-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wm6c+tdE/Wf/o/QMQ2AbX5pSW4kxMIVJISqM7QdAhsO7rwT6ovoGHasPWvcsPp+G SIFha28xafkKsoVdOTGsvQ== 0000950152-97-007607.txt : 19971105 0000950152-97-007607.hdr.sgml : 19971105 ACCESSION NUMBER: 0000950152-97-007607 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19971104 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSTECHNOLOGY CORP CENTRAL INDEX KEY: 0000099359 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 954062211 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-2/A SEC ACT: SEC FILE NUMBER: 333-37395 FILM NUMBER: 97707733 BUSINESS ADDRESS: STREET 1: 150 ALLEN RD CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 BUSINESS PHONE: 9089031600 MAIL ADDRESS: STREET 1: 150 ALLEN RD CITY: LIBERTY CORNER STATE: NJ ZIP: 07938 FORMER COMPANY: FORMER CONFORMED NAME: SPACE ORDNANCE SYSTEMS INC DATE OF NAME CHANGE: 19740717 S-2/A 1 TRANSTECHNOLOGY CORPORATION AMENDMENT #1/FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997 REGISTRATION NO. 333-37395 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ AMENDMENT NO. 2 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ TRANSTECHNOLOGY CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 95-4062211 (I.R.S. EMPLOYER IDENTIFICATION NO.) 150 ALLEN ROAD LIBERTY CORNER, NEW JERSEY 07938 (908) 903-1600 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------ GERALD C. HARVEY, ESQ. VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL TRANSTECHNOLOGY CORPORATION 150 ALLEN ROAD LIBERTY CORNER, NEW JERSEY 07938 (908) 903-1600 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------ COPIES TO: F. RONALD O'KEEFE, ESQ. GARY T. JOHNSON, ESQ. HAHN LOESER & PARKS LLP JONES, DAY, REAVIS & POGUE 3300 BP AMERICA BUILDING 77 WEST WACKER 200 PUBLIC SQUARE CHICAGO, ILLINOIS 60601-1692 CLEVELAND, OHIO 44114-2301 (312) 782-3939 (216) 621-0150
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------ If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act") check the following box. [ ] If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1) of this form, 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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________________ . If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________________ . If 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. [ ] ____________________ . If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] CALCULATION OF REGISTRATION FEE
============================================================================================================ PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF SHARES TO TO BE OFFERING PRICE AGGREGATE AMOUNT OF BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ Common Stock 1,265,000 $26.8125 $33,917,812.50 $10,278.13(3) - ------------------------------------------------------------------------------------------------------------
(1) Includes 165,000 shares of Common Stock the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee and calculated in accordance with Rule 457(c) of the Securities Act, using the average of the high and low sales prices for the Common Stock as reported on the New York Stock Exchange on OCTOBER 3, 1997. (3) A registration fee of $10,278.13 was paid by the Registrant on October 8, 1997. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 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 NOVEMBER 4, 1997 PROSPECTUS 1,100,000 SHARES TRANSTECHNOLOGY CORPORATION LOGO COMMON STOCK Of the 1,100,000 shares of common stock ("Common Stock") offered hereby, 1,000,000 shares are being sold by TransTechnology Corporation (the "Company") and 100,000 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders." The Common Stock is traded on the New York Stock Exchange under the symbol "TT." On November 3, 1997, the closing sale price of the Common Stock on the New York Stock Exchange was $27.75 per share. See "Price Range of Common Stock and Dividend Policy." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================ PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) PROCEEDS TO SELLING STOCKHOLDERS - -------------------------------------------------------------------------------------------- Per Share $ $ $ $ - -------------------------------------------------------------------------------------------- Total (3) $ $ $ $ ============================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $500,000. