation--We expect these cost savings will result from the
closing of two Industrial and Power Equipment manufacturing facilities, the
consolidation of this production within two existing facilities and the
outsourcing of hydraulic components. We began this program in March 1999, and
it was completed early in September 1999. Specifically, the closing of the
Spencer, Wisconsin plant will result in annual savings of $0.6 million, and the
transfer of CTR production from Union Grove, North Carolina to Zebulon, North
Carolina (FIED's headquarters) is expected to generate approximately $3.1
million per year in savings. In the case of the CTR plant closing, CTR's Sales
and Marketing staff was reduced from eight to two employees; its Financial
Accounting staff will drop from five to two; and its Engineering Staff will
fall from five to two. In addition, costs of approximately $1.0 million and
$3.0 million related to these plant closings were charged to operations during
the third quarter and first nine months of 1999, respectively.
Elimination of non-recurring costs--Artwork with a book value of $1.5
million was donated in the first quarter of 1999 resulting in a non-recurring
expense. In addition, non-recurring expenses of approximately $0.8 million for
Year 2000 compliance were incurred over the last twelve months for training and
external consultants.
Consolidations and production rationalizations--In the second half of 1998,
the Sporting Equipment segment completed certain cost reduction activities by
consolidating its raw materials purchasing and sales and marketing
organizations, transferring certain production to lower cost facilities and
eliminating certain outsourcing. The estimated annual savings from these
efforts are approximately $3.7 million, approximately $2.6 million of which was
realized in operating income in the first nine months of 1999.
Change guide bar raw material--During the second half of 1999, we changed
the raw material used in bar production while maintaining the quality of our
guide bars. This is expected to generate $1.0 million in annual cost savings.
Production of commercial lawn mowers internally--Until July 1999, we
outsourced the production of all of our commercial lawnmowers. We signed a
definitive agreement with our supplier in July 1999 which gave us the right to
manufacture certain zero turning radius lawn mowers. The switch to internal
production is expected to result in annual savings of $1.1 million.
Evaluation of distribution processes and distribution facility needs--
Studies are underway to evaluate distribution processes and distribution
facility needs. Management estimates that potential annual savings, ranging
from $2.0 million to $4.0 million with implementation expenses estimated to be
$1.5 million to $2.5 million, could be achieved.
The cost savings and operating improvements described above are based on our
estimates and assumptions that are inherently uncertain and are subject to
significant business, economic and competitive uncertainties and contingencies,
all of which are difficult to predict and many of which are beyond our control.
See "Risk Factors--Factors Relating to Our Company and the Recapitalization
Transactions--Cost Reductions."
Market Risk
We are exposed to market risk from changes in interest rates, foreign
currency exchange rates and commodity prices. We manage our exposure to these
market risks through regular operating and financing activities, and, when
deemed appropriate, through the use of derivatives. When utilized, derivatives
are used as risk management tools and not for trading purposes.
Interest Rate Risk: We manage our ratio of fixed to variable rate debt with
the objective of achieving a mix that management believes is appropriate.
Historically, we have, on occasion, entered into interest rate swap agreements
to exchange fixed and variable interest rates based on agreed upon notional
amounts and have entered into interest rate lock contracts to hedge the
interest rate of an anticipated debt issue. At December 31, 1998, no derivative
financial instruments were outstanding to hedge interest rate risk. Under the
new credit
39
facilities, within 180 days of the consummation of the recapitalization
transactions, Blount is required to obtain interest rate protection for at
least 33% of the term loan facilities for a period of not less than two years.
Foreign Currency Exchange Risk: Approximately 36% of OCSD's sales and 42% of
its operating costs and expenses were transacted in foreign currencies in 1998.
As a result, fluctuations in exchange rates impact the amount of OCSD's
reported sales and operating income. Historically, our principal exposures have
been related to local currency operating costs and expenses in Canada and local
currency sales in Europe (principally France and Germany). During the past
three years, we have not used derivatives to manage any significant foreign
currency exchange risk and, at December 31, 1998, no foreign currency exchange
derivatives were outstanding.
Commodity Price Risk: During 1998, we purchased approximately 10.9 million
pounds of brass for use in our Sporting Equipment operations. The price risk of
approximately 40% of these purchases was hedged through the use of copper and
zinc futures contracts. In the near future, we expect to decrease our use of
futures contracts to manage this price risk. An immediate hypothetical 10%
decrease in the futures prices of copper and zinc contracts outstanding at
December 31, 1998, would decrease their fair value by $0.3 million. In
addition, a large quantity of other metals (principally lead) were purchased by
Sporting Equipment operations in 1998. Derivatives were not used to manage this
price risk.
Impact of Year 2000 Issue
We have been evaluating our internal date-sensitive systems and equipment
for Year 2000 compliance. The assessment phase of the Year 2000 project
included both information technology equipment and non-information technology
equipment. Based on our assessment, we determined that it was necessary to
modify or replace a portion of our information systems and other equipment. As
of September 30, 1999, we have completed the modification or replacement and
testing of the critical software, hardware and equipment requiring remediation.
We believe that the above modifications and replacements should mitigate the
effect of the Year 2000 issue. However, if such modifications and replacements
fail to correct date-sensitive problems, the Year 2000 issue could have a
material impact on our operations by disrupting our ability to manufacture and
ship products, process financial transactions or engage in similar normal
business activities. We do not believe that the effect of the Year 2000 issue
on non-information technology systems is likely to have a material adverse
impact. Finally, we have reviewed our own products and believe that we have no
significant Year 2000 issues for those products.
The total estimated cost of the Year 2000 project, including system
upgrades, is approximately $5.4 million and is being funded by operating cash
flows. As of September 30, 1999, costs of $5.3 million had been incurred. Of
the total cost of the project, approximately $2.6 million is attributable to
new software and equipment, which is being capitalized. The remaining costs are
expensed as incurred.
With respect to third parties, we have identified and communicated with
third parties with which our systems interface or on which we rely to determine
the extent to which those companies are addressing their Year 2000 compliance.
We have developed a program for evaluating their readiness and assessing the
impact on us if they are not compliant on a timely basis, including
identification of alternate sources of materials and supplies where
appropriate. We initiated third party surveys in mid-1998 and of the
approximately 150 key third parties identified, approximately 70% are already
compliant and the remaining 30% have responded that they expect to be compliant
on a timely basis. We will continue to monitor Year 2000 readiness of key
suppliers and service providers through the end of the year. To date, we are
not aware of any problems that would materially impact results of our
operations, liquidity or capital resources.
Although we have not finalized our contingency plans for possible Year 2000
issues, we have completed initial communication with key third parties and non-
key third parties as noted above and are presently
40
evaluating and assessing risks including identification of alternate sources of
materials and supplies where appropriate. We have completed testing on all
critical systems. Where needed, we will establish contingency plans based on
results of our testing, our evaluation and assessment of third party responses
and other outside risks. Our contingency plans are now finalized.
The costs of the Year 2000 issue and completion dates are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans.
The above statement in its entirety is designated a Year 2000 readiness
disclosure under the Year 2000 Information and Readiness Disclosure Act.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives be recognized as either assets or liabilities at fair value and
establishes specific criteria for the use of hedge accounting. Our required
adoption date is January 1, 2001. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods. We expect no material
adverse effect on the consolidated results of our operations, financial
position or cash flows upon adoption of SFAS No. 133, but we do expect a small
reduction in our stockholders' equity.
41
THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the old notes, we entered into a registration
rights agreement with the initial purchaser, under which we agreed to use our
best efforts to file with the Commission an exchange offer registration
statement with respect to the exchange of the old notes for a series of
registered debt securities with terms identical in all material respects to the
terms of the old notes, except that the new notes have been registered under
the Securities Act and are issued free of any covenant regarding registration,
including the payment of additional interest upon a failure to file or have
declared effective an exchange offer registration statement or to consummate
the exchange offer by certain dates.
We are making the exchange offer in reliance on the position of the SEC as
set forth in certain no-action letters. However, we have not sought our own no-
action letter. Based upon these interpretations by the SEC, we believe that a
holder of new notes, but not a holder who is an "affiliate" of ours, within the
meaning of Rule 405 of the Securities Act, who exchanges the old notes for new
notes in the exchange offer, generally may offer the new notes for resale, sell
the new notes and otherwise transfer the new notes without further registration
under the Securities Act and without delivery of a prospectus that satisfies
the requirements of Section 10 of the Securities Act. This does not apply,
however, to a holder who is an "affiliate" within the meaning of Rule 405 of
the Securities Act. We also believe that a holder may offer, sell or transfer
the new notes only if the holder acquires the new notes in the ordinary course
of its business and is not participating, does not intend to participate and
has no arrangement or understanding with any person to participate in a
distribution of the new notes.
Any holder of the old notes using the exchange offer to participate in a
distribution of new notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired old notes directly from us,
but not as a result of market-making activities or other trading activities.
Consequently, the holder must comply with the registration and prospectus
delivery requirements of the Securities Act in the absence of an exemption from
such requirements.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, 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 new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The letter of transmittal states that
by acknowledging and delivering a prospectus, a broker-dealer will not be
considered to admit that it is an "underwriter" within the meaning of the
Securities Act. We have agreed that for a period of 180 days after the
expiration date, we will make this prospectus available to broker-dealers for
use in connection with any such resale. See "Plan of Distribution."
Except as described above, this prospectus may not be used for an offer to
resell, resale or other retransfer of new notes.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of it would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Terms of the Exchange
Upon the terms and subject to the conditions of the exchange offer, we will,
unless such old notes are withdrawn in accordance with the withdrawal right
specified in "Withdrawal of Tenders" below, accept any and all old notes
validly tendered prior to 5:00 p.m., New York City time, on the expiration
date. The date of acceptance for exchange of the old notes, and completion of
the exchange offer, is the exchange date, which
42
will be the first business day following the expiration date (unless extended
as described in this document). Blount will issue, on or promptly after the
exchange date, an aggregate principal amount of up to $325,000,000 of new notes
in exchange for an equal principal amount of outstanding old notes tendered and
accepted in connection with the exchange offer. The new notes issued in
connection with the exchange offer will be delivered on the earliest
practicable date following the exchange date. Holders may tender some or all of
their old notes in connection with the exchange offer. However, old notes may
be tendered only in integral multiples of $1,000.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes have been registered under
the Securities Act and are issued free from any covenant regarding
registration, including the payment of additional interest upon a failure to
file or have declared effective an exchange offer registration statement or to
complete the exchange offer by certain dates. The new notes will evidence the
same debt as the old notes and will be entitled to the same benefits under the
notes indenture as the old notes. As of the date of this prospectus,
$325,000,000 aggregate principal amount of the old notes is outstanding.
In connection with the issuance of the old notes, Blount arranged for the
old notes originally purchased by qualified institutional buyers to be issued
in the form of global notes and transferable in book-entry form through the
facilities of The Depository Trust Company, acting as depositary. Blount
arranged for the old notes that were sold in reliance on Regulation S to be
initially represented by temporary notes in registered, global form and to be
held only through the Euroclear System and Cedel S.A., as indirect participants
in DTC, until the end of the 40th day after the closing of the offering of the
old notes. After the expiration of this 40 day distribution compliance period
and upon delivery of required certifications, the temporary global notes became
exchangeable for an interest in one or more permanent Regulation S notes in
registered, global form. Beneficial interest in the Regulation S permanent
global notes may be held through Euroclear, Cedel or any other of DTC's
participating organizations. Except as described under "Description of Notes--
Book-Entry, Delivery and Form," the new notes will be issued in the form of a
global note registered in the name of DTC or its nominee and each holder's
interest in it will be transferable in book-entry form through DTC. See
"Description of Notes--Book-Entry, Delivery and Form."
Holders of old notes do not have any appraisal or dissenters' rights in
connection with the exchange offer. Old notes which are not tendered for
exchange or are tendered but not accepted in connection with the exchange offer
will remain outstanding and be entitled to the benefits of the notes indenture,
but will not be entitled to any registration rights under the registration
rights agreement.
We shall be considered to have accepted validly tendered old notes if and
when we have given oral or written notice to the exchange agent. The exchange
agent will act as agent for the tendering holders for the purposes of receiving
the new notes from us.
If we do not accept any tendered old notes for exchange because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, we will return certificates for such unaccepted old
notes, without expense, to the tendering holder as quickly as possible after
the expiration date.
Holders who tender old notes in connection with 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 old notes in connection with the exchange offer on exchange of old
notes. Blount will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the exchange offer. See "--Fees and
Expenses."
Expiration Date; Extensions; Amendments
The expiration date for the exchange offer is 5:00 p.m., New York City time,
on 2000, unless extended by us in our sole discretion (but in no event to a
date later than 2000), in which case the term "expiration date" shall mean
the latest date and time to which the exchange offer is extended.
43
We reserve the right, in our sole discretion:
. to delay accepting any old notes, to extend the offer or to terminate
the exchange offer if, in our reasonable judgment, any of the conditions
described below shall not have been satisfied, by giving oral or written
notice of the delay, extension or termination to the exchange agent, or
. to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner that we consider material, we
will disclose such amendment by means of a prospectus supplement, and we will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during such
five to ten business day period. In no event, however, shall the Exchange Date
be later than the first business day following , 2000.
If we determine to make a public announcement of any delay, extension,
amendment or termination of the exchange offer, we will do so by making a
timely release through an appropriate news agency.
Interest on the New Notes
The new notes will bear interest at the rate of 13% per annum and will be
payable semiannually in arrears on February 1 and August 1 of each year,
commencing February 1, 2000. Interest on the new notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from August 19, 1999.
Holders of old notes whose old notes are accepted for exchange will not
receive interest on such old notes for any period subsequent to the last
interest payment date to occur prior to the issue date of the new notes, and
will be deemed to have waived the right to receive any interest payment on the
old notes accrued from and after such interest payment date.
Conditions to the Exchange Offer
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange new notes for, any old notes and may terminate
the exchange offer as provided in this prospectus before the acceptance of the
old notes, if:
(1) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency relating to the exchange offer which,
in our reasonable judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us, or any material adverse development has occurred
in any existing action or proceeding relating to us or any of our
subsidiaries; or
(2) any law, statute, rule or regulation is proposed, adopted or
enacted, which in our reasonable judgment, might materially impair our
ability to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
(1) refuse to accept any old notes and return all tendered old notes to
the tendering holders,
(2) extend the exchange offer and retain all old notes tendered before
the expiration of the exchange offer, subject, however, to the rights of
holders to withdraw these old notes (See "--Withdrawal of Tenders" below),
or
(3) waive unsatisfied conditions relating to the exchange offer and
accept all properly tendered old notes which have not been withdrawn.
44
Procedures for Tendering
Unless the tender is being made in book-entry form, to tender in the
exchange offer, a holder must complete, sign and date the letter of
transmittal, or a facsimile of it,
. have the signatures guaranteed if required by the letter of transmittal
and
. mail or otherwise deliver the letter of transmittal or the facsimile,
the old notes and any other required documents, to the exchange agent
prior to 5:00 p.m., New York City time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the old notes by causing DTC to
transfer the old notes into the exchange agent's account. Although delivery of
old notes may be effected through book-entry transfer into the exchange agent's
account at DTC, the letter of transmittal (or facsimile), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the exchange agent at its addresses
set forth under the caption "exchange agent," below, prior to 5:00 p.m., New
York City time, on the expiration date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of old notes will constitute an agreement between us
and the holder in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. No letter of transmittal of old notes should be sent to us. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect the tenders for such holders.
Any beneficial owner whose old 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 behalf of the beneficial owner. If the
beneficial owner wishes to tender on that owner's own behalf, the owner must,
prior to completing and executing the letter of transmittal and delivery of
such owner's old notes, either make appropriate arrangements to register
ownership of the old notes in the owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signature on a letter of transmittal or a notice of withdrawal, must be
guaranteed by an eligible guarantor institution within the meaning of Rule
17Ad-15 under the Exchange Act, unless the old notes tendered pursuant thereto
are tendered:
. by a registered holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the letter
of transmittal, or
. for the account of an eligible guarantor institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, are required to be guaranteed, such guarantee must be by:
. a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
. a commercial bank or trust company having an office or correspondent in
the United States or
. an "eligible guarantor institution."
45
If the letter of transmittal is signed by a person other than the registered
holder of any old notes, the old notes must be endorsed by the registered
holder or accompanied by a properly completed bond power, in each case signed
or endorsed in blank by the registered holder.
If the letter of transmittal or any old notes or bond powers are signed or
endorsed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
us, submit evidence satisfactory to us of their authority to act in that
capacity with the letter of transmittal.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance and withdrawal of tendered old notes
in our sole discretion. We reserve the absolute right to reject any and all old
notes not properly tendered or any old notes whose acceptance by us would, in
the opinion of our U.S. counsel, be unlawful. We also reserve the right to
waive any defects, irregularities or conditions of tender as to any particular
old notes either before or after the expiration date. Our 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 old notes
must be cured within a time period we will determine. Although we intend to
request the exchange agent to notify holders of defects or irregularities
relating to tenders of old notes, neither we, the exchange agent nor any other
person will have any duty or incur any liability for failure to give such
notification. Tenders of old notes will not be considered to have been made
until such defects or irregularities have been cured or waived. Any old 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.
In addition, we reserve the right, as set forth above under the caption
"Conditions to the Exchange Offer," to terminate the exchange offer.
By tendering, each holder represents to us that, among other things:
. the new notes acquired in connection with the exchange offer are being
obtained in the ordinary course of business of the person receiving the
new notes, whether or not such person is the holder,
. that neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
new notes and
. that neither the holder nor any such other person is our "affiliate" (as
defined in Rule 405 under the Securities Act).
If the holder is a broker-dealer which will receive new notes for its own
account in exchange of old notes, it will acknowledge that it acquired such old
notes as the result of market making activities or other trading activities and
it will deliver a prospectus in connection with any resale of such new notes.
See "Plan of Distribution."
Guaranteed Delivery Procedures
A holder who wishes to tender its old notes and:
--whose old notes are not immediately available;
--who cannot deliver the holder's old notes, the letter of transmittal
or any other required documents to the exchange agent prior to the
expiration date; or
--who cannot complete the procedures for book-entry transfer, before
the expiration date,
46
may effect a tender if:
--the tender is made through an eligible guarantor institution;
--before the expiration date, the exchange agent receives from the
eligible guarantor institution:
. a properly completed and duly executed notice of guaranteed delivery by
facsimile transmission, mail or hand delivery,
. the name and address of the holder,
. the certificate number(s) of the old notes and the principal amount of
old notes tendered, stating that the tender is being made and
guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal and the
certificate(s) representing the old notes (or a confirmation of book-
entry transfer), and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution with
the exchange agent; and
--the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the
certificate(s) representing all tendered old notes in proper form for
transfer or a confirmation of book-entry transfer, and all other
documents required by the letter of transmittal.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old 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 old notes in connection with the exchange offer, a
written 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:
. specify the name of the person who deposited the old notes to be
withdrawn,
. identify the old notes to be withdrawn (including the certificate number
or numbers and principal amount of such old notes),
. be signed by the depositor in the same manner as the original signature
on the letter of transmittal by which such old notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee register the
transfer of such old notes into the name of the person withdrawing the
tender, and
. specify the name in which any such old notes are to be registered, if
different from that of the depositor.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices. Any old notes so
withdrawn will be considered not to have been validly tendered for purposes of
the exchange offer and no new notes will be issued unless the old notes
withdrawn are validly re-tendered. Any old notes which have been tendered but
which are not accepted for exchange or which are withdrawn will be returned to
the holder without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn
old notes may be retendered by following one of the procedures described above
under the caption "Procedures for Tendering" at any time prior to the
expiration date.
Exchange Agent
United States Trust Company of New York has been appointed as exchange agent
in connection with the exchange offer. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent, at its offices at 770
Broadway, 13th Floor, New York, NY 10003. The exchange agent's telephone number
is (800) 548-6565 and facsimile number is (212) 420-6152.
47
Fees and Expenses
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. Blount will pay certain other expenses to be
incurred in connection with the exchange offer, including the fees and expenses
of the exchange agent, accounting and certain legal fees.
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes. If, however:
. new notes are to be delivered to, or issued in the name of, any person
other than the registered holder of the old notes tendered, or
. if tendered old notes are registered in the name of any person other
than the person signing the letter of transmittal, or
. if a transfer tax is imposed for any reason other than the exchange of
old notes in connection with the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption from them is not
submitted with the letter of transmittal, the amount of such transfer taxes
will be billed directly to the tendering holder.
Accounting Treatment
The new notes will be recorded at the same carrying value as the old notes
as reflected in Blount's accounting records on the date of the exchange.
Accordingly, Blount will not recognize any gain or loss for accounting purposes
upon the completion of the exchange offer. Any expenses of the exchange offer
that Blount paid will be charged against Blount's earnings in accordance with
generally accepted accounting principles.
Consequences of Failures to Properly Tender Old Notes in the Exchange
Issuance of the new notes in exchange for the old notes under the exchange
offer will be made only after timely receipt by the exchange agent of such old
notes, a properly completed and duly executed letter of transmittal and all
other required documents. Therefore, holders of the old notes desiring to
tender such old notes in exchange for new notes should allow sufficient time to
ensure timely delivery. We are under no duty to give notification of defects or
irregularities of tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept, will, following completion
of the exchange offer, continue to be subject to the existing restrictions upon
transfer thereof under the Securities Act and, upon completion of the exchange
offer, certain registration rights under the registration rights agreement will
terminate.
In the event the exchange offer is completed, we will not be required to
register the remaining old notes. Remaining old notes will continue to be
subject to the following restrictions on transfer:
. the remaining old notes may be resold only if registered pursuant to the
Securities Act, if any exemption from registration is available, or if
neither such registration nor such exemption is required by law, and
. the remaining old notes will bear a legend restricting transfer in the
absence of registration or an exemption.
We do not currently anticipate that we will register the remaining old notes
under the Securities Act. To the extent that old notes are tendered and
accepted in connection with the exchange offer, any trading market for
remaining old notes could be adversely affected. See "Risk Factors--Factors
Relating to the Notes and the Exchange Offer--Failure to Exchange Your Old
Notes."
48
BUSINESS
Company Overview
We are an international industrial company with leadership positions in
three business segments: Outdoor Products, Sporting Equipment, and Industrial
and Power Equipment. Our focus is on manufacturing and marketing branded
products in substantial niche markets serving industrial companies and
consumers. Our consolidated sales for the first nine months ended September 30,
1999 of $587.9 million were derived from our three business segments: Outdoor
Products--$243.2 million, Sporting Equipment--$240.0 million and Industrial and
Power Equipment--$104.7 million. (See "Prospectus Summary--Summary Pro Forma
Condensed Consolidated Financial and Other Data").
We were founded in 1946 by Winton M. Blount and W. Houston Blount and
operated for decades as a construction company. With the acquisition of Omark
Industries, Inc. in 1985, we began shifting our focus away from construction
and construction management, ultimately exiting those businesses completely in
the mid-1990s. Since then, we have broadened and strengthened our existing core
businesses through new product development and by making a series of
acquisitions in related manufacturing and marketing businesses with strong
leadership positions. Through these efforts we have transformed our company
into the diversified industrial manufacturer and marketer we are today.
We have achieved growth in operating income and EBITDA for seven consecutive
years. Our success can be attributed to a number of factors:
. Our focus on the development, manufacturing and marketing of consumable
products and products requiring frequent replacement;
. Our development of a collection of strong brand names and the associated
high customer loyalty;
. Our focus on creating a diverse customer base, which helps protect our
overall financial performance from a market downturn in any one segment;
. Our ability to achieve operating efficiencies and control costs;
. Our success in acquiring and integrating companies, products and assets
that are related to our existing business segments; and
. Our development of significant barriers to entry through capital
investments we have made in some of our business segments and through
our related technical expertise.
We intend to continue growing each of our business segments and related
businesses in a highly disciplined manner by capitalizing on these strengths
and by executing our well focused strategy.
Outdoor Products
Overview
Our Outdoor Products segment (37.9% of consolidated sales for the year ended
December 31, 1998) is comprised of OCSD, Dixon Industries, Inc., and Frederick
Manufacturing Corporation. OCSD produces a wide variety of saw chain, guide
bars, drive sprockets and accessories for use primarily on portable gasoline
and electric chain saws, and mechanical timber harvesting equipment. Dixon
manufactures zero turning radius lawn mowers and related equipment. Frederick
is principally a supplier of replacement accessories for lawn mowers.
The Outdoor Products segment has EBITDA margins averaging approximately 25%
over the last four years. This profitability has been driven by several
factors, including:
. The high level of sales (75% of OCSD's saw chain sales and 90% of
Frederick's lawn mower accessory sales) to the replacement market and
its comparatively high margins;
49
. Cost reductions resulting from continual process improvement;
. The responsive product design and delivery cycle at OCSD that allows it
to meet its customers' needs in a timely manner; and
. Dixon's ability to sell directly to dealers.
The table below outlines the Outdoor Products segment's business units and
primary product lines.
Outdoor Products Segment--Products Summary
(Dollars in millions)
------------------------------------------------------------------------
1998 Selected
Business Unit Sales(1) Product Lines Brand Names Primary End Users
------------- -------- ------------- ------------- --------------------
OCSD $241 Saw Chain Oregon Professional Loggers
Guide Bars ICS Construction Workers
Drive Sprockets Homeowners
Concrete Cutting Chain
Dixon $ 51 Zero Turning Radius Dixon Homeowners
Lawn Mowers
Frederick $ 24 Lawn Mower Blades Frederick Homeowners
Replacement Parts Silver Streak
Outdoor Care Accessories
(1) Does not sum to total segment sales due to intrasegment sales.
OCSD
OCSD is the world leader in the production of saw chain, guide bars and
drive sprockets, supplying these parts to 33 of the world's 34 largest chain
saw manufacturers. OCSD's products are used by professional loggers,
construction workers, farmers, arborists and homeowners. The Oregon brand name,
which has been in existence for over 50 years, elicits brand loyalty among
professional loggers. The Oregon brand name is so strong that many original
equipment manufacturers, or OEMs, use it on their equipment. OCSD also produces
a diamond-segmented chain cutting system for concrete (including steel-
reinforced concrete) known as Industrial Cutting System, or ICS, which is a
more mobile concrete cutting product than others currently employed in the
construction and demolition industries. Our ICS business was significantly
enhanced by the recent introduction of a new gasoline-powered saw head, which
has proven to be popular with general contractors and rental equipment users.
OCSD is able to maintain its market leadership position by offering the
broadest product line in the industry and by making continual technical
enhancements that improve safety and efficiency for its customers. Through more
than 50 years of experience in manufacturing its product line, OCSD has
developed a high level of technical expertise among its engineers and
manufacturing workforce, which has been enhanced through significant capital
investment in production equipment and manufacturing technology. As a result,
we believe OCSD is able to produce durable, high quality saw chain and guide
bars more efficiently than most of its competitors. Sales by OCSD accounted for
76% of sales attributable to the Outdoor Products segment in the year ended
December 31, 1998.
Dixon
Dixon, which we acquired in 1990, manufactures and markets zero turning
radius riding lawn mowers and is the only manufacturer to offer a full line of
zero turning radius lawn mowers for both home and commercial use. Dixon, which
we believe is the leading manufacturer of residential zero turning radius lawn
mowers,
50
designed the first of such mowers and has manufactured them and their related
attachments since 1974. Dixon's unique mechanical transaxle is the key element
that differentiates its lawn mowers from those of its competitors. The
transaxle transmits power independently to either of the rear drive wheels,
thereby enabling the operator to move the right and left back wheels at
different speeds and turn the mower in a circle no larger than the machine--a
"zero radius turn." This transmission enables the Dixon mower to out-maneuver
conventional riding mowers available in the market today and provides a cost
advantage over the more expensive tractor-style hydrostatic drives used by
competitors in the market. Sales by Dixon accounted for 16% of sales
attributable to the Outdoor Products segment in the year ended December 31,
1998.
Frederick
Frederick is a supplier of replacement accessories for lawn mowers, edgers,
chain saws, snow-throwers and other outdoor products. Frederick has a strong
competitive position due to its well-known brands, broad product selection,
high service levels and broad distribution network. Frederick's products are
sold through dealers and distributors, as well as by leveraging OCSD's dealer
and distributor network. Approximately 90% of sales are to the higher margin
replacement parts market. Sales by Frederick in the year ended December 31,
1998 accounted for 8% of sales of the Outdoor Products segment.
Industry Dynamics
OCSD primarily participates in the global market for saw chain and guide
bars. Sales in this segment are driven by consumer use of chain saws.
Approximately 71% of end users are professional or semi-professional, including
professional loggers and construction workers, with the balance comprised of
non-professional chain saw users, who are primarily homeowners. Saw chains and
guide bars are consumable products that are primarily sold in the replacement
parts market and are therefore not highly dependent on sales of new chain saws.
As such, approximately 25% of sales are to OEMs and 75% to the replacement
market.
Growth in the saw chain and guide bar market is driven by a number of
factors, including the demand for new chain saws, general economic growth,
housing starts, international development and frequency of natural disasters.
While industry data on new chain saw sales is not readily available, new chain
saw sales are included in industry data measuring the market for power driven
hand tools. Industry sources expect this market to be over $4.3 billion in 1999
with a projected annual growth rate of 3-5%. The advent of lighter weight, less
expensive chain saws has increased the potential market to include more
consumers who might not have been capable of operating heavier chain saw
models. This increase in the installed base of chain saws should lead to
stronger demand for replacement part consumables like saw chain and guide bars.
While domestic professional timber harvesting is increasingly moving toward
the use of automated hydraulic equipment, many developing countries do not have
the available funds for the large expenditures required for automated
equipment. However, timber harvesting represents a key source of hard currency
for many of these countries. We believe this will result in significant and
growing demand for saw chain and guide bars in these areas. OCSD is well-
positioned to serve demand in these countries given its strong global
distribution network. In addition, as the standard of living in these and
other, industrialized nations continues to rise, we expect overall consumer
demand for saw chain and guide bars to increase.
The Outdoor Products segment's businesses are also affected to some extent
by severe weather. For example, severe weather patterns and events such as
hurricanes, tornadoes or ice storms generally result in greater chain saw use
and, therefore, stronger sales of saw chain and guide bars.
Dixon operates in the lawn mower market. The market for lawn mowers is
large, with approximately 7 million lawn mowers sold in the U.S. in 1998. While
we expect overall growth in the lawn mower industry to be flat going forward,
we believe significant growth opportunities exist in the zero turning radius
consumer and commercial markets. Historically, zero turning radius lawn mowers
have been sold to homeowners, although sales to commercial users, such as
professional landscapers, have been increasing. Zero turning radius lawn
51
mower unit sales have also increased due to their introduction to the European
market. Lawn mower unit sales, like other lawn care products, can be impacted
by weather conditions. Dry weather, for example, reduces grass growth, which
may in turn affect consumer purchases of new lawn mowers.
Frederick sells primarily blades and other replacement parts to the lawn
care products and accessories sector and other outdoor power equipment. The
market for lawn care products and accessories is driven by growth in the
established base of lawn mowers as well as the frequency of replacement part
purchases.
Manufacturing and Product Development
The Outdoor Products segment operates 13 facilities located in the U.S.,
Canada, Brazil, Europe and Asia, and utilized approximately 82% of its
production capacity (based on an 80-hour work week) in 1998. Outdoor Products
strives to achieve operating efficiencies through its focus on continual
process improvement. By improving the level of technology on the factory floor,
increasing its raw material purchasing power, and focusing management's efforts
on process improvement, Outdoor Products has managed to reduce manufacturing
costs significantly. For example, it has reduced the manufacturing cost of
guide bars by over 30% in nominal terms during the past five years.
Outdoor Products also has strong engineering and design capabilities that
allow it to develop new products and deliver them in a timely manner to
customers globally. Outdoor Products employs numerous engineers and has made
extensive use of CAD/CAM technology, various simulations, and new engineering
technology in order to optimize its product development process.
As a result of its product development efforts, Outdoor Products has been a
market leader in the design and manufacture of new product lines with
innovative features such as low kick-back saw chain, low vibration chain and
consumer guide bars with internal tensioning systems--an important breakthrough
technology that allows users to tighten the saw chain much more easily than in
the past. Outdoor Products has also pioneered the development of the diamond-
segmented chain on its ICS product used to cut concrete. In addition, OCSD has
cut its time-to-market for new products by over 50% over the last five years.
Sales and Marketing
Outdoor Products has developed a distribution network which allows it to
serve customers in North and South America, Europe, and Asia, maintaining a
strong brand name worldwide. Approximately 60% of OCSD's sales, for example,
are to over 100 countries outside of the U.S. OCSD sells its products to over
350 distributors, approximately 8,500 dealers and over 140 mass merchandisers
serving the replacement market.
OCSD's large, established distribution network also offers a sizable
advantage to the smaller, high-growth business lines such as ICS and Frederick,
both of which can use this network to gain broader awareness and wider
distribution of their products. Approximately 75% of OCSD's sales are to the
replacement market, which tends to be higher margin than sales to OEMs. Dixon
and Frederick have historically sold their products through strong dealer and
distributor networks in North America and have begun to expand their
distribution into Europe to capitalize on significant long-term international
growth opportunities in these markets. Dixon sells its products through full-
service dealers, North American distributors and export distributors. Unlike
many of its competitors, Dixon avoids selling to mass merchants, which have a
great deal of market power and can therefore command price discounts. This
approach allows Dixon to maintain its margins and helps to improve its
competitive position. In 1998, approximately 16% of the sales of the Outdoor
Products segment were to one customer.
Competition
OCSD competes both with chain saw OEMs that sell their own branded
replacement parts and with smaller manufacturers of saw chain and guide bars.
We believe end users make their purchasing decisions based on quality, brand
name, and price. While OCSD has a strong market position, we recognize that
many of
52
OCSD's OEM competitors have close relationships with the end users of OCSD's
products. In order to maintain its market position, OCSD takes special care to
be receptive to the needs of its customers, which is reflected in OCSD's
product development, sales and service efforts.
Dixon's competitors include general lawn mower manufacturers such as MTD,
American Yard Products and Murray as well as zero turning radius lawn mower
manufacturers such as Ariens, Snapper and Simplicity. Frederick competes in a
highly fragmented industry where many competitors manufacture replacement
products as one part of a larger business.
Growth Opportunities
Growth opportunities for the Outdoor Products segment include new product
development, product improvements, and international expansion, as well as
opportunities to further leverage OCSD's manufacturing and distribution
network.
In the new product development area, the Outdoor Products segment has
furthered the development of its ICS hydraulic saw by creating a new ICS
concrete cutting gasoline-powered saw. The gasoline-powered ICS saw head offers
significant efficiency benefits and is particularly suitable for the cutting
requirements of the concrete construction industry. In addition, Outdoor
Products is pursuing a number of what we believe to be high growth niche
markets such as specialty saw chain and guide bars to meet customer needs such
as professional timber harvesters' requirements for lower vibration chains.
The Outdoor Products segment is focusing on continual product improvement
efforts that allow it to distinguish itself in the market. Over the past three
years, Outdoor Products has developed 72 product improvements in an effort to
continually meet customer needs. For example, the proprietary INTENZ guide bar
allows the user to adjust the chain tension of a chain saw quickly and easily.
In addition, the Outdoor Products segment has focused on international
expansion opportunities. For example, the saw chain business has been expanded
into what we believe are developing markets with high growth potential, and
Dixon and Frederick's presence in Europe has grown. By expanding into new
geographic areas through OCSD's strong distribution network in Europe, Dixon
can efficiently increase sales of zero turning radius lawn mowers. Further, we
expect Frederick will reach new levels as sales increase due to enhanced
distribution through OCSD's sales network in Europe.
Finally, the Outdoor Products segment is continuing to focus on more
effectively leveraging its manufacturing and distribution capabilities. We
believe there are opportunities for consolidation in the fragmented lawn care
products business of Frederick as well as in Dixon's mower segment.
Sporting Equipment
Overview
Our Sporting Equipment segment (34.5% of consolidated sales for the fiscal
year ended December 31, 1998), which focuses on ammunition and accessories for
law enforcement and shooting sports, is comprised of the Federal Cartridge
Company, the Sporting Equipment Division and Simmons Outdoor Corporation.
The Federal Cartridge Company, or Federal, manufactures and markets
shotshell, centerfire and rimfire cartridges, ammunition components, and clay
targets under the brand names of Premium, Gold Medal, American Eagle, Classic,
BallisticClean and Tactical. The acquisition of Federal, completed in November
1997, both complemented and significantly expanded the Sporting Equipment
segment's product offerings, placing us among the leading United States
producers of ammunition products. For example, shotgun shells, a product we did
not manufacture or sell prior to the Federal acquisition, represented
approximately 22% of Sporting Equipment's sales for 1998.
53
The Sporting Equipment Division, or SED, produces ammunition and ammunition
components under the CCI and Speer brand names, as well as RCBS reloading
equipment, Redfield scope mounting systems, Outers gun care and trap-shooting
products, Ram-Line gun accessories, and Weaver mounts. In addition, SED's
Simmons Outdoor Corporation, or Simmons, distributes sports optics products,
including scopes and binoculars, under the Simmons brand name.
The Sporting Equipment segment posted an EBITDA margin of 15% for the nine
months ended September 30, 1999. This profitability was driven by a number of
factors:
. Integration of the manufacturing, sales and distribution processes of
Federal and SED;
. Cost savings resulting from increased scale in the purchasing of raw
materials; and
. Critical mass achieved in providing broader product offerings to
customers.
The table below outlines the Sporting Equipment segment's business units and
primary product lines:
Sporting Equipment Segment--Products Summary
(Dollars in millions)
------------------------------------------------------------------------
1998 Selected
Business Unit Sales(1) Product Lines Brand Names Primary End Users
------------- -------- ------------- ----------- -----------------------------
Federal $145 Shotshell Federal Law Enforcement Professionals
Rimfire Cartridges Champion Recreational Shooters
Centerfire Cartridges Hunters
Industrial Powerloads
SED $107 Ammunition CCI Law Enforcement Professionals
Binoculars Speer Recreational Shooters
Scopes RCBS Hunters
Shooting Accessories
Outers
Weaver
Redfield
Simmons $ 37 Binoculars Simmons Recreational Shooters
Scopes Hunters
(1) Does not sum to total segment sales due to intrasegment sales.
The Sporting Equipment segment is currently in the process of integrating
the operations of Federal with the ammunition business of SED. Once completed,
the Sporting Equipment segment will be organized along product lines, including
ammunition and shooting accessories. The following business description is
organized accordingly.
Ammunition
The Sporting Equipment segment is a leader in the production of ammunition
for the law enforcement and shooting sports industries. Its products include
ammunition for shotguns, pistols, and rifles and industrial power loads for the
construction industry. The Sporting Equipment segment markets its products
under a number of brand names including Federal, Premium, Gold Medal, Classic,
CCI and Speer. All of these products are well known in their respective markets
and are recognized for their quality by law enforcement officials and shooting
sports enthusiasts. Ammunition sales accounted for approximately 73% of the
Sporting Equipment segment's sales in 1998.
Accessories
The Sporting Equipment segment is a leader in the sale of accessories for
the shooting sports industry. Principal products in the accessories operations
include reloading equipment for use by hunters and sportsmen
54
who prefer to reload their own ammunition; gun care and trap-shooting products;
gun accessories; scope mounting systems; and optics, including binoculars and
scopes.
The Sporting Equipment segment maintains a strong market position in each of
its product offerings. It markets its products under a number of well known
brand names, including RCBS, Outers, Simmons and Weaver, all of which have
leading market shares in their respective product categories. Accessory sales
accounted for approximately 27% of the Sporting Equipment segment's sales in
1998.
Industry Dynamics
The Sporting Equipment segment primarily serves two markets: ammunition for
law enforcement and ammunition and accessories for the shooting sports
industry. Law enforcement professionals use ammunition primarily for target
practice, and demand is therefore relatively predictable and stable. Management
believes that ammunition demand by law enforcement professionals is expected to
grow at approximately 3% due to anti-crime initiatives at both the federal and
state levels.
The shooting sports industry includes target shooting, clay pigeon shooting,
and hunting. This market size is estimated by management to be $1.6 billion,
with ammunition and related products accounting for approximately $600 million.
Sources indicate that there are approximately 17 million hunters and 30 million
active shooting sports enthusiasts in the U.S.
Shooting sports related expenditures are expected by management to grow at
6% per year, with big game hunting expenditures expected to grow at 13% per
year. Demand tends to be counter-cyclical as sales are tied to the number of
non-work days experienced by the customer base.
Manufacturing and Product Development
The Sporting Equipment segment manufactures ammunition and accessories at
five locations in North America. Sporting Equipment's optical products are
produced by third party manufacturers in Asia and distributed from a warehouse
in Thomasville, Georgia. The Sporting Equipment segment utilized approximately
61% of its production capacity (based on an 80-hour work week) in 1998.
The Sporting Equipment segment continually strives to increase efficiencies
in its manufacturing process and has been able to reduce production costs
significantly through the continuing integration of Federal and SED's
operations, application of manufacturing experience and use of statistical
process control. Additionally, the Sporting Equipment segment has been able to
take advantage of increased scale in the purchase of its primary raw materials,
further reducing costs.
The Sporting Equipment segment has also dedicated significant resources to
improving its product development process. Its efforts have included better
gauging its customers' needs, maintaining a large staff of engineers and
extensively using CAD/CAM technology. As a result, the Sporting Equipment
segment introduced over 100 new or improved products into the market last year.
The segment has capitalized on this capability to increase its penetration of
particular customer groups by introducing innovative products that focus on the
needs of those groups. For example, Federal has introduced its "BallisticClean"
product for law enforcement training that reduces toxicity and prevents
ricochet while maintaining the feel of traditional ammunition.
Sales and Marketing
The Sporting Equipment segment has a large and experienced sales force
consisting of 11 regional sales managers and 7 representative agencies with 65
representatives. This sales force manages relationships through multiple
channels, including law enforcement agencies, OEMs, national and regional
retail accounts (including sports super-stores and mass merchants), dealers and
distributors.
55
The Federal acquisition dramatically increased the size of the Sporting
Equipment segment's sales force, enabling it to reach a much broader network of
customers and end-users. Through consolidation and integration of this expanded
sales force, the Sporting Equipment segment has not only reduced costs, but
also has increased its influence on and importance to dealers, distributors and
retailers. This has allowed the Sporting Equipment segment to negotiate more
favorable terms and secure favorable product placement in retail stores. We
believe the Sporting Equipment segment has opportunities that will allow it to
continue leveraging its strong distribution channels through easily integrated,
complementary acquisitions in the accessories sector. In 1998, approximately
20% of the Sporting Equipment segment's sales were to one customer.
Competition
The market for sporting equipment products is characterized by a high degree
of customer loyalty to brand names. The ammunition sector is relatively
consolidated and the accessories sector is highly fragmented.
In the market for ammunition and accessories, the Sporting Equipment segment
competes against manufacturers that also have well established brand names and
strong market positions, including Remington and Winchester. In accessories,
the Sporting Equipment segment competes against a number of smaller
competitors, none of which has a dominant market share. These competitors
include Lyman and Hornaday in reloading equipment, and Tasco and Bushnell in
optics and scopes.
Growth Opportunities
The primary drivers of growth for the Sporting Equipment segment include
further penetration of the law enforcement segment, new product development,
international expansion, and opportunities to leverage its manufacturing and
distribution capabilities through complementary acquisitions.
The Sporting Equipment segment is already a significant supplier of
ammunition to the law enforcement segment. The segment can leverage this
position in order to benefit from projected increases in law enforcement
expenditures as state and federal officials increase efforts to combat crime.
The Sporting Equipment segment is also focusing on new product development
efforts that allow it to distinguish itself in the market. Over the past three
years, Sporting Equipment has developed 400 new or improved products in an
effort to continually meet customer needs. The Sporting Equipment segment has
introduced a number of new products in recent years, including Gold Dot high
performance pistol ammunition used in law enforcement, environmentally friendly
tungsten shotshells, and Clean-Fire ammunition, a non-toxic, lead-free
ammunition for the growing number of indoor shooting ranges.
The Sporting Equipment segment is focusing on international opportunities as
well. For example, though Europe has approximately the same number of hunters
as the United States, reloading equipment available in Europe tends to be of
low quality. Thus, we believe that there are significant market opportunities
in Europe for RCBS, the leading reloading equipment brand in the United States.
Finally, the Sporting Equipment segment is continuing to focus on more
effectively leveraging its manufacturing and distribution capabilities. We
believe there are opportunities to acquire related businesses and product
lines, especially in the highly fragmented accessories market. The Sporting
Equipment segment could then apply its manufacturing expertise and utilize its
distribution network to extract value from newly acquired product lines.