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional 165,000 shares of Common Stock at the Price to Public less the Underwriting Discount solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriting." ------------------ The shares of Common Stock are offered severally by the Underwriters specified herein, subject to receipt and acceptance by them and subject to the right to reject any order, in whole or in part. It is expected that delivery of the shares of Common Stock will be made against payment therefor in Chicago, Illinois on or about November , 1997. ABN AMRO CHICAGO CORPORATION EVEREN SECURITIES, INC. November , 1997 3 [Inside front cover -- photos to be supplied] [6 Photos displaying Company's Products] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and consolidated financial statements, including the related notes thereto, appearing elsewhere and incorporated by reference in this Prospectus. The Company's fiscal year ends March 31; the fiscal years ended March 31, 1995, 1996, 1997 and 1998 are referred to herein as "fiscal 1995," "fiscal 1996," "fiscal 1997" and "fiscal 1998," respectively. Unless otherwise indicated, all information in this Prospectus assumes that the over-allotment option granted to the Underwriters will not be exercised. See "Underwriting." All references in this Prospectus to the "Company" include its consolidated subsidiaries unless the context otherwise indicates. THE COMPANY The Company is a leading worldwide designer and manufacturer of engineered specialty fastener products for niche applications serving a wide range of industrial markets, including automotive and truck, off-highway heavy machinery, machine tools and consumer durables. The Company targets fastener applications that require substantial design and engineering resources. Specialty fastener products include retaining rings, gear-driven band fasteners, assembly fasteners and custom cold-formed parts. In addition, through its Breeze-Eastern division, the Company operates the world's largest manufacturer of performance-critical rescue hoists and cargo hooks used primarily for helicopter rescue and transport applications. In fiscal 1997, the Company's specialty fastener segment accounted for approximately 81% of its net sales. Over five years ago, the Company's current management identified the engineered specialty fastener market as a core business and began repositioning the Company to achieve significant growth in this sector. From fiscal 1993 through fiscal 1997, the Company committed its management and financial resources to successfully acquire and integrate five specialty fastener companies while it divested various unrelated businesses. As a result of these acquisitions and internal growth, net sales and operating income for the specialty fastener segment have grown at a compound annual growth rate of 49% and 44%, respectively, from fiscal 1993 through fiscal 1997. Significant investments in manufacturing efficiency, product development, systems and management have better positioned the Company to take advantage of future growth opportunities. The Company believes that it is the world's largest manufacturer of retaining rings, with operations in the United States ("U.S."), Germany, the United Kingdom ("U.K.") and Brazil. Retaining rings are produced for both the U.S. and international transportation equipment and industrial markets under established trade names such as Seeger(R), Anderton(TM) and Industrial Retaining Ring(TM). Retaining rings are typically engineered to a customer's exacting specifications or industry-wide standards, and are used primarily in transmissions and drive train and braking systems on automobiles, trucks and off-highway equipment. The Company's retaining rings are also used in industrial equipment, computers, photographic equipment, marine equipment and other applications where movement on a shaft must be restricted. The Company believes that its Breeze Industrial Products division ("Breeze Industrial") has one of the broadest lines of gear-driven band fasteners in the world. Under the trade name Breeze(R), the Company markets fastener products for diesel engine, heavy truck, marine and off-highway equipment applications throughout the world. Breeze Industrial is a certified supplier to Caterpillar Inc., Navistar International Corporation and other heavy equipment manufacturers. Breeze Industrial also markets fasteners to retail outlets for use in repair, maintenance and overhaul applications under the trade names Aero-Seal(R), Euro-Seal(R) and Power-Seal(R). The Company believes that its Palnut division ("Palnut") is one of the leading U.S. manufacturers of assembly fasteners. Palnut supplies engineered custom fastening devices, including lock nuts, push-nuts, u-nuts and a variety of single and multi-threaded stainless and high-carbon steel fasteners, primarily to the automotive industry. In addition, assembly fasteners are also used in a broad range of other applications such as in appliances, toys, electronics, lighting, mining and construction equipment. 3 5 TCR Corporation ("TCR"), which the Company acquired on April 17, 1997, designs and manufactures sophisticated externally threaded fastening devices and custom industrial components, utilizing its expertise in cold forming, machining technologies and friction welding. TCR products are used by industrial customers worldwide, primarily in automotive, hydraulic and recreational applications. The Company's Breeze-Eastern division ("Breeze-Eastern") is the world's leading designer and manufacturer of sophisticated helicopter rescue hoists, cargo winches and cargo hooks. These complex engineered systems add significantly to the versatility of an aircraft for a relatively small cost and are used worldwide by military and civilian agencies to complete rescue operations and mission profiles as well as transport cargo. Many of the leading aerospace and defense prime contractors, including Agusta SpA, Bell Helicopter Textron, Boeing Co., Lockheed Martin Corp., McDonnell Douglas Corp., Raytheon Company and Sikorsky Aircraft Corporation, specify the Company's systems as standard equipment on their platforms. Breeze-Eastern also manufactures fixed-wing aircraft cargo winches, weapons handling systems for ground defense platforms, tie-down equipment and tow hook assemblies utilized by helicopters employed in U.S. Navy minesweeping operations. The Company's objectives are to become a premier manufacturer of specialty fastener products and other industrial components used by other manufacturers in the production of their finished goods and to sustain long-term profitable growth. In order to accomplish these objectives, the Company is implementing the following strategies: (i) focus on niche markets which demand proprietary design and engineering, (ii) increase market share in each of its product lines, (iii) develop new proprietary products meeting customer needs, (iv) integrate marketing capabilities to capitalize on cross-marketing opportunities, (v) strive to constantly improve the efficiency and productivity of its operations and (vi) pursue strategic acquisitions to complement existing products, distribution and production capabilities. The Company is incorporated in Delaware. The Company's executive offices are located at 150 Allen Road, Liberty Corner, New Jersey 07938 and its telephone number is (908) 903-1600. THE OFFERING Common Stock offered by the Company............................... 1,000,000 shares Common Stock offered by the Selling Stockholders.................. 100,000 shares(1) Common Stock to be outstanding after this offering................ 6,189,759 shares(2) Use of proceeds................................................... To repay bank indebtedness. New York Stock Exchange symbol.................................... TT
- --------------- (1) Includes 90,000 shares to be issued upon the exercise of options by the Selling Stockholders at the time of the Offering. (2) Excludes, as of October 26, 1997, 380,498 shares issuable upon exercise of outstanding director and employee stock options, of which 200,497 options for shares were immediately exercisable and includes the 90,000 shares to be issued upon the exercise of options by the Selling Stockholders at the time of the Offering. 4 6 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS FISCAL YEAR ENDED MARCH 31, ENDED ----------------------------------------------------------------- ------------------- 1997 JUNE 30, JUNE 29, 1993(1) 1994(1) 1995 1996 1997 PRO FORMA(2) 1996 1997 ------- ------- -------- -------- -------- ------------ -------- -------- STATEMENT OF OPERATIONS DATA: Net sales................. $63,999 $81,873 $101,122 $158,024 $178,684 $202,026 $ 44,640 $ 49,923 Operating income.......... 4,160 9,013 12,103 18,786 20,895 25,038 5,140 5,777 Income from continuing operations.............. 3,323 5,800 7,385 8,508 9,722 10,071 2,097 2,367 Net income................ 5,133 6,884 2,533 7,374 8,788 9,137 1,828 2,265 Earnings per common share: Income from continuing operations............ $ 0.65 $ 1.13 $ 1.45 $ 1.67 $ 1.92 $ 1.99 $ 0.41 $ 0.46 Earnings per common share................. $ 1.01 $ 1.34 $ 0.50 $ 1.45 $ 1.74 $ 1.80 $ 0.36 $ 0.44 Weighted average number of common shares and common share equivalents outstanding............. 5,095 5,143 5,109 5,093 5,064 5,064 5,104 5,186 Dividends per common share................... $ 1.56 $ 0.24 $ 0.26 $ 0.26 $ 0.26 $ 0.26 $ 0.07 $ 0.07 Supplemental earnings per common share(3): Income from continuing operations............ $ 1.84 $ 1.90 $ 0.40 $ 0.44 Earnings per common share................. $ 1.68 $ 1.74 $ 0.35 $ 0.42 Supplemental shares used in computing supplemental earnings per common share........ 5,741 5,741 5,781 5,863
MARCH 31, JUNE 29, 1997 ----------------------- --------------------------- 1997 1997 PRO FORMA(2) ACTUAL AS ADJUSTED(4) -------- ------------ -------- ---------------- BALANCE SHEET DATA: Working capital....................................... $ 59,107 $ 58,609 $ 59,464 $ 60,592 Total assets.......................................... 199,136 241,064 234,677 235,805 Total debt............................................ 73,423 107,579 105,382 79,797 Stockholders' equity.................................. 77,444 77,444 79,140 105,853