Industrial and Power Equipment
Overview
Our Industrial and Power Equipment segment (27.6% of consolidated sales for
the fiscal year ended December 31, 1998) is comprised of the Forestry and
Industrial Equipment Division, or FIED, CTR
56
Manufacturing, Inc., and Gear Products, Inc. FIED manufactures a wide variety
of loaders and feller bunchers. CTR manufactures delimber, slashers and
grapples. Gear Products manufactures rotational bearings, winches, hydraulic
motors and swing drives.
Although the financial performance of the Industrial and Power Equipment
segment has been adversely affected over the last twelve months by a severe
downturn in the pulp industry, the segment's operating performance has
historically been strong. Over the past four years, for example, EBITDA margins
have averaged approximately 16%. This profitability has been driven by several
factors, including:
. Success in profitably introducing new products;
. Emphasis on cost control and continual process improvements;
. A Strong replacement parts business with a one-day fill rate of
approximately 90%; and
. The ability to acquire and integrate businesses successfully, as we did
with the CTR acquisition.
The table below outlines the Industrial and Power Equipment segment's
business units and primary product lines.
Industrial and Power Equipment Segment--Products Summary
(Dollars in millions)
------------------------------------------------------------------------
1998 Selected
Business Unit Sales(1) Product Lines Brand Names Primary End Users
------------- -------- ------------- ----------- ---------------------
FIED $180 Loaders Prentice Professional Loggers
Feller Bunchers Hydro-Ax
Attachments and Parts
CTR $ 24 Delimbers CTR Professional Loggers
Slashers
Grapples
Gear Products $ 35 Gears Professional Loggers
Rotational Bearings Construction Industry
Power Transmission Products Utilities Industry
(1) Does not sum to total segment sales due to intrasegment sales.
The Industrial and Power Equipment segment is in the process of integrating
the operations of FIED and CTR. Once completed, the Industrial and Power
Equipment segment will be organized along product lines, including timber
harvesting equipment and Gear Products. The following business description is
organized accordingly.
Timber Harvesting Equipment
The Industrial and Power Equipment segment is a leading manufacturer of
timber harvesting equipment for both the pulp and paper industry and the
construction industry through its FIED and CTR businesses. Its products include
loaders and feller bunchers that allow the quick harvest of timber with
increased safety and labor efficiency compared to traditional, non-automated
methods of timber harvesting. Feller bunchers are self-propelled tree
harvesting machines that cut and hold between four and seven trees. Loaders
hold felled trees and process them through delimbers and slashers, which remove
limbs from trees and cut them to manageable lengths for transport. Grapples are
attachments for loaders used to handle felled trees.
In the past, delimbing and cutting to length was accomplished manually by
use of a chain saw. The Industrial and Power Equipment segment's products
automate this particularly labor-intensive and hazardous process.
57
We believe that the Industrial and Power Equipment segment is among the
world leaders in the manufacturing of timber harvesting equipment. The
segment's products include loaders and feller bunchers under the Prentice brand
name; a line of rubber-tired feller bunchers and related attachments under the
Hydro-Ax brand name; and a line of delimbers, slashers and grapples under the
CTR brand name.
Approximately 14% of the timber harvesting product line's revenues are
derived from sales of replacement parts and equipment. In 1998, approximately
85% of the Industrial and Power Equipment segment's sales came from timber
harvesting products.
Gear Products
Gear Products was acquired in 1991 from Simon Engineering and operates from
a production facility in Tulsa, Oklahoma. Since its acquisition, sales have
more than doubled, while operating income has more than tripled. Gear Products
is a leading manufacturer of rotational system components for mobile heavy
equipment. Its primary products are bearings, winch drives and swing drives
used to provide hydraulic power transmission in heavy equipment used in the
forestry, construction and utilities industries. Due to extreme wear-and-tear
on its products, Gear Products sells its products in the replacement parts
market in addition to its sales to OEMs. Gear Products accounted for
approximately 15% of the Industrial and Power Equipment segment's sales in
1998.
Industry Dynamics
The Industrial and Power Equipment segment operates primarily in the North
American market for timber harvesting equipment. Growth in timber harvesting
equipment sales will be driven by demand for capital equipment in the pulp and
paper industry (approximately 80% of the Industrial and Power Equipment
segment's end market) and by growth in new home construction.
The timber harvesting equipment market faces cyclicality due to its reliance
on customers in the pulp and paper market. In the past, as pulp prices have
dropped and inventories levels have increased, pulp manufacturers postponed
purchases of new timber harvesting equipment as their existing machinery
provided them sufficient capacity to meet near term demand. A key indicator of
the pulp and paper market is the price of Northern Bleached Softwood Kraft, or
pulp, which declined 17% from an average of $598 per metric ton in the fourth
quarter of 1997 to an average of $498 per metric ton in the first nine months
of 1999 ($460 per ton in the first quarter, $500 per ton in the second quarter,
and $533 per ton in the third quarter). This decline resulted in depressed
market conditions characterized by sales declines in the Industrial and Power
Equipment segment of over 50% in our most important market (the southeastern
United States) during the first nine months of 1999 compared to the first nine
months of 1998 and extremely aggressive competition for available sales. Pulp
prices have increased and pulp inventories have decreased. As demand for pulp
increases, it is becoming economically attractive for timber harvesters to
purchase new and advanced equipment. However, the extent and timing of any
recovery is highly uncertain.
While the pulp and paper sector has experienced a severe downturn over the
last 12 months, we believe that demand for capital equipment in the pulp and
paper industry should increase over the medium to long term for several
reasons. First, longer term demand for pulp products and paper should continue
to increase, particularly in developing and newly industrialized countries.
According to Pulp and Paper Week, an industry newsletter, a person consumes an
average of 700 pounds of pulp products annually in developed nations. By
contrast, annual consumption per person may be as low as 15 pounds in China or
40 pounds in South Korea. As the economies of these nations mature, consumption
should increase to levels closer to those of more developed nations.
Second, increased automation of timber harvesting should continue because of
growing environmental concerns, increased interest in improving efficiency, and
a desire to increase productivity and safety. In
58
addition, the growth in managed timber plantations, which require automated
timber harvesting equipment to select specific trees for harvesting in order to
achieve optimal long-term yields (by minimizing scarce and expensive ground
personnel), should drive growth in automated equipment sales.
While our Industrial and Power Equipment segment experiences cyclicality
associated with pulp prices and inventories, it has successfully achieved
annual profitability in challenging market conditions by employing flexible
manufacturing techniques and a strict system of cost controls and by placing
emphasis on its strong replacement parts business.
Gear Products participates primarily in the North American market for
mechanical power transmission components. The market is estimated by management
to be $550 million and projected by management to grow at approximately 2%. We
believe that the primary driver of growth should continue to be heavy equipment
manufacturers that outsource the manufacturing of component parts and
subassemblies--including rotational bearings, winch drives and swing drives--to
companies with specific manufacturing capabilities. We believe Gear Products
will continue to have record growth as the demand for hydraulic components and
rotation bearings used in industrial and construction equipment continues and
as our market share increases as a result of our established reputation for
quality and reliability.
Because of its higher level of customer diversification, Gear Products is
less exposed to economic cycles than is the timber harvesting equipment product
line. Because Gear Products sells its products to manufacturers that serve the
utility, man-lift, construction, forestry and marine industries, it is more
insulated from downturns in any one industry.
Manufacturing and Product Development
The Industrial and Power Equipment segment has four manufacturing facilities
and utilized approximately 65% of its production capacity (based on an 80-hour
work week) in 1998. The Industrial and Power Equipment segment has highly
automated machinery, equipment, tooling and facilities that, along with its
skilled workforce, maximize productivity and control costs. Flexible
manufacturing capabilities and excess capacity allow it to develop, manufacture
and quickly bring new products to market. This flexibility also allows for
slowing down production in order to avoid excessive overhead burden in cyclical
downturns, while allowing for rapid production increases during times of high
demand.
The Industrial and Power Equipment segment's product development process has
allowed it to quickly meet its customers' needs. Its engineering staff utilizes
CAD/CAM technology. The Industrial and Power Equipment segment has reduced the
amount of time required to bring new products to market by nearly 35% during
the past three years.
Sales and Marketing
The Industrial and Power Equipment segment's customer base is primarily
comprised of commercial loggers operating in both the construction and the pulp
and paper industries. Grapples are also sold to operators in the waste disposal
business on a limited basis. In addition, the Industrial and Power Equipment
segment sells over 30,000 types of replacement parts, approximately 50% of
which are unique components to our product lines. The segment has a well-
developed order system that allows it to maintain an excellent one-day fill-
rate of approximately 90% for replacement products.
Sales of timber harvesting equipment are primarily through dealers, which
buy directly from manufacturers. Large pulp companies have also begun to
purchase directly from manufacturers.
Our timber harvesting equipment division sells its products through a
network of approximately 250 dealers in over 400 locations in North America and
an additional 20 dealers overseas, primarily in the timber
59
harvesting regions of South America and Southeast Asia. With what we believe
are the broadest product offerings and most focused dealer network in the
industry, this segment is well positioned to take advantage of this purchasing
environment.
Approximately 90% of Gear Products' sales are to more than 350 OEMs
servicing the utility, construction, forestry and marine industries.
Approximately 5-7% of sales are from replacement parts. The remainder are
through a limited dealer-distribution network.
Over 90% of timber harvesting equipment sales for the twelve months ended
December 31, 1998 were in the U.S., primarily in the southeastern and south
central states. In 1998, approximately 27% of the sales by the Industrial and
Power Equipment segment were to two customers.
Competition
Competition in markets served by the Industrial and Power Equipment segment
is based largely on quality, price, brand recognition and product support. The
segment's primary competition in timber harvesting equipment includes large
diversified equipment manufacturers, including Timberjack, Barko, Tigercat,
Hood, Deere, Franklin, Bell and Morbark. Gear Products' competition includes
relatively smaller players in this fragmented industry. These include SKF,
Avon, Kaydon, Rotec, Fairfield, Auburn, Tulsa and Braden.
Growth Opportunities
We believe that the primary drivers of growth for the Industrial and Power
Equipment segment include new product development, international expansion, and
acquisitions which will allow the Industrial and Power Equipment segment to
efficiently utilize existing manufacturing and distribution capabilities to
manufacture and distribute acquired product lines.
The Industrial and Power Equipment segment focuses on new product
development efforts that allow it to distinguish itself in the market. Over the
past three years, Industrial and Power Equipment has developed 47 new products
in an effort to continually meet customer needs. Examples include Hydro-Ax EX
Series Feller Bunchers, CTR Delimbers (5 models), and the Prentice 280 loader.
The Industrial and Power Equipment segment focuses on international
opportunities as well. For example, the timber harvesting equipment business
could benefit from further penetration of the large European market as well as
from the recovery of the Asian pulp and paper markets.
Finally, the Industrial and Power Equipment segment is continuing to focus
on more effectively leveraging its manufacturing and distribution capabilities.
Management is currently working to integrate the operations and product lines
of FIED and CTR. We believe there are further opportunities to acquire related
businesses and product lines in both timber harvesting and Gear Products.
Company Strategy
Over the last several years we have focused on the following strategic
tenets, which have helped give us profitable, growing positions of leadership
in each of our three business segments:
Seek leadership positions in a manageable number of substantial niche
markets. Securing leadership positions in niche markets has been a powerful
driver of our success. Most products across our three operating segments have
leading market positions. The following product lines are within the top three
market share leaders in their respective markets: saw chain, saw bars, zero
turning radius lawn mowers, log loaders, automated forestry harvesting
equipment, ammunition reloading equipment, sporting ammunition, law enforcement
ammunition, delimbing equipment, sports optics and gun care accessories.
Collectively, these products represented approximately 80% of our 1998 total
sales.
60
Develop new products. New product development has been a strong source of
growth for us. In 1998, approximately 27% of annual sales came from new or
materially enhanced products introduced within the past three years. Utilizing
computer-aided design and manufacturing, we create hundreds of new products and
upgrades each year. Recent examples include the portable ICS gasoline engine
powered concrete cutting saw, the Premium Tungsten shot shells from Federal
Cartridge Company and the Hydro-Ax 321 Series 3-wheel feller buncher from the
FIED.
Search for new acquisition opportunities. Since 1990, we have effected and
successfully integrated eight strategic acquisitions in, or related to, our
existing businesses. In 1998, approximately 38% of sales and approximately 34%
of operating income resulted from these acquisitions. Management believes all
of our business segments have significant growth opportunities available
through acquisition of additional related businesses, product lines, and
distribution channels that leverage our existing manufacturing capabilities and
distribution networks. In particular the sporting equipment business and
aftermarket parts for outdoor products are fragmented industries in which we
have identified profitable areas for growth through acquisition because of our
broad distribution and customer service capabilities.
Expand our international presence. International expansion has also been a
strong source of growth for us. Our international sales have grown from $159.0
million in 1993 to $208.0 million in 1998. While recent turbulence in
international markets, particularly Southeast Asia, may temporarily slow our
international growth, it is likely to increase our opportunities to gain market
share as well. Our recent acquisitions will give us additional products to be
sold through our existing international distribution channels, while recent
investments in our international facilities in Canada, Brazil, and the European
Community will support our continued growth in international sales.
Reduce costs. We have incorporated a philosophy of continuous improvement
throughout our operations by focusing on the areas of purchasing costs,
manufacturing efficiency, product development, material utilization and
selling, general and administrative costs and activities. This has enabled us
to achieve operating margins that we estimate are higher than those of our
competition even during market downturns. A good example of this is that the
cost to produce a foot of chain in our Outdoor Products segment is less today
than in 1982. In addition to our continuous improvement program, we have
identified several special programs to reduce costs during 1999, 2000, and 2001
in each of our business segments. These programs include consolidation
activities in our Sporting Equipment segment related to the Federal
acquisition, streamlining and cost reduction activities at the corporate level,
and rationalization of production operations at the Industrial and Power
Equipment segment. Most of these special cost improvement programs are
underway, and we will continue to identify new sources of cost reduction.
Maintain a balanced diversification with respect to geography, cyclicality,
customer base, distribution channels and product lines. We have been successful
in achieving a balanced diversification that has allowed us to sustain our
profitability for the total company and continue our investment programs even
during difficult economic times. As an example, on average approximately 30% of
our sales during the last five years have occurred outside of the U.S., and we
sold our products in more than 100 countries. Our businesses have shown that
they range from the moderately cyclical to the counter-cyclical (based on the
general economic climate), providing us with an overall sales pattern that is
stable on an aggregate basis. Our customer base is well diversified with 45% of
our sales to consumers, 38% to industrial users, and the remaining 17% of sales
to government users and original equipment manufacturers. Our distribution
channels are broad and varied, including (i) direct sales to the customer; (ii)
sales through two step distribution; (iii) sales to dealers; and (iv) sales
through competitive bidding processes. Our product and market diversification
is reflected in our three broad business segments offering thousands of
different products.
Capacity Utilization
Based on an 80-hour work week, the Outdoor Products, Sporting Equipment, and
Industrial and Power Equipment segments utilized approximately 82%, 61% and
65%, respectively, of their production capacity in
61
the year ended December 31, 1998. Consequently all existing businesses have
sufficient capacity for our near-term growth expectations and require
relatively minor capital expenditures during the next few years to support our
expansion plans.
Intellectual Property
Although our product markets are generally in mature industries, we
nonetheless have certain patents and trade secrets which give us a competitive
advantage in our industries. Moreover, we have several widely recognized and
extremely valuable trademarks that provide us with strong positions in our
markets.
Backlog
The backlog for each of our business segments as of the end of each of its
last four reporting periods was as follows (in millions):
September 30, December 31,
------------- ------------------
1999 1998 1997 1996
------------- ----- ------ -----
Outdoor Products......................... $ 41.4 $30.2 $ 42.0 $35.5
Sporting Equipment....................... 24.9 15.1 19.7 9.5
Industrial and Power Equipment........... 34.5 16.0 56.2 29.2
------ ----- ------ -----
Total.................................... $100.8 $61.3 $117.9 $74.2
====== ===== ====== =====
The total backlog as of September 30, 1999, is expected to be completed and
shipped within 12 months. Backlog improvements in the Industrial and Power
Equipment segment, such as those that we have experienced since December 31,
1998, in conjunction with improving pulp prices have traditionally been
indicators of an improved timber harvesting equipment marketplace.
Acquisitions and Dispositions
The following chart highlights our recent acquisitions:
Total Consideration
Date Acquired Entity(1) Acquired Products or Benefit (Approximate)
- ----------------------- ---------------------------------- ----------------------------------------- -------------------
September 1998 Certain assets of Redfield line. Inventory (primarily rifle scopes, $3 million
mounting systems and related items),
machinery and equipment,
trademarks, sales literature and patents.
November 1997 Federal Cartridge Company Shotshell, centerfire and rimfire $129 million
(formerly Federal-Hoffman, Inc.) cartridges, ammunition components
and clay targets.
January 1997 Frederick Manufacturing Accessories for lawn mowers and $25 million(2)
Corporation and Orbex, Inc. sporting goods.
Orbex, Inc. was subsequently
merged into Frederick
Manufacturing Corporation.
December 1995 Simmons Outdoor Corporation. Sports optics distribution $38 million
capabilities.
April and November 1994 CTR Manufacturing, Inc. and assets Automated forestry harvesting $18 million
of Ram-Line, Inc. equipment, stocks, magazines, lens
caps and other products for the
shooting sports markets.
- --------
(1) Represents acquired capital stock, unless otherwise noted.
(2) Includes retired existing debt of the acquired companies in the amount of
$5.8 million.
62
In addition, in February 1994, we adopted a plan to discontinue our
construction business through the orderly completion and close-out of our
principal domestic and foreign construction projects and the sale of Pozzo
Construction Co., a subsidiary headquartered in Los Angeles, California. Pozzo
was sold in the first quarter of fiscal 1996 with no material effect in our
financial condition. By March 1996, we had completed all construction projects.
Employees
At September 30, 1999, we employed 5,349 people. None of our domestic
employees is unionized; the number of foreign employees who belong to unions is
not significant. We believe our relations with our employees are satisfactory.
Environmental Matters
Our operations are subject to comprehensive U.S. and foreign laws and
regulations relating to the protection of the environment, including those
governing discharges of pollutants into the air and water, the management and
disposal of hazardous substances and the cleanup of contaminated sites. Permits
and environmental controls are required for certain of our operations to
prevent or reduce air and water pollution, and these permits are subject to
modification, renewal and revocation by issuing authorities. Management
believes that Blount is in substantial compliance with all material
environmental laws, regulations and permits.
On an ongoing basis, Blount incurs capital and operating costs to comply
with environmental laws. We expect to spend approximately $1.4 million in 1999,
$1.0 million in 2000 and $0.7 million in 2001 on environmental compliance.
Environmental laws and regulations generally have become stricter in recent
years, and the cost to comply with new laws and regulations may be greater than
these estimated amounts.
Certain environmental laws, such as Superfund, can impose liability for the
entire cost of cleanup of contaminated sites upon any of the current and former
site owners or operators or parties who sent waste to these sites, regardless
of fault or the lawfulness of the original disposal activity. We have been
identified as a potentially responsible party at a number of Superfund sites.
Currently we cannot accurately estimate our cleanup costs at these sites, the
costs of which ultimately may be significant. Generally, however, where there
are multiple potentially responsible parties, liability has been apportioned
based on the type and amount of waste disposed of by each party at the site and
the number of financially viable parties, although we cannot assure you that
this will be the case with respect to any particular site. For information
regarding certain environmental matters, see "--Legal Proceedings."
Some of Blount's manufacturing facilities are located on properties with a
long history of industrial use, including the use of hazardous substances.
Blount has identified soil and groundwater contamination from these historical
activities at several of its properties, which it is currently investigating,
monitoring or remediating. Management believes that costs incurred to
investigate, monitor and remediate known contamination at these sites will not
have a material adverse effect on our business, financial condition or results
of operations. We cannot be sure, however, that we have identified all existing
contamination on our properties or that our operations will not cause
contamination in the future. As a result, we could incur material costs to
cleanup contamination.
Properties
Our corporate headquarters occupy executive offices at 4520 Executive Park
Drive, Montgomery, Alabama.
63
The following table lists the properties that we either own or lease, along
with the principal activities carried out at each property and the operating
unit which occupies each facility:
Square Footage
---------------------------
Group Business Unit Facility Owned Leased Total Activity
----- ------------- ------------------- --------- ------- --------- -----------------
Blount Corporate Corporate Montgomery, AL 127,390 127,390 Office
Blount Corporate Corporate Montgomery, AL 64,270 64,270 Storage
Blount Corporate Corporate Montgomery, AL 13,320 13,320 Airplane Hanger
Blount Corporate Corporate York, NE Vacant Land
--------- ------- ---------
Subtotal: 191,660 13,320 204,980
========= ======= =========
Outdoor Products Oregon Milwaukie, OR 383,810 383,810 Group Office and
Manufacturing
Outdoor Products Oregon Guelph, Ontario 215,500 215,500 Distribution and
Manufacturing
Outdoor Products Oregon Curitiba, Brazil 97,330 97,330 Distribution and
Manufacturing
Outdoor Products Oregon Clackamas, OR 91,945 91,945 Distribution
Outdoor Products Oregon Nivelles, Belgium 81,828 81,828 Distribution
Outdoor Products Oregon Tewkesbury, England 14,241 14,241 Distribution
Outdoor Products Oregon Cedex, France 12,917 12,917 Distribution
Outdoor Products Oregon Gartringen, Germany 11,513 11,513 Distribution
Outdoor Products Oregon Varberg, Sweden 8,977 8,977 Distribution
Outdoor Products Oregon Moscow, Russia 6,200 6,200 Distribution
Outdoor Products Oregon Tokyo, Japan 3,258 3,258 Distribution
Outdoor Products Dixon Coffeyville, KS 161,000 161,000 Manufacturing
Outdoor Products Frederick Kansas City, MO 75,711 75,711 Manufacturing
Outdoor Products Frederick Kansas City, MO 60,000 60,000 Distribution
--------- ------- ---------
Subtotal: 1,015,179 209,051 1,224,230
========= ======= =========
Sporting Equipment Federal Anoka, MN 844,588 19,457 864,045 Manufacturing
Sporting Equipment SED Lewiston, ID 344,046 344,046 Manufacturing
Sporting Equipment SED Onalaska, WI 249,394 249,394 Manufacturing
Sporting Equipment SED Oroville, CA 105,000 105,000 Manufacturing
Sporting Equipment Federal Richmond, IN 40,200 40,200 Manufacturing
Sporting Equipment Simmons Thomasville, GA 96,000 96,000 Distribution
Sporting Equipment Sporting Chesterfield, MO 2,330 2,330 Office
Equipment
Group
--------- ------- ---------
Subtotal:
1,583,228 117,787 1,701,015
========= ======= =========
Industrial & Power FIED Prentice, WI 224,098 224,098 Manufacturing
Industrial & Power FIED Zebulon, NC 162,480 162,480 Group Office,
Worldwide Product
Support,
Manufacturing
Industrial & Power FIED Owatonna, MN 180,000 180,000 Manufacturing
Industrial & Power CTR Union Grove, NC 96,047 96,047 For Sale
Industrial & Power Gear Products Tulsa, OK 98,500 98,500 Manufacturing
--------- ------- ---------
Subtotal: 761,125 761,125
--------- ------- ---------
Total: 3,551,192 340,158 3,891,350
========= ======= =========
All of these facilities are in good condition, are currently in normal
operation and are generally suitable and adequate for the business activity
conducted therein.
Legal Proceedings
The Washington State Department of Ecology, or WDOE, has notified us that we
are one of many companies named as a potentially liable party, or PLP, for the
Pasco Sanitary Landfill site in Pasco, Washington. In July 1992, we and thirty-
eight other PLPs agreed with WDOE to investigate contamination at
64
the Pasco site. In October 1994, WDOE issued an administrative order to all
PLPs to complete the investigation. The results of the investigation are
expected in the near future. Although the cleanup costs are believed to be
substantial, accurate estimates will not be available until investigations have
been completed at the Pasco site. However, we believe that our waste, compared
to the total documented volume of waste sent to the Pasco site, is de minimis.
We believe that, given the number of financially viable PLPs and our likely de
minimis status, our liability will not have a material adverse effect on our
consolidated financial condition or operating results.
We are a defendant in a number of product liability lawsuits, some of which
seek significant or unspecified damages, involving serious personal injuries
for which there are retentions or deductible amounts under our insurance
policies. In addition, we are a party to a number of other suits arising out of
the conduct of our business. While there can be no assurance as to their
ultimate outcome, management does not believe these lawsuits will have a
material adverse effect on consolidated financial condition or operating
results.
65
MANAGEMENT
Directors and Executive Officers
Blount's and our directors, executive officers and key employees, their
positions and their ages as of December 1, 1999, are as follows:
Name Age Position
------------------------ --- -------------------------------------------------
Chairman of the Board, President and Chief
John M. Panettiere...... 62 Executive Officer
Harold E. Layman........ 53 Executive Vice President--Finance Operations and
Chief Financial Officer and Director
James S. Osterman....... 61 President--Outdoor Products segment
Gerald W. Bersett....... 59 President--Sporting Equipment segment
Donald B. Zorn.......... 63 President--Industrial and Power Equipment segment
Senior Vice President, General Counsel and
Richard H. Irving, III.. 56 Secretary
Alan L. Magdovitz....... 42 Director
Eliot M. Fried.......... 66 Director
E. Daniel James......... 34 Director
John M. Panettiere serves as Blount's and our Chairman of the Board,
President and Chief Executive Officer. Prior to the recapitalization
transactions he served as our President and Chief Executive Officer from June
1993 and as our President and Chief Operating Officer from May 1992 to June
1993. Prior to that date, he was Chairman, President and Chief Executive
Officer from January 1990 to May 1992, President and Chief Executive Officer
from January 1988, Senior Executive Vice President and Chief Operating Officer
from August 1986 of Grove Worldwide Company, Shady Grove, Pennsylvania, a
manufacturer of mobile hydraulic cranes and aerial work platforms.
Harold E. Layman serves as one of Blount's as well as one of our Directors
and Blount's and our Executive Vice President--Finance Operations and Chief
Financial Officer. Prior to February 1997, he served as our Senior Vice
President and Chief Financial Officer from January 1993. Prior to January 1993,
he served as Senior Vice President--Finance and Administration and was a member
of the Executive Committee of VME Group, N.V., The Netherlands, a manufacturer
of automotive components and industrial equipment, from September 1988.
James S. Osterman was elected President of our Outdoor Products segment in
January 1997. Prior to that date, he served as President of the Oregon Cutting
Systems Division from January 1987.
Gerald W. Bersett was elected President of the Sporting Equipment segment in
April 1998. From April 1995 to February 1998, he served as President and Chief
Operating Officer of Sturm, Ruger and Company, Inc. at which time he retired.
Sturm, Ruger and Company, Inc. is a New York Stock Exchange Company engaged in
the manufacture of sporting equipment. Mr. Bersett was President of Winchester
Ammunition Division of Olin Corporation from 1988 to April 1995. Prior to that
date, he served as Vice President and General Manager of the Winchester
Division.
Donald B. Zorn was elected President of our Industrial and Power Equipment
segment in January 1997. Prior to that date, he served as President of the
Forestry and Industrial Equipment Division since January 1994. Prior to January
1994, he served as President and Chief Operating Officer of Grove Cranes, a
division of Grove Worldwide Company, Shady Grove, Pennsylvania, a manufacturer
of mobile hydraulic cranes and aerial work platforms, from March 1988.
Richard H. Irving, III, was elected Blount's and our Secretary in August
1999 and Senior Vice President and General Counsel in April 1995. Prior to that
date, he served since 1986 as Vice President, General Counsel and Secretary of
Duchossois Industries, Inc., a diversified, privately held company
headquartered in Elmhurst, Illinois. Mr. Irving also served as Associate
General Counsel of Union Camp Corporation from 1979 to 1986 and Assistant
General Counsel of Rockwell International from 1974 to 1979.
66
Alan Magdovitz is currently a Managing Director of Lehman Brothers Inc. and
a Principal of Lehman Brothers Merchant Banking Partners. He has held these
positions since December 1996. Prior to joining Lehman Brothers in December
1996, Mr. Magdovitz served as a Principal of Seaport Capital, Inc., a firm
formed in 1992 to manage two private equity partnerships on behalf of
Prudential Securities. From 1987 to 1992, he served as a Managing Director of
Prudential Bache Interfunding, a leveraged buyout firm that invested $1.4
billion in debt and equity securities across 14 transactions. Mr. Magdovitz
holds an M.B.A. from Harvard University and a B.A. with distinction from
Cornell University.
Eliot M. Fried is currently a Managing Director of Lehman Brothers Inc. Mr.
Fried has been a member of the Lehman Brothers' Investment Committee for nine
years and is also a member of Lehman Brothers' Commitment Committee and
Fairness Opinion Committee. Mr. Fried joined Shearson, Hayden, Stone, a
predecessor firm, in 1976 and became a Managing Director in 1982. Mr. Fried
holds an M.B.A. from Columbia University and a B.A. from Hobart College and is
currently a director of Axsys Technologies Inc. and L-3 Communications
Corporation.
E. Daniel James is currently a Senior Vice President of Lehman Brothers,
Inc. Mr. James joined Lehman Brothers in 1988. Since 1996, Mr. James has worked
in Lehman Brothers' Merchant Banking Group. Prior to joining the Merchant
Banking Group, Mr. James served in the Mergers & Acquisitions Group and the
Financial Institutions Group.
67
Executive Compensation
The following table summarizes, for the fiscal years ended the last day of
December 1998, the last day of December 1997, and the last day of December
1996, all plan and non-plan compensation awarded to, earned by, or paid to (i)
our chief executive officer and (ii) our four most highly compensated executive
officers other than the CEO at the end of December 1998 in all capacities in
which they served:
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year* Salary ($) Bonus ($) Compensation ($)(3) Options (#) Compensation ($)
------------------ ----- ---------- --------- ------------------- ------------ ----------------
Winton M. Blount(1)..... 1998 750,000 400,000 67,991 0 86,030(4)
Chairman of the Board 1997 750,000 800,000 60,282 0 44,987
C1996 625,000 800,000 48,272 100,000 167,306
John M. Panettiere...... 1998 791,666 600,000 64,270 160,000 136,833(5)
President and Chief 1997 741,666 1,000,000 58,685 238,000 119,805
Executive Officer C1996 583,333 900,000 54,605 320,000 135,585
Harold E. Layman........ 1998 315,833 240,000 12,585 45,000 29,080(6)
Executive Vice
President-- 1997 291,666 275,000 12,390 60,000 24,200
Finance Operations and C1996 229,166 225,000 5,620 80,000 22,291
Chief Financial Officer
James S. Osterman....... 1998 335,386 250,000 10,103 45,000 35,621(7)
President--Outdoor 1997 316,151 310,000 9,042 62,000 26,920
Products segment C1996 233,333 230,000 7,163 80,000 24,170
D. Joseph McInnes(2).... 1998 308,333 230,000 16,335 45,000 28,209(8)
Executive Vice
President-- 1997 286,333 265,000 12,433 60,000 23,625
Administration and
Chief C1996 225,833 225,000 7,747 80,000 82,199
Administrative Officer
and
Corporate Secretary
- --------
* C1996 represents the ten-month period March 1, 1996 through December 31,
1996. We changed our fiscal year from a March 1-February 28 period to a
January 1-December 31 period, thus the ten-month period ended December 31,
1996 is reported.
(1) Winton M. Blount resigned effective August 19, 1999.
(2) D. Joseph McInnes resigned effective October 20, 1999, citing "good reason"
(in the nature of constructive discharge) under his employment contract and
seeking severance benefits in excess of $2.5 million. The Compensation
Committee of the Board of Directors reviewed the facts relating to Mr.
McInnes's termination and found no basis for a "good reason" termination.
Therefore, the Committee denied Mr. McInnes's right to any severance
benefits. Mr. McInnes has the right to request arbitration of his claim.
(3) Tax gross-up on club dues, personal use of our property and premiums on
life insurance policies.
(4) Amount is comprised of $69,750 matching contribution to employee's 401(k)
and excess 401(k) accounts and $16,280 attributable to the personal portion
of the premiums on life insurance policies under our executive benefit life
insurance and supplemental retirement plan.
(5) Amount is comprised of $80,625 matching contribution to employee's 401(k)
and excess 401(k) accounts and $56,208 premiums on a life insurance policy
under our executive life insurance plan.
(6) Amount is comprised of $26,587 matching contribution to employee's 401(k)
and excess 401(k) accounts and $2,493 attributable to the personal portion
of the premiums on the life insurance policies under our executive life
insurance plan.
(7) Amount is comprised of $29,042 matching contribution to employee's 401(k)
and excess 401(k) accounts and $6,579 accrued pursuant to our Omark salary
continuation plan.
(8) Amount is comprised of $25,800 matching contribution to employee's 401(k)
and excess 401(k) accounts and $2,409 in premiums on a life insurance
policy under our executive benefit life insurance and supplemental
retirement plans.
Employment Contracts and Change-In-Control Arrangements
On April 18, 1999, we entered into employment agreements with all of the
named executives except for Winton M. Blount and D. Joseph McInnes. These
employment agreements provide that each of Messrs. Panettiere, Layman,
Osterman, Bersett, Zorn, Irving and certain other of our executive officers
will continue to serve as members of our senior management team. Mr.
Panettiere's employment agreement provides that he will be chairman of our
Board and will receive a $75,000 increase in his annual base salary. The other
members of our post-recapitalization senior management team will continue to
hold their present positions and will not receive increases in their base
salaries. See "Related Party Transactions" for a more detailed description of
these employment contracts.
68
The named executives' pre-recapitalization employment agreements contained a
change-in-control provision under which each executive would be paid a multiple
(2 to 3 times, depending on the executive) of their then current base salary
and an average of bonus payments recently received if, following a change-in-
control (such as the recapitalization transactions), we or our successors were
to materially breach the executives' agreements or if they were to terminate
their employment for "good reason." These provisions were contained in the
employment agreements referred to in the preceding paragraph. Full funding of
certain benefits, including two established rabbi trusts, would also occur upon
a change-in-control, as defined in the pre-recapitalization employment
agreements. See "Related Party Transactions" for more information concerning
these trusts.
In connection with the recapitalization transactions, Lehman Brothers
Merchant Banking Partners and Mr. Winton M. Blount agreed that we will retain
Mr. Blount as an consultant for a period of two years following the closing of
the recapitalization transactions and his resignation as chairman of our Board.
See "Related Party Transactions" for information on this agreement with, and
severance benefit applicable to, Mr. Blount.
Option Grants
Pursuant to the merger agreement, each option outstanding prior to the
consummation of the recapitalization transactions to purchase our stock was
converted into the right to receive a cash payment from us immediately prior to
the closing of the recapitalization transactions. After the closing of the
recapitalization transactions, Messrs. Panettiere, Layman, Osterman, Bersett,
Zorn, Irving and certain other of our executives (who, in aggregate invested
approximately $13.6 million as part of the recapitalization transactions)
received options to purchase shares of our post-recapitalization common stock
pursuant to their post-recapitalization employment agreements. These options
represented in the aggregate approximately 8% of post-merger fully diluted
common stock.
Pension Plans
Assuming continuance of our retirement plan in its present form, estimated
annual benefits payable to eligible employees (including executive officers) in
specific classifications following retirement at age 65 (normal retirement
age), after continuous years of credited service, are shown below:
Pension Plan Table
Five-Year
Average
Earnings at Estimated Annual Benefits for Specified Years of Credited
Retirement Service(1), (2)
----------- --------------------------------------------------------------
(3) 10 15 20 25 30 35 40 or more
----------- -------- -------- -------- -------- -------- -------- ----------
$100,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 52,500 $ 55,000 $ 57,500
200,000 40,000 60,000 80,000 100,000 105,000 110,00 115,000
300,000 60,000 90,000 120,000 150,000 157,500 165,000 172,500
400,000 80,000 120,000 160,000 200,000 210,000 220,000 230,000
500,000 100,000 150,000 200,000 250,000 262,500 275,000 287,500
600,000 120,000 180,000 240,000 300,000 315,000 330,000 345,000
700,000 140,000 210,000 280,000 350,000 367,500 385,000 402,500
800,000 160,000 240,000 320,000 400,000 420,000 440,000 460,000
- --------
(1) The amounts set out above are based on the benefits under a straight life
annuity to a participant retiring at age 65 on January 1, 1999. The amounts
shown are to be reduced for offsetting amounts to be paid as social
security benefits and benefits payable under master annuity contracts
(purchased upon termination of prior retirement plans).
(2) Under Section 415(b) of the Internal Revenue Code, the maximum benefit
payable under the master annuity contracts (purchased upon termination of
prior retirement plans) and our retirement plan to an employee retiring at
age 65 in 1998 is $130,000, an amount which may change each year in
accordance with a determination made by the Commissioner of the Internal
Revenue Service. In addition, Section 401(a)(17) of the Internal Revenue
Code limits the amount of an employee's compensation which may be taken
into account under our retirement plan to $160,000 for 1998, an amount
which also may change each year in accordance with a similar determination.
These limitations have been disregarded for the purposes of this table
since the amount of the benefit payable in excess of the limitation is
covered by us and subsidiaries' supplemental retirement benefit plans.
(3) Earnings covered by our retirement plan are based on the participant's
base salary or wages.
69
The years of benefit service used to determine benefits under the Blount
retirement plan and the master annuity contracts (purchased upon termination of
prior retirement plans) as of December 31, 1998, for the persons named in the
Summary Compensation Table are: Mr. Panettiere--7 years; Mr. Blount--53 years;
Mr. Osterman--29 years; Mr. Layman--6 years; and Mr. McInnes--25 years.
Executive Benefit Life Insurance and Supplemental Retirement Plan
On September 22, 1980, our Board adopted, effective August 1, 1980, our
executive benefit life insurance and supplemental retirement plan, which we
will refer to collectively as the "Keyman insurance plan," for our key
executive officers and those of our subsidiaries. Eligibility is determined by
the Compensation and Management Development Committee of our Board. Each
participating executive officer has the opportunity to obtain life insurance
that will pay to the named beneficiary in the event of the executive officer's
death while employed by us or one of our subsidiaries as a full-time permanent
employee, an amount equal to 2 1/2 times the executive officer's annual
compensation (base salary as of August 1 of each year plus the amount of the
most recent bonus paid under our annual target incentive plan) at the time of
the executive officer's death which we will refer to as the "death benefit."
The excess of the face amount of the policy over the death benefit is paid to
us. We have ownership rights in the policy, except that the executive officer
has the right to change the beneficiary designation for the amount of the death
benefit. All dividends declared on the policy shall be applied at our option to
purchase additional paid-up insurance on the life of the executive officer or
to reduce the premiums on the policy. We currently pay all premiums due on the
policies.
If the executive officer retires directly from permanent full-time
employment with us or one of our subsidiaries, under certain circumstances and
subject to the election by the executive officer, we, after withdrawing the
cash value, will assign our rights in the policy to the executive officer. In
lieu of our assignment of our rights in the policy, the executive officer may
elect to receive an optional supplemental retirement benefit payable by us
instead of all or a portion of any interest the executive officer or his
beneficiary or beneficiaries may otherwise be entitled to under the policy, and
the death benefit will terminate. If the executive officer retires prior to age
65, he or she may elect a supplemental retirement benefit commencing upon such
retirement date, but the benefit will be reduced based on a formula.
Mr. Blount resigned August 19, 1999 at age 79 and started receiving monthly
installments amounting to $280,000 per year effective September 1, 1999. Mr.
McInnes resigned on October 20, 1999 at age 56 and started receiving monthly
installments amounting to $159,260 per year effective November 1, 1999. Messrs.
Panettiere, Osterman and Layman, the other persons named in the Summary
Compensation Table, do not participate in the Keyman insurance plan.
Supplemental Executive Retirement Plans
We maintain a supplemental executive retirement plan for John M. Panettiere.
This supplemental executive retirement plan will provide Mr. Panettiere with a
benefit upon his normal retirement date or earlier termination of employment
equal to a benefit calculated under the benefit formula of our retirement plan,
but based on a schedule of years of service granted to him under the
supplemental executive retirement plan rather than this actual service, reduced
by any retirement benefits payable under our retirement plan, our supplemental
retirement benefit plan, and any retirement income actually paid to Mr.
Panettiere under any pension plan maintained by a former employer. This plan is
administered by our Board or, at its discretion, the Compensation and
Management Development Committee of our Board. This plan may be amended from
time to time in any respect with the consent of the other party, but it cannot
be terminated without the consent of our Board or its designated committee and
Mr. Panettiere. At the discretion of our Board and after timely notice to Mr.
Panettiere, rights to receive any benefits under this plan may be forfeited,
suspended, reduced or terminated by our Board if it determines in good faith
that good cause as defined in this plan has been shown. The projected annual
benefit payable to Mr. Panettiere under this plan, in addition to the benefits
payable under our retirement plan, our excess benefit plan and the retirement
income payable under any pension plan maintained by a former employer of Mr.
Panettiere, is $313,049.
70
The Blount Deferred Compensation Plan
On October 9, 1998, we adopted our deferred compensation plan for a select
group of Blount's and our highly compensated or management employees. The
deferred compensation plan is also known as the Executive Supplemental
Retirement Plan of Blount, Inc. Our deferred compensation plan provides
supplemental retirement benefits to participants at age 65 in the form of a
life annuity with monthly payments equal to the excess of (i) the product of
.2083% of the participant's highest 3-year average earnings (base salary plus
bonuses earned under an executive management target incentive plan) during the
last 10 years of employment multiplied by his years of benefit service (as
provided under the deferred compensation plan which, for some participants, may
be greater than actual service) up to, but not in excess of, 20, over (ii) the
amount of retirement benefits payable to the participant under all other of our
defined benefit plans, any pension plan maintained by a former employer of the
participant, and his primary social security benefit. Upon the participant's
death, a survivor annuity is payable under the deferred compensation plan to
the participant's surviving spouse in a monthly amount equal to 66 2/3% of the
monthly benefit payable to the participant. The deferred compensation plan
provides for retirement before age 65 with reduced benefits and also provides
special rules regarding benefits payable if the participant becomes disabled or
dies before commencing a benefit. If certain events occur, the deferred
compensation plan allows participants to elect to receive their benefit in a
single lump sum payment.
The deferred compensation plan may be amended or terminated with the consent
of all participants and employers. We, in our discretion and without consent of
the participants, may also make certain amendments that do not adversely affect
the rights of participants. All persons named in the Summary Compensation Table
participate in the deferred compensation plan. The projected annual benefit
payable under the deferred compensation plan, in addition to the benefits
payable under other defined benefits plans, pension plans of prior employers,
and social security, to the persons named in the Summary Compensation Table is
as follows: Mr. Panettiere--$437,321; Mr. Osterman--$26,819; and Mr. Layman--
$130,286. Mr. Blount was paid a lump sum benefit of $1,055,707.89 from this
plan on September 1, 1999 as a result of his resignation on August 19, 1999 at
age 79. The status of Mr. McInnes under this deferred compensation plan depends
upon the final determination of whether his resignation on October 20, 1999 at
age 56 is deemed to have been for "good reason" on his part under his
employment agreement. The projected annual benefit for Mr. McInnes is $21,129
or $0.
Omark Supplemental Retirement Plan
We sponsor a supplemental retirement plan for the key management employees
of Blount's Outdoor Products segment, Sporting Equipment segment, and
Industrial and Power Equipment segment, which we will refer to as the "Omark
supplemental retirement plan," which was originally adopted by a predecessor
corporation, effective July 1, 1979. The Omark supplemental retirement plan
provides a supplemental retirement benefit to participants equal to the excess,
if any, of (i) 50% of the participant's highest 5-year average base salary
during the last 10 years of employment before age 65, over (ii) the aggregate
amount available to the participant under the other benefit plans of the
subsidiaries and one-half the primary social security benefit. Our Omark
supplemental retirement plan provides for retirement at an earlier age at
reduced benefits. Our Omark supplemental retirement plan may be revised or
terminated by our Board. Mr. Osterman participates in our Omark supplemental
retirement plan. No benefits are projected to be payable under this plan.
Omark Retirement Protection Plan
We sponsor a retirement protection plan, which we will refer to as our
"Omark protection plan," for certain employees of Blount's Outdoor Products
segment, Sporting Equipment segment, and Industrial and Power Equipment
segment, which was originally adopted by a predecessor corporation, effective
November 1, 1983. Participation in our Omark protection plan is automatic if
the amount of an individual's benefit under our Omark retirement plan, which we
funded prior to its termination on July 27, 1985, is reduced as a result of any
deferral of compensation pursuant to our Omark deferred plan, which was
terminated effective December 31,
71
1986. Benefits under our Omark protection plan are limited to the amount of any
reduction of benefits under the master annuity contracts (purchased upon
termination of our Omark retirement plan) or our pre-1992 Omark retirement plan
as a result of any deferral of compensation pursuant to the Omark deferred plan
prior to its termination. If the benefits that are actually due under the
master annuity contracts or our retirement plan are not reduced, then no
benefits are due under our Omark protection plan. Our Board may terminate or
amend our Omark protection plan on the first day of any month by giving notice
to the participants. Such termination shall not affect the rights of
participants under our Omark protection plan as of such date of termination.