THREE MONTHS FISCAL YEAR ENDED MARCH 31, ENDED ----------------------------------------------------------------- ------------------- 1997 JUNE 30, JUNE 29, 1993(1) 1994(1) 1995 1996 1997 PRO FORMA(2) 1996 1997 ------- ------- -------- -------- -------- ------------ -------- -------- OTHER DATA: EBITDA(5)................. $ 7,529 $13,518 $ 17,452 $ 24,813 $ 28,301 $ 32,892 $ 7,060 $ 7,929 Depreciation and amortization............ 3,369 4,505 5,349 6,027 7,406 7,854 1,920 2,152 Capital expenditures...... 5,514 4,973 5,033 6,471 5,477 5,974 1,307 1,748
- --------------- (1) Certain amounts have been reclassified to conform to 1997 presentation. (2) Pro forma data gives effect to the April 17, 1997, acquisition of TCR as if it had occurred on April 1, 1996. (3) Supplemental earnings per share data reflect the historical and pro forma results for the year ended March 31, 1997, and the three months ended June 29, 1997 and June 30, 1996, adjusted to reflect (i) the sale by the Company of 1,000,000 shares of Common Stock offered hereby at an assumed offering price of $27.75 per share and (ii) the application of approximately $17.3 million of the anticipated net proceeds to the reduction of certain bank term indebtedness of the Company as if such debt reduction occurred on April 1, 1996. See "Use of Proceeds." (4) As adjusted to reflect (i) the sale by the Company of 1,000,000 shares of Common Stock offered hereby at an assumed offering price of $27.75 per share, (ii) the proceeds from the 90,000 shares to be issued upon the exercise of options by the Selling Stockholders at the time of the Offering and (iii) the application of approximately $25.6 million of the anticipated net proceeds from the sale of shares by the Company to the reduction of certain bank indebtedness of the Company. See "Use of Proceeds." (5) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization and is not a substitute for net income or cash flow as determined in accordance with generally accepted accounting principles. 5 7 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in this Prospectus or incorporated herein by reference, such as those concerning the Company's business strategy and other statements regarding matters that are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"). Because such forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed below and those set forth herein under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as matters contained elsewhere in this Prospectus and in the documents incorporated by reference herein. The Company undertakes no obligation to release publicly the results of any revisions to such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RISK FACTORS AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE, PRIOR TO MAKING ANY INVESTMENT IN THE COMMON STOCK. RISKS ASSOCIATED WITH ACQUISITION STRATEGY One of the Company's strategies is to expand its operations through acquisitions which may be integrated into or complement existing businesses. In considering candidates for acquisition, after first considering the strategic fit of the target's products or manufacturing processes with those of the Company's existing operations, the Company expects such a target to add to earnings and cash flow, possess a strong management team, present opportunities for profitability improvement through productivity enhancements, expand channels of distribution and offer cross-marketing opportunities. There can be no assurance that the Company will find attractive acquisition candidates. If the Company is unable to make acquisitions, the Company's ability to grow its business could be adversely affected. See "Business -- Acquisition History." In addition, acquisitions involve a number of risks that could adversely affect the Company's business, financial condition, results of operations and cash flow including the diversion of management's attention, the assimilation of the operations and personnel of the acquired companies and the potential loss of key employees. The inability of the Company to successfully integrate acquired businesses into its existing business could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. MANAGEMENT OF GROWTH The Company has experienced rapid growth of its business. Management's ability to support and manage this growth is dependent upon, among other things, the ability to hire, train, motivate and retain personnel, and the quality and flexibility of its internal controls and automated production and reporting systems. The inability to manage its growth effectively could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. INDUSTRY CYCLICALITY The markets in which the Company's products and its customers compete are cyclical and dependent on general economic conditions, prevailing interest rates, consumer confidence and patterns of consumer spending. Economic factors adversely affecting the markets in which the Company's products and its customers compete could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. 6 8 PRODUCT LIFE CYCLES Many products sold by the Company, including its automotive, heavy truck and off-highway products, are application specific and, therefore, have life cycles generally ranging from three to 15 years. Product development cycles of 12 to 18 months requiring substantial design and qualification requirements are customary in the sourcing decisions of original equipment manufacturers ("OEMs"). The inability of the Company to develop new products to replace products whose life cycles come to an end could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. INDUSTRY CONSOLIDATION The automotive, heavy truck and off-highway component supply industries have undergone, and are likely to continue to experience, consolidation, as OEMs seek to reduce costs and reduce their respective supplier and distribution bases. This trend has gained considerable momentum within the automotive industry and many of the Company's commercial and defense customers have also begun to adopt this strategy. As a result, OEMs utilize a smaller number of full-service suppliers than in prior years, each of which supply more content for the platforms or products with which they are associated. The inability of the Company to meet the increasing demands of its customers could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. MAINTAINING QUALIFIED SUPPLIER STATUS The Company has been designated a qualified supplier by certain of its OEM customers with respect to certain of the products that the Company provides them. From time to time, other suppliers in the markets in which the Company competes have lost their qualified supplier status. Loss of qualified supplier status is generally based upon, among other things, problems with delivery, product quality, manufacturing processes or documentation. One of the manufacturing facilities at which a division of the Company produces specialty fasteners was placed on probation on August 5, 1997 for a maximum of 180 days by one of its customers due to delivery issues and no new business will be sourced to the division until such facility regains full qualified supplier status with its customer. The Company has met with the customer and has implemented procedures which it believes will enable it to regain full qualified supplier status. Net sales of products to this customer represented less than 5% of the Company's net sales for fiscal 1997. Although the Company has no reason to believe that it will be placed on probation or lose its qualified supplier status with respect to any other product or customer, there can be no assurance that such an event will not occur. The termination by one or more customers of the Company's qualified supplier status with respect to one or more of the Company's products, which, in the aggregate, accounted for a material portion of the Company's net sales could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS International sales represented approximately 32% of the Company's net sales in fiscal 1997 and international assets accounted for approximately 36% of the Company's assets as of March 31, 1997. International sales are subject to numerous risks, including political and economic conditions, restrictive trade policies of foreign governments and compliance with and changes in foreign and U.S. laws regarding trade and investment. In addition, a significant portion of the Company's revenues and expenses are denominated in currencies other than U.S. dollars. Changes in currency exchange rates and the imposition of restrictions on repatriation of foreign earnings could, therefore, have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Foreign Operations." POSSIBLE ENVIRONMENTAL LIABILITIES The Company has commenced environmental site assessments and clean-up feasibility studies to determine the presence, extent and sources of any environmental contamination at a site in Pennsylvania that 7 9 continues to be owned by the Company although the related business has been sold. Although no governmental action requiring remediation has been taken at this time, the Company is working in cooperation with the relevant state authority and any remedial work required to be performed would be subject to the approval of such authority. A design report for implementation of a portion of a remedy at the Pennsylvania site has been prepared and submitted to the Commonwealth of Pennsylvania. At June 29, 1997, the balance of the Company's clean-up reserve was $2.0 million, which amount is payable over the next several years. In addition, the Company is pursuing recovery of a portion of clean-up costs in litigation with several of its insurance carriers. The Company expects that remediation work at the Pennsylvania site will not be completed before fiscal 2000. The Company also continues to participate in environmental assessments and remediation work at 13 other locations, which include operating facilities, facilities for sale and previously-owned facilities. The Company estimates that its potential cost for corrective action at these sites will not exceed $1.0 million, which amount is payable over the next several years, and has provided for the estimated