Our Omark protection plan is unfunded and amounts due to the participants
covered thereby are among our general obligations. Mr. Osterman participates in
our Omark protection plan. No benefits are projected to be payable under this
plan.
Omark Salary Continuation Plan
We sponsor a salary continuation plan for certain employees of Blount's
Outdoor Products segment, Sporting Equipment segment, and Industrial and Power
Equipment segment, who participated in the former management award plan of
those divisions, which was originally adopted by a predecessor corporation,
effective January 1, 1985. Our salary continuation plan provides the
beneficiaries of the participants with a continuation of 2 years of annual
salary when death occurs. Our Board may at any time terminate or amend the
salary continuation plan. Participation in our salary continuation plan was
frozen effective February 28, 1990. Our salary continuation plan is unfunded
and amounts due the beneficiaries of the participants covered thereby are among
our general obligations. Mr. Osterman participates in our salary continuation
plan.
Supplemental Retirement and Disability Plan
We have a supplemental retirement and disability plan, for the employees of
our corporate office effective as of January 1, 1992 (adopted by our Board on
November 25, 1991). Each person who was an eligible employee of our corporate
office on December 31, 1991 and whose annual earnings were at least $90,000,
became a participant in our retirement and disability plan on January 1, 1992
or will become a participant on the first day thereafter on which he or she
becomes an eligible employee of our corporate office. Our retirement and
disability plan provides that, at the time a participant ceases to be an
eligible employee, if his or her retirement benefit under our retirement plan
is less than the retirement benefit to which such participant would have been
entitled at the time he or she ceased to be an eligible employee if our pre-
1992 retirement plan had continued in effect without amendment, then such
participant shall be entitled to a supplemental retirement benefit under our
retirement and disability plan which has an actuarial value equal to the
excess, if any, of (i) the actuarial value of the retirement benefit to which
the participant would have been entitled had our pre-1992 retirement plan
continued in effect over (ii) the actuarial value of his or her retirement
benefit under our retirement plan, as amended and in effect at the time he or
she ceases to be an eligible employee. If such participant dies under
circumstances entitling his or her spouse to a benefit under our retirement
plan, as in effect at the date of his or her death, such spouse shall be
entitled to receive a benefit having the actuarial value equal to the excess,
if any, of (i) the actuarial value of the benefit to which such spouse would
have been entitled had our pre-1992 retirement plan continued in effect over
(ii) the actuarial value of the benefit to which such spouse is entitled under
our retirement plan, as in effect at the date of the participant's death.
Payment of any supplemental retirement benefit hereunder shall be made in the
same form as is payment of the corresponding benefit under our retirement plan.
Our retirement and disability plan also provides that a participant who
ceases active work as a result of his or her inability to perform the duties of
his or her occupation because of disease or accidental bodily injury while an
eligible employee shall be entitled to receive a monthly disability benefit on
the 1st day of the 7th month following the month during which the participant
ceased to be an active eligible employee and terminating on the earlier of the
1st day of the calendar month in which the participant dies or the 1st day of
the 29th calendar month following the calendar month in which the participant
ceases to be an active eligible
72
employee. The amount of each such monthly payment during this period shall be
equal to (i) 40% of the sum of the participant's earnings less 50% of the
participant's monthly social security disability benefit, less (ii) the monthly
benefit payable to the participant under the long-term disability component of
our welfare benefit plan. If a participant becomes disabled while an active
eligible employee, he or she shall be entitled to receive a long-term
disability supplement commencing on the 1st day of the 30th month following the
month in which the participant ceases to be an active eligible employee and
terminating on the 1st day of the calendar month in which the participant dies.
No such supplement shall be payable during any month ending prior to the
participant's normal retirement date during which the participant does not
receive a social security disability benefit. The payment is based on a formula
set forth in this plan. Our retirement and disability plan may be amended,
suspended, or terminated in whole or in part at any time by action of our Board
without affecting prior rights accrued under this plan. Messrs. Blount,
Panettiere, Layman and Osterman named in the Summary Compensation Table do not
participate in our retirement and disability plan. Mr. McInnes resigned October
20, 1999 at age 56 and started receiving a monthly annuity amounting to $71,273
on an annualized basis beginning November 1, 1999. His entitlement to this
benefit is not dependent on any determination of whether his resignation is
deemed to have been for "good reason" on his part under his employment
agreement.
Compensation of Directors
Prior to the closing of the recapitalization transactions, our non-employee
directors received certain compensation, reimbursements and benefits associated
with their duties as our directors. After the closing of the recapitalization
transactions, our non-employee directors no longer receive such compensation,
reimbursements and benefits, except reimbursement of expenses associated with
fulfilling their duties as our directors.
Compensation Committee
Alan L. Magdovitz, Eliot M. Fried and E. Daniel James have been appointed to
serve as members of the Compensation and Management Development Committee from
the new directors elected or appointed as a result of the recapitalization
transactions.
73
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information with respect to the
beneficial ownership of our capital stock by each person who is known by us to
be the beneficial owner of more than 5% of any class or series of our capital
stock and each of our directors and executive officers and all directors and
executive officers as a group.
Shares of Percentage
Name and Address Common Stock(1)(2)(3) Owned(1)(2)(3)
---------------- --------------------- --------------
Lehman Brothers Merchant Banking 26,262,111 85.3%
Partners(4).............................
c/o Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285
John M. Panettiere....................... 390,231 1.3%
Harold E. Layman......................... 153,977 *
James S. Osterman........................ 44,129 *
Gerald W. Bersett........................ 4,275 *
Donald B. Zorn........................... 57,232 *
Richard H. Irving, III................... 54,689 *
Alan L. Magdovitz(4)..................... 26,262,111 85.3%
Eliot M. Fried(4)........................ 26,267,111 85.3%
E. Daniel James(4)....................... 26,262,111 85.3%
All executive officers and directors as a
group (9 people)........................ 26,971,644 87.6%
- --------
* Represents holdings of less than 1%.
(1) Under their new employment agreements, the executives listed or otherwise
accounted for in the above table invested specific amounts for shares in
Blount International, after giving effect to the recapitalization
transactions, according to individual formulas based in part upon the net
tax proceeds resulting from the cancellation of their respective existing
stock options in Blount International.
(2) This table does not give effect to shares that may be acquired pursuant to
options and warrants because no shares may be so acquired within 60 days
from December 10, 1999.
(3) In connection with the recapitalization transactions, 37 employees not
named in the table above collectively acquired 202,934 shares of capital
stock, representing approximately 0.7% ownership after giving effect to the
recapitalization transactions. In aggregate, management contributed
approximately $13.6 million of cash, representing approximately 2.9% of
ownership after giving effect to the recapitalization transactions, through
purchase of equity at $15/share. The number of shares for the above
principal stockholders includes shares received by way of exchange in the
recapitalization transactions, as well as shares attributable by proration
both to individual Blount 401(k) Retirement Savings Plan accounts, where
applicable, based upon a November 22, 1999 valuation, and to any former
Class A or Class B shares for which the cash consideration was elected in
connection with the recapitalization. The aggregate totals of shares held
by the 37 other employees and by all management as a group do not include
such 401(k) Plan shares or other shares received by proration or exchange,
if any, as a result of the recapitalization transactions. The total of any
such shares is not material.
(4) Messrs. Magdovitz, Fried and James are affiliates of Lehman Brothers
Merchant Banking Partners and may be deemed to share beneficial ownership
of the shares of common stock shown as beneficially owned by Lehman
Brothers Merchant Banking Partners. Such individuals disclaim beneficial
ownership of such shares.
74
THE RECAPITALIZATION TRANSACTIONS
This exchange offer is related to a series of recapitalization transactions
which also included our merger with Red Dog Acquisition, a subsidiary of Lehman
Brothers Merchant Banking Partners, the issuance of the old notes, an equity
contribution from Lehman Brothers Merchant Banking Partners and some members of
our senior management and our entrance into new credit facilities. The
recapitalization transactions were completed simultaneously or within a short
time of each other, subject to the satisfaction of the conditions described in
this section under the sub-heading entitled "--The Merger."
The Merger
On April 18, 1999, we entered into a merger agreement with Red Dog
Acquisition, pursuant to which it was contemplated that we would merge with Red
Dog Acquisition and be the surviving corporation of this merger. The merger
agreement called for all of our issued and outstanding shares of common stock
to be converted into, at the election of the stockholders but subject to
proration, either $30.00 or two shares of the surviving corporation. Lehman
Brothers Merchant Banking Partners and some members of senior management of the
surviving corporation now own approximately 87.6% of the surviving corporation,
with our shareholders prior to the recapitalization owning approximately 12.4%.
New Credit Facilities
We entered into new credit facilities with a syndicate of lenders arranged
and syndicated by Lehman Brothers Inc. and Lehman Commercial Paper Inc., with
Bank of America, N.A. as the administrative agent. These new credit facilities
consist of an aggregate principal amount of $500.0 million which includes
senior secured term loan facilities in an aggregate principal amount of $400.0
million and a $100.0 million senior secured revolving credit facility. The term
loan facilities were used to fund the closing of the recapitalization
transactions. The revolving credit facility will be used for general corporate
purposes, including funding our working capital requirements after the closing
of the recapitalization transactions. See "Description of Certain
Indebtedness--New Credit Facilities."
Equity Contribution
Lehman Brothers Merchant Banking Partners contributed approximately $417.5
million to our equity, less the aggregate amount the members of our senior
management invested in us, which was approximately $13.6 million.
Offering of Old Notes
In addition to the new credit facilities and equity contribution described
above, the proceeds of the $325.0 million senior subordinated notes offering
made through the offering memorandum dated August 16, 1999 was used to fund the
recapitalization transactions.
75
RELATED PARTY TRANSACTIONS
In connection with the recapitalization transactions, Lehman Brothers Inc.,
an affiliate of Lehman Brothers Merchant Banking Partners, provided investment
banking, financial advisory and other services to us and our affiliates, for
which services Lehman Brothers Inc. received customary fees and was reimbursed
expenses incurred in connection therewith. In addition, Lehman Brothers Inc.
acted as advisor, lead arranger and book manager for the old notes and the new
credit facilities, and Lehman Commercial Paper Inc., an affiliate of Lehman
Brothers Inc., was the syndication agent and a lender under the new credit
facilities.
Messrs. Magdovitz, Fried and James, who are directors of both Blount
International and Blount after the closing of the recapitalization
transactions, are investors in Lehman Brothers Merchant Banking Partners. After
the closing of the recapitalization transactions, Lehman Brothers Merchant
Banking Partners beneficially owned approximately 87.1% and currently
beneficially owns approximately 85.3% of our outstanding capital stock. By
virtue of such ownership, Lehman Brothers Merchant Banking Partners is able to
significantly influence the business and affairs of Blount with respect to
matters requiring stockholder approval. See "Management--Directors and
Executive Officers," "Principal Stockholders" and "The Recapitalization
Transactions." From time to time in the future, Lehman Brothers Merchant
Banking Partners or its affiliates may receive customary fees for services
rendered to us in connection with financings, divestitures, acquisitions and
certain other transactions.
Some of our directors and executive officers may have had interests which
presented them with potential conflicts of interest in connection with the
recapitalization transactions. The board of directors was aware of the
conflicts described below and gave them careful consideration prior to its
approval of the recapitalization transactions.
Shares of our common stock held by our officers and directors were converted
into the right to receive the same consideration as shares of our common stock
held by other stockholders. Our stock options held by our officers and
directors were treated in the same manner as stock options held by other option
holders.
Following the closing of the recapitalization transactions, through the
sixth anniversary of their completion, we will indemnify and hold harmless each
of our present or former officers, directors or employees and those of our
subsidiaries against all claims, losses, liabilities, damages and other costs
and expenses arising out of or pertaining to:
. the fact that the indemnified party is or was an officer, director or
employee of ours or our subsidiaries or
. matters existing or occurring prior to the completion of the
recapitalization transactions.
The following are summaries of employment agreements, each dated April 18,
1999, which we entered into with six members of our senior management and other
employment arrangements that were in place prior to the closing of the
recapitalization transactions. As summarized below, the employment agreements
also provide that the senior management team make an aggregate equity
contribution to us of approximately $13.6 million and thereby own approximately
2.9% of our common stock. Each of these agreements has been filed with the
Commission as an exhibit to the Proxy Statement referred to under "Where You
Can Find More Information."
Agreement with John M. Panettiere. John M. Panettiere's employment agreement
provides that Mr. Panettiere will be employed as chairman of our board and as
our president and chief executive officer. In exchange for these services, Mr.
Panettiere will receive, among other things, a base annual salary of $875,000
for the next three years (representing an increase of $75,000 as compared to
his pre-merger base annual salary) and bonuses consistent with pre-merger bonus
levels and benefits under various benefit plans which we have offered to our
executives. Mr. Panettiere agreed in his employment agreement to make a minimum
equity contribution to us equal to 60% of the aggregate amount of after tax
proceeds that he received from the
76
cancelation of his 1,330,164 pre-merger options to purchase our pre-merger
common stock. In addition, Mr. Panettiere was granted non-qualified options to
purchase 730,000 shares of our post-merger common stock, which contain the
terms described below. The term of Mr. Panettiere's employment agreement
expires on July 31, 2002. Mr. Panettiere agrees that during the term of the
employment agreement and for a period of 12 months following the date that the
employment agreement is terminated or, if longer, the period ending on the date
he no longer receives severance benefits, he will refrain from competing
against us. In the event that we terminate Mr. Panettiere's employment without
cause, or he resigns from employment for good reason, Mr. Panettiere will be
eligible to receive, among other things, his base salary, continuing bonuses
and other executive benefits, for the remaining term of his agreement.
Agreement with Harold E. Layman. Harold E. Layman's employment agreement
provides that Mr. Layman will be employed as our executive vice president,
finance operations and chief financial officer. In exchange for these services,
Mr. Layman will receive, among other things, a base annual salary of $334,000
and bonuses consistent with pre-merger bonus levels and benefits under various
benefit plans which we have offered to our executives. Mr. Layman agreed in his
employment agreement to make a minimum equity contribution to us equal to 60%
of the aggregate amount of after tax proceeds that he received from the
cancelation of his 457,500 pre-merger options to purchase our pre-merger common
stock. In addition, Mr. Layman was granted non-qualified options to purchase
320,000 shares of our post-merger common stock, which contain the terms
described below. The term of Mr. Layman's employment under his employment
agreement are on a rolling two-year basis. In addition, Mr. Layman agrees that
during the term of the employment agreement and for a period of 12 months
following the date that the employment agreement is terminated or, if longer,
the period ending on the date he no longer receives severance benefits, he will
refrain from competing against us. In the event that we terminate Mr. Layman's
employment without cause, or he resigns from employment for good reason, Mr.
Layman will be eligible to receive, among other things, his base salary,
continuing bonuses and other executive benefits for a period of 24 months from
his date of termination.
Agreement with James S. Osterman. James S. Osterman's employment agreement
provides that Mr. Osterman will be employed as group president of our Outdoor
Products segment. In exchange for these services, Mr. Osterman will receive,
among other things, a base annual salary of $355,000 and bonuses consistent
with pre-merger bonus levels and benefits under various benefit plans which we
have offered to our executives. Mr. Osterman agreed in his employment agreement
to make a minimum equity contribution to us equal to 50% of the aggregate
amount of after tax proceeds that he received from the cancelation of his
252,500 pre-merger options to purchase our pre-merger common stock. In
addition, Mr. Osterman was granted non-qualified options to purchase 120,000
shares of our post-merger common stock, which contain the terms described
below. The term of Mr. Osterman's employment agreement expires on the third
anniversary of the closing of the recapitalization transactions. In addition,
Mr. Osterman agrees that during the term of the employment agreement and for a
period of 12 months following the date that the employment agreement is
terminated or, if longer, the period ending on the date he no longer receives
severance benefits, he will refrain from competing against us. In the event
that we terminate Mr. Osterman's employment without cause, or he resigns from
employment for good reason, Mr. Osterman will be eligible to receive, among
other things, his base salary, continuing bonuses and other executive benefits
for a period of 24 months from his date of termination.
Agreement with Gerald W. Bersett. Gerald W. Bersett's employment agreement
provides that Mr. Bersett will be employed as group president of our Sporting
Equipment segment. In exchange for these services, Mr. Bersett will receive,
among other things, a base annual salary of $340,000 and bonuses consistent
with pre-merger bonus levels and benefits under various benefit plans which we
have offered to our executives. Mr. Bersett agreed in his employment agreement
to make a minimum equity contribution to us equal to 100% of the aggregate
amount of after tax proceeds that he received from the cancelation of his
57,000 pre-merger options to purchase our pre-merger common stock. In addition,
Mr. Bersett was granted non-qualified options to purchase 120,000 shares of our
post-merger common stock, which contain the terms described below. The term of
Mr. Bersett's employment under his employment agreement will be on a rolling,
two-year basis. In
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addition, Mr. Bersett agrees that during the term of the employment agreement
and for a period of 12 months following the date that the employment agreement
is terminated or, if longer, the period ending on the date he no longer
receives severance benefits, he will refrain from competing against us. In the
event that we terminate Mr. Bersett's employment under his employment agreement
without cause, or he resigns from employment for good reason, Mr. Bersett will
be eligible to receive, among other things, his base salary, continuing bonuses
and other executive benefits for a period of 24 months from his date of
termination.
Agreement with Donald B. Zorn. Donald B. Zorn's employment agreement
provides that Mr. Zorn will be employed as group president of our Industrial
and Power Equipment segment. In exchange for these services, Mr. Zorn will
receive, among other things, a base annual salary of $323,000 and bonuses
consistent with pre-merger bonus levels and benefits under various benefit
plans which we have offered to our executives. Mr. Zorn agreed in his
employment agreement to make a minimum equity contribution to us equal to 50%
of the aggregate amount of after tax proceeds that he received from the
cancelation of his 257,832 pre-merger options to purchase our pre-merger common
stock. In addition, Mr. Zorn was granted non-qualified options to purchase
120,000 shares of our post-merger common stock, which contain the terms
described below. The term of Mr. Zorn's employment agreement expires on the
second anniversary of the closing of the recapitalization transactions. In
addition, Mr. Zorn agrees that during the term of the employment agreement and
for a period of 12 months following the date that the employment agreement is
terminated or, if longer, the period ending on the date he no longer receives
severance benefits, he will refrain from competing against us. In the event
that we terminate Mr. Zorn's employment without cause, or he resigns from
employment for good reason, Mr. Zorn will be eligible to receive, among other
things, his base salary, continuing bonuses and other executive benefits for a
period of 24 months from his date of termination.
Agreement with Richard H. Irving, III. Richard H. Irving, III's employment
agreement provides that Mr. Irving will be employed as our senior vice
president and general counsel. In exchange for these services, Mr. Irving will
receive, among other things, a base annual salary of $292,000 and bonuses
consistent with pre-merger bonus levels and benefits under various benefit
plans which we have offered to our executives. Mr. Irving agreed in his
employment agreement to make a minimum equity contribution to us equal to 60%
of the aggregate amount of after tax proceeds that he received from the
cancelation of his 231,000 pre-merger options to purchase our pre-merger common
stock. In addition, Mr. Irving was granted non-qualified options to purchase
100,000 shares of our post-merger common stock, which contain the terms
described below. The term of Mr. Irving's employment under his employment
agreement will be on a rolling two-year basis. In addition, Mr. Irving agrees
that during the term of the employment agreement and for a period of 12 months
following the date that the employment agreement is terminated or, if longer,
the period ending on the date he no longer receives severance benefits, he will
refrain from competing against us. In the event that we terminate Mr. Irving's
employment without cause, or he resigns from employment for good reason, Mr.
Irving will be eligible to receive, among other things, his base salary,
continuing bonuses and other executive benefits for a period of 24 months from
his date of termination.
Employee Stock Options. We granted to our senior management (representing
approximately 45 members of management) after the closing of the
recapitalization transactions, non-qualified options to purchase shares of our
post-merger common stock representing an aggregate of approximately 8% of our
post-merger initial fully diluted common stock. One-half of these options were
"time options," and one-half of these options were "performance options." All
of our options have a term of 10 years from the date of the closing of the
recapitalization transactions. These options are subject to earlier termination
upon the occurrence of certain customary events. For example, if an executive's
employment is terminated without cause, the term of the options expires one
year after termination. Time options will generally vest in 20% increments over
a period of five years. Performance options will generally vest in 20%
increments over a period of five years so long as certain earnings targets are
achieved. In any event, all performance options will generally vest on the
sixth anniversary of the closing of the recapitalization transactions. The
vesting of these options will accelerate upon the occurrence of certain
customary events. For example, all time options of an executive will fully vest
upon his death or disability.
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Employee Stockholders Agreement. Each employment agreement described above
has annexed to it a summary of terms of an employee stockholders agreement.
Subsequently, we entered into with Lehman Brothers Merchant Banking Partners
and each executive who has executed an employment agreement a definitive
employee stockholders agreement prior to the closing of the recapitalization
transactions. The employee stockholders agreement restricts the transfer of our
post-merger common stock and options owned by these executives for a period of
five years from the closing of the recapitalization transactions. Exceptions to
this restriction include transfers to heirs and trusts, so long as the
transferee agrees to be bound by the terms of the employee stockholders
agreement. In addition, executives have rights to sell their shares on a pro
rata basis with Lehman Brothers Merchant Banking Partners whenever Lehman
Brothers Merchant Banking Partners is selling its shares to third parties.
Similarly, Lehman Brothers Merchant Banking Partners has the right to cause
each of the executives to sell his shares of our post-merger common stock on a
pro rata basis with Lehman Brothers Merchant Banking Partners to a third party
that has made an offer to purchase our shares owned by Lehman Brothers Merchant
Banking Partners. In the event that we register our shares under the Securities
Act (except for registrations related exchange offers or benefit plans) and
Lehman Brothers Merchant Banking Partners is selling its shares in connection
with this registration, the executives will have the right to have their shares
concurrently registered and sold on a pro rata basis with Lehman Brothers
Merchant Banking Partners. Our post-merger common stock and options owned by
the executives will also be subject to "put" and "call" rights, which entitle
us to purchase from the executives, and the executives will be entitled to sell
to us, such post-merger common stock and options at fair market value upon our
termination of the executive's employment without "cause," by the executive for
"good reason," or as a result of the executive's retirement, death or
disability.
Other Arrangements. We have two deferred compensation trusts which require
that we fully fund such upon a change of control or threatened change of
control, such as the merger. For one of these trusts, we have obtained waivers
of these funding requirements from John M. Panettiere, Harold E. Layman, James
S. Osterman and Donald B. Zorn regarding their previously unfunded deferred
compensation totaling in the aggregate $14.2 million. The beneficiaries of the
other trust, including Winton M. Blount, John M. Panettiere, Harold E. Layman,
James S. Osterman, Donald B. Zorn, D. Joseph McInnes and Winton M. Blount III,
in his capacity as a former executive of Blount, were not permitted by the
terms of such trust to waive the applicable funding requirements. The aggregate
amount funded under this other trust, together with the amount funded for one
other beneficiary under the former trust, equaled $10.4 million.
The six executive officers listed above plus some other members of our
senior management have existing employment agreements entitling them to
enhanced severance benefits, following a change of control, such as the
recapitalization transactions, if we or our successors were to materially
breach their agreements or if they terminate their employment for "good
reason."
In connection with the merger, and after the amount of consideration in the
merger and the other principal terms and conditions of the merger agreement had
been agreed upon by us and Lehman Brothers Merchant Banking Partners, Lehman
Brothers Merchant Banking Partners and Winton M. Blount, the chairman of the
board of directors and controlling stockholder of Blount, agreed that Mr.
Blount would be retained to provide consulting services to us for a period of
two years after the closing of the recapitalization transactions in exchange
for total compensation of $1,000,000 ($500,000 per year), the right to continue
to occupy the office space after the closing of the recapitalization
transactions which he is currently occupying, continued administrative and
secretarial services and the right to use the corporate aircraft for personal
use of up to 75 hours per year so long as he pays the agreed upon cost of such
use. In addition, Mr. Blount, who has been employed by Blount for 54 years,
will receive a severance benefit calculated in a manner consistent with
Blount's standard policy, payable in January 2000, of $1,566,333.
We have entered into an escrow and termination of indemnification agreement
with The Blount Holding Company, a limited partnership controlled by Winton M.
Blount and which prior to the merger was our principal stockholder, for which
The Blount Holding Company has been released from its agreement entered
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into in connection with our 1995 corporate reorganization to indemnify us for
some possible liabilities associated with matters arising prior to the 1995
reorganization. The Blount Holding Company was released from its indemnity on
May 5, 1999 after it deposited into escrow a mutually agreed upon amount for
our benefit. The amount deposited into escrow to be held and disbursed in
accordance with the escrow agreement was $100,000, representing the maximum
estimated indemnification obligation of The Blount Holding Company for any
known potential liabilities.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The New Credit Facilities
The new credit facilities were provided by a syndicate of banks and other
financial institutions, with Lehman Brothers Inc. as the advisor, lead arranger
and book manager, Lehman Commercial Paper Inc. as the syndication agent and
Bank of America, N.A. as the administrative agent.
General
The new credit facilities are comprised of two term loan facilities and a
revolving credit facility. The term loan facilities are comprised of a $60
million Tranche A Term Loan, which has a maturity of approximately five years,
and a $340 million Tranche B Term Loan, which has a maturity of approximately
seven years. The revolving credit facility provides for a revolving line of
credit of up to $100 million, and includes borrowing capacity for letters of
credit and for borrowings on same-day notice ("swingline loans"). The revolving
credit facility terminates five years after the date of the initial funding of
the new credit facilities.
Interest Rates; Fees
All borrowings under the new credit facilities will bear interest, at
Blount's option, at a rate per annum equal to either: (a) the "eurodollar rate"
(which is based on a formula relating to the rate for dollar deposits in the
interbank eurodollar market for a given interest period) plus (i) in the case
of the Tranche A Term Loan and loans under the revolving credit facility, a
margin that ranges from 1.75% to 3.25% depending on our ratio of funded debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
(ii) in the case of the Tranche B Term Loan, a margin of 4.00% or (b) the "base
rate" (generally, the highest of (x) the prime commercial lending rate of the
reference lender under the new credit facilities, (y) the secondary market rate
for three-month certificates of deposit plus 1.00% and (z) the Federal funds
rate as established by the Federal Reserve Bank of New York plus 0.50%) plus
(i) in the case of the Tranche A Term Loan and loans under the revolving credit
facility, a margin that ranges from 0.75% to 2.25% depending on our ratio of
funded debt to EBITDA and (ii) in the case of the Tranche B Term Loan, a margin
of 3.00%.
A commitment fee calculated at a rate that ranges from 0.375% to 0.50% per
annum depending on our ratio of total funded debt to EBITDA will be payable on
any amounts not borrowed under the revolving credit facility.
Repayment; Prepayments
The Tranche A Term Loan repayments will be as follows: quarterly payments of
$2,000,000 from December 31, 1999 until June 30, 2000; quarterly payments of
$3,000,000 from September 30, 2000 until June 30, 2002; and quarterly payments
of $3,750,000 from September 30, 2002 until June 30, 2004.
The Tranche B Term Loan repayments will be as follows: quarterly payments of
$850,000 from December 31, 1999 until June 30, 2005; quarterly payments of
$80,000,000 from September 30, 2005 until March 31, 2006; and one final payment
of $80,450,000 on June 30, 2006.
In addition, under the new credit facilities Blount is required to make
mandatory prepayments (i) with the net proceeds of the incurrence of certain
indebtedness by Blount International or by Blount or any of its subsidiaries,
(ii) with the proceeds of certain asset sales or other dispositions (including
as a result of casualty or condemnation) and (iii) on an annual basis
commencing with our fiscal year ending December 31, 2000 with (a) 75% of our
excess cash flow (as defined in the new credit facilities) if our ratio of
funded debt to EBITDA is greater than 3.5 to 1.0 or (b) 50% of such excess cash
flow if such ratio is less than 3.5 to 1.0.
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Prior to the second anniversary of the Issue Date, mandatory or optional
prepayments of the Tranche B Term Loan must be accompanied by a prepayment
premium ranging from 0.50% to 1.50% of the prepayment principal thereof.
Guarantees; Security
The obligations of Blount in respect of the new credit facilities are
guaranteed by Blount International and all of Blount's domestic subsidiaries.
The obligations of Blount and the guarantee obligations of its domestic
subsidiaries in respect of the new credit facilities are secured by a first
priority security interest in substantially all of their respective assets. The
guarantee obligations of Blount International in respect of the new credit
facilities are secured by a pledge of all of Blount's capital stock. Blount's
7.0% notes share equally and ratably in certain of the collateral securing the
new credit facilities.
Certain Covenants
The new credit facilities contain affirmative covenants of us and Blount and
its subsidiaries including, without limitation:
. reporting requirements;
. requirements to maintain insurance, comply with laws and maintain
properties; and
. requirement to maintain interest rate protection.
The new credit facilities also contain negative covenants that restrict our,
Blount's and its subsidiaries' ability to, among other things:
. borrow money and issue preferred stock;
. guarantee indebtedness of others;
. pay dividends on, make other distributions in respect of, or purchase
our stock or our subsidiaries' stock;
. make investments;
. make capital expenditures;
. use assets as security in other transactions;
. sell certain assets or merge with or into other companies;
. enter into sale and leaseback transactions;
. enter into certain types of transactions with affiliates;
. limit dividends or other payments to Blount;
. enter into new businesses; and
. make payments in respect of, or modify the terms of, subordinated
indebtedness, including these notes.
In addition, the new credit facilities require us to comply with various
financial covenants, including an interest coverage ratio and a funded debt to
EBITDA ratio.
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Events of Default
The new credit facilities contain events of default including, without
limitation:
. failure to make payments when due;
. breach of representations or warranties;
. breach of covenants;
. events of insolvency, bankruptcy or similar events;
. cross-default to other indebtedness in excess of specified amounts;
. certain ERISA events which can reasonably be expected to have a material
adverse effect;
. judgment in excess of a specified amount which has not been stayed or
discharged within 30 days from the entry thereof;
. invalidity of any of the guarantees in respect of the new credit
facilities;
. failure in the perfection of the security interest granted in respect of
the new credit facilities; and
. change in control (as defined in the new credit facilities).
7% Senior Notes
On June 15, 1998, Blount issued $150,000,000 aggregate principal amount of
7% Senior Notes due June 15, 2005. These 7.0% notes are unsubordinated
obligations of Blount, and are fully and unconditionally guaranteed by us but
not by any of our or Blount's subsidiaries. Interest on the existing notes is
payable semi-annually in arrears on June 15 and December 15 of each year. The
7.0% notes are redeemable at Blount's option, in whole or in part, at any time.
The 7.0% notes are issued under an indenture dated June 18, 1998, which
contains covenants limiting our ability, and the ability of our subsidiaries
including Blount, to incur or guarantee secured indebtedness, to enter into
sale and leaseback transactions or to sell assets or enter into mergers or
consolidations. The obligations of Blount and the guarantee obligations of
Blount International under the 7.0% notes are secured (equally and ratably with
the obligations of Blount and the guarantee obligations of its domestic
subsidiaries and Blount International in respect of the new credit facilities)
by a first priority security interest in all of the outstanding shares of
capital stock and intercompany debt of our direct and indirect domestic
subsidiaries (and 65% of the outstanding shares of capital stock of Blount's
first-tier foreign subsidiaries) and in certain of our manufacturing plants and
facilities located in the U.S. to the extent such shares, plants and facilities
are pledged as collateral to secure the new credit facilities.
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DESCRIPTION OF NOTES
You can find the definitions of capitalized terms used in this description
under the subheading "Certain Definitions." In this description, references to
Blount International and Blount do not include their subsidiaries.
The old notes (the "Old Notes") were issued and the new notes (the "New
Notes" or the "Exchange Notes") will be issued pursuant to the Indenture
between the Company and United States Trust Company of New York, as trustee
(the "Trustee"), which has been filed as an exhibit to the Registration
Statement of which this prospectus forms a part. The terms of the New Notes
will be identical in all material respects with the terms of the Old Notes,
except that the New Notes have been registered under the Securities Act and are
issued free of any covenant regarding registration, including the payment of
additional interest upon failure to file or have declared effective an exchange
offer registration statement or to consummate the Exchange Offer by certain
dates. The New Notes and the Old Notes are deemed the same series of Notes
under the Indenture and are entitled to the benefits thereof. Accordingly,
unless specifically stated to contrary, the following description applies
equally to the Old Notes and the New Notes. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended. The Notes are subject to all
such terms, and prospective investors are referred to the Indenture and the
Trust Indenture Act for a statement thereof.
The following description is a summary of the material provisions of the
Indenture and the Registration Rights Agreement. It does not restate those
agreements in their entirety. We urge you to read the Indenture and the
Registration Rights Agreement because they, and not this description, define
your rights as holders of the Notes.
The Notes:
. are general unsecured obligations of Blount;
. are subordinated in right of payment to all existing and future Senior
Debt of Blount, including Indebtedness outstanding from time to time
under the new credit facilities and existing notes issued pursuant to
the 1998 Indenture;
. are pari passu in right of payment with any future senior subordinated
Indebtedness of Blount; and
. are unconditionally guaranteed on a senior subordinated basis by the
Guarantors.
The Guarantees of the Notes:
. are general unsecured obligations of each Guarantor;
. are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor; and
. are pari passu in right of payment with any future senior subordinated
Indebtedness of each Guarantor.
Principal, Maturity and Interest
Blount issued $325.0 million aggregate principal amount of Notes in
denominations of $1,000 and integral multiples of $1,000. The Notes will mature
on August 1, 2009.
Interest on the Notes accrues at the rate of 13% per annum and is payable
semi-annually in arrears on February 1 and August 1, commencing on February 1,
2000. Blount will make each interest payment to those holders of the Notes who
were holders of record on the immediately preceding January 15 and July 15.
Interest on the Notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
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On one or more occasions after the sale of the Notes, Blount may issue
additional Notes having substantially identical terms and conditions to the
Notes offered hereby (the "Additional Notes"). However, the maximum aggregate
principal amount of Additional Notes may not exceed $125.0 million. Any
issuance of Additional Notes will be subject to the covenant described below in
the section entitled "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock." The Notes and any Additional Notes will be
treated as a single class for all purposes under the Indenture, including
waivers, amendments, redemptions and offers to purchase. Unless the context
otherwise requires, for purposes of this "Description of Notes" section,
reference to the Notes includes any Additional Notes actually issued.
Paying Agent and Registrar for the Notes
The trustee will initially act as Paying Agent and Registrar. Blount may
change the Paying Agent or Registrar without prior notice to the holders, and
Blount International or any of its Subsidiaries may act as Paying Agent or
Registrar.
Transfer and Exchange
A holder may transfer or exchange Notes only 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 Blount
may require a holder to pay any taxes and fees required by law or permitted by
the Indenture. Blount is not required to transfer or exchange any Note:
. selected for redemption; or
. during a period of 15 days before it selects Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
Guarantees
Effective September 30, 1999, certain of our non-operating subsidiaries were
merged into another non-operating subsidiary. Specifically, Blount Development
Corp., Mocenplaza Development Corp. and Benjamin F. Shaw Company were merged
with and into 4520 Corp., and 4520 Corp. became responsible for the Guarantees
of the Old Notes of Blount Development Corp., Mocenplaza Development Corp. and
Benjamin F. Shaw Company. Effective December 31, 1999, we anticipate BI
Holdings Corp., Frederick Manufacturing Corporation, Federal Cartridge Company
and CTR Manufacturing, Inc. will be merged with and into Blount, in which case,
Blount will be responsible for the Guarantees of the Notes of BI Holdings
Corp., Frederick Manufacturing Corporation, Federal Cartridge Company and CTR
Manufacturing, Inc.
The Notes are guaranteed jointly and severally by Blount International and
each of the following Subsidiaries of Blount International:
. BI Holdings Corp.
. BI, L.L.C.
. Omark Properties, Inc.
. 4520 Corp., Inc.
. Gear Products, Inc.
. Dixon Industries, Inc.
. Frederick Manufacturing Corporation
. Federal Cartridge Company
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. Simmons Outdoor Corporation
. CTR Manufacturing, Inc.
As of September 30, 1999, after giving effect to the recapitalization
transactions, Blount and the Guarantors had total Senior Debt of approximately
$543.7 million outstanding (excluding unused commitments of approximately
$100.0 million under the new credit facilities) and no Indebtedness outstanding
that would be pari passu with or subordinated to the Notes. The Indenture will
permit us and the Guarantors to incur additional Senior Debt under certain
circumstances.
As of the Issue Date, all of our Subsidiaries, including Blount, will be
Restricted Subsidiaries. However, under the circumstances described below in
the section entitled "--Certain Covenants--Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
Subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not
be subject to the restrictive covenants in the Indenture and will not guarantee
the Notes.
Not all of our Restricted Subsidiaries will guarantee the Notes. The
following Subsidiaries of Blount International will not guarantee the Notes or
the Indebtedness under the new credit facilities:
. Blount (Thailand) Ltd. (Thailand)
. Blount Export Company, Inc. (Barbados)
. Svenska Blount AB (Sweden)
. Svenska Oregon AB (Sweden)
. OOO Blount (Russia)
. Blount Canada Ltd. (Canada)
. Blount Europe, S.A. (Belgium)
. Blount France (France)
. Blount U.K. Limited (England)
. Blount Holdings Ltd. (Canada)
. Oregon Distribution Ltd. (Canada)
. Blount Industrial LTDA (Brazil)
. Blount GmbH (Germany)
. Blount Japan Inc. (Japan)
In addition, future Subsidiaries of Blount International or Blount will not
be required to guarantee the Notes except pursuant to the covenants described
below in the section entitled "--Certain Covenants--Additional Guarantees."
Blount International is the only guarantor under the 1998 Indenture.
In the event of a bankruptcy, liquidation or reorganization of any of our
Subsidiaries that is not a Guarantor, claims of creditors of our non-Guarantor
Subsidiaries, including trade creditors and creditors holding indebtedness or
guarantees issued by our non-Guarantor Subsidiaries, and claims of preferred
stockholders of our non-Guarantor Subsidiaries generally will have priority
with respect to the assets and earnings of our non-Guarantor Subsidiaries over
the claims of our creditors, including holders of the Notes. Accordingly, the
Notes will be effectively subordinated to creditors (including trade creditors)
and preferred stockholders, if any, of our
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non-Guarantor Subsidiaries. At September 30, 1999, the total liabilities of
our non-Guarantor Subsidiaries were approximately $15.1 million, including
trade payables. Our non-Guarantor Subsidiaries generated approximately 21% of
our consolidated revenues in the nine-month period ended September 30, 1999
and held approximately 10% of our consolidated assets as of September 30,
1999. Although the Indenture limits the incurrence of Indebtedness and
preferred stock of certain of our Subsidiaries, these limitations are subject
to a number of significant qualifications. Moreover, the Indenture does not
impose any limitation on the incurrence by our Subsidiaries of liabilities
that are not considered Indebtedness under the Indenture. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." Each
Guarantee will be subordinated to the prior payment in full of all Senior Debt
of that Guarantor. Each Guarantee will be pari passu in right of payment with
any future senior subordinated Indebtedness of that Guarantor. The obligations
of each Guarantor under its Guarantee will be limited as necessary to prevent
that Guarantee from constituting a fraudulent conveyance under applicable law.
For information with respect to the meaning and consequences of a fraudulent
conveyance, we refer to you to the discussion under the heading "Factors
Relating to the Notes" in the "Risk Factors" section of this Prospectus.
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not
that Guarantor is the surviving person), another person, other than Blount or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default
exists; and
(2) either:
(a) the person acquiring the Guarantor's assets in that transaction or
the person formed by or surviving the consolidation or merger with the
Guarantor assumes all the obligations of that Guarantor under the
Indenture, its Guarantee and the Registration Rights Agreement pursuant to
a supplemental indenture satisfactory to the trustee; or
(b) the Net Proceeds of that transaction are applied in accordance with
the "Asset Sale" provisions of the Indenture.
Notwithstanding the foregoing, any Guarantor that is a Subsidiary of Blount
International may merge with another Subsidiary of Blount International that
has no significant assets or liabilities and was incorporated solely for the
purpose of reincorporating such Guarantor in another State of the United
States so long as the amount of Indebtedness of Blount International and its
Restricted Subsidiaries is not increased thereby.
The Guarantee of a Guarantor that is a Subsidiary of Blount International
will be automatically released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor to a person that is not
(either before or after giving effect to that transaction) a Subsidiary of
Blount International, if the Guarantor applies the Net Proceeds of that
sale or other disposition in accordance with the "Asset Sale" provisions of
the Indenture;
(2) in connection with any sale or other disposition of all of the
Capital Stock of that Guarantor to a person that is not (either before or
after giving effect to that transaction) a Subsidiary of Blount
International, if Blount International applies the Net Proceeds of that
sale in accordance with the "Asset Sale" provisions of the Indenture;
(3) upon Legal Defeasance or Covenant Defeasance; or
(4) if Blount International properly designates any Restricted
Subsidiary that is a Guarantor as an Unrestricted Subsidiary or a
Receivables Subsidiary in accordance with the provisions of the Indenture.
Subordination
The payment of principal, interest, premium and Additional Interest, if
any, on the Notes will be subordinated to the prior payment in full of all
Senior Debt of Blount, including Senior Debt incurred after the Issue Date.
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The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the holders of Notes will be entitled to
receive any payment with respect to the Notes (except that holders of Notes
may receive and retain Permitted Junior Securities and payments made from the
trust described in the section entitled "--Legal Defeasance and Covenant
Defeasance"), in the event of any distribution to creditors of Blount:
(1) in a liquidation or dissolution of Blount;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Blount or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Blount's assets and liabilities.
Blount also may not make any payment in respect of the Notes (except in
Permitted Junior Securities or from the trust described in the section
entitled "--Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity and the trustee receives a notice of
that default (a "Payment Blockage Notice") from the holders of that series
of the Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that
default is cured or waived; and
(2) in the case of a nonpayment default, unless the maturity of any
Designated Senior Debt has been accelerated, upon the earliest of the dates
on which one of the following events occurs:
(a) the person who gave the Payment Blockage Notice terminates the
blockage period by written notice to the trustee and Blount;
(b) the default giving rise to the Payment Blockage Notice is cured,
waived or otherwise no longer continuing;
(c) the Designated Senior Debt has been discharged or paid in full;
or
(d) 179 days after the date on which the applicable Payment Blockage
Notice has been received.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest, premium and
Additional Interest, if any, 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 that default shall
have been cured or waived for a period of not less than 90 days.
Blount must promptly notify holders of Senior Debt if payment of the Notes
is accelerated because of an Event of Default.
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By reason of the subordination provisions contained in the Indenture, in the
event of a liquidation or insolvency proceeding, creditors of Blount or a
Guarantor who are holders of Senior Debt of Blount or a Guarantor, as the case
may be, may recover more, ratably, than the holders of the Notes, and creditors
of Blount or a Guarantor who are not holders of such Senior Debt may recover
less, ratably, than holders of such Senior Debt and may recover more, ratably,
than the holders of the Notes. See "Risk Factors--Factors Relating to the
Notes--Subordination."
Optional Redemption
On any one or more occasions prior to August 1, 2002, Blount may redeem
Notes at a redemption price of 113% of the principal amount thereof, plus
accrued and unpaid interest and Additional Interest, if any, to the redemption
date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date), with the net cash
proceeds of one or more Equity Offerings by Blount or the net cash proceeds of
one or more Equity Offerings by Blount International that are contributed to
Blount as common equity capital; provided that:
(1) no more than 35% of the aggregate principal amount of the Notes
issued under the Indenture may be redeemed during this period;
(2) at least 65% of the aggregate principal amount of Notes issued under
the Indenture remains outstanding immediately after the occurrence of each
redemption (excluding Notes held by Blount International, Blount and their
Subsidiaries); and
(3) each redemption, if any, must occur within 120 days of the date of
the closing of the related Equity Offering.
Except as noted in the preceding paragraph, Blount will not have the right
to redeem the Notes prior to August 1, 2004.
After August 1, 2004, Blount may redeem all or any portion of the Notes upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of principal amount) if redeemed during the
twelve-month period beginning on August 1 of the years indicated below:
Year Percentage
---- ----------
2004............................................................ 106.500%
2005............................................................ 104.333%
2006............................................................ 102.167%
2007 and thereafter............................................. 100.000%
together in each case with accrued and unpaid interest if any, to the
applicable redemption date.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the trustee
will select Notes for redemption as follows:
. if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
. if the Notes are not so listed, on a pro rata basis, by lot or by any
other method that the trustee deems fair and appropriate.