costs in its accrual for environmental liabilities. In addition, the Company has been named as a potentially responsible party in six environmental proceedings pending in several other states in which it is alleged that the Company was a generator of waste that was sent to landfills and other treatment facilities and, as to several sites, it is alleged that the Company was an owner or operator. Such properties generally relate to businesses that have been sold or discontinued. It is not possible to reliably estimate the costs associated with any remedial work to be performed until studies at these sites have been completed, the scope of work defined and a method of remediation approved by the relevant state authorities, and the costs allocated among the potentially responsible parties. See "Business -- Environmental Matters." REDUCED GOVERNMENT PURCHASES; GOVERNMENT REGULATION The Company, through Breeze-Eastern, is a direct supplier and subcontractor to several manufacturers of products used by the defense industry. Direct sales to the U.S. government constituted approximately 9% of the Company's fiscal 1997 net sales. Direct purchase orders from the government typically are for spare parts or repair needs. In such cases, funding is generally available at the time the purchase order is placed, and the products are delivered on an "as soon as possible" time frame. Many of the Company's other customers are also government contractors and subcontractors who may use the Company's products for military applications. As a result, future reductions in defense budgets or military helicopter procurement could adversely affect the Company. In addition, as a supplier and subcontractor to the U.S. government, the Company is directly and indirectly subject to various federal rules, regulations and orders applicable to government contracts. Although the Company believes that it is in material compliance with all such laws, any future violation could result in civil liability, cancellation or suspension of existing contracts or ineligibility for future contracts or subcontracts funded in whole or in part with federal funds. A violation by the Company of any laws applicable to government contracts could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. COMPETITION The markets in which the Company's businesses compete are highly competitive. Some of the Company's competitors are companies, or divisions or subsidiaries of companies, that are larger and have substantially greater financial, technical and other resources than the Company. Competitive factors generally include design capabilities, product performance, delivery and price. There can be no assurance that the Company's products will be able to successfully compete with the products of such other companies. See "Business -- Products." SHARES ELIGIBLE FOR FUTURE SALE The sale, or availability for sale, of substantial amounts of Common Stock in the public market subsequent to the Offering could adversely affect the prevailing market price of the Common Stock. The Company will have 6,189,759 shares of Common Stock outstanding upon the completion of the Offering, of 8 10 which 484,549 shares, or 7.6%, will be beneficially owned by executive officers and directors of the Company, including the Selling Stockholders. See "Principal and Selling Stockholders." The Company, each of its executive officers and directors and each Selling Stockholder have agreed for a period of 90 days after the date of this Prospectus not to register for sale, sell, offer, contract to sell, grant an option for sale or otherwise dispose of or transfer any capital stock of the Company or any securities convertible into or exchangeable or exercisable for capital stock of the Company, without the prior written consent of ABN AMRO Chicago Corporation, except (i) in the case of the Company, issuances pursuant to the exercise of employee stock options granted under the Company's existing incentive plans and, (ii) in the case of the executive officers and directors and each Selling Stockholder, permitted transfers, gifts and pledges of shares where the donees or pledgees, as the case may be, agree in writing to be bound by the terms of such agreement. Upon the expiration of this period, however, the shares of Common Stock held by the Company's executive officers and directors, including the Selling Stockholders, may be eligible for sale in the public market, subject to compliance with the volume, holding period and other applicable limitations of Rule 144 promulgated under the Securities Act ("Rule 144"). In addition, Dr. Arch C. Scurlock, former Chairman of the Company (who is 77 years old), beneficially owns 1,146,740 shares of Common Stock, and will have the power to vote 18.5% of the shares of the outstanding Common Stock upon completion of the Offering. Dr. Scurlock may have the ability to sell all of such shares of Common Stock in the public market without registration under the Securities Act and