We will only redeem Notes of $1,000 or whole multiples thereof. We will mail
a notice of redemption by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at its
registered address.
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If only a portion of the principal amount of a Note is to be redeemed, we
will state the portion to be redeemed in the notice of redemption and we will
issue to the holder a new Note in principal amount equal to the unredeemed
portion of the original Note upon cancellation of the original Note. Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest will no longer accrue on Notes or portions of
them called for redemption.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
Blount is not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances,
Blount may be required to offer to purchase the Notes as described in the
sections entitled "--Repurchase at the Option of Holders--Change of Control"
and "--Repurchase at the Option of Holders--Asset Sales." Blount may at any
time and from time to time purchase Notes in the open market or otherwise.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes will have the right to
require Blount to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of that holder's Notes pursuant to a Change of Control Offer
on the terms set forth in the Indenture. In the Change of Control Offer, Blount
will offer a Change of Control Payment in cash equal to 101% of the aggregate
principal amount of Notes purchased plus accrued and unpaid interest and
Additional Interest, if any, to the date of purchase. Within 30 days following
any Change of Control, Blount will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to purchase Notes on the Change of Control Payment Date specified in that
notice. The Change of Control Payment Date may not be earlier than 30 days nor
later than 60 days from the date the notice is mailed.
Blount will comply with the requirements of Rule 14e-1 under the Exchange
Act and all other applicable securities laws and regulations in connection with
the repurchase of the Notes as a result of a Change of Control. If the
provisions of any securities laws or regulations conflict with the Change of
Control provisions of the Indenture, Blount will comply with the applicable
securities laws and regulations and by so doing will not be deemed to have
breached its obligations under the Change of Control provisions of the
Indenture.
On the Change of Control Payment Date, Blount will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the trustee the Notes so
accepted.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for those Notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each new Note will be in a principal amount
of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, Blount
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 Notes required by this covenant. Blount will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
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The provisions described above that require Blount to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. The
Indenture does not contain provisions that permit the holders of the Notes to
require Blount to repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction that does not involve a Change of
Control.
The new credit facilities currently prohibit Blount International and Blount
from redeeming or purchasing any Notes, and also provides that certain change
of control events with respect to Blount International and Blount would
constitute a default under the new credit facilities. Any future credit
agreements or other agreements relating to Indebtedness to which Blount becomes
a party may contain similar restrictions. If a Change of Control occurs at a
time when Blount is prohibited by such agreements from purchasing Notes, Blount
has undertaken to obtain the requisite consent of its lenders to the purchase
of Notes or refinance the borrowings under the agreement containing the
prohibition. If Blount does not obtain that consent or repay those borrowings
it will continue to be prohibited from purchasing Notes. Blount's failure to
comply with the foregoing undertaking, after appropriate notice and lapse of
time, would constitute an Event of Default under the Indenture, which in turn,
would constitute a default under the new credit facilities. In these
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. See "Risk Factors--Change of
Control."
Blount will not be required to make a Change of Control Offer upon a Change
of Control if a third party offers to purchase the Notes in the manner, at the
times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer by Blount and that third
party purchases all Notes validly tendered to it in response to that offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of Blount and its Subsidiaries
taken as a whole. Although there is a limited 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 Notes to
require Blount to purchase its Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Blount and
its Subsidiaries taken as a whole to another person or group may be uncertain.
Asset Sales
Blount International will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Blount International (or the Restricted Subsidiary of Blount
International, as the case may be) receives consideration at the time of
the Asset Sale at least equal to the fair market value of the assets or
Equity Interests issued or sold or otherwise disposed of;
(2) the fair market value is determined by the Board of Directors of
Blount International and evidenced by a resolution of that Board of
Directors set forth in an Officers' Certificate delivered to the trustee in
the event such Asset Sale involves aggregate consideration in excess of
$20.0 million; and
(3) at least 75% of the consideration therefor received by Blount
International or the Restricted Subsidiary of Blount International is in
the form of cash or Cash Equivalents or Marketable Securities.
For purposes of this provision, each of the following shall be deemed to be
cash:
(1) any liabilities of Blount International (or the Restricted
Subsidiary of Blount International, as the case may be), as shown on its
most recent balance sheet (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
Guarantee) that are assumed by the transferee of the assets pursuant to a
customary novation agreement that releases the transferor from further
liability;
(2) any securities, notes or other obligations received from the
transferee that are within 90 days converted by Blount International or the
Restricted Subsidiary of Blount International into cash (to the extent of
that cash);
91
(3) any Designated Noncash Consideration received by Blount
International or any of its Restricted Subsidiaries in the Asset Sale;
provided that the aggregate fair market value (as determined above) of the
Designated Noncash Consideration, taken together with the fair market value
at the time of receipt of all other Designated Noncash Consideration
received pursuant to this clause (3) less the amount of Net Proceeds
previously realized in cash from prior Designated Noncash Consideration is
less than 10% of Total Assets at the time of the receipt of the Designated
Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value); and
(4) Additional Assets received in an exchange of assets transaction.
Within 18 calendar months after the receipt by Blount International or a
Restricted Subsidiary of Blount International of any Net Proceeds from an Asset
Sale, Blount or Blount International may apply those Net Proceeds at its
option:
(1) to repay Senior Debt, including Indebtedness under the new credit
facilities and the 1998 Indenture, and, if the Senior Debt repaid is
revolving credit Indebtedness, to correspondingly reduce the lenders'
commitments with respect thereto;
(2) to acquire all or substantially all of the assets or a majority of
the Voting Stock of another company that is engaged in a Permitted
Business;
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire Additional Assets; provided that Blount International
will have complied with this clause (4) if, within 18 calendar months of
the Asset Sale, Blount International has entered into an agreement covering
the acquisition which is thereafter completed within 180 days after the
date of the agreement.
Pending the final application of the Net Proceeds, Blount or Blount
International may temporarily reduce revolving credit borrowings or otherwise
invest the 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 preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, Blount will make an
Asset Sale Offer to all holders of Notes, as well as all holders of other
Indebtedness that is pari passu with the Notes and that has the benefit of
provisions requiring Blount to make a similar offer, to purchase the maximum
principal amount of Notes and the other pari passu Indebtedness that may be
purchased out of the Excess Proceeds. The offer price will be equal to 100% of
the principal amount of Notes and other Indebtedness to be purchased or the
lesser amount required under agreements governing such other Indebtedness, plus
accrued and unpaid interest and Additional Interest, if any, to the date of
purchase. Blount International or Blount may use any Excess Proceeds remaining
after consummation of an Asset Sale Offer for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes and
other pari passu Indebtedness tendered into an Asset Sale Offer exceeds the
amount of Excess Proceeds, Blount shall select the Notes and other pari passu
Indebtedness to be purchased on a pro rata basis based on the principal amount
of Notes and other pari passu Indebtedness so tendered. Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The new credit facilities currently prohibit Blount and Blount International
from purchasing the Notes. Any future credit agreements or other agreements
relating to Indebtedness to which Blount or Blount International becomes a
party may contain similar restrictions.
Blount will comply with the requirements of Rule 14e-1 under the Exchange
Act and all other applicable securities laws and regulations in connection with
each purchase of Notes pursuant to an Asset Sale Offer. If the provisions of
any securities laws or regulations conflict with the Asset Sales provisions of
the Indenture, Blount will comply with the applicable securities laws and
regulations and by so doing will not be deemed to have breached its obligations
under the Asset Sale provisions of the Indenture.
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Certain Covenants
Restricted Payments
Blount International will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Blount International's or any of its Restricted
Subsidiaries' Equity Interests (including any distribution, dividend or
payment in connection with any merger or consolidation involving Blount
International or any of its Restricted Subsidiaries) or to the direct or
indirect holders of Blount International's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such, except for
dividends or distributions that are payable in Equity Interests (other than
Disqualified Stock) of Blount International or payable to Blount
International or a Restricted Subsidiary of Blount International; or
(2) purchase, redeem or otherwise acquire or retire for value (including
in connection with any merger or consolidation involving Blount
International) any Equity Interests of Blount, Blount International or any
direct or indirect parent of Blount International; or
(3) 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 Notes or the Guarantees, except (a) the scheduled
payment of interest and Additional Interest, if any, or principal and
premium, if any, at the Stated Maturity of the Indebtedness that is
subordinated to the Notes or the Guarantees or (b) Indebtedness that is
permitted under clause (8) of the covenant described below in the section
entitled "--Incurrence of Indebtedness and Issuance of Preferred Stock"; or
(4) make any Restricted Investment;
(all payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time
of and after giving effect to that Restricted Payment:
(1) no Default shall have occurred and be continuing or would occur as a
consequence thereof; and
(2) at the date of that Restricted Payment and after giving pro forma
effect thereto as if that Restricted Payment had been made at the beginning
of the applicable four-quarter period, Blount International would 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 in the section entitled "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) the aggregate amount of that Restricted Payment and all other Restricted
Payments made since the Issue Date (excluding Restricted Payments permitted by
clauses (2), (3), (4), (6), (7) and (8) of the next succeeding paragraph) is
less than or equal to the sum, without duplication, of
(a) 50% of the Consolidated Net Income of Blount International for
the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Issue Date through the last
full fiscal quarter of Blount International for which internal financial
statements are available at the time of that Restricted Payment (or, if
the Consolidated Net Income for that period is a deficit, minus 100% of
the deficit); plus
(b) 100% of the aggregate net cash proceeds or the fair market value
of property other than cash received by Blount International since the
Issue Date as a contribution to its common equity capital or from the
issue or sale of Equity Interests of Blount International (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of Blount International that have been converted into or
exchanged for those Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary
of Blount International); plus
(c) an amount equal to the lesser of (1) the sum of the net reduction
in the Restricted Investments made by Blount International or any of its
Restricted Subsidiaries in any person resulting from repurchases,
repayments or redemptions of the Restricted Investment by that person,
proceeds
93
realized on the sale of the Restricted Investment and proceeds
representing the return of capital (excluding dividends and
distributions), in each case received by Blount International or any of
its Restricted Subsidiaries and (2) the initial amount of those
Restricted Investments; plus
(d) if any Unrestricted Subsidiary is redesignated by Blount
International as a Restricted Subsidiary of Blount International after
the Issue Date, an amount equal to the lesser of (1) the net book value
of Blount International's Investment in the Unrestricted Subsidiary at
the time of the redesignation and (2) the fair market value of Blount
International's Investment in the Unrestricted Subsidiary at the time
of the redesignation.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of that dividend, if at that date of declaration, the dividend
would have complied with the provisions of the Indenture;
(2) the making of any Investment or the redemption, repurchase,
retirement, defeasance or other acquisition of any Indebtedness of Blount
or any Guarantor that is subordinated to the Notes or the Guarantees or of
any Equity Interests of Blount International or any Restricted Subsidiary
of Blount International in exchange for, or out of the net cash proceeds of
the sale (other than to a Subsidiary of Blount International) of, Equity
Interests of Blount International (other than Disqualified Stock); provided
that the amount of any net cash proceeds that are utilized for any such
Restricted Payment shall be excluded from clause (3)(b) of the preceding
paragraph; provided, further, that in the case of any such sale of Equity
Interests of Blount International, the net cash proceeds from the sale (x)
are used to make any such Investment within 270 days of the sale or (y) are
used to effect any other transaction contemplated by this clause (2) within
90 days of the sale;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness of Blount International or any Guarantor that is subordinated
to the Notes or the Guarantees with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend or distribution by a Restricted
Subsidiary of Blount International to the holders of that Restricted
Subsidiary's common Equity Interests so long as Blount International or a
Restricted Subsidiary of Blount International receives at least its pro
rata share (and in like form) of the dividend or distribution in accordance
with its common Equity Interests;
(5) the payment of dividends on Blount International's common stock,
following the first Equity Offering after the Issue Date, of up to 3% per
annum of the net cash proceeds of the Equity Offering by Blount
International other than an Equity Offering with respect to common stock
registered on Form S-8;
(6) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Blount International or any Restricted
Subsidiary of Blount International held by any member of Blount
International's (or any of its Restricted Subsidiaries') management,
employees and directors pursuant to any management equity subscription
agreement, stock option agreement, employment agreement or any other
management or employee benefit plan, trust arrangement or agreement;
provided that the price paid for all repurchased, redeemed, acquired or
retired Equity Interests in all cases, other than as a result of death or
disability, does not exceed $2.5 million in the aggregate in any twelve-
month period (with unused amounts in any calendar year being carried over
to succeeding calendar years subject to a maximum of $5.0 million in any
calendar year);
(7) the deemed repurchase of Capital Stock by Blount International on
the exercise of stock options; and
(8) Restricted Payments, when taken together with all other Restricted
Payments made pursuant to this clause (8), in an aggregate amount since the
Issue Date not to exceed $25.0 million;
provided that Blount International will not and will not permit any of its
Restricted Subsidiaries to make any Restricted Payment contemplated by clauses
(3) through (5) and clauses (7) and (8) above so long as an Event of Default
has occurred and is continuing.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value of the assets or securities proposed to be transferred or issued
to or by Blount International or a Restricted Subsidiary of Blount
International, as the case may be, pursuant to the Restricted Payment on the
date of that Restricted Payment. The fair market value of any assets or
securities that are required to be valued by this covenant shall be determined
in good faith by Blount International. Not later than the date of making any
Restricted Payment in an aggregate amount which exceeds $20.0 million, Blount
International shall deliver to the trustee an Officers' Certificate stating
that the Restricted Payment is permitted and setting forth the basis upon which
the calculations required by this "Restricted Payments" covenant were computed.
If any Restricted Investment is sold or otherwise liquidated or repaid or
any dividend or payment is received by Blount International or any of its
Restricted Subsidiaries and such amounts may be credited to clause (3)(a) or
(c) of the first paragraph of this "Restricted Payments" covenant, then such
amounts will be credited only to the extent of amounts that do not otherwise
increase the amount available as a Permitted Investment pursuant to clause (12)
in the definition of "Permitted Investments."
Incurrence of Indebtedness and Issuance of Preferred Stock
Blount International will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt),
and Blount International and Blount will not issue any Disqualified Stock and
will not permit any of their respective Subsidiaries (other than Blount) to
issue any shares of Preferred Stock; provided, however, that Blount
International and Blount may incur Indebtedness (including Acquired Debt),
Blount International and Blount may issue Disqualified Stock, and Restricted
Subsidiaries of Blount International that are Guarantors may incur Indebtedness
or issue Preferred Stock, if the Fixed Charge Coverage Ratio for Blount
International's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which the additional Indebtedness is incurred or the Disqualified Stock or
Preferred Stock is issued would have been at least 2.0 to 1.0 if incurred or
issued during the period from the Issue Date through December 31, 2000, at
least 2.25 to 1.0 if incurred or issued during the period from January 1, 2001
to December 31, 2001, and at least 2.50 to 1.0 if incurred or issued
thereafter.
The first paragraph of this covenant will not prohibit any of the following
(collectively, "Permitted Debt"):
(1) the incurrence by Blount International, Blount and any Restricted
Subsidiary of Blount International that is a Guarantor of additional
Indebtedness and letters of credit under Credit Facilities in an aggregate
principal amount at any one time outstanding under this clause (1) (with
letters of credit being deemed to have a principal amount equal to the
maximum potential reimbursement liability (excluding interest and fees) of
Blount International and its Restricted Subsidiaries thereunder) not to
exceed an amount equal to $500.0 million minus (a) the aggregate amount of
all permanent repayments of principal under any revolving Indebtedness
pursuant to such Credit Facilities (which are accompanied by a
corresponding permanent commitment reduction) and (b) the aggregate amount
of all mandatory repayments of the principal of any term Indebtedness
pursuant to such Credit Facilities (excluding any such payments to the
extent refinanced at the time of payment under a new Credit Facility or
otherwise immediately reborrowed) that have actually been made since the
Issue Date;
(2) the incurrence by Blount International and its Restricted
Subsidiaries of Existing Indebtedness;
(3) the incurrence by Blount and the Guarantors of Indebtedness
represented by the Notes to be issued on the Issue Date and the Exchange
Notes to be issued pursuant to the Registration Rights Agreement
(including, in each case, the Guarantees);
(4) the incurrence by Blount International or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or lease
expense or cost of
95
construction or repair, improvement or addition to property, plant or
equipment used in the business of Blount International or that Restricted
Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed, in
aggregate principal amount at any one time outstanding, 5% of Total Assets
on a pro forma basis (including a pro forma application of the net proceeds
of that Indebtedness), as if that Indebtedness had been incurred on the
date of calculation;
(5) the incurrence by Blount International 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 incurred under the first
paragraph of this covenant or clauses (2), (3) or (5) of this paragraph;
(6) Indebtedness incurred by Blount International or any of its
Restricted Subsidiaries constituting reimbursement obligations with respect
to (a) letters of credit issued in the ordinary course of business in
respect of workers' compensation claims or self-insurance, or other
Indebtedness with respect to reimbursement type obligations regarding
workers' compensation claims or (b) commercial letters of credit issued in
the ordinary course of business; provided, however, that upon the drawing
of the letters of credit or the incurrence of the Indebtedness, these
obligations are reimbursed within 30 days following the drawing or
incurrence;
(7) Indebtedness arising from agreements of Blount International or a
Restricted Subsidiary of Blount International providing for
indemnification, adjustment of purchase price or similar obligations, in
each case, incurred or assumed in connection with the disposition of any
business, assets or a Subsidiary of Blount International, other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or a Subsidiary of Blount International
for purpose of financing such acquisition;
(8) the incurrence by Blount International or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Blount
International and any of its Restricted Subsidiaries; provided, however,
that:
(a) that Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes
and the Indenture, in the case of Blount, or the Guarantee, in the case
of a Guarantor; and
(b)(i) any subsequent issuance or transfer of Equity Interests that
results in that Indebtedness being held by a person other than Blount
International or any of its Restricted Subsidiaries and (ii) any sale
or other transfer of that Indebtedness to a person that is not either
Blount International or any of its Restricted Subsidiaries shall be
deemed, in each case, to constitute an incurrence of that Indebtedness
by Blount International or its Restricted Subsidiary, as the case may
be, that was not permitted by this clause (8);
(9) the incurrence by Blount International or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
(a) fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted to be outstanding by the terms of the
Indenture or (b) hedging exposure to foreign currency fluctuations;
(10)(a) the guarantee by Blount International, Blount or any of the
other Guarantors of Indebtedness of Blount International or a Restricted
Subsidiary of Blount International or (b) the incurrence of Indebtedness of
Blount International or a Restricted Subsidiary of Blount International to
the extent that such Indebtedness is supported by a letter of credit, in
each case that was permitted to be incurred by another provision of this
covenant;
(11) the incurrence of Non-Recourse Debt by Unrestricted Subsidiaries,
provided, however, that if that Indebtedness ceases to be Non-Recourse Debt
of an Unrestricted Subsidiary, that event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of Blount
International that was not permitted by this clause (11), and the issuance
of Preferred Stock by Unrestricted Subsidiaries;
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(12) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock or Preferred Stock in the form of additional shares
of the same class of Disqualified Stock or Preferred Stock, as the case may
be, which will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock or Preferred Stock, as the case may be, for
purposes of this covenant; provided, in each case, that the amount thereof
is included in the Fixed Charges of Blount International and its Restricted
Subsidiaries as accrued;
(13) the incurrence by Blount International or any of its Restricted
Subsidiaries of Indebtedness in respect of performance and surety bonds and
completion guarantees provided in the ordinary course of business to the
extent that the incurrence does not result in the incurrence of any
obligation for the payment of borrowed money to others;
(14) the incurrence by a Receivables Subsidiary of Indebtedness that is
not recourse to Blount International or any other Restricted Subsidiary of
Blount International (other than with respect to Standard Securitization
Undertakings) in connection with a Qualified Receivables Transaction; and
(15) the incurrence by Blount International or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, not to exceed
$50.0 million.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (15) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, Blount
International will be permitted to classify all or a portion of that item of
Indebtedness on the date of its incurrence, or reclassify at a later date all
or a portion of that item of Indebtedness, in any manner that complies with
this covenant.
Liens
Blount International will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens, unless all payments due under the Indenture and 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.
Sale and Leaseback Transactions
Blount International will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Blount International or any Restricted Subsidiary may enter into a sale and
leaseback transaction if:
(1) Blount International or that Restricted Subsidiary, as applicable,
could have incurred Indebtedness in an amount equal to the Attributable
Debt relating to that sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described above
in the section entitled "--Incurrence of Indebtedness and Issuance of
Preferred Stock";
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as (if in excess of $20.0 million)
determined in good faith by Blount International and set forth in an
Officers' Certificate delivered to the trustee, of the property that is the
subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Blount International or that Restricted Subsidiary
applies the proceeds of that transaction in compliance with, the covenant
described above in the section entitled "--Repurchase at the Option of
Holders--Asset Sales."
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Dividend and other Payment Restrictions Affecting Subsidiaries
Blount International will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of Blount International that is not a Guarantor to:
(1) pay dividends or make any other distributions on its Capital Stock
to Blount International or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits;
(2) pay any indebtedness owed to Blount International or any of its
Restricted Subsidiaries;
(3) make loans or advances to Blount International or any of its
Restricted Subsidiaries; or
(4) transfer any of its properties or assets to Blount International or
any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that those
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken as a
whole, with respect to dividend and other payment restrictions than those
contained in that Existing Indebtedness, as in effect on the Issue Date;
(2) the new credit facilities as in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof or any other Credit
Facility, provided that those amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings,
and any other Credit Facility, are no more restrictive, taken as a whole,
with respect to dividend and other payment restrictions than those
contained in the new credit facilities, as in effect on the Issue Date;
(3) the Indenture and the Notes or any other indenture governing debt
securities that are no more restrictive, taken as a whole, with respect to
dividend and other payment restrictions than those contained in the
Indenture and the Notes;
(4) applicable law or any applicable rule, regulation or order;
(5) any instrument governing Indebtedness or Capital Stock of a person
acquired by Blount International or any of its Restricted Subsidiaries as
in effect at the time of that acquisition (except to the extent that
Indebtedness was incurred in connection with or in contemplation of that
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, that Indebtedness was permitted to be incurred by the
terms of the Indenture;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (4) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary of Blount International that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing that Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to that Lien;
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(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business;
(12) any Purchase Money Note or other Indebtedness or contractual
requirements incurred with respect to a Qualified Receivables Transaction
relating to a Receivables Subsidiary;
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(14) secured Indebtedness otherwise permitted to be incurred pursuant to
the provisions of the covenant described above in the section entitled "--
Liens" that limits the right of the debtor to dispose of the assets
securing the Indebtedness; and
(15) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancing of the contracts, instruments or obligations
referred to in clauses (1) through (14) above, provided that the
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
Blount International's Board of Directors not materially more restrictive
in the aggregate with respect to the dividend and other payment
restrictions than those (considered as a whole) contained in the dividend
or other payment restrictions prior to the applicable amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
Merger, Consolidation, or Sale of Assets
Neither Blount International nor Blount will, directly or indirectly: (x)
consolidate or merge with or into another person (whether or not Blount
International or Blount, as the case may be, is the surviving corporation); or
(y) sell, assign, transfer, convey, lease or otherwise dispose of all or
substantially all of the properties or assets of Blount International or
Blount, as the case may be, and their respective Restricted Subsidiaries taken
as a whole, in one or more related transactions, to another person; unless:
(1) either: (a) Blount International or Blount, as the case may be, is
the surviving corporation, limited liability company, business trust or
limited partnership; or (b) the person formed by or surviving that
consolidation or merger (if other than Blount International or Blount, as
the case may be) or to which that sale, assignment, transfer, conveyance,
lease or other disposition has been made is a corporation, limited
liability company, business trust or limited partnership organized or
existing under the laws of the United States, any state thereof or the
District of Columbia; provided that in the case of (a) or (b) above, if the
surviving person is a limited liability company, business trust or limited
partnership, a corporation which is a Wholly Owned Subsidiary of the
surviving person shall act as joint and several obligor with respect to the
Notes;
(2) the person formed by or surviving that consolidation or merger (if
other than Blount International or Blount, as the case may be) or the
person to which that sale, assignment, transfer, conveyance, lease or other
disposition has been made assumes all the obligations of Blount
International or Blount, as the case may be, under the Indenture, the
Registration Rights Agreement and the Notes or the Guarantee, as the case
may be, pursuant to agreements reasonably satisfactory to the trustee;
(3) immediately after the transaction no Default exists; and
(4) immediately after giving pro forma effect to the transaction and any
related financing transactions as if they had occurred at the beginning of
the most recently ended four-quarter period for which internal financial
statements are available immediately preceding such transaction either:
(a) the entity surviving that consolidation or merger would 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 in the section entitled "--
Incurrence of Indebtedness and Issuance of Preferred Stock"; or
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(b) the Fixed Charge Coverage Ratio for Blount International or
Blount, as the case may be, or the person formed by or surviving that
consolidation or merger (if other than Blount International or Blount,
as the case may be), or to which that sale, assignment, transfer,
conveyance, lease or other disposition has been made, would,
immediately after giving pro forma effect thereto as if that
transaction had occurred at the beginning of the applicable four-
quarter period, not be less than the Fixed Charge Coverage Ratio for
Blount International or Blount, as the case may be, and any of their
respective Restricted Subsidiaries immediately prior to that
transaction.
The foregoing clauses (3) and (4) will not apply to:
(1) the consolidation or merger of Blount International or Blount with
or into a Wholly Owned Restricted Subsidiary of Blount International; or
(2) a sale, assignment, transfer, conveyance, lease or other disposition
of properties or assets among Blount International, Blount or any of their
respective Wholly Owned Subsidiaries that are not Unrestricted
Subsidiaries; or
(3) the merger of Blount International or Blount with an Affiliate of
Blount International that has no significant assets or liabilities and was
formed solely for the purpose of changing the jurisdiction of organization
of Blount International or Blount, as the case may be, to another State of
the United States or the form of Blount International or Blount, as the
case may be, so long as the amount of Indebtedness of Blount International
or Blount, as the case may be, and their respective Restricted Subsidiaries
is not increased thereby.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of Blount International may designate any Restricted
Subsidiary of Blount International to be an Unrestricted Subsidiary if that
designation would not cause a Default. If a Restricted Subsidiary of Blount
International is designated as an Unrestricted Subsidiary, the aggregate fair
market value of all outstanding Investments owned by Blount International and
its Restricted Subsidiaries in the newly designated Unrestricted Subsidiary
will be deemed to be an Investment made as of the time of that designation and
will either reduce the amount available for Restricted Payments under the first
paragraph of the covenant described above in the section entitled "--Restricted
Payments" or reduce the amount available for future Investments under one or
more clauses of the definition of Permitted Investments, as Blount
International shall determine. That designation will only be permitted if that
Investment would be permitted at that time and if that Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors of Blount International may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary of Blount International if the redesignation
would not cause a Default. Blount shall be a Restricted Subsidiary of Blount
International and may not be designated as an Unrestricted Subsidiary.
Transactions with Affiliates
Blount International 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 of such person (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
Blount International or the relevant Restricted Subsidiary than terms that
would have been obtained in a comparable transaction by Blount
International or that Restricted Subsidiary with an unrelated person; and
(2) Blount International delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of its Board of Directors set forth in an
Officers' Certificate certifying that the Affiliate Transaction
complies with this covenant and that the
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Affiliate Transaction has been approved by a majority of the
disinterested members of its Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$25.0 million, Blount International obtains an opinion from an
accounting, appraisal or investment banking firm of national standing
to the effect that the Affiliate Transaction is fair to Blount
International or the relevant Restricted Subsidiary of Blount
International from a financial point of view or that the terms of the
Affiliate Transaction are at least as favorable to Blount International
or the relevant Restricted Subsidiary of Blount International as might
reasonably be obtained in a comparable arm's length transaction with an
unaffiliated third party.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Blount International or any
of its Restricted Subsidiaries in the ordinary course of business;
(2) transactions between or among Blount International and/or its
Restricted Subsidiaries;
(3) payment of reasonable fees to officers, directors, employees or
consultants of Blount International or to persons who are not otherwise
Affiliates of Blount International;
(4) any sale, conveyance or other transfer of accounts receivable and
other related assets customarily transferred in an asset securitization
transaction involving accounts receivable to a Receivables Subsidiary in a
Qualified Receivables Transaction;
(5) Restricted Payments that are permitted by, and Investments that are
not prohibited by, the provisions of the Indenture described above in the
section entitled "--Restricted Payments";
(6) indemnification payments made to officers, directors and employees
of Blount International or any of its Restricted Subsidiaries pursuant to
charter, bylaw, statutory or contractual provisions;
(7) the payment of customary annual management, consulting and advisory
fees and related expenses to Lehman Brothers Merchant Banking Partners and
its Affiliates;
(8) payments by Blount International or any of its Restricted
Subsidiaries to Lehman Brothers Merchant Banking Partners and its
Affiliates made for any financial advisory, financing, underwriting or
placement services or in respect of other investment banking activities,
including in connection with acquisitions or divestitures, which payments
are approved by a majority of the Board of Directors of Blount
International in good faith;
(9) the existence of, or the performance by Blount International 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 Issue
Date and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by Blount
International 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 Issue Date will only be permitted by this
clause (9) to the extent that the terms of the amendment or new agreement
are not otherwise disadvantageous to the holders of Notes in any material
respect;
(10) transactions pursuant to the terms of the Transaction Documents in
effect on the Issue Date, as amended thereafter; provided, however, that
transactions pursuant to the terms of any future amendment to any
Transaction Document will only be permitted pursuant to this clause (10) to
the extent that the terms of the amendment are not otherwise
disadvantageous to the holders of Notes in any material respect;
(11) transactions with Unrestricted Subsidiaries, customers, clients,
suppliers, joint venture partners, joint ventures, including their members
or partners, or purchasers or sellers of goods or services, in each case in
the ordinary course of business (including pursuant to joint venture
agreements) and otherwise in
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compliance with the terms of the Indenture which are, in the aggregate
(taking into account all the costs and benefits associated with such
transactions), materially no less favorable to Blount International or the
applicable Restricted Subsidiary of Blount International than those that
would have been obtained in a comparable transaction by Blount
International or the applicable Restricted Subsidiary of Blount
International with an unrelated person, in the reasonable determination of
the Board of Directors of Blount International 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;
(12) guarantees of performance by Blount International and its
Restricted Subsidiaries of Unrestricted Subsidiaries in the ordinary course
of business, except for guarantees of Obligations in respect of borrowed
money;
(13) pledges of Equity Interests of Unrestricted Subsidiaries for the
benefit of lenders of Unrestricted Subsidiaries;
(14) any issuance of securities, or other payments, awards or grants in
cash, securities, options or otherwise pursuant to, or the funding of,
employment arrangements, stock option and stock ownership plans approved by
the Board of Directors of Blount International; and
(15) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of Blount International.
Additional Guarantees
Blount International will not permit any of its Restricted Subsidiaries,
directly or indirectly, to guarantee or pledge any assets to secure the
payment of any Credit Facility of Blount International or any Restricted
Subsidiary of Blount International unless (1) all of the obligors, guarantors
or pledgors under that Credit Facility are Foreign Subsidiaries or (2) that
Restricted Subsidiary is a Guarantor or that Restricted Subsidiary becomes a
Guarantor by simultaneously executing and delivering to the trustee an Opinion
of Counsel and a supplemental indenture providing for a Guarantee of the
payment of the Notes by that Restricted Subsidiary which Guarantee shall be:
(a) in the case of Indebtedness that is subordinated to the Notes or the
guarantee of the Notes, senior to that Restricted Subsidiary's guarantee of
or pledge to secure such other Indebtedness;
(b) in the case of Indebtedness that is pari passu with the Notes or the
guarantee of the Notes, pari passu with that Restricted Subsidiary's
guarantee of or pledge to secure the other Indebtedness; and
(c) in the case of Indebtedness that is Senior Debt of the issuer,
subordinated to the guarantee of the Senior Debt to the same extent as the
guarantee of the Notes by a Restricted Subsidiary of Blount International
is subordinated to Senior Debt of that Restricted Subsidiary.
This covenant shall not apply to any Subsidiary of Blount International
that has been properly designated as an Unrestricted Subsidiary or as a
Receivables Subsidiary.
Notwithstanding the preceding paragraph, any Guarantee will provide by its
terms that it will automatically and unconditionally be released and
discharged under the circumstances described above in the section entitled "--
Guarantees."
Business Activities
Blount International will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than Permitted Businesses,
except to an extent that would not be material to Blount International and its
Restricted Subsidiaries taken as a whole.
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Payments for Consent
Blount International will not, and will not permit any of its Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to or for the benefit of any holder of
Notes for or as an inducement to any consent, waiver or amendment of any of the
terms or provisions of the Indenture or the Notes unless that consideration is
offered to be paid and is paid to all holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to that consent, waiver or agreement.
No Senior Subordinated Debt
Blount International will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of Blount International and senior in any
respect in right of payment to the Notes. No Guarantor will incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to the Senior Debt of that
Guarantor and senior in any respect in right of payment to the Guarantor's
Guarantee.
Reports
So long as any Notes are outstanding, Blount International will furnish to
the holders of Notes, within 15 days after the time Blount International would
be required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act:
(1) 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 (or any successor forms) if Blount International were required to file
those forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by Blount
International's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K (or any successor form) if Blount International were
required to file those reports.
If Blount International has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph shall include a reasonably detailed
presentation, either on the face of the financial statements or in the
footnotes, and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, of the financial condition and results of operations
of Blount International and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of Blount International.
In addition, Blount International will file a copy of all information and
reports referred to in clauses (1) and (2) above with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept that filing) and make that
information available to securities analysts and prospective investors upon
request. Blount International and the Guarantors have also agreed that, for so
long as any Notes are not freely transferable under the Securities Act, 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
Each of the following is an Event of Default:
(1) default for 30 days in the payment, when due, of interest on, or
Additional Interest with respect to, the Notes whether or not prohibited by
the subordination provisions of the Indenture;
(2) default in payment, when due, of the principal of, or premium, if
any, on the Notes whether or not prohibited by the subordination provisions
of the Indenture;
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(3) failure by Blount International or any of its Restricted
Subsidiaries to purchase any of the Notes as required under the provisions
described in the sections entitled "--Repurchase at the Option of Holders--
Change of Control" or "--Repurchase at the Option of Holders--Asset Sales,"
or comply with the provisions described in the section entitled "--Certain
Covenants--Merger, Consolidation, or Sale of Assets";
(4) failure by Blount International or any of its Restricted
Subsidiaries to comply with the provisions described in the sections
entitled "--Repurchase at the Option of Holders--Change of Control" (other
than a failure to purchase Notes), "--Repurchase at the Option of Holders--
Asset Sales" (other than a failure to purchase Notes), "--Certain
Covenants--Restricted Payments" and "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" for 30 days after notice of
that failure has been given;
(5) failure by Blount International or any of its Restricted
Subsidiaries to comply with any of the other agreements in the Indenture
for 60 days after notice of that failure has been given;
(6) 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 Blount International or any of its
Significant Subsidiaries (or the payment of which is guaranteed by Blount
International or any of its Significant Subsidiaries) whether that
Indebtedness or guarantee now exists, or is created after the Issue Date,
if that default:
(a) is caused by a failure to pay principal of that Indebtedness at
final maturity and after giving effect to the applicable grace period,
if any, provided in that Indebtedness on the date of that default (a
"Payment Default"); or
(b) results in the acceleration of that Indebtedness prior to its
express maturity,
and, in each case, the principal amount of that Indebtedness, together with
the principal amount of any other Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates without duplication $25.0 million or more;
(7) failure by Blount International or any of its Significant
Subsidiaries to pay final judgments aggregating in excess of $25.0 million,
which judgments are not paid, discharged or stayed for a period of 60
consecutive days;
(8) except as permitted by the Indenture, if any Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason (other than in accordance with the terms of that Guarantee
and the Indenture) to be in full force and effect or any Guarantor, or if
any person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Guarantee; and
(9) certain events of bankruptcy or insolvency with respect to Blount
International or any of its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Blount International or Blount, all outstanding
Notes will become due and payable immediately without further action or notice.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, that so long
as any Indebtedness permitted to be incurred pursuant to the Indebtedness under
the new credit facilities shall be outstanding, the acceleration shall not be
effective until the earlier of (a) an acceleration of any Indebtedness under
the new credit facilities or (b) five business days after receipt by Blount of
written notice of the acceleration of the Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold notice
of any continuing
104
Default (except a Default relating to the payment of principal or interest or
Additional Interest) from holders of the Notes if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may, on behalf of the holders of all of the Notes, by notice to the
trustee, waive any existing Default and its consequences under the Indenture
except a continuing Default in the payment of interest or Additional Interest
on, or the principal of, the Notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Blount with the
intention of avoiding payment of the premium that Blount would have had to pay
upon an optional redemption of the Notes, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to August 1,
2004 by reason of any willful action or inaction taken or not taken by or on
behalf of Blount with the intention of avoiding the prohibition on redemption
of the Notes prior to August 1, 2004 then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
Blount is required to deliver to the trustee an annual statement regarding
compliance with the Indenture. Upon becoming aware of any event that would
constitute certain Defaults, Blount is required to deliver to the trustee a
statement specifying that Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Blount or any
Guarantor, as such, shall have any liability for any obligations of Blount or
the Guarantors under the Notes, the Indenture, the Guarantees, or for any claim
based on, in respect of, or by reason of, those obligations or their creation.
Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
Legal Defeasance and Covenant Defeasance
Blount may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all
obligations of the Guarantors discharged with respect to their Guarantees
("Legal Defeasance") except for:
(1) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, or interest and Additional
Interest, if any, on those Notes when these payments are due from the trust
referred to below;
(2) Blount's obligations with respect to the Notes concerning the
issuance of temporary Notes, registration of Notes, the status of
mutilated, destroyed, lost or stolen Notes and the maintenance of an office
or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and Blount's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, Blount may, at its option and at any time, elect to have the
obligations of Blount and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any failure to comply with those covenants shall not constitute a
Default with respect to the 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.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Blount must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in amounts that will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, or interest and premium and
Additional Interest, if any, on the outstanding Notes on the stated
maturity or on the applicable redemption date, as the case may be, and
Blount must specify whether the Notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, Blount shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) Blount has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the Issue Date,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon, that Opinion of Counsel shall
confirm that, the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of 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
Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Blount shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
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 Covenant Defeasance had not occurred;
(4) no Event of Default from bankruptcy or insolvency events shall have
occurred and be continuing at any time in the period ending on the 91st day
after the date of deposit;
(5) that 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 Blount
International or any of its Restricted Subsidiaries is a party or by which
Blount International or any of its Restricted Subsidiaries is bound; and
(6) certain other customary conditions precedent must be satisfied.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes), and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of those holders.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder):
(1) reduce the principal amount of Notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes;
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default in the payment of principal of, or interest or
premium, or Additional Interest, if any, on the Notes (except a rescission
of acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from that acceleration);
106
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of, or interest or premium or Additional Interest, if
any, on the Notes;
(7) waive a redemption payment with respect to any Note;
(8) release any Guarantor from any of its obligations under its
Guarantee or the Indenture, except in accordance with the terms of the
Indenture; or
(9) make any change in this provision.
In addition, any amendment to, or waiver of, the provisions of the Indenture
relating to subordination that adversely affects the rights of the holders of
the Notes will require the consent of the holders of at least 75% in aggregate
principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of Notes,
Blount, the Guarantors and the trustee may amend or supplement the Indenture or
the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of Blount's obligations to holders of
Notes in the case of a merger or consolidation or sale of all or
substantially all of Blount's assets permitted by the Indenture;
(4) to provide for the assumption of Blount International's obligations
to holders of Notes in respect of the Guarantees in the case of a merger or
consolidation or sale of all or substantially all of Blount International's
assets permitted by the Indenture;
(5) to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the
legal rights under the Indenture of any holder of Notes or to surrender any
right or power conferred upon Blount or Blount International;
(6) to provide for the issuance of Additional Notes in accordance with
the provisions set forth in the Indenture; or
(7) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
If the trustee becomes a creditor of Blount or any Guarantor, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any 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 that conflict within 120
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 and be continuing, 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 these 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 Notes, unless that holder shall have offered to the trustee
security and indemnity satisfactory to it, in its sole discretion, against any
loss, liability or expense.
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Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing or calling: Blount
International, Inc., 4520 Executive Park Drive, Montgomery, Alabama 36116
(telephone number: (334) 244-4000), Attention: Richard H. Irving, III--General
Counsel.
Book-Entry, Delivery and Form
The New Notes will be represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Global Notes"). The Global
Notes will be deposited upon issuance with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to account of a direct or
indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certified form except in the limited circumstances described below.
See "--Exchange of Book-Entry Notes for Certified Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Certificated Notes
(as defined below). Transfers of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants (including, if applicable, those of Euroclear and Cedel),
which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. Blount takes no responsibility for these
operations and procedures and urges investors to contact the system or their
participants directly to discuss these matters.
DTC has advised Blount that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers of ownership
interests in, each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised Blount that, pursuant to procedures established by it:
. upon deposit of the Global Notes, DTC will credit the accounts of
Participants with portions of the principal amount of the Global Notes;
and
. ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners
of beneficial interest in the Global Notes).
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Except as described below in the section entitled "--Exchange of Global
Notes for Certificated Notes," owners of interest in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
"holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Additional Interest, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, Blount and the trustee
will treat the persons in whose names the Notes, including the Global Notes,
are registered as the owners of the Notes for the purpose of receiving payments
and for all other purposes. Consequently, neither Blount, the trustee nor any
agent of Blount or the trustee has or will have any responsibility or liability
for:
. any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
. any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised Blount that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not
receive payment on that payment date. Each relevant Participant is credited
with an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of Notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the trustee or Blount.
Neither Blount nor the trustee will be liable for any delay by DTC or any of
its Participants in identifying the beneficial owners of the Notes, and Blount
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interests
in the Global Notes are expected to be eligible to trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will, therefore, settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its Participants. See the section entitled
"--Same Day Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Cedel will be effected in accordance with their
respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary. These cross-market transactions will
require delivery of instructions to Euroclear or Cedel, as the case may be, by
the counterparty in that system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of that system. Euroclear or
Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests
in the relevant Global Note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
DTC has advised Blount that it will take any action permitted to be taken by
a holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and
109
only in respect of the portion of the aggregate principal amount of the Notes
as to which the Participant or Participants has or have given direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute those Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform these procedures, and may discontinue these procedures at
any time. Neither Blount nor the trustee nor any of their respective agents
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
DTC's management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter Year 2000 problems.
DTC has informed its Participants and other members of the financial community
that it has developed and is implementing a program so that its systems
continue to function appropriately, as they relate to the timely payment of
distributions (including principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform its services properly is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunications and electrical utility service
providers, among others. DTC has informed the financial community that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of those services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Blount that it is unwilling or unable to continue
as depositary for the Global Notes and Blount fails to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act and Blount fails to appoint a successor depositary;
(2) Blount, at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default with respect
to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in a
Global Note will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures) and will bear the applicable restrictive legend
referred to in the section entitled "Notice to Investors," unless that legend
is not required by applicable law.
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Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the Indenture) to the effect that the
transfer will comply with the appropriate transfer restrictions applicable to
those Notes. See the section entitled "Notice to Investors."
Same Day Settlement and Payment
Payments on Notes will be made at the office or agency of the Paying Agent
and Registrar within the City and State of New York except that:
. Blount may make payments in respect of the Notes represented by the
Global Notes (including principal, premium, if any, interest and
Additional Interest, if any) by wire transfer of immediately available
funds to the U.S. dollar accounts in the United States specified by the
Global Note holder;
. Blount may make all payments of principal, interest and premium and
Additional Interest, if any, with respect to Certificated Notes by wire
transfer of immediately available funds to the accounts specified by the
holders of those Notes; and
. if no account is specified by a holder, Blount may mail a check to that
holder's registered address.
The Notes represented by the Global Notes are expected to be eligible to
trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in the Notes will,
therefore, be required by DTC to be settled in immediately available funds.
Blount expects that secondary trading in any Certificated Notes will also be
settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and that crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. DTC has advised Blount that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
Registration Rights; Additional Interest
The following description is a summary of the material provisions of the
Registration Rights Agreement entered into by and between Blount, the
Guarantors and the Initial Purchaser. It does not restate that agreement in its
entirety. We urge you to read the Registration Rights Agreement in its
entirety. See the section entitled "--Additional Information." Holders of the
New Notes are not entitled to any registration rights with respect to the New
Notes.
Pursuant to the Registration Rights Agreement, Blount and the Guarantors
agreed to file with the Commission the Exchange Offer Registration Statement on
the appropriate form under the Securities Act with respect to the Exchange
Notes. The registration statement of which this Prospectus is a part
constitutes the Exchange Offer Registration Statement.
The Registration Rights Agreement provides that if:
(1) Blount and the Guarantors are not
(a) required to file the Exchange Offer Registration Statement
pursuant to the Registration Rights Agreement; or
111
(b) permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy; or
(2) any holder of Transfer Restricted Securities notifies Blount prior
to the 20th day following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating
in the Exchange Offer; or
(b) 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 those resales; or
(c) it is a broker-dealer and owns Notes acquired directly from
Blount or an affiliate of Blount,
then Blount and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement.
Blount and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission.
For purposes of the preceding, "Transfer Restricted Securities" means each
Old Note until:
(1) the date on which that Old Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of
an Old Note for an Exchange Note, the date on which that Exchange Note is
sold to a purchaser who receives from that broker-dealer on or prior to the
date of that sale a copy of the prospectus contained in the Exchange Offer
Registration Statement;
(3) the date on which that Old Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or
(4) the date on which that Old Note is sold by the holder pursuant to
Rule 144 under the Securities Act or may be sold by the holder pursuant to
Rule 144(k) under the Securities Act.
The Registration Rights Agreement provides that:
(1) Blount and the Guarantors will file an Exchange Offer Registration
Statement with the Commission on or prior to 120 days after the closing of
the offering of the Old Notes;
(2) Blount and the Guarantors will use their best efforts to have the
Exchange Offer Registration Statement declared effective by the Commission
on or prior to 180 days after the closing of the offering of the Old Notes;
(3) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, Blount and the Guarantors will
(a) commence the Exchange Offer; and
(b) use their best efforts to issue Exchange Notes in exchange for
all Old Notes tendered in the Exchange Offer on or prior to 30 business
days, or longer, if required by the federal securities laws, after the
date on which the Exchange Offer Registration Statement was declared
effective by the Commission; and
(4) if obligated to file the Shelf Registration Statement, Blount and
the Guarantors will file the Shelf Registration Statement with the
Commission on or prior to 30 days after that filing obligation arises and
112
use their best efforts to cause the Shelf Registration to be declared
effective by the Commission on or prior to 150 days after that obligation
arises.
If:
(1) Blount and the Guarantors fail to file any of the registration
statements required by the Registration Rights Agreement on or before the
date specified for that filing; or
(2) any of those registration statements is not declared effective by
the Commission on or prior to the date specified for its effectiveness in
the circumstances required by the Registration Rights Agreement; or
(3) Blount and the Guarantors fail to consummate the Exchange Offer
within 30 business days, or longer if required by the Federal securities
laws, after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission; or
(4) 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 Registration Rights Agreement (subject to
certain exceptions as specified in the Registration Rights Agreement) (each
event referred to in clauses (1) through (4) above, a "Registration
Default"),
then Blount and the Guarantors will pay additional interest ("Additional
Interest") to each holder of Transfer Restricted Securities adversely affected
by such Registration Default, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Transfer
Restricted Securities held by that holder. The amount of Additional Interest
will increase by an additional $.05 per week per $1,000 principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Additional Interest for all Registration Defaults of $.50 per week per $1,000
principal amount of Transfer Restricted Securities.
Following the cure of all Registration Defaults, the accrual of Additional
Interest will cease.
Certain Definitions
Some of the defined terms used in the Indenture are set forth below.
Reference is made to the Indenture and the Registration Rights Agreement for a
full disclosure of those terms, as well as any other capitalized terms used in
this section for which no definition is provided.
"1998 Indenture" means the Indenture dated as of June 18, 1998 among Blount,
Blount International and LaSalle National Bank, as trustee, pursuant to which
existing notes were originally issued.
"Acquired Debt" means, with respect to any specified person:
(1) Indebtedness of any other person existing at the time that other
person is merged with or into or became a Subsidiary of the specified
person, whether or not that Indebtedness is incurred in connection with, or
in contemplation of, that other person merging with or into, or becoming a
Subsidiary of, the specified person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
specified person.
"Additional Assets" means:
(1) any property or assets (other than Capital Stock, Indebtedness or
rights to receive payments over a period greater than 180 days) that are
used by or useful to Blount International or a Restricted Subsidiary of
Blount International in a Permitted Business; or
113
(2) the Capital Stock of a person that either is already at the time a
Restricted Subsidiary of Blount International or becomes a Restricted
Subsidiary of Blount International as a result of the acquisition of that
Capital Stock by Blount International or another Restricted Subsidiary of
Blount International.
"Additional Interest" has the meaning ascribed thereto in the section
entitled "--Registration Rights; Additional Interest."
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified person. For purposes of this definition, "control,"
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 that person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Asset Disposition" means the sale, lease, conveyance or other disposition
of any assets or rights (including by way of a sale and leaseback) of Blount
International or any of its Restricted Subsidiaries in one or more related
transactions.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including by way of a sale and leaseback); provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of Blount International and its Restricted Subsidiaries taken as a
whole will be governed by the covenant described above in the section
entitled "--Repurchase at the Option of Holders--Change of Control" and/or
the covenant described above in the section entitled "--Certain Covenants--
Merger, Consolidation, or Sale of Assets" and not by the covenant described
above in the section entitled""--Repurchase at the Option of Holders--Asset
Sales"; and
(2) the issuance of Equity Interests in any of the Restricted
Subsidiaries of Blount International or the sale of Equity Interests in any
of those Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $2.0 million or (b)
results in net proceeds to Blount International and its Restricted
Subsidiaries of less than $2.0 million;
(2) a transfer of assets between or among Blount International and its
Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary of Blount
International to Blount International or to another Restricted Subsidiary
of Blount International;
(4) the sale, lease or other disposition of equipment, inventory,
accounts receivable or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) the sale, conveyance or other transfer of accounts receivable and
related assets customarily transferred in an asset securitization
transaction involving accounts receivable to a Receivables Subsidiary or by
a Receivables Subsidiary, in connection with a Qualified Receivables
Transaction;
(7) foreclosures on assets; and
(8) a Restricted Payment permitted by or a Permitted Investment that is
not prohibited by the covenant described above in the section entitled "--
Certain Covenants--Restricted Payments."
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"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in that transaction including any period for which that lease has been
extended or may, at the option of the lessor, be extended. The present value
shall be calculated using a discount rate equal to the rate of interest borne
by the Notes, compounded annually.
"Beneficial Owner" has the meaning assigned to that term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), that "person" shall be deemed to have beneficial
ownership of all securities that the "person" has the right to acquire by
conversion or exercise of other securities, whether the right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a
corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation or any committee thereof duly authorized to act on behalf of
the board;
(2) with respect to a partnership, the board of directors of the general
partner of the partnership; and
(3) with respect to any other person, the board or committee of that
person serving a similar function.
"Board Resolution" means, with respect to any person, a copy of a
resolution certified by the Secretary or Assistant Secretary of that person to
have been duly adopted by the Board of Directors of that person and to be in
full force and effect on the date of certification, and delivered to the
trustee.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing person.
"Cash Equivalents" means:
(1) United States dollars;
(2) 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 one year from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition and overnight bank
deposits, in each case, with any lender party to any Credit Facility or
with any domestic commercial bank having capital and surplus in excess of
$500.0 million;
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(4) repurchase obligations of any lender party to any Credit Facility or
of any commercial bank satisfying the requirements of clause (3) of this
definition, having a term of not more than 90 days with respect to
securities issued or fully guaranteed or insured by the United States
government;
(5) commercial paper of a domestic issuer rated at least P-2 by Moody's
or A-2 by S&P, or carrying an equivalent rating by a nationally recognized
rating agency if both of Moody's and S&P cease publishing ratings of
investments;
(6) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth territory,
political subdivision, taxing authority or foreign government (as the case
may be) are rated at least A by S&P or A by Moody's;
(7) securities with maturities of one year or less from the date of
acquisition backed by standby letters of credit issued by any lender party
to any Credit Facility or any commercial bank satisfying the requirements
of clause (3) of this definition;
(8) in the case of Foreign Subsidiaries operating in Europe, available
cash invested in interest bearing accounts, certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date
of acquisition and overnight bank deposits, in each case, with any
commercial bank having a class of debt securities rated at least A- by S&P
or A-3 by Moody's;
(9) in the case of Foreign Subsidiaries operating in Brazil, available
cash invested in (a) interest bearing accounts and certificates of deposit
with maturities of one year or less from the date of acquisition and
overnight bank deposits, in each case, with any Brazilian commercial bank
having a class of debt securities rated at least B+ by S&P or B-1 by
Moody's or (b) export notes in U.S. dollars issued by a Brazilian
commercial bank with maturities of 90 days or less from the date of
acquisition; provided that if export notes are not available, available
cash may be invested in certificates of deposit issued by a Brazilian
commercial bank with maturities of one year or less from the date of
acquisition and denominated in Brazilian reals swapped for U.S. dollars
pursuant to an agreement related to Hedging Obligations to protect against
currency devaluation; provided, further, that the aggregate principal
amount of available cash invested pursuant to this clause (9) at any time
outstanding shall not exceed $10.0 million; or
(10) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (7) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect 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
properties or assets of Blount International and its Restricted
Subsidiaries taken as a whole to any "person" (as that term is used in
Section 13(d)(3) of the Exchange Act) other than the Principal or its
Related Parties, except for a transaction (a) in which the transferee
becomes the obligor in respect of the Notes; and (b) following which the
transferee is a Domestic Subsidiary and a Wholly Owned Subsidiary of the
transferor;
(2) the adoption of a plan relating to the liquidation or dissolution of
Blount International, other than a plan solely relating to the liquidation
or dissolution of Blount into Blount International;
(3) the consummation of any transaction (including any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principal and its Related Parties, becomes the
116
Beneficial Owner, directly or indirectly, of more than 50% of the Voting
Stock of Blount International, measured by voting power rather than number
of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Blount International are not Continuing Directors; or
(5) the consolidation or merger of Blount International with or into,
any person, or the consolidation or merger of any person with or into
Blount International pursuant to a transaction in which any of the
outstanding Voting Stock of Blount International or the other person is
converted into or exchanged for cash, securities or other property, other
than any transaction where the Voting Stock of Blount International
outstanding immediately prior to that transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving
or transferee person constituting at least a majority of the outstanding
shares of the Voting Stock of the surviving or transferee person
(immediately after giving effect to the issuance).
For the purpose of this definition of "Change of Control," any transfer of
any equity of an entity that was formed for the purpose of acquiring Voting
Stock of Blount International will be deemed to be a transfer of equity
interest in Blount International.
"Consolidated Cash Flow" means, with respect to any specified person for any
period, the Consolidated Net Income of that person for that period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
by that person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent the losses were deducted in computing that
person's Consolidated Net Income; plus
(2) provision for taxes based on income or profits of that person and
its Restricted Subsidiaries for that period, to the extent that the
provision for taxes was deducted in computing that person's Consolidated
Net Income; plus
(3) consolidated interest expense of that person and its Restricted
Subsidiaries for that period, when first paid or accrued and without
duplication, and whether or not capitalized (including amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all payments made
or received pursuant to Hedging Obligations), to the extent that the
expense was deducted in computing that person's Consolidated Net Income;
plus
(4) all one-time fees, costs, expenses (including cash compensation
payments), in each case incurred by Blount International and its Restricted
Subsidiaries (x) in connection with the merger and other recapitalization
transactions of Blount International and (y) incurred in connection with or
resulting from any other merger, consolidation, recapitalization or
acquisition occurring after the Issue Date; plus
(5) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
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 that person and its Restricted
Subsidiaries for that period to the extent that the depreciation,
amortization and other non-cash expenses were deducted in computing that
person's Consolidated Net Income; minus
(6) non-cash items increasing that person's Consolidated Net Income for
that period, other than the accrual of revenue in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
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Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash
expenses of, a Subsidiary of Blount International shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of Blount
International only to the extent that a corresponding amount would be permitted
at the date of determination to be directly or indirectly dividended to Blount
International by that Subsidiary without prior governmental approval (that has
not been obtained), and without direct or indirect restriction pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified person for
any period, the aggregate of the Net Income of that person and its Restricted
Subsidiaries for that period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any person that is not the
specified person or 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 specified person
or a Restricted Subsidiary of that person;
(2) 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;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
Notwithstanding the foregoing, for the purposes of the covenant described in
the section entitled""--Certain Covenants--Restricted Payments" only, there
shall be excluded from Consolidated Net Income any repurchases, repayments or
redemptions of Investments, proceeds realized on the sale of the Investments or
return of capital to Blount International or a Restricted Subsidiary of Blount
International to the extent such repurchases, repayments, redemptions, proceeds
or returns increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (3)(c) thereof.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of Blount or Blount International, as applicable, who:
(1) was a member of that Board of Directors on the Issue Date; or
(2) was nominated for election or elected to the Board of Directors of
Blount or Blount International, as applicable, with the approval of a
majority of the Continuing Directors who were members of that Board at the
time of the nomination or election.
"Credit Facilities" means one or more debt facilities (including the new
credit facilities) or commercial paper facilities, in each case 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 entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case as amended, restated, modified,
supplemented, renewed, refunded, refinanced, restructured, replaced, repaid or
extended in whole or in part from time to time.
"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.
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"Designated Noncash Consideration" means the fair market value of noncash
consideration received by Blount International or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, less the amount of cash or Cash Equivalents
received in connection with a sale of the Designated Noncash Consideration.
"Designated Senior Debt" means (1) any Indebtedness under the new credit
facilities and (2) 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 Blount as a "Designated Senior Debt."
"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, in each case 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 is 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. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Blount or Blount
International, as applicable, to repurchase that Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of that Capital Stock provide that Blount or
Blount International, as applicable, may not repurchase or redeem that Capital
Stock pursuant to those provisions unless the repurchase or redemption complies
with the covenant described above in the section entitled "--Certain
Covenants--Restricted Payments."
"Domestic Subsidiary" means any Subsidiary of Blount International that was
formed under the laws of the United States or any state thereof or the District
of Columbia.
"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).
"Equity Offering" means any public or private offering of Capital Stock
(excluding Disqualified Stock) of Blount or Blount International, other than
any private sales to an Affiliate of Blount or Blount International.
"Existing Indebtedness" means Indebtedness of Blount and its Subsidiaries
(other than Indebtedness under the new credit facilities) in existence on the
Issue Date, until those amounts are repaid.
"existing notes" means the $150,000,000 original aggregate principal amount
of 7% Senior Notes due 2005 of Blount.
"Fixed Charges" means, with respect to any specified person or any of its
Restricted Subsidiaries for any period, the sum, without duplication, of:
(1) the consolidated interest expense of that person and its Restricted
Subsidiaries for that period, when first paid or accrued and without
duplication (including amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net of the effect of all payments made or received pursuant to Hedging
Obligations); plus
(2) the consolidated interest of that person and its Restricted
Subsidiaries that was capitalized during that period; plus
(3) any interest expense on Indebtedness of another person that is
guaranteed by the specified person or one of its Restricted Subsidiaries or
secured by a Lien on assets of that person or one of its Restricted
Subsidiaries, whether or not that guarantee or Lien is called upon; plus
119
(4) the product of (a) all dividends, whether paid or accrued, whether
or not in cash, on any series of preferred stock of that person or any of
its Restricted Subsidiaries, other than dividends on Equity Interests
payable solely in Equity Interests of Blount (other than Disqualified
Stock) or to Blount or a Restricted Subsidiary of Blount, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate
of that person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified person and
its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash
Flow of that person and its Restricted Subsidiaries for that period to the
Fixed Charges of that person and its Restricted Subsidiaries for that period;
provided, however, that:
(1) if (x) Blount International or any of its Restricted Subsidiaries
has issued, assumed, guaranteed, incurred or otherwise becomes directly or
indirectly liable, contingently or otherwise, for ("incurred") any
Indebtedness, (y) Blount International or Blount has issued any
Disqualified Stock, or (z) any of their respective Subsidiaries has issued
any Preferred Stock, in each case, since the beginning of that period that
remains outstanding, or if the transaction giving rise to the need to
calculate the Fixed Charge Coverage Ratio is an incurrence of Indebtedness
or an issuance of Disqualified Stock or Preferred Stock, or any combination
of the above, Consolidated Cash Flow and Fixed Charges for that period
shall be calculated after giving effect on a pro forma basis to that
Indebtedness, Disqualified Stock or Preferred Stock as if that
Indebtedness, Disqualified Stock or Preferred Stock had been incurred or
issued on the first day of that period and the discharge or redemption of
any other Indebtedness, Disqualified Stock or Preferred Stock repaid,
repurchased, redeemed, defeased or otherwise discharged with the proceeds
of that new Indebtedness, Disqualified Stock or Preferred Stock as if that
discharge or redemption had occurred on the first day of that period;
(2) if Blount International or any of its Restricted Subsidiaries has
repaid, repurchased, redeemed, defeased or otherwise discharged any
Indebtedness, Disqualified Stock or Preferred Stock since the beginning of
that period or if any Indebtedness, Disqualified Stock or Preferred Stock
is to be repaid, repurchased, redeemed, defeased or otherwise discharged
(in each case other than Indebtedness incurred under any revolving credit
facility unless that Indebtedness has been permanently repaid and has not
been replaced) on the date of the transaction giving rise to the need to
calculate the Fixed Charge Coverage Ratio, Consolidated Cash Flow and Fixed
Charges for that period shall be calculated on a pro forma basis as if that
discharge or redemption had occurred on the first day of that period and as
if Blount International or that Restricted Subsidiary of Blount
International has not earned the interest income actually earned during
that period in respect of cash or Cash Equivalents used to repay,
repurchase, redeem, defease or otherwise discharge that Indebtedness,
Disqualified Stock or Preferred Stock;
(3) if since the beginning of that period Blount International or any
Restricted Subsidiary of Blount International shall have made any Asset
Disposition, the Consolidated Cash Flow for that period shall be reduced by
an amount equal to the Consolidated Cash Flow (if positive) directly
attributable to the assets which are the subject of that Asset Disposition
for that period, or increased by an amount equal to the Consolidated Cash
Flow (if negative), directly attributable thereto for that period and Fixed
Charges for that period shall be reduced by an amount equal to the Fixed
Charges directly attributable to any Indebtedness, Disqualified Stock or
Preferred Stock of Blount International or any Restricted Subsidiary of
Blount International repaid, repurchased, redeemed, defeased or otherwise
discharged with respect to Blount International and its continuing
Restricted Subsidiaries in connection with the Asset Disposition for that
period (or, if the Capital Stock of any Restricted Subsidiary of Blount
International is sold, the Fixed Charges for that period directly
attributable to the Indebtedness of that Restricted Subsidiary of Blount
International to the extent Blount International and its continuing
Restricted Subsidiaries are no longer liable for the Indebtedness after
that sale);
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(4) if since the beginning of that period Blount International or any
Restricted Subsidiary of Blount International (by merger, consolidation or
otherwise) shall have made an Investment in any Restricted Subsidiary of
Blount International (or any person which becomes a Restricted Subsidiary
of Blount International) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all of an operating unit of a business, Consolidated Cash Flow and Fixed
Charges for that period shall be calculated after giving pro forma effect
thereto (including the incurrence of any Indebtedness or the issuance of
any Disqualified Stock or Preferred Stock) as if that Investment or
acquisition occurred on the first day of that period; and
(5) if since the beginning of that period any person (that subsequently
became a Restricted Subsidiary of Blount International, or was merged or
consolidated with or into Blount International or any Restricted Subsidiary
of Blount International, since the beginning of that period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by Blount International or a Restricted Subsidiary of Blount
International, during that period, Consolidated Cash Flow and Fixed Charges
for that period shall be calculated after giving pro forma effect thereto
as if that Asset Disposition, Investment or acquisition occurred on the
first day of that period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, including through merger, consolidated or otherwise,
the amount of income or earnings relating thereto and the amount of Fixed
Charges associated with any Indebtedness incurred or Disqualified Stock or
Preferred Stock issued in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
Officer of Blount International in accordance with Regulation S-X of the
Securities Act, but without giving effect to clause (3) of the proviso set
forth in the definition of Consolidated Net Income. If any Indebtedness,
Disqualified Stock or Preferred Stock bears a floating rate of interest or
dividends and is being given pro forma effect, such interest or dividends shall
be calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period (taking into account any agreement
related to Hedging Obligations applicable to the Indebtedness, Disqualified
Stock or Preferred Stock if the agreement related to Hedging Obligations has a
remaining term in excess of 12 months).
"Foreign Subsidiary" means a Restricted Subsidiary that is not a Domestic
Subsidiary.
"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 other statements by any other
entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"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 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.
"Guarantee" means a guarantee by a Guarantor of the Notes under the
Indenture or any supplement thereof.
"Guarantors" means each of:
(1) Blount International;
(2) Effective September 30, 1999 (with the merger of Blount Development
Corp., Mocenplaza Development Corp. and Benjamin F. Shaw Company with and
into 4520 Corp.), BI Holdings Corp., a Delaware corporation; BI, L.L.C., a
Delaware limited liability company; Omark Properties, Inc., an Oregon
corporation; 4520 Corp., Inc., a Delaware corporation; Gear Products, Inc.,
an Oklahoma
121
corporation; Dixon Industries, Inc., a Kansas corporation; Frederick
Manufacturing Corporation, a Delaware corporation; Federal Cartridge
Company, a Minnesota corporation; Simmons Outdoor Corporation, a Delaware
corporation; and CTR Manufacturing, Inc., a North Carolina corporation; and
effective December 31, 1999, the Guarantors here listed, with the exception
of BI Holdings Corp., Frederick Manufacturing Corporation, Federal
Cartridge Company and CTR Manufacturing Inc., as we anticipate they will be
merged with and into Blount, with Blount becoming responsible for their
Guarantees; and
(3) any other Subsidiary of Blount International that executes a
Guarantee in accordance with the provisions of the Indenture;
and their respective successors.
"Hedging Obligations" means, with respect to any specified person, the
obligations of that person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) foreign exchange contracts and currency swap agreements; and
(3) other agreements or arrangements entered into in the ordinary course
of business and designed to protect that person against fluctuations in
interest rates or currency exchange rates.
"Indebtedness" means, with respect to any specified person, any
indebtedness of that person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of all obligations of such person issued or assumed as
the deferred purchase price of property, all conditional sale obligations
of such person and all obligations of such person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business); or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified person (whether or not that Indebtedness is assumed by
the specified person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets and the amount of the
obligation so secured. The term "Indebtedness" also includes, to the extent
not otherwise included, the guarantee by the specified person of any
Indebtedness of any other person, but excluding from the definition of
"Indebtedness," any of the foregoing that constitutes (a) an accrued expense,
(b) trade payables and (c) Obligations in respect of workers' compensation,
pensions and retiree health care, in each case to the extent not overdue for
more than 90 days. Notwithstanding the foregoing, the term "Indebtedness" will
also exclude customary earn-out arrangements entered into in connection with
the purchase by Blount International or any Restricted Subsidiary of Blount
International of any business pursuant to which the seller may become entitled
to additional consideration depending on the performance or such business;
provided, however, that at the time the arrangement is entered into the amount
of that consideration is contingent upon future events (other than the lapse
of time) and, to the extent that consideration thereafter becomes a fixed
amount payable by Blount International or a Restricted Subsidiary of Blount
International, the amount is paid within 30 days thereafter.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
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(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any person, all investments by that
person in other persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees or other obligations), advances or capital
contributions (excluding (x) commission, travel and similar advances to
officers and employees made in the ordinary course of business and (y) advances
to customers in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of the lender) or other similar extensions of
credit, 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 Blount International or any Restricted Subsidiary of Blount
International sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of Blount International such that, after
giving effect to any sale or disposition, that person is no longer a Restricted
Subsidiary of Blount International, Blount International shall be deemed to
have made an Investment on the date of that sale or disposition equal to the
fair market value of the Equity Interests of that Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the penultimate
paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Issue Date" means the date on which the notes are originally issued.
"Lehman Brothers Merchant Banking Partners" means Lehman Merchant Banking
Partners II L.P. and its affiliated co-investors.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of that 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.
"Marketable Securities" means, with respect to any Asset Sale, any readily
marketable equity securities that are:
(1) traded on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market; and
(2) issued by a corporation having a total equity market capitalization
of not less than $250.0 million; provided that the excess of:
(a) the aggregate amount of securities of any one such corporation
held by Blount International and any of its Restricted Subsidiaries
over
(b) ten times the average daily trading volume of the securities
during the 20 immediately preceding trading days
will be deemed not to be Marketable Securities; in each case as determined
on the date of the contract relating to such Asset Sale.
"Moody's" means Moody's Investors Service, Inc. or any successor to its
rating agency business.
"Net Income" means, with respect to any specified person, the net income
(loss) of that person, determined in accordance with GAAP and before any
reduction in respect of Preferred Stock dividends, excluding, however:
(1) any gain (and loss), together with any related provision for taxes
on the gain (loss), realized in connection with: (a) any Asset Sale
(including dispositions pursuant to sale and leaseback transactions); or
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(b) the disposition of any securities by that person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of that
person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (and loss), together with any related
provision for taxes on that extraordinary gain (and loss).
"Net Proceeds" means the aggregate cash proceeds received by Blount
International or any of its Restricted Subsidiaries (1) in respect of any
issuance or sale of any Capital Stock and (2) in respect of any Asset Sale
(including in each case any cash payments received by way of deferred payment
of principal pursuant to a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of an assumption by the acquiring person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of:
(A) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued and as a liability under GAAP, as a
consequence of that Asset Sale, after taking into account any available tax
credits or deductions and any tax sharing arrangements;
(B) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of that Asset Sale;
(C) all direct costs, including all legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred
as a result; and
(D) amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of that
Asset Sale and any reserve for adjustment in respect of the sale price of
that asset or those assets established in accordance with GAAP.
"new credit facilities" means the credit agreement, dated as of the Issue
Date, by and among Blount as borrower, Blount International, Lehman Brothers
Inc., as advisor, lead arranger and book manager, Lehman Commercial Paper Inc.
as syndication agent, Bank of America, N.A., as administrative agent and the
several banks and other financial institutions or entities from time to time
parties thereto, as syndication agent, providing for up to $400.0 million of
term loan borrowings and up to $100.0 million of revolving credit borrowings,
including any related notes, collateral documents, letters of credit and
related documentation, and guarantees and any appendices, exhibits, or
schedules to any of the foregoing (as the same may be in effect from time to
time), in each case, as any or all of such agreements may be amended, restated,
modified or supplemented from time to time, or renewed, refunded, refinanced,
restructured, replaced, repaid or extended from time to time (whether with the
original agents and lenders or other agents and lenders or otherwise, and
whether provided under the original credit agreement or one or more other
credit agreements or otherwise).
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Blount International nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness)
other than a pledge of the Equity Interests of any Unrestricted
Subsidiaries, (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender;
(2) 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) of Blount International or
any of its Restricted Subsidiaries to declare a default on the other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
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(3) the incurrence of which will not result in any recourse to the stock
or assets of Blount International or any of its Restricted Subsidiaries
other than to Equity Interests of Unrestricted Subsidiaries pledged for the
benefit of lenders to those Unrestricted Subsidiaries.
"Obligations" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization, whether or not a claim for post-filing interest is allowed in
such proceeding), penalties, fees, indemnifications, guarantees,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Business" means the businesses conducted (or proposed to be
conducted, including activities referred to as being contemplated by Blount
International, as described or referred to in this Prospectus) by Blount
International and its Restricted Subsidiaries as of the Issue Date and any and
all other businesses that in the good faith judgment of the Board of Directors
of Blount International are reasonably related, ancillary or complementary
businesses, including (1) reasonably related extensions or expansions thereof
and (2) businesses that employ reasonably comparable manufacturing processes.
"Permitted Investments" means:
(1) any Investment in Blount International or in a Restricted Subsidiary
of Blount International;
(2) any Investment in Cash Equivalents;
(3) any Investment by Blount International or any Restricted Subsidiary
of Blount International in a person engaged in a Permitted Business, if as
a result of that Investment:
(a) that person becomes a Restricted Subsidiary of Blount
International; or
(b) that person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Blount International or a Restricted Subsidiary of
Blount International;
(4) 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 in the section entitled""--
Repurchase at the Option of Holders--Asset Sales" or the disposition of
assets not constituting an Asset Sale;
(5) guarantees (including Guarantees) of Indebtedness permitted under
the covenant described above in the section entitled "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock";
(6) any Investment acquired by Blount International or any of its
Restricted Subsidiaries (a) in exchange for any other Investment or
accounts receivable held by Blount International or any of its Restricted
Subsidiaries in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (b) as a result of the transfer of title with
respect to any secured Investment in default as a result of a foreclosure
by Blount International or any of its Restricted Subsidiaries with respect
to such secured Investment;
(7) any Investment by Blount International or a Restricted Subsidiary of
Blount International in connection with deferred compensation trust
arrangements existing, and as in effect, on the Issue Date and as amended
thereafter; provided, however, that any future amendment to any such
existing arrangements will only be permitted pursuant to this clause (7) to
the extent that the terms of the amendment are not otherwise
disadvantageous to the holders of Notes in any material respect;
(8) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Blount International;
(9) Hedging Obligations permitted to be incurred under the covenant
described above in the section entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock";
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(10) loans and advances to employees and officers of Blount
International and its Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not to exceed an aggregate of $2.5
million at any one time outstanding;
(11) any Investment by Blount International or a Restricted Subsidiary
of Blount International in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other person, in each case, in connection
with a Qualified Receivables Transaction, provided, that the Investment in
any person is in the form of a Purchase Money Note, an equity interest or
an interest in accounts receivable generated by Blount International or a
Restricted Subsidiary of Blount International and transferred to any person
in connection with a Qualified Receivables Transaction or any person owning
those accounts receivable;
(12) any Investment in a Permitted Business (whether or not an
Investment in an Unrestricted Subsidiary) having an aggregate fair market
value that, when taken together with all other outstanding Investments made
pursuant to this clause (12), does not exceed in aggregate amount 10% of
Total Assets at the time of this Investment (with the fair market value of
each Investment being measured at the time made and without giving effect
to subsequent changes in value); and
(13) any Investment (whether or not an Investment in an Unrestricted
Subsidiary) having an aggregate fair market value that, when taken together
with all other outstanding Investments made pursuant to this clause (13),
does not exceed in aggregate amount $25.0 million at the time of this
Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value).
"Permitted Junior Securities" means:
(1) Equity Interests in Blount or any Guarantor; or
(2) debt securities that 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 Notes and the Guarantees
are subordinated to Senior Debt under the Indenture.
"Permitted Liens" means:
(1) Liens on assets of Blount International, Blount and any Restricted
Subsidiary of Blount International securing Senior Debt, including under
the new credit facilities and the 1998 Indenture, that was permitted by the
terms of the Indenture to be incurred;
(2) Liens in favor of Blount or the Guarantors or, in the case of a
Foreign Subsidiary, Liens securing Indebtedness or other obligations of
such Foreign Subsidiary owing to Blount International, Blount or any Wholly
Owned Restricted Subsidiary thereof;
(3) Liens on property or shares of Capital Stock of a person existing at
the time that person is merged with or into or consolidated with Blount
International or any Restricted Subsidiary of Blount International;
provided that those Liens were in existence prior to the contemplation of
the merger or consolidation and do not extend to any assets other than
those of the person merged into or consolidated with Blount International
or the Restricted Subsidiary (other than assets and property affixed or
appurtenant thereto);
(4) Liens on property existing at the time of acquisition thereof by
Blount International or any Restricted Subsidiary of Blount International,
provided that those Liens were in existence prior to the contemplation of
the acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or letters of credit permitted by clause
(6) of the second paragraph of the covenant described above in the section
entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or other obligations of a like nature incurred in the
ordinary course of business;
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(6) pledges or deposits by Blount International or any Restricted
Subsidiary of Blount International under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which Blount International or that Restricted
Subsidiary is a party, or deposits to secure public or statutory
obligations of Blount International or that Restricted Subsidiary or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which Blount International or that Restricted Subsidiary is
a party, or deposits as security for contested taxes or import duties or
for the payment of rent, in each case incurred in the ordinary course of
business;
(7) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant described
above in the section entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets
acquired with that Indebtedness;
(8) Liens existing on the Issue Date;
(9) 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;
(10) Liens on the assets of Unrestricted Subsidiaries, or on the Equity
Interests of Unrestricted Subsidiaries, that secure Non-Recourse Debt of
Unrestricted Subsidiaries not otherwise prohibited by the Indenture;
(11) Liens on accounts receivable and related assets of a Receivables
Subsidiary arising in connection with a Qualified Receivables Transaction;
(12) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings or other Liens arising out of
judgments or awards against Blount International or any Restricted
Subsidiary of Blount International with respect to which Blount
International or that Restricted Subsidiary shall then be proceeding with
an appeal or other proceedings for review and Liens arising solely by
virtue of any statutory or common law provision relating to banker's Liens,
rights of set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution; provided,
however, that (A) such deposit account is not a dedicated cash collateral
account and is not subject to restrictions against access by Blount
International or that Restricted Subsidiary in excess of those set forth by
regulations promulgated by the Federal Reserve Board and (B) such deposit
account is not intended by Blount International or that Restricted
Subsidiary to provide collateral to the depository institution;
(13) 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 legal proceeding may be initiated shall not have
expired;
(14) easements, rights-of-way, minor survey exceptions, zoning and
similar restrictions and other similar encumbrances or title defects
incurred or imposed, or Liens incidental to the conduct of the business of
Blount International or its Subsidiaries or to the ownership of its
properties, as applicable, 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 Blount
International or its Subsidiaries) or interfere with the ordinary conduct
of the business of Blount International or its 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;
(15) Liens securing Hedging Obligations; provided that the Liens are
only secured by property or assets that secure the Indebtedness related to
the Hedging Obligation or the property securing Indebtedness
127
under clause (1) of the second paragraph of the covenant described above in
the section entitled "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock";
(16) Liens to secure Indebtedness permitted by clause (15) of the second
paragraph of the covenant described above in the section entitled "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock;" and
(17) Liens to secure any refinancings, extensions, renewals, refunds,
repayments, prepayments, redemptions, defeasance, retirements, exchanges or
replacements (collectively "refinancings") (or successive refinancings) as
a whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (3), (4), (7) or (8); provided, however, that:
(A) such new Lien shall be limited to all or part of the same
property and assets that secured or, under the written agreements
pursuant to which the original Lien arose, could secure the original
Lien (plus improvements and accessions to, such property or proceeds or
distributions thereof); and
(B) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (x) the outstanding
principal amount or, if greater, committed amount of the Indebtedness
described under clause (3), (4), (7) or (8) above at the time the
original Lien became a Permitted Lien and (y) an amount necessary to
pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement.
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clause (3), (4) or (7) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Proceeds
pursuant to the covenant described above in the section entitled "--Repurchase
at the Option of the Holders--Asset Sales". For purposes of this definition,
the term "Indebtedness" shall be deemed to include interest on such
Indebtedness.
"Permitted Refinancing Indebtedness" means any Indebtedness of Blount
International or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of Blount International or any of its
Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of the
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable), of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest thereon and the amount of all reasonable expenses and premiums
incurred in connection therewith);
(2) the Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, the
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded, and is subordinated in right of
payment to the Notes on terms at least as favorable to the holders of Notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is incurred either by Blount International or by the
Restricted Subsidiary of Blount International who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, association, joint-stock company, trust,
joint venture, government, or any agency or political subdivision thereof or
any other entity.
"Principal" means Lehman Brothers Merchant Banking Partners and any of its
Affiliates.
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"Purchase Money Note" means a promissory note evidencing a line of credit,
or evidencing other Indebtedness owed to Blount International or any Restricted
Subsidiary of Blount International in connection with a Qualified Receivables
Transaction, which note shall be repaid from cash available to the maker of
that note, other than amounts required to be established as reserves pursuant
to agreement, amounts paid to investors in respect of interest, principal and
other amounts owing to those investors and amounts paid in connection with the
purchase of newly generated accounts receivable.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Blount International or any Restricted
Subsidiary of Blount International pursuant to which Blount International or
any Restricted Subsidiary of Blount International may sell, convey or otherwise
transfer to (a) a Receivables Subsidiary (in the case of a transfer by Blount
International or any Restricted Subsidiary of Blount International) and (b) any
other person (in the case of a transfer by a Receivables Subsidiary), or may
grant a security interest in, any accounts receivable (whether now existing or
arising in the future) of Blount International or any Restricted Subsidiary of
Blount International and any asset related thereto including all collateral
securing the accounts receivable, all contracts and all guarantees or other
obligations in respect of the accounts receivable, proceeds of the accounts
receivable and other assets which are customarily transferred, or in respect of
which security interests are customarily granted, in connection with asset
securitization transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of Blount
International (other than Blount or a Guarantor) which engages in no activities
other than in connection with the financing of accounts receivables and which
is designated by the Board of Directors of Blount International (as provided
below) as a Receivables Subsidiary:
(1) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which
(a) is guaranteed by Blount International or any other Restricted
Subsidiary of Blount International (excluding guarantees of Obligations
(other than the principal of, and interest on, Indebtedness) pursuant
to Standard Securitization Undertakings),
(b) is recourse to or obligates Blount International or any other
Restricted Subsidiary of Blount International in any way other than
pursuant to Standard Securitization Undertakings, or
(c) subjects any property or asset of Blount International or any
other Restricted Subsidiary of Blount International, directly or
indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to Standard Securitization Undertakings;
(2) with which neither Blount International nor any other Restricted
Subsidiary of Blount International has any material contract, agreement,
arrangement or understanding (except in connection with a Purchase Money
Note or Qualified Receivables Transaction) other than on terms no less
favorable to Blount International or the other Restricted Subsidiary of
Blount International than those that might be obtained at the time from
persons that are not Affiliates of Blount International, other than fees
payable in the ordinary course of business in connection with servicing
accounts receivable; and
(3) as to which neither Blount International nor any other Restricted
Subsidiary of Blount International has any obligation to maintain or
preserve the entity's financial condition or cause the entity to achieve
certain levels of operating results.
Any designation of a Subsidiary of Blount International as a Receivables
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution of the Board of Directors of Blount
International giving effect to the designation and an Officers' Certificate
certifying that the designation complied with the preceding conditions and was
permitted by the Indenture.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement dated the Issue Date among Blount, the Guarantors and the initial
purchaser.
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"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or persons beneficially
holding an 80% or more controlling interest of which consist of the
Principal and/or such other persons referred to in the immediately
preceding clause (1).
"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 of the referent person.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc., or any successor to its rating agency business.
"Senior Debt" means:
(1) all Indebtedness of Blount International or any of its Restricted
Subsidiaries outstanding under Credit Facilities, including under the new
credit facilities, and all Hedging Obligations with respect thereto;
(2) any other Indebtedness, including under the 1998 Indenture, of
Blount, Blount International or any of their respective Restricted
Subsidiaries permitted to be incurred 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 or any Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for Federal, state, local or other taxes owed or owing
by Blount or Blount International;
(2) any Indebtedness of Blount or Blount International to any of its
Subsidiaries or other Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
Indenture.
"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 Act, as that Regulation is in effect on the date
hereof; provided that all Unrestricted Subsidiaries of Blount International
shall be excluded from all calculations under Rule 1-02(w) of Regulation S-X.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Blount International or any
Restricted Subsidiary of Blount International which are reasonably customary
in an accounts receivable transaction.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified person:
(1) 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
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the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that person or one or more
of the other Subsidiaries of that person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is that person or a Subsidiary of that person or (b) the
only general partners of which are that person or one or more Subsidiaries
of that person (or any combination thereof).
"Total Assets" means, as of any date, Blount International's total
consolidated assets as of that date, as determined in accordance with GAAP. To
the extent that information is not available as to the amount of total
consolidated assets as of a specific date, Blount International may utilize the
most recent available information for purposes of calculating Total Assets.
"Transaction Documents" means the documents related to:
(1) the merger and recapitalization of Blount International on the Issue
Date and the related equity contributions;
(2) the Indebtedness under the new credit facilities; and
(3) the Indenture and the Notes.
"Unrestricted Subsidiary" means any Subsidiary of Blount International
(other than Blount) that is designated by the Board of Directors of Blount
International as an Unrestricted Subsidiary pursuant to a Board Resolution, but
only to the extent that the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Blount International or any Restricted Subsidiary of
Blount International (other than in connection with the pledge of the
Equity Interests of that Unrestricted Subsidiary) unless the terms of that
agreement, contract, arrangement or understanding are no less favorable to
Blount International or its Restricted Subsidiary than those that might be
obtained at the time from persons who are not Affiliates of Blount
International;
(3) is a person with respect to which neither Blount International nor
any of its Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or (b) to maintain or
preserve that person's financial condition or to cause that person to
achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Blount International or any of its
Restricted Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of Blount International or any of its
Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of Blount International or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of Blount International as an Unrestricted
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution of the Board of Directors of Blount
International giving effect to the designation and an Officers' Certificate
certifying that the designation complied with the preceding conditions and was
permitted by the covenant described above in the section entitled "--Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of that Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of Blount International as of that date
and, if that Indebtedness is not permitted to be incurred as of that date under
the covenant described in the section entitled "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock," Blount International shall be
in default of that covenant. The Board of Directors of Blount International may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary
of Blount International; provided that this designation
131
shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary
of Blount International of any outstanding Indebtedness of the Unrestricted
Subsidiary and this designation shall only be permitted if (1) that
Indebtedness is permitted under the covenant described in the section entitled
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if this designation had occurred at
the beginning of the four-quarter reference period; and (2) no Default would be
continuing following this designation.
"Voting Stock" of any person as of any date means the Capital Stock of that
person that is at the time entitled to vote in the election of the Board of
Directors of that person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) 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 that date and the making of the payment;
by
(2) the then outstanding principal amount of that 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 or shares
or interests required to be held by foreign nationals, in each case, to the
extent mandated by applicable law) shall at the time be owned by such person or
by one or more Wholly Owned Restricted Subsidiaries of such person and one or
more Wholly Owned Restricted Subsidiaries of such person.
"Wholly Owned Subsidiary" of any person means a Subsidiary of such person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares or shares or interests required to be
held by foreign nationals, in each case, to the extent mandated by applicable
law) shall at the time be owned by such person or by one or more Wholly Owned
Subsidiaries of such person and one or more Wholly Owned Subsidiaries of such
person.
132
CERTAIN INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. Federal income
tax considerations applicable to the exchange offer and to holders of the old
notes in connection therewith. This discussion assumes that a holder of old
notes purchased such old notes for cash at original issue, and that a holder of
old notes holds such old notes as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). The
discussion does not deal with all aspects of U.S. Federal income taxation that
may be relevant to holders of the old notes in light of their personal
investment circumstances, including persons holding old notes as part of a
conversion transaction or as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, nor does it discuss U.S. Federal
income tax considerations applicable to certain types of investors subject to
special treatment under the U.S. Federal income tax laws, including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
and former citizens or former residents of the United States. In addition, the
discussion does not consider the effect of any foreign, state, local, gift,
estate or other tax laws that may be applicable to a particular investor.
This summary is based upon current provisions of the Code, regulations of
the Treasury Department, administrative rulings and pronouncements of the
Internal Revenue Service ("IRS") and judicial decisions currently in effect,
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek any rulings or opinions from the IRS or counsel with
respect to the matters discussed below, and as a result, there can be no
assurance that the IRS will not take positions concerning the tax consequences
of the exchange offer which are different from those discussed herein.
Holders of old notes should consult their tax advisor concerning the
application of U.S. Federal income tax laws, as well as the laws of any state,
local and foreign taxing jurisdictions, to their owning and disposing of new
notes and to exchanging old notes for new notes in light of their particular
situations.
The exchange of old notes for new notes pursuant to the exchange offer will
not constitute a taxable exchange. As a result, (i) a holder will not recognize
taxable gain or loss as a result of exchanging old notes for new notes pursuant
to the exchange offer; (ii) the holding period of the new notes will include
the holding period of the old notes exchanged therefor; and (iii) the adjusted
tax basis of the new notes will be the same as the adjusted tax basis of the
old notes exchanged therefor.
133
PLAN OF DISTRIBUTION
Each broker-dealer that receives new 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 new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of 180 days after the
expiration date, we will make available a prospectus meeting the requirements
of the Securities Act to any broker-dealer for use in connection with any such
resale. In addition, until , 2000, all dealers effecting transactions in
the new notes may be required to deliver a prospectus.
Blount will not receive any proceeds from any sale of new notes by broker-
dealers. New notes received by broker-dealers for their own account pursuant to
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the new 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
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such new notes. Any broker-dealer that resells new 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 new notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of new notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters regarding the exchange offer will be passed upon for
us and Blount by Cravath, Swaine & Moore, New York, New York.
INDEPENDENT ACCOUNTANTS
Our financial statements at December 31, 1998 and December 31, 1997 and for
each of the two years in the period ended December 31, 1998 and for the ten
months ended December 31, 1996, appearing in this prospectus and also
incorporated by reference, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon appearing
elsewhere herein.
134
INDEX TO FINANCIAL STATEMENTS
Page
----
Consolidated Financial Statements as of and for the years ended December
31, 1998, 1997 and 1996 and the ten-month period ended December 31, 1996
Report of Independent Accountants........................................ F-2
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996 and the
ten-month period ended December 31, 1996................................ F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997............. F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 and the ten-month period ended December 31, 1996.... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1998 and 1997 and the ten-month period ended December
31, 1996................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Condensed Consolidated Financial Statements as of September 30,
1999 and for the three months and nine months ended September 30, 1999
and 1998
Condensed Consolidated Statements of Income--three months and nine months
ended September 30, 1999 and 1998....................................... F-32
Condensed Consolidated Balance Sheets--September 30, 1999 and December
31, 1998................................................................ F-33
Condensed Consolidated Statements of Cash Flows--nine months ended
September 30, 1999 and 1998............................................. F-34
Condensed Consolidated Statements of Changes in Stockholders' Equity--
three months and nine months ended September 30, 1999 and 1998.......... F-35
Notes to Condensed Consolidated Financial Statements..................... F-36
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders,
Blount International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity, and of
cash flows present fairly, in all material respects, the financial position of
Blount International, Inc. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1998 and the ten-month period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 28, 1999, except for Note 13,
as to which the date is October 14, 1999
F-2
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in millions, except per share data)
Twelve Months Ended
December 31, Ten Months Ended
---------------------- December 31,
1998 1997 1996 1996
------ ------ ------ ----------------
(Unaudited)
Sales................................ $831.9 $716.9 $649.3 $526.7
Cost of sales........................ 573.6 482.9 426.9 346.5
------ ------ ------ ------
Gross profit......................... 258.3 234.0 222.4 180.2
Selling, general and administrative
expenses............................ 144.6 134.6 130.0 105.2
------ ------ ------ ------
Income from operations............... 113.7 99.4 92.4 75.0
Interest expense..................... (14.3) (9.5) (9.9) (7.9)
Interest income...................... 2.5 2.5 2.4 2.3
Other income, net.................... 0.3 1.3 0.5 0.2
------ ------ ------ ------
Income before income taxes........... 102.2 93.7 85.4 69.6
Provision for income taxes........... 38.9 34.6 31.6 25.6
------ ------ ------ ------
Income from continuing operations
before extraordinary loss........... 63.3 59.1 53.8 44.0
Discontinued operations--Income on
disposal, net....................... 1.4 1.4
Extraordinary loss on repurchase of
debt, net........................... (2.0)
------ ------ ------ ------
Net income........................... $ 61.3 $ 59.1 $ 55.2 $ 45.4
====== ====== ====== ======
Basic earnings per share:
Continuing operations before
extraordinary loss................ $ .85 $ .79 $ .70 $ .57
Discontinued operations............ .02 .02
Extraordinary loss................. (.03)
------ ------ ------ ------
Net income......................... $ .82 $ .79 $ .72 $ .59
====== ====== ====== ======
Diluted earnings per share:
Continuing operations before
extraordinary loss................ $ .83 $ .77 $ .69 $ .56
Discontinued operations............ .02 .02
Extraordinary loss................. (.03)
------ ------ ------ ------
Net income......................... $ .80 $ .77 $ .71 $ .58
====== ====== ====== ======
Cash dividends per share:
Class A............................ $ .143 $ .131 $ .114 $ .114
Class B............................ .134 .122 .106 .106
The accompanying notes are an integral part of the audited financial
statements.
F-3
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in millions, except per share data)
December 31,
--------------
1998 1997
------ ------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 45.1 $ 4.8
Accounts receivable, net of allowance for doubtful accounts
of $3.9 and $3.7........................................... 132.3 135.7
Inventories................................................. 121.0 132.9
Deferred income taxes....................................... 22.0 22.0
Other current assets........................................ 6.7 5.8
------ ------
Total current assets...................................... 327.1 301.2
Property, plant and equipment, net of accumulated depreciation
of $209.9 and $188.3......................................... 182.9 188.5
Cost in excess of net assets of acquired businesses, net...... 114.7 116.4
Other assets.................................................. 44.1 31.7
------ ------
Total Assets.............................................. $668.8 $637.8
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt...... $ 0.7 $ 1.5
Accounts payable............................................ 30.4 56.6
Accrued expenses............................................ 63.8 72.0
------ ------
Total current liabilities................................. 94.9 130.1
Long-term debt, exclusive of current maturities............... 161.6 138.8
Deferred income taxes, exclusive of current portion........... 13.0 15.2
Other liabilities............................................. 44.7 37.6
------ ------
Total Liabilities......................................... 314.2 321.7
------ ------
Commitments and Contingent Liabilities
Stockholders' equity:
Common stock: par value $.01 per share (see Note 5 for voting
rights by class);
Class A: 54,856,210 and 54,555,938 shares issued............ 0.5 0.3
Class B: convertible: 22,958,942 and 23,241,104 shares
issued..................................................... 0.2 0.1
Capital in excess of par value of stock....................... 38.4 37.7
Retained earnings............................................. 348.9 300.3
Accumulated other comprehensive income........................ 7.6 7.0
Less Class A treasury stock at cost, 3,704,604 and 2,906,360
shares....................................................... (41.0) (29.3)
------ ------
Total stockholders' equity................................ 354.6 316.1
------ ------
Total Liabilities and Stockholders' Equity................ $668.8 $637.8
====== ======
The accompanying notes are an integral part of the audited financial
statements.
F-4
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)
Twelve Months Ended
December 31, Ten Months Ended
----------------------- December 31,
1998 1997 1996 1996
------- ------ ------ ----------------
(Unaudited)
Cash flows from operating
activities:
Net income.......................... $ 61.3 $ 59.1 $ 55.2 $ 45.4
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss................ 2.0
Depreciation, amortization and
other noncash charges............ 30.9 25.0 23.6 19.6
Deferred income taxes............. (2.3) (1.7) 2.1 (2.1)
Gain on disposals of property,
plant and equipment.............. (0.6) (0.2) (0.9)
Changes in assets and liabilities,
net of effects of businesses
acquired and sold:
(Increase) decrease in accounts
receivable..................... 3.4 20.4 (0.6) 34.0
(Increase) decrease in
inventories.................... 13.3 (10.4) 13.2 11.4
(Increase) decrease in other
assets......................... 0.8 1.9 (1.8)
Increase (decrease) in accounts
payable........................ (12.8) 0.8 (6.7) (15.5)
Decrease in accrued expenses.... (7.3) (15.5) (4.3) (6.8)
Increase (decrease) in other
liabilities.................... 0.4 2.4 3.3 (0.1)
------- ------ ------ ------
Net cash provided by operating
activities..................... 88.9 80.3 87.5 83.2
------- ------ ------ ------
Cash flows from investing
activities:
Proceeds from sales of property,
plant and equipment................ 1.3 0.9 1.9 1.8
Purchases of property, plant and
equipment.......................... (21.1) (17.8) (21.2) (18.7)
Acquisitions of businesses.......... (17.4) (132.5)
------- ------ ------ ------
Net cash used in investing
activities......................... (37.2) (149.4) (19.3) (16.9)
------- ------ ------ ------
Cash flows from financing
activities:
Net reduction in short-term
borrowings......................... (0.4) (2.7) (1.6)
Issuance of long-term debt.......... 149.4 62.0
Reduction of long-term debt......... (137.5) (14.9) (13.9) (13.9)
Decrease in restricted funds........ 0.5 1.0 3.7 2.7
Dividends paid...................... (10.5) (9.4) (8.5) (8.5)
Purchase of treasury stock.......... (18.1) (27.5) (4.3) (4.3)
Other............................... 5.2 4.0 3.7 3.4
------- ------ ------ ------
Net cash provided by (used in)
financing activities............... (11.4) 15.2 (22.0) (22.2)
------- ------ ------ ------
Net increase (decrease) in cash and
cash equivalents................... 40.3 (53.9) 46.2 44.1
Cash and cash equivalents at
beginning of period................ 4.8 58.7 12.5 14.6
------- ------ ------ ------
Cash and cash equivalents at end of
period............................. $ 45.1 $ 4.8 $ 58.7 $ 58.7
======= ====== ====== ======
The accompanying notes are an integral part of the audited financial
statements.
F-5
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in millions, shares in thousands)
Accumulated
Other
Common Stock Capital Compre-
--------------- in Excess Retained hensive Treasury
Class A Class B of Par Earnings Income Stock Total
------- ------- --------- -------- ----------- -------- ------
Balance, February 29,
1996................... $0.1 $0.1 $31.3 $215.3 $ 8.2 $255.0
Net income.............. 45.4 45.4
Other comprehensive
income, net:
Foreign currency
translation
adjustment............ (0.3) (0.3)
------
Comprehensive income.... 45.1
Dividends............... (8.5) (8.5)
Conversion of Class B to
Class A Common Stock
(70 shares)............
Purchase of treasury
stock (236 Class A
Shares)................ $ (4.3) (4.3)
Other (373 Class A
shares)--principally
stock options
exercised.............. 3.5 3.5
---- ---- ----- ------ ------ ------ ------
Balance, December 31,
1996................... 0.1 0.1 34.8 252.2 7.9 (4.3) 290.8
Stock split (27,276
Class A shares, 1,455
shares to treasury, and
11,621 Class B
shares)................ 0.2 (0.2)
Net income.............. 59.1 59.1
Other comprehensive
income, net:
Foreign currency
translation
adjustment............ (0.9) (0.9)
------
Comprehensive income.... 58.2
Dividends............... (9.6) (9.6)
Conversion of Class B to
Class A Common Stock
(157 shares)...........
Purchase of treasury
stock (1,346 Class A
shares)................ (27.5) (27.5)
Other (459 Class A
shares, 131 from
treasury) principally
stock options
exercised.............. 3.1 (1.4) 2.5 4.2
---- ---- ----- ------ ------ ------ ------
Balance, December 31,
1997................... 0.3 0.1 37.7 300.3 7.0 (29.3) 316.1
Net income.............. 61.3 61.3
Other comprehensive
income, net:
Foreign currency
translation
adjustment............ 0.5 0.5
Unrealized gains on
securities, net of
gains of $0.2
reclassified to net
income................ 0.6 0.6
Minimum pension
liability adjustment.. (0.5) (0.5)
------
Comprehensive income.... 61.9
Dividends............... (10.5) (10.5)
Conversion of Class B to
Class A Common Stock
(282 shares)...........
Purchase of treasury
stock (1,411 Class A
shares)................ (18.0) (18.0)
Other (630 Class A
shares, 612 from
treasury) principally
stock options
exercised.............. 1.0 (2.2) 6.3 5.1
Effect of stock split
associated with the
merger (see Note 13)
(27,523 Class A shares,
1,802 shares to
treasury, and 11,388
Class B shares)........ 0.2 0.1 (0.3)
---- ---- ----- ------ ------ ------ ------
Balance, December 31,
1998................... $0.5 $0.2 $38.4 $348.9 $ 7.6 $(41.0) $354.6
==== ==== ===== ====== ====== ====== ======
The accompanying notes are an integral part of the audited financial
statements.
F-6
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The consolidated financial statements include the accounts of Blount
International, Inc. and its subsidiaries ("the Company"). All significant
intercompany balances and transactions are eliminated in consolidation.
Change in fiscal year:
In April 1996, the Company changed its fiscal year from one ending on the
last day of February to one ending on December 31. Accordingly, the audited
financial statements include the results for the twelve-month periods ended
December 31, 1998 ("1998") and 1997 ("1997"), and the ten-month period ended
December 31, 1996 ("transition period"). In addition to the basic audited
financial statements and related notes, unaudited financial information for the
twelve-month period ended December 31, 1996 has been presented to enhance
comparability.
Reclassifications:
Certain amounts in 1997 and the transition period and notes to consolidated
financial statements have been reclassified to conform with the 1998
presentation.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Estimates are used when accounting for the allowance for
doubtful accounts, inventory obsolescence, long-lived assets, product warranty
expenses, casualty insurance costs, employee benefit plans, income taxes,
discontinued operations and contingencies. It is reasonably possible that
actual results could differ significantly from those estimates and significant
changes to estimates could occur in the near term.
Cash and cash equivalents:
The Company considers all highly liquid temporary cash investments that are
readily convertible to known amounts of cash and present minimal risk of
changes in value because of changes in interest rates to be cash equivalents.
Inventories:
Inventories are stated at the lower of first-in, first-out cost or market.
Property, plant and equipment:
These assets are stated at cost and are depreciated principally on the
straight-line method over the estimated useful lives of the individual assets.
The principal ranges of estimated useful lives for depreciation purposes are as
follows: buildings and improvements--5 years to 45 years; machinery and
equipment--3 years to 15 years; furniture, fixtures and office equipment--2
years to 10 years; and transportation equipment--1 year to 15 years. Gains or
losses on disposal are reflected in income. Property, plant and equipment held
under leases which are essentially installment purchases are capitalized with
the related obligations stated at the
F-7
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
principal portion of future lease payments. Depreciation charged to costs and
expenses was $25.9 million, $21.1 million and $16.4 million in 1998, 1997 and
the transition period.
Interest cost incurred during the period of construction of plant and
equipment is capitalized. No material amounts of interest were capitalized on
plant and equipment during the three reporting periods ended December 31, 1998.
Cost in excess of net assets of acquired businesses:
The excess cost is being amortized by the straight-line method over periods
ranging from 10 to 40 years. Accumulated amortization was $28.9 million and
$25.0 million as of December 31, 1998 and 1997. The excess cost is evaluated
for impairment based on the historic and estimated future profitability and
cash flows of the business units to which it relates. Adjustments to carrying
value are made if required.
Insurance accruals:
It is the Company's policy to retain a portion of expected losses related to
workers' compensation and general, product and vehicle liability through
retentions or deductibles under its insurance programs. Provisions for losses
expected under these programs are recorded based on estimates of the
undiscounted aggregate liabilities for claims incurred.
Foreign currency:
For foreign subsidiaries whose operations are principally conducted in U.S.
dollars, monetary assets and liabilities are translated into U.S. dollars at
the current exchange rate, while other assets (principally property, plant and
equipment and inventories) and related costs and expenses are generally
translated at historic exchange rates. Sales and other costs and expenses are
translated at the average exchange rate for the period and the resulting
foreign exchange adjustments are recognized in income. Assets and liabilities
of the remaining foreign operations are translated into U.S. dollars at the
current exchange rate and their statements of income are translated at the
average exchange rate for the period. Gains and losses resulting from
translation of the financial statements of these operations are reflected as
"other comprehensive income" in stockholders' equity. The amount of income
taxes allocated to this translation adjustment is not significant. Foreign
exchange adjustments to pretax income were not material in 1998, 1997 and the
transition period.
Derivative financial instruments:
The Company accounts for copper and zinc futures contracts in accordance
with SFAS No. 80, "Accounting for Futures Contracts." These contracts
(approximately 4.0 million pounds and 8.4 million pounds at December 31, 1998
and 1997, respectively) hedge a portion of the anticipated brass purchases the
Company expects to carry out in the normal course of business. Any gain or loss
on futures contracts accounted for as a hedge which are closed before the date
of the anticipated transaction is deferred until completion of the transaction.
Deferred gains or losses are amortized over the transaction period.
An interest rate contract accounted for as an interest rate hedge of an
expected debt issue was extinguished upon the issuance of 7% senior notes in
the principal amount of $150 million (see Note 3) in June 1998. The cost to
extinguish the interest rate contract is being amortized as an adjustment to
interest expense over the life of the senior notes.
Deferred gains and losses on derivative financial instruments are generally
classified as other assets or other liabilities in the consolidated balance
sheets.
F-8
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue recognition:
The Company's policy is to record sales as orders are shipped.
Advertising:
Advertising costs are generally expensed as incurred. Advertising costs were
$13.5 million, $14.6 million and $10.1 million for 1998, 1997 and the
transition period.
Research and development:
Expenditures for research and development are expensed as incurred. These
costs were $7.4 million, $8.0 million and $6.0 million for 1998, 1997 and the
transition period.
Accounting standards:
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
Prior periods have been reclassified to reflect the adoption of this standard.
The adoption of SFAS No. 130 has no material impact on the Company's results of
operations, financial position or cash flows. Comprehensive income equals net
income plus other comprehensive income. Other comprehensive income refers to
revenue, expenses, gains and losses which are reflected in stockholders' equity
but excluded from net income. For the Company, the components of other
comprehensive income are principally foreign currency translation adjustments,
unrealized gains or losses on investments and minimum pension liability
adjustments.
As of December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" and SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
These standards have no material effect on the Company's results of operations,
financial position or cash flows.
SFAS No. 131 establishes new standards for reporting operating segments and
disclosing information about products and services and geographic areas. The
Company's reportable segments are unchanged from the prior year. See Note 9.
SFAS No. 132 revises disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those
plans. See Note 6.
F-9
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 2: INCOME TAXES
The provision for income taxes attributable to continuing operations before
extraordinary loss is as follows:
Twelve Months Ended Ten Months
December 31, Ended
--------------------- December 31,
1998 1997 1996
---------- --------- ------------
(Dollar amounts in millions)
Current provision:
Federal............................ $ 33.3 $ 28.6 $24.5
State.............................. 4.3 3.8 0.8
Foreign............................ 4.2 3.9 2.4
Deferred provision (benefit):
Federal............................ (2.4) (1.5) (3.6)
State.............................. (0.1) 0.1 0.4
Foreign............................ (0.4) (0.3) 1.1
---------- -------- -----
$38.9 $ 34.6 $25.6
========== ======== =====
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income from continuing
operations before extraordinary loss and income taxes is as follows:
Twelve Months Ended Ten Months
December 31, Ended
--------------------- December 31,
1998 1997 1996
---------- --------- ------------
(Dollar amounts in millions)
Income before income taxes:
Domestic........................... $ 91.5 $ 83.8 $61.1
Foreign............................ 10.7 9.9 8.5
---------- -------- -----
$ 102.2 $ 93.7 $69.6
========== ======== =====
Statutory tax rate................... 35.0% 35.0% 35.0%
Impact of earnings of foreign
operations.......................... (0.7) 0.7
State income taxes, net of federal
tax benefit......................... 2.6 2.2 1.5
Permanent differences between book
bases and tax bases................. 1.2 1.6 1.5
Other items, net..................... (0.7) (1.2) (1.9)
---------- -------- -----
Effective income tax rate............ 38.1% 36.9% 36.8%
========== ======== =====
All years reflect the allocation of substantially all corporate office
expenses and interest expense to domestic operations.
F-10
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1998 and 1997, deferred income tax assets were $35.7
million and $35.6 million and deferred income tax liabilities were $26.7
million and $28.8 million. Deferred income tax assets (liabilities) applicable
to temporary differences at December 31, 1998 and 1997 are as follows:
1998 1997
-------------- --------------
(Dollar amounts in millions)
Property, plant and equipment basis
differences............................. $ (17.8) $ (18.3)
Employee benefits........................ 19.1 16.8
Other accrued expenses................... 15.0 16.1
Other--net............................... (7.3) (7.8)
-------------- -------------
$ 9.0 $ 6.8
============== =============
Deferred income taxes of approximately $3.9 million have not been provided
on undistributed earnings of foreign subsidiaries in the amount of $45.9
million as the earnings are considered to be permanently reinvested.
The Company has settled its issues with the Internal Revenue Service through
the 1993 fiscal year with no material adverse effect. The periods from fiscal
1994 through 1998 are still open for review.
NOTE 3: DEBT AND FINANCING AGREEMENTS
Long-term debt at December 31, 1998 and 1997 consists of the following:
1998 1997
-------------- --------------
(Dollar amounts in millions)
Senior notes (net of discount)........... $ 148.6
9% subordinated notes.................... $ 68.8
Revolving credit agreement............... 54.0
Industrial development revenue bonds
payable, maturing between 1999 and 2013,
interest at varying rates (principally
4.2% at December 31, 1998).............. 13.1 15.7
Other long-term debt, interest at 8.8%... 0.4 0.5
Lease purchase obligations, interest at
varying rates, payable in installments
to 2000................................. 0.2 0.9
-------------- -------------
162.3 139.9
Less current maturities.................. (0.7) (1.1)
-------------- -------------
$ 161.6 $ 138.8
============== =============
F-11
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maturities of long-term debt and the principal and interest payments on
long-term capital leases are as follows:
Capital Leases
------------------ Total
Debt Principal Interest Payments
------ --------- -------- --------
(Dollar amounts in millions)
1999................................... $ 0.5 $0.2 $0.0 $ 0.7
2000................................... 0.4 0.4
2001................................... 0.4 0.4
2002................................... 0.5 0.5
2003................................... 0.0 0.0
2004 and beyond........................ 160.3 160.3
------ ---- ---- ------
$162.1 $0.2 $0.0 $162.3
====== ==== ==== ======
In June 1998, Blount, Inc., a wholly-owned subsidiary of Blount
International, Inc., issued senior notes ("the senior notes") with a stated
interest rate of 7% in the principal amount of $150 million maturing on June
15, 2005. The senior notes are fully and unconditionally guaranteed by Blount
International, Inc. Approximately $8.3 million, reflecting the price discount
and the cost to extinguish an interest rate contract accounted for as a hedge
of future interest on the debt, is being amortized to expense over the life of
the senior notes. The senior notes are redeemable at a premium, in whole or in
part, at the option of the Company at any time. The debt indenture contains
restrictions on secured debt, sale and lease-back transactions, and the
consolidation, merger and sale of assets.
In July 1998, the Company redeemed all its 9% subordinated notes in the
amount of $68.8 million. The extraordinary loss on redemption was $2.0 million,
net of income taxes of $1.2 million.
At December 31, 1998, no amount was outstanding under the Company's $150
million revolving credit agreement with a group of five banks. The $150 million
agreement expires April 2002 and provides for interest rates to be determined
at the time of borrowings based on a choice of formulas as specified in the
agreement. The interest rates and commitment fees may vary based on the ratio
of cash flow to debt as defined in the agreement. The agreement contains
covenants relating to liens, subsidiary debt, transactions with affiliates,
consolidations, mergers and sales of assets, and requires the Company to
maintain certain leverage and fixed charge coverage ratios.
Proceeds from industrial development revenue bonds issued in fiscal 1995 are
held in trust and released as qualified capital expenditures are made. As of
December 31, 1998 and 1997, $3.5 million and $3.9 million were held in trust
and are included in "Other assets" in the Company's consolidated balance
sheets.
As of December 31, 1997, the weighted average interest rate on outstanding
short-term borrowings (principally foreign) was 9.7%. No short-term borrowings
were outstanding at December 31, 1998.
NOTE 4: ACQUISITIONS AND DISPOSALS
The following acquisitions have been accounted for by the purchase method,
and the net assets and results of operations of the acquired companies have
been included in the Company's consolidated financial statements since the
dates of acquisition. The excess of the purchase price over the fair value of
the net assets acquired is being amortized on a straight-line basis over 40
years.
In September 1998, the Company purchased certain operating assets of the
Redfield line for approximately $3 million. The fair value of the assets
acquired approximated the purchase price.
F-12
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 4, 1997, the Company acquired Federal Cartridge Company
("Federal"), formerly Federal-Hoffman, Inc. The purchase price was
approximately $129 million including a post-closing adjustment and acquisition
expenses. Federal manufactures shotshell, centerfire and rimfire cartridges,
ammunition components and clay targets. The following summarized unaudited pro
forma financial information for the twelve months ended December 31, 1997 and
1996 assumes the acquisition had occurred on January 1 of each year:
1997 1996
-------------- --------------
(Dollar amounts in millions,
except per share data)
Sales..................................... $ 842.2 $ 779.2
Income from continuing operations......... 65.1 50.7
Earnings per share from continuing
operations:
Basic................................... .86 .66
Diluted................................. .84 .65
The pro forma results do not necessarily represent the results which would
have occurred if the acquisition had taken place on the basis assumed nor are
they indicative of the results of future operations.
In January 1997, the Company acquired the outstanding capital stock of the
Frederick Manufacturing Corporation ("Frederick") and Orbex, Inc. ("Orbex") for
approximately $19 million and paid existing debt of the acquired companies in
the amount of $5.8 million. Orbex was subsequently merged into Frederick. The
principal products of the acquired companies are accessories for lawn mowers
and sporting goods. The combined sales and pretax income of the acquired
companies for their most recent year prior to the acquisition was $19.8 million
and $2.5 million, respectively.
In the transition period, income of $1.4 million, net of income taxes of
$0.9 million, was recognized for disposal of the discontinued construction
segment, primarily due to favorable claim settlements and improved
international job profits.
NOTE 5: CAPITAL STOCK, STOCK OPTIONS AND EARNINGS PER SHARE DATA
Prior to the merger on August 19, 1999 (see Note 13), the Company had
authorized 60 million shares of Class A Common Stock, 14 million shares of
Class B Common Stock and 4,456,855 shares of Preferred Stock. As of December
31, 1998, no Preferred Stock was outstanding. The Class A Common Stock is
entitled to elect 25% of the Company's Board of Directors, is entitled to one-
tenth of one vote per share on all other matters and will receive an additional
dividend of $.00415 in any quarter that a cash dividend is declared on the
Class B Common Stock. The Class B Common Stock is entitled to elect 75% of the
Company's Board of Directors and is entitled to one vote per share on all other
matters. Each share of Class B Common Stock is convertible at any time at the
option of the stockholder into one share of Class A Common Stock.
The following share and per share data has been restated to reflect the
stock split (see Note 13).
F-13
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The number of shares used in the denominators of the basic and diluted
earnings per share computations were as follows (in thousands):
Twelve Months
Ended Ten Months
December 31, Ended
------------- December 31,
1998 1997 1996
------ ------ ------------
Shares for basic earnings per share
computation--weighted average common shares
outstanding................................... 74,743 75,265 76,836
Dilutive effect of stock options............... 2,045 1,830 1,474
------ ------ ------
Shares for diluted earnings per share
computation................................... 76,788 77,095 78,310
====== ====== ======
No adjustment was required to reported income amounts for inclusion in the
numerators of the earnings per share computations.
The Company has granted options to purchase its Class A Common Stock to
certain officers and key employees under four fixed stock option plans. Under
these plans, options may be granted up to 13,500,000 shares. Each plan
provides for the granting of options with an option price per share not less
than the fair market value of one share of Class A Common Stock on the date of
grant. The options granted are exercisable for a period of up to ten years
under each plan and vest in installments over periods determined by the
Compensation and Management Development Committee of the Board of Directors.
As of December 31, 1998 and 1997, there were options for 1,630,040 shares and
198,844 shares available for grant under the plans.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the periods ending on
those dates is presented below:
Twelve Months Ended
December 31, Ten Months Ended
----------------------------------------- December 31,
1998 1997 1996
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(in 000's) Price (in 000's) Price (in 000's) Price
---------- --------- ---------- --------- ---------- ---------
Outstanding at beginning
of period.............. 6,933 $7.40 5,836 $5.94 4,325 $4.53
Granted............... 1,196 12.57 2,071 9.99 2,342 7.74
Exercised............. (613) 6.85 (887) 3.93 (731) 3.39
Forfeited............. (227) 10.72 (87) 6.87 (100) 5.39
----- ----- -----
Outstanding at end of
period................. 7,289 $8.19 6,933 $7.40 5,836 $5.94
===== ===== =====
Options exercisable at
end of period.......... 3,897 2,769 1,699
===== ===== =====
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Prices (in 000's) Life Price (in 000's) Price
- ------------------------ ---------- ----------- --------- ---------- ---------
$1.27 to $2.28............ 350 4.0 years $1.72 190 $2.01
$4.68 to $6.39............ 1,266 5.1 years 4.75 1,170 4.75
$7.17 to $10.36........... 4,499 7.4 years 8.51 2,514 8.16
$11.82 to $15.64.......... 1,174 9.1 years 12.59 23 12.72
----- -----
Total................... 7,289 7.1 years $8.19 3,897 $6.86
===== =====
F-14
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies APB Opinion 25 and related interpretations in accounting
for fixed stock option plans. Accordingly, no compensation cost has been
recognized. Had compensation cost been determined based on the estimated fair
value at the grant dates for awards under the Company's plans, consistent with
the method of SFAS No. 123, the Company's net income and earnings per share
would have been the pro forma amounts indicated below:
Twelve Months Ended Ten Months
December 31, Ended
------------------- December 31,
1998 1997 1996
--------- --------- ------------
(Dollar amounts in millions,
except per share data)
Net income:
As reported............................. $ 61.3 $ 59.1 $45.4
Pro forma............................... 58.1 56.7 44.5
Earnings per share:
As reported:
Basic..................................... .82 .79 .59
Diluted................................... .80 .77 .58
Pro forma:
Basic..................................... .78 .75 .58
Diluted................................... .76 .74 .57
For purposes of computing the pro forma amounts above, the Black-Scholes
option-pricing model was used with the following weighted-average assumptions:
Twelve Months Ended Ten Months
December 31, Ended
------------------- December 31,
1998 1997 1996
--------- --------- ------------
Estimated lives of plan options 6 years 6 years 6 years
Risk-free interest rates.................. 5.5% 6.2% 6.2%
Expected volatility....................... 23.0% 23.0% 24.0%
Dividend yield............................ 1.5% 1.5% 1.5%
The weighted average estimated fair value of options granted during 1998,
1997 and the transition period was $3.67, $3.08 and $2.44, respectively.
F-15
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6: PENSION AND POSTRETIREMENT BENEFIT PLANS
The changes in the benefit obligations, changes in plan assets, and funded
status of the Company's defined benefit pension plans and other postretirement
medical and life benefit plans for the periods ended December 31, 1998 and 1997
were as follows:
FUNDED PLANS
----------------------------------
Other
Pension Postretirement
Benefits Benefits
---------------- ----------------
1998 1997 1998 1997
------- ------- ------- -------
(Dollar amounts in millions)
Change in Benefit Obligation:
Benefit obligation at beginning of
period................................... $(107.9) $ (76.4) $ (2.1) $ (2.2)
Service cost.............................. (6.2) (4.6)
Interest cost............................. (8.4) (6.2) (0.2) (0.2)
Plan participants' contributions.......... (0.2) (0.2)
Actuarial losses.......................... (6.8) (2.7) (0.4) (0.1)
Benefits and plan expenses paid........... 2.9 2.6 0.5 0.6
Acquisition............................... (20.6)
------- ------- ------- -------
Benefit obligation at end of period....... (126.4) (107.9) (2.4) (2.1)
------- ------- ------- -------
Change in Plan Assets:
Fair value of plan assets at beginning of
period................................... 114.1 82.0 2.1 2.1
Actual return on plan assets.............. 10.5 14.1 0.1 0.4
Company contributions Plan participants'
contributions............................ 0.2 0.2
Benefits and plan expenses paid........... (2.9) (2.6) (0.5) (0.6)
Acquisition............................... 20.6
------- ------- ------- -------
Fair value of plan assets at end of
period................................... 121.7 114.1 1.9 2.1
------- ------- ------- -------
Funded status............................. (4.7) 6.2 (0.5) 0.0
Unrecognized actuarial losses............. 7.3 1.4 0.5
Unrecognized transition asset............. (0.6) (0.8)
Unrecognized prior service cost........... (0.2) (0.2)
------- ------- ------- -------
Net amount recognized..................... $ 1.8 $ 6.6 $ 0.0 $ 0.0
======= ======= ======= =======
Net amount recognized:
Prepaid benefits.......................... $ 3.3 $ 6.8
Accrued benefits.......................... (1.5) (0.2)
------- ------- ------- -------
$ 1.8 $ 6.6 $ 0.0 $ 0.0
======= ======= ======= =======
F-16
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
OTHER PLANS
-------------------------------
Other
Pension Postretirement
Benefits Benefits
------------- ----------------
1998 1997 1998 1997
------ ----- ------- -------
(Dollar amounts in millions)
Change in Benefit Obligation:
Benefit obligation at beginning of period..... $ (6.3) $(5.4) $ (16.8) $ (13.5)
Service cost.................................. (0.5) (0.3) (0.4) (0.3)
Interest cost................................. (0.6) (0.5) (1.2) (1.0)
Plan participants' contributions.............. (0.4) (0.2)
Actuarial gains (losses)...................... (0.4) (0.4) 0.3 0.6
Benefits and plan expenses paid............... 0.3 0.3 1.1 0.7
Acquisition................................... (3.1)
Plan amendments............................... (6.3)
------ ----- ------- -------
Benefit obligation at end of period........... (13.8) (6.3) (17.4) (16.8)
Unrecognized actuarial (gains) losses......... 1.2 1.0 (0.9) (0.5)
Unrecognized transition obligation............ 0.1 0.2
Unrecognized prior service cost............... 6.2 0.3 0.1
------ ----- ------- -------
Net amount recognized......................... $ (6.3) $(4.8) $ (18.2) $ (17.3)
====== ===== ======= =======
Net amount recognized:
Accrued benefits.............................. $(13.4) $(4.8) $ (18.2) $ (17.3)
Intangible asset.............................. 6.3
Accumulated other comprehensive income........ 0.8
------ ----- ------- -------
$ (6.3) $(4.8) $ (18.2) $ (17.3)
====== ===== ======= =======
The Company acquired Federal in November 1997, including the pension and
postretirement benefit plans for its active employees.
The accumulated pension benefit obligation of supplemental non-qualified
defined benefit pension plans was $13.4 million and $4.9 million at December
31, 1998 and 1997, respectively. A Rabbi Trust, whose assets are not included
in the table above, has been established to fund part of these non-qualified
benefits.
F-17
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of net periodic benefit cost and the weighted average
assumptions used in accounting for pension and other postretirement benefits
follow:
Other Postretirement
Pension Benefits Benefits
---------------------------- ----------------------------
Twelve Ten Twelve Ten
Months Months Months Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
-------------- ------------ -------------- ------------
1998 1997 1996 1998 1997 1996
------ ------ ------------ ------ ------ ------------
(Dollar amounts in millions)
Components of net
periodic benefit cost:
Service cost............ $ 6.7 $ 4.9 $3.7 $ 0.4 $ 0.3 $0.3
Interest cost........... 9.0 6.7 5.5 1.4 1.2 0.9
Expected return on plan
assets................. (9.7) (7.3) (6.0) (0.2) (0.2) (0.1)
Amortization of
actuarial (gains)
losses................. 0.1 0.1 0.1 (0.1) 0.1
Amortization of
transition asset....... (0.1) (0.1) (0.1)
Amortization of prior
service cost........... 0.4 0.8 1.1
------ ------ ---- ------ ------ ----
$ 6.4 $ 5.1 $4.3 $ 1.5 $ 1.4 $1.1
====== ====== ==== ====== ====== ====
Weighted average
assumptions:
Discount rate........... 7.0% 7.4% 7.6% 7.0% 7.5% 7.5%
Expected return on plan
assets................. 8.9% 8.7% 8.7% 9.0% 8.8% 8.8%
Rate of compensation
increase............... 3.8% 4.0% 4.2%
A 7% annual rate of increase in the cost of health care benefits was assumed
for 1998; the rate was assumed to decrease 1% per year until 4% is reached,
remain at that level for ten years, and then decrease to the ultimate trend
rate of 3%. A 1% change in assumed health care cost trend rates would have the
following effects:
1% Increase 1% Decrease
----------- -----------
(Dollar amounts in
millions)
Effect on service and interest cost components.. $0.1 $0.1
Effect on other postretirement benefit
obligations.................................... 0.9 0.8
The Company sponsors a defined contribution 401(k) plan and matches a
portion of employee contributions. The expense was $4.9 million, $3.6 million
and $2.4 million in 1998, 1997 and the transition period.
NOTE 7: COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office space and equipment under operating leases
expiring in 1 to 7 years. Most leases include renewal options and some contain
purchase options and escalation clauses. Future minimum rental commitments
required under operating leases having initial or remaining noncancelable lease
terms in excess of one year as of December 31, 1998, are as follows (in
millions): 1999--$3.4; 2000--$2.1; 2001--$1.6; 2002--$0.9; 2003--$0.7; and 2004
and beyond--$0.6. Rentals charged to costs and expenses under cancelable and
noncancelable lease arrangements were $4.6 million, $4.9 million and $5.0
million for 1998, 1997 and the transition period, respectively.
In 1989, the United States Environmental Protection Agency ("EPA")
designated a predecessor of the Company as one of four potentially responsible
parties ("PRPs") with respect to the Onalaska Municipal
F-18
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Landfill in Onalaska, Wisconsin ("the Site"). The waste complained of was
placed in the landfill prior to 1981 by a corporation, some of whose assets
were later purchased by a predecessor of the Company. It is the view of
management that because the Company's predecessor corporation purchased assets
rather than stock, the Company is not liable and is not properly a PRP.
Although management believes the EPA is wrong on the successor liability issue,
with other PRPs, the Company made a good faith offer to the EPA to pay a
portion of the Site clean-up costs. The offer was rejected and the EPA and
State of Wisconsin ("the State") proceeded with the clean-up at a cost of
approximately $12 million. The EPA and the State brought suit in 1996 against
the Town of Onalaska ("the Town") and a second PRP, Metallics, Inc., to recover
response costs. On December 18, 1996, the United States District Court for the
Western District of Wisconsin approved and entered Consent Decrees pursuant to
which the Town and Metallics, Inc. settled the suit and will pay a total of
over $1.8 million to the EPA and the State. The Company continues to maintain
that it is not a liable party. The EPA has not taken action against the
Company, nor has the EPA accepted the Company's position. The Company does not
know the financial status of the other named and unnamed PRPs who may have
liability with respect to the Site. Management does not expect the situation to
have a material adverse effect on consolidated financial condition or operating
results.
Under the provisions of Washington State environmental laws, the Washington
State Department of Ecology ("WDOE") has notified the Company that it is one of
many companies named as a Potentially Liable Party ("PLP"), for the Pasco
Sanitary Landfill site, Pasco, Washington ("the Site"). Although the clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Unilateral Enforcement Order to all PLPs to complete a Phase II
Remedial Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are expected in the
near future. The Company is unable to determine, at this time, the level of
clean-up demands that may be ultimately placed on it. Management believes that,
given the number of PLPs named with respect to the Site and their financial
condition, the Company's potential response costs associated with the Site will
not have a material adverse effect on consolidated financial condition or
operating results.
The Company is a defendant in a number of product liability lawsuits, some
of which seek significant or unspecified damages, involving serious personal
injuries for which there are retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial
condition or operating results.
NOTE 8: FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
The Company has manufacturing or distribution operations in Brazil, Canada,
Europe, Japan, Russia and the United States. The Company sells to customers in
these locations, primarily in the United States, and other countries throughout
the world (see Note 9). At December 31, 1998, approximately 78% of trade
accounts receivable were from customers within the United States. Trade
accounts receivable are principally from service and dealer groups,
distributors, mass merchants, and chain saw and other original equipment
manufacturers, and are normally not collateralized.
F-19
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated fair values of certain financial instruments at December 31,
1998 and 1997 are as follows:
1998 1997
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(Dollar amounts in millions)
Cash and short-term investments............. $ 45.1 $ 45.1 $ 4.8 $ 4.8
Futures contracts (See Note 1).............. 0.0 (0.1) 0.0 (0.9)
Other assets (restricted trust funds and
notes receivable).......................... 17.3 17.1 14.7 16.1
Notes payable and long-term debt (see Note
3)......................................... (162.3) (163.7) (140.3) (143.2)
Interest rate lock contract (see Note 1).... 0.0 (1.4)
The carrying amount of cash and short-term investments approximates fair
value because of the short maturity of those instruments. The fair value of
derivative financial instruments (futures contracts and interest rate lock
contract) is estimated by obtaining market quotes. The fair value of notes
receivable is estimated based on the discounted value of estimated future cash
flows. The fair value of restricted trust funds approximates the carrying
amount for short-term instruments and is estimated by obtaining market quotes
for longer term instruments. The fair value of long-term debt is estimated
based on recent market transaction prices or on current rates available for
debt with similar terms and maturities.
NOTE 9: SEGMENT INFORMATION
The Company identifies operating segments based on management
responsibility. The Company has three reportable segments: Outdoor Products,
Sporting Equipment, and Industrial and Power Equipment. Outdoor Products
produces or markets chain saw components (chain, bars and sprockets), lawn
mowers and related products, and other outdoor care products. Sporting
Equipment produces or markets small arms ammunition, sports optical products,
reloading equipment and other shooting sports accessories. Industrial and
Power Equipment produces timber harvesting and industrial loading equipment
and power transmission and gear components.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Intersegment sales are not
significant.
F-20
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information on Segments:
Twelve Months Ended Ten Months
December 31, Ended
---------------------- December 31,
1998 1997 1996 1996
------ ------ ------ ------------
(unaudited)
(Dollar amounts in millions)
Sales:
Outdoor products......................... $315.4 $319.3 $292.7 $239.3
Sporting equipment....................... 286.7 158.5 147.1 121.7
Industrial and power equipment........... 229.8 239.1 209.5 165.7
------ ------ ------ ------
$831.9 $716.9 $649.3 $526.7
====== ====== ====== ======
Operating income:
Outdoor products......................... $ 68.4 $ 67.1 $ 61.4 $ 50.7
Sporting equipment....................... 36.1 18.1 19.8 16.5
Industrial and power equipment........... 27.9 32.7 31.9 24.0
------ ------ ------ ------
Operating income from segments........... 132.4 117.9 113.1 91.2
Corporate office expenses.................. (18.7) (18.5) (20.7) (16.2)
------ ------ ------ ------
Income from operations..................... 113.7 99.4 92.4 75.0
Interest expense........................... (14.3) (9.5) (9.9) (7.9)
Interest income............................ 2.5 2.5 2.4 2.3
Other income, net.......................... 0.3 1.3 0.5 0.2
------ ------ ------ ------
Income before income taxes................. $102.2 $ 93.7 $ 85.4 $ 69.6
====== ====== ====== ======
Identifiable assets:
Outdoor products......................... $209.1 $221.9 $196.2 $196.2
Sporting equipment....................... 226.8 236.6 107.7 107.7
Industrial and power equipment........... 107.1 102.7 102.6 102.6
Corporate office......................... 125.8 76.6 127.3 127.3
------ ------ ------ ------
$668.8 $637.8 $533.8 $533.8
====== ====== ====== ======
Depreciation and amortization:
Outdoor products......................... $ 13.6 $ 13.4 $ 12.8 $ 10.6
Sporting equipment....................... 10.7 5.7 4.8 4.0
Industrial and power equipment........... 4.2 4.1 3.9 3.2
Corporate office......................... 2.4 1.8 1.8 1.4
------ ------ ------ ------
$ 30.9 $ 25.0 $ 23.3 $ 19.2
====== ====== ====== ======
Capital expenditures:
Outdoor products......................... $ 7.9 $ 13.5 $ 11.4 $ 10.2
Sporting equipment....................... 6.9 60.5 3.3 2.5
Industrial and power equipment........... 6.7 4.2 6.0 5.6
Corporate office......................... 0.2 0.3 0.6 0.4
------ ------ ------ ------
$ 21.7 $ 78.5 $ 21.3 $ 18.7
====== ====== ====== ======
F-21
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information on Sales by Significant Product Groups:
Twelve Months Ended Ten Months
December 31, Ended
------------------------- December 31,
1998 1997 1996 1996
------ ------ ----------- ------------ ---
(unaudited)
(Dollar amounts in millions)
Chain saw components.......... $199.7 $211.1 $201.1 $167.0
Ammunition and related
products..................... 212.0 87.9 64.9 52.9
Timber harvesting and loading
equipment.................... 199.8 210.5 183.3 143.5
Lawn mowers and related
products..................... 75.7 66.2 45.6 34.9
Sports optical products....... 41.3 36.6 43.2 34.2
All others, less than 5%
each......................... 103.4 104.6 111.2 94.2
------ ------ ------ ------
$831.9 $716.9 $649.3 $526.7
====== ====== ====== ======
Information on Geographic Areas:
Twelve Months Ended Ten Months
December 31, Ended
------------------------- December 31,
1998 1997 1996 1996
------ ------ ----------- ------------ ---
(unaudited)
(Dollar amounts in millions)
Sales:
United States............... $623.4 $495.1 $446.6 $360.0
Canada...................... 32.4 36.5 30.8 25.0
Germany..................... 24.0 24.5 25.0 19.9
All others, less than 3%
each....................... 152.1 160.8 146.9 121.8
------ ------ ------ ------
$831.9 $716.9 $649.3 $526.7
====== ====== ====== ======
Long-Lived Assets:
United States............... $156.1 $159.6 $103.3 $103.3
Canada...................... 20.1 22.3 21.4 21.4
Brazil...................... 3.7 3.6 3.8 3.8
All others, less than 3%
each....................... 3.0 3.0 3.2 3.2
------ ------ ------ ------
$182.9 $188.5 $131.7 $131.7
====== ====== ====== ======
The geographic sales information is by country of destination. Long-lived
assets exclude the cost in excess of net assets of acquired businesses. No
customer accounted for more than 10% of consolidated sales in 1998, 1997 or the
transition period. In 1998, approximately 16% of sales by Outdoor Products were
to one customer, 20% of Sporting Equipment sales were to one customer, and 27%
of Industrial and Power Equipment sales were to two customers. While the
Company expects these business relationships to continue, the loss of any of
these customers could affect the operations of the segments. Each of the
Company's segments purchases certain important materials from a limited number
of suppliers that meet quality criteria. Although alternative sources of supply
are available, the sudden elimination of certain suppliers could result in
manufacturing delays, a reduction in product quality and a possible loss of
sales in the near term.
F-22
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10: SUMMARIZED FINANCIAL INFORMATION
Blount, Inc. is a wholly-owned subsidiary of Blount International, Inc. and
is the issuer of the 7% senior notes described in Note 3. Summarized
consolidated financial information for Blount, Inc. is as follows (dollar
amounts in millions):
December 31,
-------------
1998 1997
------ ------
Current assets.............................................. $351.3 $301.2
Noncurrent assets........................................... 341.8 336.6
------ ------
Total assets.............................................. $693.1 $637.8
====== ======
Current liabilities......................................... $ 92.4 $128.3
Noncurrent liabilities...................................... 219.2 191.6
Stockholder's equity........................................ 381.5 317.9
------ ------
Total liabilities and stockholder's equity.................. $693.1 $637.8
====== ======
Twelve Months
Ended Ten Months
December 31, Ended
------------- December 31,
1998 1997 1996
------ ------ ------------ ---
Sales..................................... $831.9 $716.9 $526.7
Gross profit.............................. 258.3 234.0 180.2
Income from continuing operations before
extraordinary loss....................... 64.3 60.0 44.8
Net income................................ 62.3 60.0 46.2
F-23
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11: OTHER INFORMATION
At December 31, 1998 and 1997, the following balance sheet captions are
comprised of the items specified below:
1998 1997
------- -------
(Dollar amounts
in
millions)
Accounts receivable:
Trade accounts.............................................. $ 132.9 $ 131.5
Other....................................................... 3.3 7.9
Allowance for doubtful accounts............................. (3.9) (3.7)
------- -------
$ 132.3 $ 135.7
======= =======
Inventories:
Finished goods.............................................. $ 73.6 $ 79.0
Work in process............................................. 19.3 20.9
Raw materials and supplies.................................. 28.1 33.0
------- -------
$ 121.0 $ 132.9
======= =======
Property, plant and equipment:
Land........................................................ $ 12.6 $ 13.1
Buildings and improvements.................................. 107.1 106.1
Machinery and equipment..................................... 219.8 204.8
Furniture, fixtures and office equipment.................... 26.0 25.6
Transportation equipment.................................... 16.7 16.6
Construction in progress.................................... 10.6 10.6
Accumulated depreciation.................................... (209.9) (188.3)
------- -------
$ 182.9 $ 188.5
======= =======
Accrued expenses:
Salaries, wages and related withholdings.................... $ 23.6 $ 25.8
Employee benefits........................................... 8.6 7.5
Casualty insurance costs.................................... 9.5 9.5
Income taxes payable........................................ 0.5 1.3
Other....................................................... 21.6 27.9
------- -------
$ 63.8 $ 72.0
======= =======
Other liabilities:
Employee benefits........................................... $ 41.3 $ 31.9
Casualty insurance costs.................................... 1.5 1.7
Other....................................................... 1.9 4.0
------- -------
$ 44.7 $ 37.6
======= =======
At December 31, 1998, the Company's manufacturing operation in Canada had
net assets of $19.6 million which were subject to withdrawal restrictions
resulting from a financing agreement expiring in 1999. The majority of this
amount was invested in property, plant and equipment.
F-24
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental cash flow information is as follows:
Twelve Months Ended
December 31, Ten Months Ended
------------------- December 31,
1998 1997 1996
--------- ---------- ----------------
(Dollar amounts in millions)
Interest paid..................... $ 20.9 $ 10.4 $9.1
Income taxes paid................. 39.3 38.4 16.9
Noncash investing and financing
activities:
Capital lease obligations incurred
(terminated)..................... 0.8 (6.4)
Fair value of assets acquired..... 175.3
Cash paid......................... (132.5)
Liabilities assumed and incurred.. 42.8
NOTE 12: QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following tables set forth a summary of the unaudited quarterly results
of operations for the twelve-month periods ended December 31, 1998 and 1997.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Ended Ended Ended Ended
March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998 Total
-------------- ------------- ------------------ ----------------- ------
(Dollar amounts in millions, except per share data)
1998
Sales................... $199.7 $205.1 $226.6 $200.5 $831.9
Gross profit............ 60.5 63.1 70.7 64.0 258.3
Income before
extraordinary loss..... 13.7 13.8 19.2 16.6 63.3
Net income.............. 13.7 13.8 17.2 16.6 61.3
Earnings per share:
Basic:
Income before
extraordinary loss... .18 .19 .26 .22 .85
Net income............ .18 .19 .23 .22 .82
Diluted:
Income before
extraordinary loss... .18 .17 .26 .22 .83
Net income............ .18 .17 .23 .22 .80
The third quarter includes a net extraordinary loss of $2.0 million ($.03
per share) on the redemption of long-term debt.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Ended Ended Ended Ended
March 31, 1997 June 30, 1997 September 30,1997 December 31, 1997 Total
-------------- ------------- ----------------- ----------------- ------
(Dollar amounts in millions, except per share data)
1997
Sales................... $170.1 $160.5 $182.1 $204.2 $716.9
Gross profit............ 56.3 51.8 58.9 67.0 234.0
Net income.............. 13.6 11.4 15.8 18.3 59.1
Earnings per share:
Basic.................. .18 .15 .21 .25 .79
Diluted................ .17 .15 .21 .24 .77
F-25
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fourth quarter includes the results of Federal, acquired on November 4,
1997 (see Note 4 of Notes to Consolidated Financial Statements). Federal's
sales were $14.5 million in the fourth quarter since acquisition.
NOTE 13: SUBSEQUENT EVENT
On August 19, 1999, Blount International, Inc., a Delaware corporation,
merged with Red Dog Acquisition, Corp., a Delaware corporation and a wholly-
owned subsidiary of Lehman Brothers Merchant Banking Partners II L.P.
("Lehman"). The merger was completed pursuant to an Agreement and Plan of
Merger and Recapitalization dated as of April 18, 1999. Lehman is a $2.0
billion institutional merchant banking fund focused on investments in
established operating companies.
As a result of the proration and stock election procedures related to the
merger, approximately 1.5 million shares of Blount International's pre-merger
outstanding common stock were retained by existing shareholders and exchanged,
on a two-for-one basis, for 3.0 million shares of post-merger outstanding
common stock. All share and per share information for periods prior to the
merger have been restated to reflect the split. Lehman and certain members of
Company management made a capital contribution of approximately $417.5 million
and received approximately 27.8 million shares of post-merger outstanding
common stock. Lehman controls approximately 87% of the 30.8 million shares
outstanding following the merger.
The merger was financed by the equity contribution of $417.5 million, and
senior term loans of $400 million and senior subordinated notes of $325 million
issued by Blount, Inc., a wholly-owned subsidiary of Blount International, Inc.
Blount International, Inc. and certain of its subsidiaries fully and
unconditionally guaranteed the debt issued to finance the merger.
The following consolidating financial information sets forth condensed
consolidated statements of income, and the balance sheets and cash flows of
Blount International, Inc., Blount, Inc., the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries (in millions).
F-26
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Twelve Months Ended December 31, 1998
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------- ------------ ------------
STATEMENT OF INCOME
Sales................... $ 478.5 $315.3 $163.5 $ (125.4) $831.9
Cost of sales........... 350.5 229.4 119.7 (126.0) 573.6
-------- ------ ------ --------- ------
Gross profit............ 128.0 85.9 43.8 0.6 258.3
Selling, general and
administrative
expenses............... $ 1.6 71.8 38.2 33.0 144.6
------ -------- ------ ------ --------- ------
Income (loss) from
operations............. (1.6) 56.2 47.7 10.8 0.6 113.7
Interest expense........ (27.8) (0.1) (0.1) 13.7 (14.3)
Interest income......... 1.6 14.2 0.4 (13.7) 2.5
Other income (expense),
net.................... 5.1 (4.2) (0.6) 0.3
------ -------- ------ ------ --------- ------
Income (loss) before
income taxes........... (1.6) 35.1 57.6 10.5 0.6 102.2
Provision (benefit) for
income taxes........... (0.6) 13.1 21.9 4.5 38.9
------ -------- ------ ------ --------- ------
Income (loss) before
extraordinary loss and
earnings of affiliated
companies.............. (1.0) 22.0 35.7 6.0 0.6 63.3
Extraordinary loss on
repurchase of debt,
net.................... (2.0) (2.0)
Equity in earnings of
affiliated companies,
net.................... 62.3 42.3 3.7 (108.3)
------ -------- ------ ------ --------- ------
Net income.............. $ 61.3 $ 62.3 $ 39.4 $ 6.0 $ (107.7) $ 61.3
====== ======== ====== ====== ========= ======
BALANCE SHEET
ASSETS
Current assets:
Cash and cash
equivalents........... $ 39.7 $ (1.5) $ 6.9 $ 45.1
Accounts receivable,
net................... 58.0 61.2 13.1 132.3
Intercompany
receivables........... 154.5 3.3 $ (157.8) --
Inventories............ 54.4 54.0 12.6 121.0
Deferred income
taxes................. 22.1 (0.1) 22.0
Other current assets... 3.7 2.1 0.9 6.7
-------- ------ ------ --------- ------
Total current
assets.............. 177.9 270.3 36.8 (157.9) 327.1
Investments in
affiliated companies... $381.5 709.3 58.2 0.2 (1,149.2) --
Property, plant and
equipment, net......... 80.6 75.6 26.7 182.9
Cost in excess of net
assets of acquired
businesses, net........ 34.2 73.1 7.4 114.7
Intercompany notes
receivable............. 260.0 (260.0) --
Other assets............ 39.5 2.3 2.3 44.1
------ -------- ------ ------ --------- ------
Total Assets......... $381.5 $1,041.5 $739.5 $ 73.4 $(1,567.1) $668.8
====== ======== ====== ====== ========= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current maturities of
long-term debt........ $ 0.3 $ 0.2 $ 0.2 $ 0.7
Accounts payable....... 14.5 11.6 4.3 30.4
Intercompany
payables.............. $ 24.3 133.5 $ (157.8) --
Accrued expenses....... 2.6 41.6 13.2 6.4 63.8
Deferred income
taxes................. 0.1 (0.1) --
------ -------- ------ ------ --------- ------
Total current
liabilities......... 26.9 189.9 25.0 11.0 (157.9) 94.9
Long-term debt,
exclusive of current
maturities............. 159.5 2.1 161.6
Intercompany notes
payable................ 259.9 0.1 (260.0) --
Deferred income taxes,
exclusive of current
portion................ 12.0 1.0 13.0
Other liabilities....... 38.7 5.3 0.7 44.7
------ -------- ------ ------ --------- ------
Total liabilities.... 26.9 660.0 32.4 12.8 (417.9) 314.2
Stockholders' equity.... 354.6 381.5 707.1 60.6 (1,149.2) 354.6
------ -------- ------ ------ --------- ------
Total Liabilities and
Stockholders'
Equity.............. $381.5 $1,041.5 $739.5 $ 73.4 $(1,567.1) $668.8
====== ======== ====== ====== ========= ======
F-27
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Twelve Months Ended December 31, 1998
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------- ------------ ------------
STATEMENT OF CASH FLOWS
Net cash provided by
(used in) operating
activities............. $ (0.9) $ 45.1 $ 38.0 $ 9.8 $(3.1) $ 88.9
------ ------- ------ ----- ----- -------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment.............. 0.1 1.1 0.1 1.3
Purchases of property,
plant and equipment.... (11.0) (6.8) (3.3) (21.1)
Acquisitions of
businesses............. (17.4) (17.4)
------ ------- ------ ----- ----- -------
Net cash used in
investing activities... -- (28.3) (5.7) (3.2) -- (37.2)
------ ------- ------ ----- ----- -------
Cash flows from
financing activities:
Net reduction in short-
term borrowings........ (0.4) (0.4)
Issuance of long-term
debt................... 149.4 149.4
Reduction of long-term
debt................... (136.9) (0.2) (0.4) (137.5)
Decrease in restricted
funds.................. 0.5 0.5
Dividends paid.......... (10.5) (3.1) 3.1 (10.5)
Purchase of treasury
stock.................. (18.1) (18.1)
Advances from (to)
affiliated companies... 25.1 6.9 (32.0) --
Other................... 4.4 0.8 5.2
------ ------- ------ ----- ----- -------
Net cash provided by
(used in) financing
activities............. 0.9 20.7 (32.2) (3.9) 3.1 (11.4)
------ ------- ------ ----- ----- -------
Net increase in cash and
cash equivalents....... -- 37.5 0.1 2.7 -- 40.3
Cash and cash
equivalents at
beginning of period.... 2.2 (1.6) 4.2 4.8
------ ------- ------ ----- ----- -------
Cash and cash
equivalents at end of
period................. $ -- $ 39.7 $ (1.5) $ 6.9 $ -- $ 45.1
====== ======= ====== ===== ===== =======
F-28
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Twelve Months Ended December 31, 1997
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------- ------------ ------------
STATEMENT OF INCOME
Sales................... $507.2 $170.9 $145.8 $ (107.0) $716.9
Cost of sales........... 355.0 117.4 116.4 (105.9) 482.9
------ ------ ------ --------- ------
Gross profit............ 152.2 53.5 29.4 (1.1) 234.0
Selling, general and
administrative
expenses............... $ 1.3 84.6 28.2 20.5 134.6
------ ------ ------ ------ --------- ------
Income (loss) from
operations............. (1.3) 67.6 25.3 8.9 (1.1) 99.4
Interest expense........ (26.7) (0.2) (0.2) 17.6 (9.5)
Interest income......... 1.6 18.0 0.5 (17.6) 2.5
Other income (expense),
net.................... 3.3 (1.7) (0.3) 1.3
------ ------ ------ ------ --------- ------
Income (loss) before
income taxes........... (1.3) 45.8 41.4 8.9 (1.1) 93.7
Provision (benefit) for
income taxes........... (0.4) 15.2 15.7 4.1 34.6
------ ------ ------ ------ --------- ------
Income (loss) before
earnings of affiliated
companies.............. (0.9) 30.6 25.7 4.8 (1.1) 59.1
Equity in earnings of
affiliated companies,
net.................... 60.0 29.4 4.7 (94.1) --
------ ------ ------ ------ --------- ------
Net income.............. $ 59.1 $ 60.0 $ 30.4 $ 4.8 $ (95.2) $ 59.1
====== ====== ====== ====== ========= ======
BALANCE SHEET
ASSETS
Current assets:
Cash and cash
equivalents........... $ 2.2 $ (1.7) $ 4.3 $ 4.8
Accounts receivable,
net................... 65.0 56.2 14.5 135.7
Intercompany
receivables........... 102.0 $ (102.0) --
Inventories............ 55.3 63.1 14.5 132.9
Deferred income
taxes................. 22.0 22.0
Other current assets... 3.0 2.1 0.7 5.8
------ ------ ------ --------- ------
Total current
assets.............. 147.5 221.7 34.0 (102.0) 301.2
Investments in
affiliated companies... $317.9 661.8 57.2 0.2 (1,037.1) --
Property, plant and
equipment, net......... 81.6 78.0 28.9 188.5
Cost in excess of net
assets of acquired
businesses, net........ 35.8 72.9 7.7 116.4
Intercompany notes
receivable............. 260.0 (260.0) --
Other assets............ 27.2 1.8 2.7 31.7
------ ------ ------ ------ --------- ------
Total Assets......... $317.9 $953.9 $691.6 $ 73.5 $(1,399.1) $637.8
====== ====== ====== ====== ========= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current maturities of
long-term debt........ $ 0.4 $ 0.2 $ 0.9 $ 1.5
Accounts payable....... 42.8 9.2 4.6 56.6
Intercompany
payables.............. 99.2 2.8 $ (102.0) --
Accrued expenses....... $ 1.8 51.2 12.5 6.5 72.0
------ ------ ------ ------ --------- ------
Total current
liabilities......... 1.8 193.6 21.9 14.8 (102.0) 130.1
Long-term debt,
exclusive of current
maturities............. 136.3 2.3 0.2 138.8
Intercompany notes
payable................ 260.0 (260.0) --
Deferred income taxes,
exclusive of current
portion................ 13.9 1.3 15.2
Other liabilities....... 32.2 5.4 37.6
------ ------ ------ ------ --------- ------
Total liabilities.... 1.8 636.0 29.6 16.3 (362.0) 321.7
Stockholders' equity.... 316.1 317.9 662.0 57.2 (1,037.1) 316.1
------ ------ ------ ------ --------- ------
Total Liabilities and
Stockholders'
Equity.............. $317.9 $953.9 $691.6 $ 73.5 $(1,399.1) $637.8
====== ====== ====== ====== ========= ======
F-29
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Twelve Months Ended December 31, 1997
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------- ------------ ------------
STATEMENT OF CASH FLOWS
Net cash provided by
operating activities... $ 40.2 $ 45.3 $ 29.3 $11.4 $(45.9) $ 80.3
------ ------- ------ ----- ------ -------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment.............. 0.6 0.3 0.9
Purchases of property,
plant and equipment.... (9.2) (2.5) (6.1) (17.8)
Acquisitions of
businesses............. (132.5) (132.5)
------ ------- ------ ----- ------ -------
Net cash used in
investing activities... -- (141.1) (2.5) (5.8) -- (149.4)
------ ------- ------ ----- ------ -------
Cash flows from
financing activities:
Issuance of long-term
debt................... 62.0 62.0
Reduction of long-term
debt................... (8.3) (5.9) (0.7) (14.9)
Decrease in restricted
funds.................. 1.0 1.0
Dividends paid.......... (9.4) (41.0) (4.9) 45.9 (9.4)
Purchase of treasury
stock.................. (27.5) (27.5)
Advances from (to)
affiliated companies... (6.9) 28.3 (21.4)
Other................... 3.6 0.4 4.0
------ ------- ------ ----- ------ -------
Net cash provided by
(used in) financing
activities............. (40.2) 42.4 (27.3) (5.6) 45.9 15.2
------ ------- ------ ----- ------ -------
Net decrease in cash and
cash equivalents....... -- (53.4) (0.5) -- (53.9)
Cash and cash
equivalents at
beginning of period.... 55.6 (1.1) 4.2 58.7
------ ------- ------ ----- ------ -------
Cash and cash
equivalents at end of
period................. $ -- $ 2.2 $ (1.6) $ 4.2 $ -- $ 4.8
====== ======= ====== ===== ====== =======
F-30
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Ten Months Ended December 31, 1996
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF INCOME
Sales................... $377.0 $114.2 $123.0 $(87.5) $526.7
Cost of sales........... 258.4 76.9 98.3 (87.1) 346.5
------ ------ ------ ------ ------
Gross profit............ 118.6 37.3 24.7 (0.4) 180.2
Selling, general and
administrative
expenses............... $ 1.2 66.7 19.1 18.2 105.2
----- ------ ------ ------ ------ ------
Income (loss) from
operations............. (1.2) 51.9 18.2 6.5 (0.4) 75.0
Interest expense........ (20.6) (0.1) (0.4) 13.2 (7.9)
Interest income......... 1.8 13.5 0.2 (13.2) 2.3
Other income (expense),
net.................... 2.2 (1.5) (0.5) 0.2
----- ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (1.2) 35.3 30.1 5.8 (0.4) 69.6
Provision (benefit) for
income taxes........... (0.4) 12.2 11.4 2.4 25.6
----- ------ ------ ------ ------ ------
Income (loss) from
continuing operations
before earnings of
affiliated companies... (0.8) 23.1 18.7 3.4 (0.4) 44.0
Discontinued
operations--Income on
disposal, net.......... 1.4 1.4
Equity in earnings of
affiliated companies,
net.................... 46.2 21.7 3.4 (71.3) --
----- ------ ------ ------ ------ ------
Net income.............. $45.4 $ 46.2 $ 22.1 $ 3.4 $(71.7) $ 45.4
===== ====== ====== ====== ====== ======
STATEMENT OF CASH FLOWS
Net cash provided by
operating activities... $ 4.0 $ 63.8 $ 6.8 $ 8.6 $ 83.2
----- ------ ------ ------ ------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment.............. 1.2 0.6 1.8
Purchases of property,
plant and equipment.... (9.6) (2.2) (6.9) (18.7)
----- ------ ------ ------ ------
Acquisitions of
businesses............. -- (8.4) (2.2) (6.3) (16.9)
----- ------ ------ ------ ------
Net cash used in
investing activities
Cash flows from
financing activities:
Issuance of long-term
debt................... (0.5) (1.1) (1.6)
Reduction of long-term
debt................... (13.7) (0.2) (13.9)
Decrease in restricted
funds.................. 2.7 2.7
Dividends paid.......... (8.5) (8.5)
Purchase of treasury
stock.................. (4.3) (4.3)
Advances from (to)
affiliated companies... 6.3 (2.0) (4.3) --
Other................... 2.5 0.9 3.4
----- ------ ------ ------ ------
Net cash provided by
(used in) financing
activities............. (4.0) (12.6) (4.3) (1.3) (22.2)
----- ------ ------ ------ ------
Net decrease in cash and
cash equivalents....... -- 42.8 0.3 1.0 44.1
Cash and cash
equivalents at
beginning of period.... 12.8 (1.4) 3.2 14.6
----- ------ ------ ------ ------
Cash and cash
equivalents at end of
period................. $ -- $ 55.6 $ (1.1) $ 4.2 $ 58.7
===== ====== ====== ====== ======
F-31
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except share data)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Sales.............................. $ 219.6 $ 226.6 $ 587.9 $ 631.4
Cost of sales...................... 156.1 155.9 419.4 437.1
--------- --------- --------- ---------
Gross profit....................... 63.5 70.7 168.5 194.3
Selling, general and administrative
expenses.......................... 35.8 37.0 105.0 110.2
Merger expenses.................... 72.4 0.1 74.6 0.1
--------- --------- --------- ---------
Income (loss) from operations...... (44.7) 33.6 (11.1) 84.0
Interest expense................... (13.4) (4.1) (20.5) (10.8)
Interest income.................... 2.0 0.9 3.0 1.7
Other income, net.................. 0.4 0.1 0.3 0.3
--------- --------- --------- ---------
Income (loss) before income taxes.. (55.7) 30.5 (28.3) 75.2
Provision (benefit) for income
taxes............................. (13.1) 11.3 (3.4) 28.5
--------- --------- --------- ---------
Income (loss) before extraordinary
loss.............................. (42.6) 19.2 (24.9) 46.7
Extraordinary loss on repurchase of
debt, net......................... (2.0) (2.0)
--------- --------- --------- ---------
Net income (loss).................. $ (42.6) $ 17.2 $ (24.9) $ 44.7
========= ========= ========= =========
Basic earnings per share:
Income (loss) before
extraordinary loss.............. $ (.79) $ .26 $ (.37) $ .62
Extraordinary loss on repurchase
of debt, net.................... (.03) (.03)
--------- --------- --------- ---------
Net income (loss)................ $ (.79) $ .23 $ (.37) $ .60
========= ========= ========= =========
Diluted earnings per share:
Income (loss) before
extraordinary loss.............. $ (.79) $ .26 $ (.37) $ .61
Extraordinary loss on repurchase
of debt, net.................... (.03) (.03)
--------- --------- --------- ---------
Net income (loss)................ $ (.79) $ .23 $ (.37) $ .58
========= ========= ========= =========
Cash dividends declared per share:
Class A Common Stock............. $ .036 $ .071 $ .107
========= ========= =========
Class B Common Stock............. $ .034 $ .067 $ .101
========= ========= =========
The accompanying notes are an integral part of these statements.
F-32
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 30.3 $ 45.1
Accounts receivable, net of allowance for doubtful
accounts of $4.4 and $3.9........................ 181.7 132.3
Inventories....................................... 124.3 121.0
Deferred income taxes............................. 22.0 22.0
Other current assets.............................. 20.1 6.7
-------- ------
Total current assets............................ 378.4 327.1
Property, plant and equipment, net of accumulated
depreciation of $225.2 and $209.9.................. 173.5 182.9
Cost in excess of net assets of acquired businesses,
net................................................ 112.5 114.7
Other assets........................................ 71.1 44.1
-------- ------
Total Assets........................................ $ 735.5 $668.8
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities of long-term
debt............................................. $ 23.4 $ 0.7
Accounts payable.................................. 38.2 30.4
Accrued expenses.................................. 83.7 63.8
-------- ------
Total current liabilities....................... 145.3 94.9
Long-term debt, exclusive of current maturities..... 856.5 161.6
Deferred income taxes............................... 13.0 13.0
Other liabilities................................... 47.1 44.7
-------- ------
Total liabilities............................... 1,061.9 314.2
-------- ------
Commitments and Contingent Liabilities
Stockholders' equity (deficit):
Common Stock: par value $.01 per share,
100,000,000 shares authorized, 30,795,984
outstanding...................................... 0.3
Common Stock: par value $.01 per share
Class A: 27,428,105 shares issued............... 0.3
Class B, convertible: 11,479,471 shares issued.. 0.1
Capital in excess of par value of stock........... 417.2 38.7
Retained earnings (deficit)....................... (751.1) 348.9
Accumulated other comprehensive income............ 7.2 7.6
Less Class A treasury stock at cost, 1,852,302
shares........................................... (41.0)
-------- ------
Total stockholders' equity (deficit)............ (326.4) 354.6
-------- ------
Total Liabilities and Stockholders' Equity
(Deficit).......................................... $ 735.5 $668.8
======== ======
The accompanying notes are an integral part of these statements.
F-33
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Nine Months Ended
September 30,
------------------
1999 1998
--------- -------
(Unaudited)
Cash Flows From Operating Activities:
Net Income (loss)........................................ $ (24.9) $ 44.7
Extraordinary loss....................................... 2.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and other noncash charges... 24.8 23.0
Deferred income taxes.................................. (0.2)
Loss (gain) on disposals of property, plant and
equipment............................................. (0.4)
Changes in assets and liabilities:
Increase in accounts receivable...................... (49.4) (27.5)
(Increase) decrease in inventories................... (3.3) 6.3
Increase in other assets............................. (7.2) (0.3)
Increase (decrease) in accounts payable.............. 7.0 (7.4)
Decrease in accrued expenses......................... 22.4 4.0
Increase (decrease) in other liabilities............. 2.1 (0.8)
--------- -------
Net cash provided by (used in) operating activities........ (28.9) 43.8
--------- -------
Cash Flows From Investing Activities:
Proceeds from sales of property, plant and equipment..... 0.7 0.1
Purchases of property, plant and equipment............... (11.9) (14.9)
Acquisitions of businesses and product lines............. (0.6) (16.6)
Other.................................................... (3.3)
--------- -------
Net cash used in investing activities.................. (15.1) (31.4)
--------- -------
Cash Flows From Financing Activities:
Net decrease in short-term borrowings.................... (0.3)
Issuance of long-term debt............................... 697.4 149.4
Reduction of long-term debt.............................. (7.7) (137.3)
Decrease in restricted funds............................. 0.2 0.4
Redemption of common stock............................... (1,068.8)
Capital contribution..................................... 417.5
Dividends paid........................................... (7.8) (7.9)
Purchase of treasury stock............................... (16.2)
Other.................................................... (1.6) 4.3
--------- -------
Net cash provided by (used in) financing activities.... 29.2 (7.6)
--------- -------
Net increase (decrease) in cash and cash equivalents....... (14.8) 4.8
Cash and cash equivalents at beginning of period........... 45.1 4.8
--------- -------
Cash and cash equivalents at end of period................. $ 30.3 $ 9.6
========= =======
The accompanying notes are an integral part of these statements.
F-34
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (Unaudited)
(In millions)
Accumulated
Other
Common Stock Capital in Compre-
Common --------------- Excess Retained hensive Treasury
Stock Class A Class B of Par Earnings Income Stock Total
------ ------- ------- ---------- --------- ----------- -------- ---------
THREE MONTHS AND NINE
MONTHS ENDED SEPTEMBER
30, 1999:
Balance, June 30, 1999.. $ 0.3 $ 0.1 $ 38.8 $ 361.2 $ 7.2 $(40.1) $ 367.5
Net loss................ (42.6) (42.6)
Other comprehensive
income (loss), net..... 0.0
---------
Comprehensive income.... (42.6)
Other................... (0.2) 0.2
Merger related activity
(see Note 2):
Retirement of treasury
stock................. (38.8) (1.1) 39.9
Redemption of common
stock................. (0.3) (0.1) (1,068.4) (1,068.8)
Capital contribution... $ 0.3 417.2 417.5
----- ----- ----- ------ --------- ----- ------ ---------
Balance, September 30,
1999................... $ 0.3 $ 0.0 $ 0.0 $417.2 $ (751.1) $ 7.2 $ 0.0 $ (326.4)
===== ===== ===== ====== ========= ===== ====== =========
Balance, December 31,
1998................... $ 0.3 $ 0.1 $ 38.7 $ 348.9 $ 7.6 $(41.0) $ 354.6
Net loss................ (24.9) (24.9)
Other comprehensive
income (loss), net..... (0.4) (0.4)
---------
Comprehensive income.... (25.3)
Dividends............... (5.2) (5.2)
Other................... 0.1 (0.4) 1.1 0.8
Merger related activity
(see Note 2):
Retirement of treasury
stock................. (38.8) (1.1) 39.9
Redemption of common
stock................. (0.3) (0.1) (1,068.4) (1,068.8)
Capital contribution... $ 0.3 417.2 417.5
----- ----- ----- ------ --------- ----- ------ ---------
Balance, September 30,
1999................... $ 0.3 $ 0.0 $ 0.0 $417.2 $ (751.1) $ 7.2 $ 0.0 $ (326.4)
===== ===== ===== ====== ========= ===== ====== =========
THREE MONTHS AND NINE
MONTHS ENDED SEPTEMBER
30, 1998:
Balance, June 30, 1998.. $ 0.3 $ 0.1 $ 37.8 $ 320.8 $ 7.4 $(27.2) $ 339.2
Net income.............. 17.2 17.2
Other comprehensive
income (loss), net..... 0.4 0.4
---------
Comprehensive income.... 17.6
Dividends............... (2.6) (2.6)
Purchase of treasury
stock.................. (14.3) (14.3)
Other................... 0.1 (0.5) 2.2 1.8
----- ----- ------ --------- ----- ------ ---------
Balance, September 30,
1998................... $ 0.3 $ 0.1 $ 37.9 $ 334.9 $ 7.8 $(39.3) $ 341.7
===== ===== ====== ========= ===== ====== =========
Balance, December 31,
1997................... $ 0.3 $ 0.1 $ 37.7 $ 300.3 $ 7.0 $(29.3) $ 316.1
Net income.............. 44.7 44.7
Other comprehensive
income (loss), net..... 0.8 0.8
---------
Comprehensive income.... 45.5
Dividends............... (7.9) (7.9)
Purchase of treasury
stock.................. (16.2) (16.2)
Other................... 0.2 (2.2) 6.2 4.2
----- ----- ------ --------- ----- ------ ---------
Balance September 30,
1998................... $ 0.3 $ 0.1 $ 37.9 $ 334.9 $ 7.8 $(39.3) $ 341.7
===== ===== ====== ========= ===== ====== =========
The accompanying notes are an integral part of these statements.
F-35
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
NOTE 1
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Blount International, Inc. and
Subsidiaries ("the Company") contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position at
September 30, 1999 and the results of operations and cash flows for the periods
ended September 30, 1999 and 1998. These financial statements should be read in
conjunction with the notes to the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
results of operations for the periods ended September 30, 1999 and 1998 are not
necessarily indicative of the results to be expected for the twelve months
ended December 31, 1999, due to the seasonal nature of certain of the Company's
operations.
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year's presentation.
The Company's Internet home page is http://www.blount.com.
NOTE 2
On August 19, 1999, Blount International, Inc., a Delaware corporation,
merged with Red Dog Acquisition, Corp., a Delaware corporation and a wholly-
owned subsidiary of Lehman Brothers Merchant Banking Partners II L.P.
("Lehman"). The merger was completed pursuant to an Agreement and Plan of
Merger and Recapitalization dated as of April 18, 1999. Lehman is a $2.0
billion institutional merchant banking fund focused on investments in
established operating companies. This transaction was accounted for as a
recapitalization under generally accepted accounting principles. Accordingly,
the historical basis of the Company's assets and liabilities has not been
impacted by the transaction.
As a result of the proration and stock election procedures related to the
merger, approximately 1.5 million shares of Blount International's pre-merger
outstanding common stock were retained by existing shareholders and exchanged,
on a two-for-one basis, for 3.0 million shares of post-merger outstanding
common stock. All share and per share information for periods prior to the
merger have been restated to reflect the split. Lehman and certain members of
Company management made a capital contribution of approximately $417.5 million
and received approximately 27.8 million shares of post-merger outstanding
common stock. Lehman controls approximately 87% of the 30.8 million shares
outstanding following the merger.
The merger was financed by the equity contribution of $417.5 million, senior
term loans of $400 million and senior subordinated notes of $325 million issued
by Blount, Inc., a wholly-owned subsidiary of Blount International, Inc. The
new credit facilities include two term loan facilities in an aggregate
principal amount of $400.0 million, comprised of a $60.0 million Tranche A Term
Loan ($55.0 million of which was outstanding at September 30, 1999) and a
$340.0 million Tranche B Term Loan, and a $100.0 million revolving credit
facility. The Tranche A Term Loan has quarterly repayments that increase
periodically from $2,000,000 beginning on December 31, 1999 to $3,750,000 by
the maturity date, June 30, 2004. The Tranche B Term Loan has quarterly
repayments of $850,000 beginning on December 31, 1999 until June 30, 2005 and
then increasing to $80,000,000 on September 30, 2005 until March 31, 2006, with
a final payment of $80,450,000 on the maturity date, June 30, 2006. The Company
and all of the Company's domestic subsidiaries guarantee Blount, Inc.'s
obligations under the debt issued to finance the merger. Blount, Inc.'s
obligations and its domestic subsidiaries' guarantee obligations under the new
credit facilities are collateralized by a first priority security interest in
substantially all of their respective assets. The Company's guarantee
obligations in respect of the new credit facilities are collateralized by a
pledge of all of Blount, Inc.'s capital stock. The 7.0% notes share equally and
ratably in certain of the collateral securing the new credit facilities.
F-36
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Long-term debt at September 30, 1999 and December 31, 1998 consists of the
following:
September 30, December 31,
1999 1998
------------- ------------
13% Senior subordinated notes, maturing on
August 1, 2009................................. $325.0
7% Senior notes (net of discount), maturing on
June 15, 2005.................................. 148.7 $148.6
Senior term loans:
Tranche A, maturing at various dates through
June 30, 2004, interest at 8.63% at September
30, 1999..................................... 55.0
Tranche B, maturing at various dates through
June 30, 2006, interest at 9.38% at September
30, 1999..................................... 340.0
Industrial development revenue bonds payable,
maturing between 1999 and 2013, interest at
varying rates (principally 3.95% at September
30, 1999)...................................... 10.5 13.1
Other long-term debt, interest at 9.25% at
September 30, 1999............................. 0.4 0.4
Lease purchase obligations, interest at varying
rates, payable in installments to 2000......... 0.3 0.2
------ ------
879.9 162.3
Less current maturities......................... (23.4) (0.7)
------ ------
$856.5 $161.6
====== ======
In August 1999, the Company replaced its $150 million revolving credit
agreement expiring April 1, 2002, with a new $100 million revolving credit
agreement expiring on August 19, 2004. At September 30, 1999, no amounts were
outstanding under the new $100 million revolving credit agreement. The $100
million revolving credit agreement provides for interest rates to be determined
at the time of borrowings based on a choice of formulas as specified in the
agreement. The interest rates and commitment fees may vary based on the ratio
of total debt to consolidated earnings before interest, taxes, depreciation,
and amortization (EBITDA) as defined in the agreement. The new agreement
contains covenants relating to indebtedness, liens, mergers, consolidations,
disposals of property, payment of dividends, capital expenditures, investments,
optional payments and modifications of the agreements, transactions with
affiliates, sales and leasebacks, changes in fiscal periods, negative pledges,
subsidiary distributions, lines of business, hedge agreements, and activities
of the Company and requires the Company to maintain certain leverage and
interest coverage ratios.
NOTE 3
During the first quarter of 1999, the Company donated art with a book value
of $1.5 million and an appraised value of $4.7 million to The Blount
Foundation, Inc., a charitable foundation. Winton M. Blount is a director of
The Blount Foundation, Inc. On an after-tax basis, this donation had no
significant effect on net income.
NOTE 4
The Company has two Rabbi Trusts established which require the funding of
certain executive benefits upon a change in control or threatened change in
control such as the merger described in Note 2 of Notes to Condensed
Consolidated Financial Statements. During the second quarter of 1999,
approximately $10.4 million was funded under these trusts with approximately
$7.1 million coming from the proceeds of officer life
F-37
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
insurance loans and $3.3 million from general corporate funds. At September 30,
1999, approximately $20.9 million was held in these trusts and is included in
"Other assets" in the Condensed Consolidated Balance Sheet.
The unused proceeds from industrial development revenue bonds are held in
trust and released as qualified capital expenditures are made. At September 30,
1999, approximately $3.3 million was held in trust and is included in "Cash and
cash equivalents" in the Condensed Consolidated Balance Sheet. On October 4,
1999, the Company redeemed all of its outstanding industrial development
revenue bonds in the amount of $10.5 million using the $3.3 million held in
trust and $7.2 million of cash.
NOTE 5
Inventories consist of the following (in millions):
September 30, December 31,
1999 1998
------------- ------------
Finished goods....................................... $ 65.7 $ 73.6
Work in process...................................... 26.5 19.3
Raw materials and supplies........................... 32.1 28.1
------ ------
$124.3 $121.0
====== ======
NOTE 6
Segment information is as follows (in millions):
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
Sales:
Outdoor Products......................... $ 82.7 $ 77.8 $243.2 $236.2
Sporting Equipment....................... 98.5 94.1 240.0 217.3
Industrial and Power Equipment........... 38.4 54.7 104.7 177.9
------ ------ ------ ------
$219.6 $226.6 $587.9 $631.4
====== ====== ====== ======
Operating income (loss):
Outdoor Products......................... $ 17.9 $ 17.4 $ 53.6 $ 50.6
Sporting Equipment....................... 13.6 14.9 28.7 24.3
Industrial and Power Equipment........... (0.7) 5.6 (5.7) 24.1
------ ------ ------ ------
Operating income from segments............. 30.8 37.9 76.6 99.0
Corporate office expenses.................. (3.1) (4.2) (13.1) (14.9)
Merger expenses............................ (72.4) (0.1) (74.6) (0.1)
------ ------ ------ ------
Income (loss) from operations............ (44.7) 33.6 (11.1) 84.0
Interest expense........................... (13.4) (4.1) (20.5) (10.8)
Interest income............................ 2.0 0.9 3.0 1.7
Other income (expense), net................ 0.4 0.1 0.3 0.3
------ ------ ------ ------
Income (loss) before income taxes.......... $(55.7) $ 30.5 $(28.3) $ 75.2
====== ====== ====== ======
F-38
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
NOTE 7
Under the provisions of Washington State environmental laws, the Washington
State Department of Ecology ("WDOE") has notified the Company that it is one of
many companies named as a Potentially Liable Party ("PLP"), for the Pasco
Sanitary Landfill site, Pasco, Washington ("the Site"). Although the clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Unilateral Enforcement Order to all PLPs to complete a Phase II
Remedial Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are expected in the
near future. The Company is unable to determine, at this time, the level of
clean-up demands that may be ultimately placed on it. Management believes that,
given the number of PLPs named with respect to the Site and their financial
condition, the Company's potential response costs associated with the Site will
not have a material adverse effect on consolidated financial condition or
operating results.
The Company is a defendant in a number of product liability lawsuits, some
of which seek significant or unspecified damages, involving serious personal
injuries for which there are retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial
condition or operating results.
See Note 7 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 for
other commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 8
Income taxes paid during the nine months ended September 30, 1999 and 1998
were $11.7 million and $31.7 million. Interest paid during the nine months
ended September 30, 1999 and 1998 was $39.5 million and $15.5 million.
F-39
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
NOTE 9
For the three months and nine months ended September 30, 1999 and 1998, net
income and shares used in the earnings per share ("EPS") computations were the
following amounts:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Income (loss) before
extraordinary loss............ $ (42.6) $ 19.2 $ (24.9) $ 46.7
Extraordinary loss on
repurchase of debt, net....... (2.0) (2.0)
---------- ---------- ---------- ----------
Net income (loss) (in
millions)..................... (42.6) $ 17.2 $ (24.9) $ 44.7
========== ========== ========== ==========
Shares:
Basic EPSC--weighted average
common shares outstanding... 53,667,708 74,660,816 67,315,172 74,953,664
Dilutive effect of stock
options..................... 1,987,006 2,204,876
---------- ---------- ---------- ----------
Diluted EPS.................. 53,667,708 76,647,822 67,315,172 77,158,540
========== ========== ========== ==========
Options to purchase 1,121,200 shares were granted during the first quarter
of 1999 under the 1998 Blount Long-Term Executive Stock Option Plan. As a
result of the merger described in Note 2, all outstanding options were canceled
through a payment associated with the merger. During the third quarter of 1999,
the Company's Board of Directors adopted a new stock option plan under which
options, either incentive stock options or nonqualified stock options, to
purchase the Company's Common Stock may be granted to employees, directors, and
other persons who perform services for the Company. The number of shares which
may be issued under the plan may not exceed 2,875,000 shares. The option price
per share for incentive stock options may not be less than 100% of the average
closing sale price for ten consecutive trading days ended on the trading day
immediately prior to the date of grant. The option price for each grant of a
nonqualified stock option shall be established on the date of grant and may be
less than the fair market value of one share of Common Stock on the date of
grant. During the third quarter of 1999, options were granted to purchase
2,301,302 shares at the price of $15 per share.
NOTE 10
The following consolidating financial information sets forth condensed
consolidated statements of income, and the balance sheets and cash flows of
Blount International, Inc., Blount, Inc., the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries (in millions).
F-40
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Nine Months Ended September 30, 1999
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------- ------------ ------------
STATEMENT OF INCOME
Sales................... $ 310.2 $250.1 $121.8 $ (94.2) $ 587.9
Cost of sales........... 241.7 187.1 83.4 (92.8) 419.4
-------- ------ ------ --------- -------
Gross profit............ 68.5 63.0 38.4 (1.4) 168.5
Selling, general and
administrative
expenses............... $ 0.8 46.8 29.3 28.1 105.0
Merger expenses......... 69.5 5.1 74.6
------ -------- ------ ------ --------- -------
Income (loss) from
operations............. (70.3) 16.6 33.7 10.3 (1.4) (11.1)
Interest expense........ (30.9) (0.1) 10.5 (20.5)
Interest income......... 1.2 1.2 10.9 0.2 (10.5) 3.0
Other income (expense),
net.................... 0.5 0.3 (0.5) 0.3
------ -------- ------ ------ --------- -------
Income (loss) before
income taxes........... (69.1) (12.6) 44.8 10.0 (1.4) (28.3)
Provision (benefit) for
income taxes........... (18.5) (6.8) 17.0 4.9 (3.4)
------ -------- ------ ------ --------- -------
Income (loss) before
earnings of affiliated
companies.............. (50.6) (5.8) 27.8 5.1 (1.4) (24.9)
Equity in earnings of
affiliated companies,
net.................... 25.7 31.5 3.4 (60.6)
------ -------- ------ ------ --------- -------
Net income.............. $(24.9) $ 25.7 $ 31.2 $ 5.1 $ (62.0) $ (24.9)
====== ======== ====== ====== ========= =======
BALANCE SHEET
ASSETS
Current assets:
Cash and cash
equivalents........... $ 24.3 $ (0.4) $ 6.4 $ 30.3
Accounts receivable,
net................... $ 1.2 70.9 92.7 16.9 181.7
Intercompany
receivables........... 548.8 161.1 $ (709.9) --
Inventories............ 45.7 62.2 16.4 124.3
Deferred income
taxes................. 22.0 22.0
Other current assets... 18.0 0.7 1.4 20.1
------ -------- ------ ------ --------- -------
Total current
assets.............. 1.2 729.7 316.3 41.1 (709.9) 378.4
Investments in
affiliated companies... 381.8 738.4 59.0 0.2 (1,179.4) --
Property, plant and
equipment, net......... 73.8 74.4 25.3 173.5
Cost in excess of net
assets of acquired
businesses, net........ 33.1 72.2 7.2 112.5
Intercompany notes
receivable............. 260.0 (260.0) --
Other assets............ 66.9 2.2 2.0 71.1
------ -------- ------ ------ --------- -------
Total Assets............ $383.0 $1,641.9 $784.1 $ 75.8 $(2,149.3) $ 735.5
====== ======== ====== ====== ========= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current maturities of
long-term debt........ $ 21.1 $ 2.3 $ 23.4
Accounts payable....... $ 0.1 16.0 17.7 $ 4.4 38.2
Intercompany
payables.............. 709.3 0.6 $ (709.9) --
Accrued expenses....... 54.4 21.4 7.9 83.7
------ -------- ------ ------ --------- -------
Total current
liabilities......... 709.4 91.5 41.4 12.9 (709.9) 145.3
Long-term debt,
exclusive of current
maturities............. 856.3 0.2 856.5
Intercompany notes
payable................ 259.9 0.1 (260.0) --
Deferred income taxes,
exclusive of current
portion................ 11.9 1.1 13.0
Other liabilities....... 40.5 5.8 0.8 47.1
------ -------- ------ ------ --------- -------
Total liabilities.... 709.4 1,260.1 47.2 15.1 (969.9) 1,061.9
Stockholders' equity
(deficit).............. (326.4) 381.8 736.9 60.7 (1,179.4) (326.4)
------ -------- ------ ------ --------- -------
Total Liabilities and
Stockholders' Equity
(Deficit).............. $383.0 $1,641.9 $784.1 $ 75.8 $(2,149.3) $ 735.5
====== ======== ====== ====== ========= =======
F-41
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION--(Continued)
For The Nine Months Ended September 30, 1999
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------- ------------ ------------
STATEMENT OF CASH FLOWS
Net cash provided by
(used in) operating
activities............. $ (26.9) $ 31.9 $(11.2) $4.9 $(27.6) $ (28.9)
-------- ------ ------ ---- ------ --------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment.............. 0.6 0.1 0.7
Purchases of property,
plant and equipment.... (4.1) (5.1) (2.7) (11.9)
Acquisitions of product
lines.................. (0.6) (0.6)
Other................... (3.3) (3.3)
-------- ------ ------ ---- ------ --------
Net cash used in
investing activities... -- (6.8) (5.7) (2.6) -- (15.1)
-------- ------ ------ ---- ------ --------
Cash flows from
financing activities:
Issuance of long-term
debt................... 697.4 697.4
Reduction of long-term
debt................... (7.5) (0.2) (7.7)
Decrease in restricted
funds.................. 0.2 0.2
Redemption of common
stock.................. (1,068.8) (1,068.8)
Capital contribution.... 417.5 417.5
Dividends paid.......... (7.8) (25.0) (2.6) 27.6 (7.8)
Advances from (to)
affiliated companies... 685.0 (703.0) 18.0 --
Other................... 1.0 (2.6) (1.6)
-------- ------ ------ ---- ------ --------
Net cash provided by
(used in) financing
activities............. 26.9 (40.5) 18.0 (2.8) 27.6 29.2
-------- ------ ------ ---- ------ --------
Net increase (decrease)
in cash and cash
equivalents............ -- (15.4) 1.1 (0.5) -- (14.8)
Cash and cash
equivalents at
beginning of period.... 39.7 (1.5) 6.9 45.1
-------- ------ ------ ---- ------ --------
Cash and cash
equivalents at end of
period................. $ -- $ 24.3 $ (0.4) $6.4 $ -- $ 30.3
======== ====== ====== ==== ====== ========
F-42
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Three Months Ended September 30, 1999
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF INCOME
Sales................... $109.9 $99.1 $43.1 $(32.5) $219.6
Cost of sales........... 84.9 73.6 29.9 (32.3) 156.1
------ ----- ----- ------ ------
Gross profit............ 25.0 25.5 13.2 (0.2) 63.5
Selling, general and
administrative
expenses............... $ 0.2 14.0 11.9 9.7 35.8
Merger expenses......... 69.5 2.9 72.4
------ ------ ----- ----- ------ ------
Income (loss) from
operations............. (69.7) 8.1 13.6 3.5 (0.2) (44.7)
Interest expense........ (16.9) 3.5 (13.4)
Interest income......... 1.2 0.4 3.8 0.1 (3.5) 2.0
Other income (expense),
net.................... 0.6 0.1 (0.3) 0.4
------ ------ ----- ----- ------ ------
Income (loss) before
income taxes........... (68.5) (7.8) 17.5 3.3 (0.2) (55.7)
Provision (benefit) for
income taxes........... (18.3) (2.9) 6.6 1.5 (13.1)
------ ------ ----- ----- ------ ------
Income (loss) before
earnings of affiliated
companies.............. (50.2) (4.9) 10.9 1.8 (0.2) (42.6)
Equity in earnings of
affiliated companies,
net.................... 7.6 12.5 1.2 (21.3)
------ ------ ----- ----- ------ ------
Net income.............. $(42.6) $ 7.6 $12.1 $ 1.8 $(21.5) $(42.6)
====== ====== ===== ===== ====== ======
F-43
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
December 31, 1998
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------- ------------ ------------
BALANCE SHEET
ASSETS
Current assets:
Cash and cash
equivalents........... $ 39.7 $ (1.5) $ 6.9 $ 45.1
Accounts receivable,
net................... 58.0 61.2 13.1 132.3
Intercompany
receivables........... 154.5 3.3 $ (157.8) --
Inventories............ 54.4 54.0 12.6 121.0
Deferred income
taxes................. 22.1 (0.1) 22.0
Other current assets... 3.7 2.1 0.9 6.7
-------- ------ ----- --------- ------
Total current
assets.............. 177.9 270.3 36.8 (157.9) 327.1
Investments in
affiliated companies... $381.5 709.3 58.2 0.2 (1,149.2) --
Property, plant and
equipment, net......... 80.6 75.6 26.7 182.9
Cost in excess of net
assets of acquired
businesses, net........ 34.2 73.1 7.4 114.7
Intercompany notes
receivable............. 260.0 (260.0) --
Other assets............ 39.5 2.3 2.3 44.1
------ -------- ------ ----- --------- ------
Total Assets......... $381.5 $1,041.5 $739.5 $73.4 $(1,567.1) $668.8
====== ======== ====== ===== ========= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and
current maturities of
long-term debt......... $ 0.3 $ 0.2 $ 0.2 $ 0.7
Accounts payable....... 14.5 11.6 4.3 30.4
Intercompany
payables.............. $ 24.3 133.5 $ (157.8) --
Accrued expenses....... 2.6 41.6 13.2 6.4 63.8
Deferred income
taxes................. 0.1 (0.1) --
------ -------- ------ ----- --------- ------
Total current
liabilities......... 26.9 189.9 25.0 11.0 (157.9) 94.9
Long-term debt,
exclusive of current
maturities............. 159.5 2.1 161.6
Intercompany notes
payable................ 259.9 0.1 (260.0) --
Deferred income taxes,
exclusive of current
portion................ 12.0 1.0 13.0
Other liabilities....... 38.7 5.3 0.7 44.7
------ -------- ------ ----- --------- ------
Total liabilities.... 26.9 660.0 32.4 12.8 (417.9) 314.2
Stockholders' equity.... 354.6 381.5 707.1 60.6 (1,149.2) 354.6
------ -------- ------ ----- --------- ------
Total Liabilities and
Stockholders'
Equity.............. $381.5 $1,041.5 $739.5 $73.4 $(1,567.1) $668.8
====== ======== ====== ===== ========= ======
F-44
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Nine Months Ended September 30, 1998
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------- ------------ ------------
STATEMENT OF INCOME
Sales................... $ 366.7 $237.8 $123.2 $(96.3) $ 631.4
Cost of sales........... 268.7 174.8 89.0 (95.4) 437.1
------- ------ ------ ------ -------
Gross profit............ 98.0 63.0 34.2 (0.9) 194.3
Selling, general and
administrative
expenses............... $ 1.2 52.2 30.9 25.9 110.2
Merger expenses......... 0.1 0.1
------ ------- ------ ------ ------ -------
Income (loss) from
operations............. (1.3) 45.8 32.1 8.3 (0.9) 84.0
Interest expense........ (20.8) (0.1) (0.1) 10.2 (10.8)
Interest income......... 1.1 10.5 0.3 (10.2) 1.7
Other income (expense),
net.................... 0.3 0.4 (0.4) 0.3
------ ------- ------ ------ ------ -------
Income (loss) before
income taxes........... (1.3) 26.4 42.9 8.1 (0.9) 75.2
Provision (benefit) for
income taxes........... (0.5) 9.1 16.3 3.6 28.5
------ ------- ------ ------ ------ -------
Income (loss) before
extraordinary loss and
earnings of affiliated
companies.............. (0.8) 17.3 26.6 4.5 (0.9) 46.7
Extraordinary loss on
repurchase of debt,
net.................... (2.0) (2.0)
Equity in earnings of
affiliated companies,
net 45.5 30.2 3.0 (78.7) --
------ ------- ------ ------ ------ -------
Net income.............. $ 44.7 $ 45.5 $ 29.6 $ 4.5 $(79.6) $ 44.7
====== ======= ====== ====== ====== =======
STATEMENT OF CASH FLOWS
Net cash provided by
(used in)
operating activities... $ (0.8) $ 27.9 $ 12.0 $ 5.7 $ (1.0) $ 43.8
------ ------- ------ ------ ------ -------
Cash flows from
investing activities:
Proceeds from sales of
property, plant
and equipment.......... 0.1 0.1
Purchases of property,
plant and equipment.... (8.3) (4.2) (2.4) (14.9)
Acquisition of
businesses............. (16.6) (16.6)
------ ------- ------ ------ ------ -------
Net cash used in
investing activities... -- (24.9) (4.2) (2.3) -- (31.4)
------ ------- ------ ------ ------ -------
Cash flows from
financing activities:
Net reduction in short-
term borrowings........ (0.3) (0.3)
Issuance of long-term
debt................... 149.4 149.4
Reduction of long-term
debt................... (136.8) (0.5) (137.3)
Decrease in restricted
funds.................. 0.4 0.4
Dividends paid.......... (7.9) (1.0) 1.0 (7.9)
Purchase of treasury
stock.................. (16.2) (16.2)
Advances from (to)
affiliated companies... 20.6 (10.5) (10.1) --
Other................... 4.3 4.3
------ ------- ------ ------ ------ -------
Net cash provided by
(used in)
financing activities... 0.8 2.5 (10.1) (1.8) 1.0 (7.6)
------ ------- ------ ------ ------ -------
Net increase (decrease)
in cash and
cash equivalents....... -- 5.5 (2.3) 1.6 -- 4.8
Cash and cash
equivalents at
beginning of period.... 2.2 (1.6) 4.2 4.8
------ ------- ------ ------ ------ -------
Cash and cash
equivalents at end of
period................. $ -- $ 7.7 $ (3.9) $ 5.8 $ -- $ 9.6
====== ======= ====== ====== ====== =======
F-45
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Three Months Ended September 30, 1998
Blount
International, Blount, Guarantor Non-Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------- ------------ ------------
STATEMENT OF INCOME
Sales................... $118.8 $100.2 $40.4 $(32.8) $226.6
Cost of sales........... 88.1 71.6 28.6 (32.4) 155.9
------ ------ ----- ------ ------
Gross profit............ 30.7 28.6 11.8 (0.4) 70.7
Selling, general and
administrative
expenses............... $ 0.1 16.0 12.0 8.9 37.0
Merger expenses......... 0.1 0.1
----- ------ ------ ----- ------ ------
Income (loss) from
operations............. (0.2) 14.7 16.6 2.9 (0.4) 33.6
Interest expense........ (7.8) 3.7 (4.1)
Interest income......... 0.6 3.9 0.1 (3.7) 0.9
Other income (expense),
net.................... 0.1 0.1 (0.1) 0.1
----- ------ ------ ----- ------ ------
Income (loss) before
income taxes........... (0.2) 7.6 20.6 2.9 (0.4) 30.5
Provision (benefit) for
income taxes........... (0.1) 2.3 7.8 1.3 11.3
----- ------ ------ ----- ------ ------
Income (loss) before
earnings of affiliated
companies.............. (0.1) 5.3 12.8 1.6 (0.4) 19.2
Extraordinary loss on
repurchase of debt,
net.................... (2.0) (2.0)
Equity in earnings of
affiliated companies,
net.................... 17.3 14.0 1.0 (32.3) --
----- ------ ------ ----- ------ ------
Net income.............. $17.2 $ 17.3 $ 13.8 $ 1.6 $(32.7) $ 17.2
===== ====== ====== ===== ====== ======
F-46
$325,000,000
[LOGO OF BLOUNT]
13% Senior Subordinated
Notes due 2009
----------
PROSPECTUS
----------
, 2000
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware provides
that Blount International has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) against the expenses
(including attorney's fees), judgments, fines or amounts paid in settlement
actually and reasonably incurred by them in connection with the defense of any
action by reason of being or having been directors or officers, if such person
shall have acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding; provided that such person had no reasonable
cause to believe his conduct was unlawful, except that, if such action shall be
in the right of the corporation, no such indemnification shall be provided as
to any claim, issue or matter as to which such person shall have been judged to
have been liable to the corporation unless and to the extent that the Court of
Chancery of the State of Delaware, or any court in such suit or action was
brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses as such court shall deem proper.
Blount International's by-laws provide that Blount International shall
indemnify, and in connection with such indemnification may advance expenses to,
any person who is or was a director, officer, employee or agent of Blount
International, and any person who is or was serving at the request of Blount
International as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent provided by law, including without limitation the General
Corporation Law of the State of Delaware. If the amount, extent, or quality of
indemnification permitted by law should be in any way restricted after the
adoption of the by-laws, Blount International shall indemnify such persons to
the fullest extent permitted by law as or in effect at the time of the
occurrence of the omission or the act giving rise to the claimed liability with
respect to which indemnification is sought. The indemnification and advancement
of expenses pursuant to the by-laws shall be in addition to, and not exclusive
of, any other right that the person seeking indemnification may have under the
certificate of incorporation, any separate contract or agreement or applicable
law.
Blount International's by-laws further provide that Blount International may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Blount International, or any person who
is or was serving at the request of Blount International as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprises, against any liability asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not Blount International would have the
power to indemnify such person against such liability under applicable law.
Blount International's by-laws further provide that any right to
indemnification or advancement of expenses shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors, administrators and personal representatives of
such a person.
II-1
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit Incorporation
Number Description of Document by Reference
------- ----------------------- -------------
2.1 Agreement and Plan of Merger and Recapitalization, **
dated as of April 18, 1999, between Blount
International, Inc. and Red Dog Acquisition, Corp.
2.2 Joint Proxy Statement/Prospectus dated July 15, 1999 @
2.3 Stock Purchase Agreement, dated November 4, 1997, by @@
and among Blount, Inc., Hoffman Enclosures, Inc.,
Pentair, Inc., and Federal-Hoffman, Inc. (all
schedules and certain exhibits omitted except for
Exhibits E and J). Blount International, Inc. agrees
to furnish the Commission with a copy of all schedules
and schedules omitted from the foregoing Stock
Purchase Agreement upon its request.
2.4 Agreement and Plan of Merger, dated as of November 13, ++
1995, by and among Simmons Outdoor Corporation, S.O.C.
Corporation and Blount, Inc.
3.1 Post-Merger Restated Certificate of Incorporation of #
Blount International, Inc.
3.2 Post-Merger By-laws of Blount International, Inc. ##
3.3 Certificate of Incorporation of Blount, Inc. +
3.4 The Amended By-laws of Blount, Inc. *
4.1 Indenture between Blount, Inc., as Issuer, Blount *
International, Inc., as Guarantor and La Salle
National Bank, as Trustee relating to the $150 million
of 7.0% Senior Notes
4.2 Indenture between Blount, Inc., as Issuer, Blount v
International, Inc., BI Holdings Corp., Benjamin F.
Shaw Company, BI, L.L.C., Blount Development Corp.,
Omark Properties, Inc., 4520 Corp., Inc., Gear
Products, Inc., Dixon Industries, Inc., Frederick
Manufacturing Corporation, Federal Cartridge Company,
Simmons Outdoor Corporation, Mocenplaza Development
Corp., and CTR Manufacturing, Inc., as Guarantors, and
United States Trust Company of New York, dated as of
August 19, 1999 (including exhibits)
4.3 Registration Rights Agreement by and among Blount, v
Inc., Blount International, Inc., BI Holdings Corp.,
Benjamin F. Shaw Company, BI, L.L.C., Blount
Development Corp., Omark Properties, Inc., 4520 Corp.,
Inc., Gear Products, Inc., Dixon Industries, Inc.,
Frederick Manufacturing Corporation, Federal Cartridge
Company, Simmons Outdoor Corporation, Mocenplaza
Development Corp., CTR Manufacturing, Inc., and Lehman
Brothers Inc., dated as of August 19, 1999
4.4 $500,000,000 Credit Agreement, dated as of August 19, v
1999, among Blount International, Inc., Blount, Inc.,
as Borrower, Lehman Brothers Inc., as Advisor, Lead
Arranger and Book Manager, Lehman Commercial Paper
Inc., as Syndication Agent, Bank of America, N.A., as
Administrative Agent, and certain other banks
4.5 Letter from Richard H. Irving, General Counsel of *
Blount International, Inc.
4.6 Post-Merger Restated Certificate of Incorporation of #
Blount International, Inc. (contained in Exhibit 3.1
hereto)
4.7 Post-Merger By-laws of Blount International, Inc. ##
(contained in Exhibit 3.2 hereto)
4.8 Certificate of Incorporation of Blount, Inc. +
(contained in Exhibit 3.3 hereto)
4.9 The Amended By-laws of Blount, Inc. (contained in *
Exhibit 3.4 hereto)
5.1 Opinion of Cravath, Swaine & Moore //
II-2
Exhibit Incorporation
Number Description of Document by Reference
------- ----------------------- -------------
5.2 Opinion of Richard H. Irving, III, General Counsel of //
Blount International, Inc.
12.1 Computation of ratio of earnings to fixed charges of *
Blount International, Inc.
23.1 Consent of Cravath, Swaine & Moore (contained in //
Exhibit 5.1 hereto)
23.2 Consent of Richard H. Irving, General Counsel of //
Blount International, Inc. (contained in Exhibit 5.2
hereto)
23.3 Consent of PricewaterhouseCoopers LLP *
24.1 Powers of Attorney of the officers and directors of *
Registrants signing this Registration Statement
(included on signature pages hereto)
25.1 Statement of Eligibility and Qualification under the *
Trust Indenture Act of 1939 of the United States Trust
Company of New York, as trustee, on Form T-1
99.1 Form of Letter of Transmittal //
99.2 Form of Notice of Guaranteed Delivery //
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, //
Trust Companies and Other Nominees
99.4 Form of Letter to Clients //
99.5 Form of Guidelines for Certification of Taxpayer //
Identification Number on Substitute Form W-9
- --------
* Filed herewith
** Incorporated by reference to Appendix A to the Proxy Statement-Prospectus
included in the Registration Statement on Form S-4 previously filed by
Blount International, Inc. on July 15, 1999 (Registration No. 333-82973)
@ Incorporated by reference and included in the Registration Statement on Form
S-4 previously filed by Blount International, Inc. on July 15, 1999
(Registration No. 333-82973)
@@ Incorporated by reference to Exhibit 2 to the Current Report on Form 8-K
previously filed by Blount International, Inc. on November 19, 1997
(Commission File No. 001-11549)
# Incorporated by reference to Exhibit A to the Agreement and Plan of Merger
and Recapitalization which is Exhibit 2.1
## Included as Exhibit B to the Agreement and Plan of Merger and
Recapitalization which is Exhibit 2.1
+ Incorporated by reference to Exhibit 3(a) in the Annual Report on Form 10-K
for the year ended February 29, 1996 previously filed by Blount, Inc.
(Commission File No. 1-7002)
++ Incorporated by reference to Exhibit (c)(1) in the Schedule 14D-1 and
Schedule 13D, previously filed by Blount International, Inc. on November 17,
1995 (Commission File No. 5-44516)
v Incorporated by reference to Exhibits 4, 4.1 and 4.2 to the Form 10-Q for
the quarter ended September 30, 1999, previously filed by Blount
International, Inc. (Commission File No. 001-11549)
// To be filed by amendment
II-3
Item 22. Undertakings
Each of the undersigned Registrants hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions described under Item 20 above, 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 of 1933 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 against the
Registrant 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 of 1933 and will
be governed by the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes (i) to respond to
requests for information that are incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11, or 13 of Form S-4, 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 undertaking also includes information
in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
Each of the undersigned Registrants 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.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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 initial bona fide offering thereof.
Each of the undersigned Registrants hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a 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
undersigned 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.
Each of the undersigned Registrants hereby undertakes that every prospectus:
(i) that is filed pursuant to the immediately preceding paragraph or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 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-4
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 Montgomery, State of
Alabama, on this 10th day of December, 1999.
Blount, Inc.,
by:
/s/ Harold E. Layman
-----------------------------------
Name: Harold E. Layman
Title: Executive Vice-President-
Finance and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ John M. Panettiere Chairman of the
- ------------------------------------- Board, President and
John M. Panettiere Chief Executive
Officer (Principal
Executive Officer)
/s/ Harold E. Layman Executive Vice-
- ------------------------------------- President-Finance,
Harold E. Layman Chief Financial
Officer and Director
(Principal Financial
Officer)
/s/ Rodney W. Blankenship Vice-President-
- ------------------------------------- Controller
Rodney W. Blankenship (Principal
Accounting Officer)
/s/ Alan L. Magdovitz Director
- -------------------------------------
Alan L. Magdovitz
/s/ Eliot M. Fried Director
- -------------------------------------
Eliot M. Fried
/s/ E. Daniel James Director
- -------------------------------------
E. Daniel James
II-5
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 Montgomery, State of
Alabama, on this 10th day of December, 1999.
Blount International, Inc.,
by: /s/ Harold E. Layman
-----------------------------------
Name: Harold E. Layman
Title: Executive Vice-President-
Finance and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ John M. Panettiere Chairman of the
- ------------------------------------- Board, President and
John M. Panettiere Chief Executive
Officer (Principal
Executive Officer)
/s/ Harold E. Layman Executive Vice-
- ------------------------------------- President-Finance,
Harold E. Layman Chief Financial
Officer and Director
(Principal Financial
Officer)
/s/ Rodney W. Blankenship Vice-President-
- ------------------------------------- Controller
Rodney W. Blankenship (Principal
Accounting Officer)
/s/ Alan L. Magdovitz Director
- -------------------------------------
Alan L. Magdovitz
/s/ Eliot M. Fried Director
- -------------------------------------
Eliot M. Fried
/s/ E. Daniel James Director
- -------------------------------------
E. Daniel James
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 Montgomery, State of
Alabama, on this 10th day of December, 1999.
BI Holdings Corp.,
by: /s/ John M. Panettiere
-----------------------------------
Name: John M. Panettiere
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ John M. Panettiere President and
- ------------------------------------- Director
John M. Panettiere
/s/ Harold E. Layman Vice-President and
- ------------------------------------- Director
Harold E. Layman
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 Portland, State of
Oregon, on this 10th day of December, 1999.
BI, L.L.C.,
by: /s/ L. Daniel Morris, Jr.
-----------------------------------
Name: Blount, Inc.
By: L. Daniel Morris, Jr.
Title: Vice President
by: /s/ Richard H. Irving, III
-----------------------------------
Name: BI Holdings Corp.
By: Richard H. Irving, III
Title: Vice President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
President
- -------------------------------------
James S. Osterman
/s/ Harold E. Layman Vice-President
- -------------------------------------
Harold E. Layman
/s/ Kenneth O. Saito Vice-President
- -------------------------------------
Kenneth O. Saito
/s/ L. Daniel Morris, Jr. Member
- -------------------------------------
Blount, Inc.
By: L. Daniel Morris, Jr.
Title: Vice-President
/s/ Richard H. Irving, III Member
- -------------------------------------
BI Holdings Corp.
By: Richard H. Irving, III
Title: Vice-President
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 Portland, State of
Oregon, on this 10th day of December, 1999.
Omark Properties, Inc.,
by:
-----------------------------------
Name: James S. Osterman
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
- ------------------------------------- President and
James S. Osterman Director
/s/ Harold E. Layman Vice-President and
- ------------------------------------- Director
Harold E. Layman
/s/ Kenneth O. Saito Director
- -------------------------------------
Kenneth O. Saito
II-9
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 Montgomery, State of
Alabama, on this 10th day of December, 1999.
4520 Corp., Inc.,
by: /s/ John M. Panettiere
-----------------------------------
Name: John M. Panettiere
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ John M. Panettiere President and
- ------------------------------------- Director
John M. Panettiere
/s/ Harold E. Layman Vice-President and
- ------------------------------------- Director
Harold E. Layman
II-10
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 Tulsa, State of
Oklahoma, on this 10th day of December, 1999.
Gear Products, Inc.,
by: /s/ Arlin R. Perry
------------------------------------
Name: Arlin R. Perry
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ Arlin R. Perry President and
- ------------------------------------ Director
Arlin R. Perry
/s/ Harold E. Layman Vice-President and
- ------------------------------------ Director
Harold E. Layman
/s/ John M. Panettiere Director
- ------------------------------------
John M. Panettiere
II-11
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 Coffeyville, State of
Kansas, on this 10th day of December, 1999.
Dixon Industries, Inc.,
by: /s/ John P. Mowder
-----------------------------------
Name: John P. Mowder
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ John P. Mowder President and
- ------------------------------------- Director
John P. Mowder
/s/ Harold E. Layman Vice-President
- -------------------------------------
Harold E. Layman
/s/ John M. Panettiere Director
- -------------------------------------
John M. Panettiere
II-12
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 Kansas City, State of
Missouri, on this 10th day of December, 1999.
Frederick Manufacturing Corporation,
by: /s/ Kenneth R. Day
-----------------------------------
Name: Kenneth R. Day
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ Kenneth R. Day President
- -------------------------------------
Kenneth R. Day
/s/ Harold E. Layman Vice-President and
- ------------------------------------- Director
Harold E. Layman
/s/ John M. Panettiere Director
- -------------------------------------
John M. Panettiere
Director
- -------------------------------------
James S. Osterman
II-13
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 Chesterfield, State of
Missouri, on this 10th day of December, 1999.
Federal Cartridge Company,
by: /s/ Gerald W. Bersett
-----------------------------------
Name: Gerald W. Bersett
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ Gerald W. Bersett President and
- ------------------------------------- Director
Gerald W. Bersett
/s/ Harold E. Layman Vice-President and
- ------------------------------------- Director
Harold E. Layman
/s/ Ronald P. Johnson Vice-President
- -------------------------------------
Ronald P. Johnson
/s/ John M. Panettiere Director
- -------------------------------------
John M. Panettiere
/s/ Richard H. Irving, III Director
- -------------------------------------
Richard H. Irving, III
II-14
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 Chesterfield, State of
Missouri, on this 10th day of December, 1999.
Simmons Outdoor Company,
by: /s/ Gerald W. Bersett
-----------------------------------
Name: Gerald W. Bersett
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ Gerald W. Bersett President
- -------------------------------------
Gerald W. Bersett
/s/ Harold E. Layman Vice-President and
- ------------------------------------- Director
Harold E. Layman
/s/ John M. Panettiere Director
- -------------------------------------
John M. Panettiere
/s/ Richard H. Irving, III Director
- -------------------------------------
Richard H. Irving, III
II-15
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 Zebulon, State of North
Carolina, on this 10th day of December, 1999.
CTR Manufacturing, Inc.,
by: /s/ Gerry P. Kirkland
-----------------------------------
Name: Gerry P. Kirkland
Title: President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard H. Irving, III and L. Daniel Morris, Jr., and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
hereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary or advisable to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 10th day of December, 1999.
Signature Title
/s/ Gerry P. Kirkland President
- -------------------------------------
Gerry P. Kirkland
/s/ Harold E. Layman Vice-President
- -------------------------------------
Harold E. Layman
/s/ John M. Panettiere Director
- -------------------------------------
John M. Panettiere
/s/ Donald B. Zorn Director
- -------------------------------------
Donald B. Zorn
/s/ L. Daniel Morris, Jr. Director
- -------------------------------------
L. Daniel Morris, Jr.
II-16
[ALTERNATE COVER FOR MARKET-MAKER PROSPECTUS]
Subject to Completion, Dated December 10, 1999
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus
$325,000,000
[LOGO OF BLOUNT]
13% Senior Subordinated Notes due 2009
- --------------------------------------------------------------------------------
The new, substantially identical 13% Senior Subordinated Notes due 2009 of
Blount, Inc. were issued in exchange for the 13% Senior Subordinated Notes due
2009. Interest is payable on August 1 and February 1 of each year, beginning
February 1, 2000. We refer to the old notes and the new notes collectively as
the notes.
Blount may redeem all or part of these new notes on or after August 1, 2004.
Prior to August 1, 2002, Blount may redeem up to 35% of these new notes from
the proceeds of certain equity offerings. Redemption prices are specified in
this prospectus under "Description of Notes -- Optional Redemption."
These new notes will be unsecured and subordinate to all of our senior debt.
These new notes will be guaranteed by Blount's parent, Blount International,
Inc., and certain of our existing and future subsidiaries on a senior
subordinated basis as specified in this prospectus under "Description of
Notes."
See Risk Factors commencing on page 15 for a discussion of certain factors that
should be considered in connection with an investment in the new notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the new notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus has been prepared for and is to be used by Lehman Brothers Inc.
in connection with offers and sales in market-making transactions of the new
notes. Blount will not receive any of the proceeds of such sales. Lehman
Brothers Inc. may act as principal or agent in such transactions. The new notes
may be offered in negotiated transactions or otherwise.
- --------------------------------------------------------------------------------
Lehman Brothers
, 2000
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
The Recapitalization Transactions
The offering of the old notes was an integral part of a series of
recapitalization transactions which also included: our merger with Red Dog
Acquisition, a subsidiary of Lehman Brothers Merchant Banking Partners; an
equity contribution from Lehman Brothers Merchant Banking Partners and some
members of our senior management; and our borrowings pursuant to our new credit
facilities. The recapitalization transactions were completed simultaneously or
within a short time of each other on August 19, 1999, as described under the
section in this prospectus entitled "The Recapitalization Transactions--The
Merger." Following the closing of the recapitalization transactions, we
registered the new notes as part of an exchange offer in which holders of the
old notes could exchange their unregistered old notes for substantially
identical, registered new notes.
On April 18, 1999, we entered into a merger agreement with Red Dog
Acquisition pursuant to which it was contemplated that we would merge with Red
Dog Acquisition and be the surviving corporation of this merger. The merger
agreement called for all of our issued and outstanding shares of common stock
to be converted into, at the election of the stockholders but subject to
proration, either $30.00 or two shares of the surviving corporation. Lehman
Brothers Merchant Banking Partners and some members of senior management of the
surviving corporation now own approximately 87.6% of the surviving corporation,
with our shareholders prior to the recapitalization owning approximately 12.4%.
Red Dog Acquisition received an equity contribution of approximately $417.5
million from Lehman Brothers Merchant Banking Partners, less the amount of the
equity investments made by members of our senior management, which were
approximately $13.6 million. In addition, Blount entered into new senior
secured credit facilities in an aggregate principal amount of $500.0 million,
which included term loan facilities in an aggregate principal amount of $400.0
million and a $100.0 million revolving credit facility. The term loan
facilities were used to fund payment of the cash consideration in the merger,
to repay a portion of our indebtedness outstanding prior to the consummation of
the recapitalization transactions and to pay the fees and expenses incurred in
connection with all of the recapitalization transactions. The revolving credit
facility was available to provide any additional funding necessary for the
merger and we expect it will continue to be available for general corporate
purposes, including funding our current working capital requirements.
Lehman Brothers Merchant Banking Partners is a $2.0 billion institutional
merchant banking fund focused on investments in established operating
companies.
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
Liquidity--Loss of liquidity may make it difficult for you to sell your new
notes and could result in increased volatility of market prices.
There is no established trading market for the new notes and we cannot
assure you that an active or liquid trading market will develop for them. The
liquidity of any market for the new notes will depend upon the number of
holders of the new notes, our own financial performance, the market for similar
securities, the interest of securities dealers in making a market in the new
notes and other factors. Although it is not obligated to do so, Lehman Brothers
Inc. intends to make a market in the new notes. Any such market-making activity
may be discontinued at any time, for any reason, without notice at the sole
discretion of Lehman Brothers Inc. No assurance can be given as to the
liquidity of or the trading market for the new notes.
Historically, the market for high-yield debt securities, such as the new
notes, has been subject to disruptions that have caused substantial volatility
in the prices of those securities. The trading price of the new notes also
could fluctuate in response to such factors as period-to-period variations in
our operating results, developments in the manufacturing industry in general
and the outdoor products, sporting equipment, and industrial and power
equipment industries in particular, and changes in securities analysts'
recommendations regarding our securities.
Lehman Brothers Inc. may be deemed to be an affiliate of Blount and, as
such, may be required to deliver a prospectus in connection with its market-
making activities in the new notes. Pursuant to the registration rights
agreement, Blount agreed to file and maintain a registration statement that
would allow Lehman Brothers Inc. to engage in market-making transactions in the
new notes. Subject to certain exceptions set forth in the registration rights
agreement, the registration statement will remain effective for as long as
Lehman Brothers Inc. may be required to deliver a prospectus in connection with
market-making transactions in the new notes. Blount has agreed to bear
substantially all the costs and expenses related to such registration
statement.
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the new notes by
Lehman Brothers Inc. in market-making transactions. Blount will not receive any
proceeds from such transactions.
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
THE RECAPITALIZATION TRANSACTIONS
The offering of the old notes was an integral part of a series of
recapitalization transactions which also included our merger with Red Dog
Acquisition, a subsidiary of Lehman Brothers Merchant Banking Partners, an
equity contribution from Lehman Brothers Merchant Banking Partners and some
members of our senior management and our entrance into new credit facilities.
The recapitalization transactions were completed simultaneously or within a
short time of each other, subject to the satisfaction of the conditions
described in this section under the sub-heading entitled "--The Merger."
Following the closing of the recapitalization transactions, we registered the
new notes as part of an exchange offer in which holders of the old notes could
exchange their unregistered old notes for substantially identical, registered
new notes.
The Merger
On April 18, 1999, we entered into a merger agreement with Red Dog
Acquisition, pursuant to which it was contemplated that we would merge with Red
Dog Acquisition and be the surviving corporation of this merger. The merger
agreement called for all of our issued and outstanding shares of common stock
to be converted into, at the election of the stockholders but subject to
proration, either $30.00 or two shares of the surviving corporation. Lehman
Brothers Merchant Banking Partners and some members of senior management of the
surviving corporation now own approximately 87.6% of the surviving corporation,
with our shareholders prior to the recapitalization owning approximately 12.4%.
New Credit Facilities
We entered into new credit facilities with a syndicate of lenders arranged
and syndicated by Lehman Brothers Inc. and Lehman Commercial Paper Inc., with
Bank of America, N.A. as the administrative agent. These new credit facilities
consist of an aggregate principal amount of $500.0 million which includes
senior secured term loan facilities in an aggregate principal amount of $400.0
million and a $100.0 million senior secured revolving credit facility. The term
loan facilities were used to fund the closing of the recapitalization
transactions. The revolving credit facility will be used for general corporate
purposes, including funding our working capital requirements after the closing
of the recapitalization transactions. See "Description of Certain
Indebtedness--New Credit Facilities."
Equity Contribution
Lehman Brothers Merchant Banking Partners contributed approximately $417.5
million to our equity, less the aggregate amount the members of our senior
management invested in us, which was approximately $13.6 million.
Offering of Old Notes
In addition to the new credit facilities and equity contribution described
above, the proceeds of the $325.0 million senior subordinated notes offering
made through the offering memorandum dated August 16, 1999 was used to fund the
recapitalization transactions.
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus is to be used by Lehman Brothers Inc. in connection with
offers and sales of the new notes in market-making transactions effected from
time to time. Lehman Brothers Inc. may act as a principal or agent in such
transactions, including as agent for the counterparty when acting as principal
or as agent for both counterparties, and may receive compensation in the form
of discounts and commissions, including from both counterparties when it acts
as agent for both. Such sales will be made at prevailing market prices at the
time of sale, at prices related thereto or at negotiated prices.
As of the date of this prospectus, affiliates of Lehman Brothers Inc. owned
87.6% of our capital stock. See "Principal Stockholders." Because Lehman
Brothers Inc. may purchase and sell new notes, and because this prospectus may
be used by Lehman Brothers Inc. in connection with future offers and sales of
new notes in market-making transactions effected from time to time, no estimate
can be given as to the number and percentage of new notes that will be held by
Lehman Brothers Inc. upon termination of any such sales. Lehman Brothers Inc.
has informed us that it does not intend to confirm sales of the new notes to
any accounts over which it exercises discretionary authority without the prior
specific written approval of such transactions by the customer.
We have been advised by Lehman Brothers Inc. that, subject to applicable
laws and regulations, Lehman Brothers Inc. currently intends to make a market
in the new notes following completion of the exchange offer. However, Lehman
Brothers Inc. is not obligated to do so and any such market-making may be
interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will develop or be sustained. See "Risk Factors--Liquidity."
Lehman Brothers Inc. has provided us with investment banking services in the
past and may provide such services and financial advisory services to us in the
future. Lehman Brothers Inc. acted as purchaser in connection with the initial
sale of the notes and received customary fees and was reimbursed expenses
incurred in connection therewith. See "Related Party Transactions."
Lehman Brothers Inc. and Blount have entered into a registration rights
agreement with respect to the use by Lehman Brothers Inc. of this prospectus.
Pursuant to such agreement, Blount agreed to bear all registration expenses
incurred under such agreement, and Blount agreed to indemnify Lehman Brothers
Inc. against certain liabilities, including liabilities under the Securities
Act.
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
LEGAL MATTERS
Certain legal matters will be passed upon for us and Blount by Cravath,
Swaine & Moore, New York, New York.
[ALTERNATE PAGE FOR MARKET-MAKER PROSPECTUS]
$325,000,000
[LOGO OF BLOUNT]
13% Senior Subordinated
Notes due 2009
---------
PROSPECTUS
---------
, 2000
Lehman Brothers
EXHIBIT INDEX
Exhibit Incorporation
Number Description of Document by Reference
------- ----------------------- -------------
2.1 Agreement and Plan of Merger and Recapitalization, **
dated as of April 18, 1999, between Blount
International, Inc. and Red Dog Acquisition, Corp.
2.2 Joint Proxy Statement/Prospectus dated July 15, 1999 @
2.3 Stock Purchase Agreement, dated November 4, 1997, by @@
and among Blount, Inc., Hoffman Enclosures, Inc.,
Pentair, Inc., and Federal-Hoffman, Inc. (all
schedules and certain exhibits omitted except for
Exhibits E and J). Blount International, Inc. agrees
to furnish the Commission with a copy of all schedules
and schedules omitted from the foregoing Stock
Purchase Agreement upon its request.
2.4 Agreement and Plan of Merger, dated as of November 13, ++
1995, by and among Simmons Outdoor Corporation, S.O.C.
Corporation and Blount, Inc.
3.1 Post-Merger Restated Certificate of Incorporation of #
Blount International, Inc.
3.2 Post-Merger By-laws of Blount International, Inc. ##
3.3 Certificate of Incorporation of Blount, Inc. +
3.4 The Amended By-laws of Blount, Inc. *
4.1 Indenture between Blount, Inc., as Issuer, Blount *
International, Inc., as Guarantor and La Salle
National Bank, as Trustee relating to the $150 million
of 7.0% Senior Notes
4.2 Indenture between Blount, Inc., as Issuer, Blount v
International, Inc., BI Holdings Corp., Benjamin F.
Shaw Company, BI, L.L.C., Blount Development Corp.,
Omark Properties, Inc., 4520 Corp., Inc., Gear
Products, Inc., Dixon Industries, Inc., Frederick
Manufacturing Corporation, Federal Cartridge Company,
Simmons Outdoor Corporation, Mocenplaza Development
Corp., and CTR Manufacturing, Inc., as Guarantors, and
United States Trust Company of New York, dated as of
August 19, 1999 (including exhibits)
4.3 Registration Rights Agreement by and among Blount, v
Inc., Blount International, Inc., BI Holdings Corp.,
Benjamin F. Shaw Company, BI, L.L.C., Blount
Development Corp., Omark Properties, Inc., 4520 Corp.,
Inc., Gear Products, Inc., Dixon Industries, Inc.,
Frederick Manufacturing Corporation, Federal Cartridge
Company, Simmons Outdoor Corporation, Mocenplaza
Development Corp., CTR Manufacturing, Inc., and Lehman
Brothers Inc., dated as of August 19, 1999
4.4 $500,000,000 Credit Agreement, dated as of August 19, v
1999, among Blount International, Inc., Blount, Inc.,
as Borrower, Lehman Brothers Inc., as Advisor, Lead
Arranger and Book Manager, Lehman Commercial Paper
Inc., as Syndication Agent, Bank of America, N.A., as
Administrative Agent, and certain other banks
4.5 Letter from Richard H. Irving, General Counsel of *
Blount International, Inc.
4.6 Post-Merger Restated Certificate of Incorporation of #
Blount International, Inc. (contained in Exhibit 3.1
hereto)
4.7 Post-Merger By-laws of Blount International, Inc. ##
(contained in Exhibit 3.2 hereto)
4.8 Certificate of Incorporation of Blount, Inc. +
(contained in Exhibit 3.3 hereto)
4.9 The Amended By-laws of Blount, Inc. (contained in *
Exhibit 3.4 hereto)
5.1 Opinion of Cravath, Swaine & Moore //
Exhibit Incorporation
Number Description of Document by Reference
------- ----------------------- -------------
5.2 Opinion of Richard H. Irving, III, General Counsel of //
Blount International, Inc.
12.1 Computation of ratio of earnings to fixed charges of *
Blount International, Inc.
23.1 Consent of Cravath, Swaine & Moore (contained in //
Exhibit 5.1 hereto)
23.2 Consent of Richard H. Irving, General Counsel of //
Blount International, Inc. (contained in Exhibit 5.2
hereto)
23.3 Consent of PricewaterhouseCoopers LLP *
24.1 Powers of Attorney of the officers and directors of *
Registrants signing this Registration Statement
(included on signature pages hereto)
25.1 Statement of Eligibility and Qualification under the *
Trust Indenture Act of 1939 of the United States Trust
Company of New York, as trustee, on Form T-1
99.1 Form of Letter of Transmittal //
99.2 Form of Notice of Guaranteed Delivery //
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, //
Trust Companies and Other Nominees
99.4 Form of Letter to Clients //
99.5 Form of Guidelines for Certification of Taxpayer //
Identification Number on Substitute Form W-9
- --------
* Filed herewith
** Incorporated by reference to Appendix A to the Proxy Statement-Prospectus
included in the Registration Statement on Form S-4 previously filed by
Blount International, Inc. on July 15, 1999 (Registration No. 333-82973)
@ Incorporated by reference and included in the Registration Statement on Form
S-4 previously filed by Blount International, Inc. on July 15, 1999
(Registration No. 333-82973)
@@ Incorporated by reference to Exhibit 2 to the Current Report on Form 8-K
previously filed by Blount International, Inc. on November 19, 1997
(Commission File No. 001-11549)
# Incorporated by reference to Exhibit A to the Agreement and Plan of Merger
and Recapitalization which is Exhibit 2.1
## Included as Exhibit B to the Agreement and Plan of Merger and
Recapitalization which is Exhibit 2.1
+ Incorporated by reference to Exhibit 3(a) in the Annual Report on Form 10-K
for the year ended February 29, 1996 previously filed by Blount, Inc.
(Commission File No. 1-7002)
++ Incorporated by reference to Exhibit (c)(1) in the Schedule 14D-1 and
Schedule 13D, previously filed by Blount International, Inc. on November 17,
1995 (Commission File No. 5-44516)
v Incorporated by reference to Exhibits 4, 4.1 and 4.2 to the Form 10-Q for
the quarter ended September 30, 1999, previously filed by Blount
International, Inc. (Commission File No. 001-11549)
// To be filed by amendment