without regard to any of the limitations of Rule 144. The shares of Common Stock that Dr. Scurlock beneficially owns are not subject to any agreements with the Underwriters or the Company restricting their sale. PRODUCT LIABILITY EXPOSURE The Company faces an inherent risk of exposure to product liability claims in the event that the failure of its products results in personal injury or death, and there can be no assurance that the Company will not experience any material product liability losses in the future. In addition, if any of the Company's products proves to be defective, the Company may be required to participate in a recall involving such products. Although the Company maintains various types of insurance coverage with respect to various products and applications, there can be no assurance that such coverage will be adequate for liabilities ultimately incurred or that it will continue to be available on terms acceptable to the Company. A successful claim in excess of available insurance coverage, or a requirement to participate in any product recall, could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. LABOR RELATIONS Approximately 35% of the Company's employees in North America are covered by collective bargaining or similar agreements that expire at various times over the next several years. In addition, approximately 40% of the Company's employees overseas are members of trade unions or the local equivalent. A significant portion of the hourly employees of North American OEMs and the employees of other customers of the Company who sell to OEMs, are represented by the United Automotive, Aerospace and Agricultural Implement Workers of America under collective bargaining agreements. A prolonged work stoppage or strike at any of the Company's U.S. or foreign manufacturing facilities or any of the Company's significant customers could have a material adverse effect on the Company's business, financial condition, results of operations and cash flow. See "Business -- Employees." 9 11 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Common Stock offered hereby (excluding the $1.1 million proceeds from the sale of 90,000 shares to be issued upon the exercise of options by the Selling Stockholders at the time of the Offering) are estimated to be $25.6 million ($29.9 million if the Underwriters' over-allotment option is exercised in full), assuming a sale price of $25.59 per share after deducting the underwriting discount and estimated offering expenses payable by the Company. The Company will not receive any of the net proceeds from the sale of the Common Stock offered hereby by the Selling Stockholders. The Company will use the net proceeds to repay certain outstanding indebtedness under its senior secured bank credit facility (the "Credit Facility"). As of October 26, 1997, the Company had (i) $8.6 million of indebtedness outstanding under the revolving credit line of the Credit Facility maturing on March 31, 2002 (the "Revolver"), (ii) $9.7 million of indebtedness under the international credit lines of the Credit Facility maturing on March 31, 2002 (the "International Lines of Credit"), (iii) $55.5 million of indebtedness outstanding under the term loan of the Credit Facility maturing on March 31, 2002 ("Term Loan A") and (iv) $24.0 million of indebtedness outstanding under the term loan of the Credit Facility maturing on June 30, 2002 ("Term Loan B"). The allocation of the net proceeds for repayment of outstanding indebtedness under the Credit Facility is subject to approval of the lenders as to priority; however, the Company currently intends to use the net proceeds to repay $8.3 million, $8.6 million and $8.7 million of indebtedness outstanding under the Revolver, Term Loan A and Term Loan B, respectively. Under the terms of the Credit Facility, the holders of Term Loan B can refuse prepayment. If such prepayment is refused, the allocation of the $8.7 million that the Company currently intends to use to repay indebtedness outstanding under Term Loan B will be applied to repayment of indebtedness outstanding under the Credit Facility pursuant to the terms thereof. As of October 26, 1997, the interest rate on indebtedness under the Revolver, the International Lines of Credit, Term Loan A and Term Loan B was 8.0%, 8.5%, 7.5% and 8.9%, respectively. Borrowings under the Credit Facility during fiscal 1998 have been used to fund the acquisition of TCR and for general working capital purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 10 12 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock is listed on the New York Stock Exchange under the symbol "TT." The table below sets forth the quarterly high and low sale prices of the Common Stock on the New York Stock Exchange Composite Tape:
HIGH LOW ---- --- FISCAL YEAR ENDED MARCH 31, 1996: First Quarter................................................... $13 1/2 $10 3/4 Second Quarter.................................................. 14 7/8 12 Third Quarter................................................... 15 1/8 11 7/8 Fourth Quarter.................................................. 15 12 1/2 FISCAL YEAR ENDED MARCH 31, 1997: First Quarter................................................... $19 3/4 $14 7/8 Second Quarter.................................................. 18 5/8 17 3/8 Third Quarter................................................... 19 7/8 18 Fourth Quarter.................................................. 22 7/8 19 5/8 FISCAL YEAR ENDING MARCH 31, 1998: First Quarter................................................... $21 3/8 $19 5/8 Second Quarter.................................................. 26 1/2 22 3/4 Third Quarter (through November 3, 1997)........................ 29 26 3/8
On November 3, 1997, the closing sale price of the Common Stock on the New York Stock Exchange was $27.75 per share. At the close of business on October 26, 1997, there were approximately 2,119 holders of record of Common Stock. During each of the fiscal quarters referenced in the above table, through and including the second quarter of fiscal 1998, the Company has paid a cash dividend of $0.065 per share. The Credit Facility permits quarterly dividend payments which cannot exceed 25% of the Company's cumulative net income in each fiscal year. The Company has paid quarterly cash dividends on the Common Stock since December 1992. Any future determination as to the payment of dividends, subject to Credit Facility restrictions, will be made at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deem relevant. It is the intention of the Board of Directors that the Company will pay quarterly cash dividends on the Common Stock. However, there can be no assurance that any such dividends will be paid by the Company or that such dividends will not be reduced or eliminated in the future. 11 13 CAPITALIZATION The following table sets forth the consolidated short-term debt and capitalization of the Company at June 29, 1997, and as adjusted to reflect the sale of the Common Stock offered hereby and the application of the net proceeds therefrom. See "Use of Proceeds." The capitalization table should be read in conjunction with the Company's Consolidated Financial Statements, the related notes thereto and other financial information included in this Prospectus and incorporated by reference herein.
JUNE 29, 1997 --------------------------- ACTUAL AS ADJUSTED(1) -------- -------------- (IN THOUSANDS) Short-term debt, including current maturities of long-term debt.... $ 10,004 $ 10,004 ======== ======== Long-term debt, less current maturities............................ $ 95,378 $ 69,793 -------- -------- Stockholders' equity: Preferred stock -- authorized, 300,000 shares; none issued....... -- -- Common stock -- authorized, 14,700,000 shares of $.01 par value; 5,319,759 shares issued and outstanding; and 6,409,759 shares issued and outstanding, as adjusted........................... 54 65 Additional paid-in capital......................................... 46,800 73,502 Retained earnings.................................................. 38,876 38,876 Other stockholders' equity(2)...................................... (2,602) (2,602) -------- -------- 83,128 109,841 Less treasury stock, at cost (291,719 shares)...................... (3,988) (3,988) -------- -------- Total stockholders' equity............................... 79,140 105,853 -------- -------- Total capitalization............................................... $174,518 $175,646 ======== ========
- --------------- (1) As adjusted to reflect (i) the sale by the Company of 1,000,000 shares of Common Stock offered hereby at an assumed offering price of $27.75 per share, (ii) the proceeds from the 90,000 shares to be issued upon the exercise of options by the Selling Stockholders at the time of the Offering and (iii) the application of approximately $25.6 million of the anticipated net proceeds from the sale of shares by the Company to reduce certain bank indebtedness of the Company. See "Use of Proceeds." (2) Primarily consists of cumulative foreign currency translation adjustment and unrealized investment holding losses. 12 14 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below as of March 31, 1997 and 1996 and for each of the three years in the period ended March 31, 1997, are derived from the Company's Consolidated Financial Statements, which have been audited by Deloitte & Touche LLP, independent certified public accountants. The selected consolidated financial data set forth below at June 30, 1996 and June 29, 1997 and for the three month periods then ended are derived from the unaudited Condensed Consolidated Financial Statements of the Company. The unaudited Condensed Consolidated Financial Statements have been prepared on a consistent basis with the audited Consolidated Financial Statements and in the opinion of management include all adjustments necessary for a fair presentation of the financial position and results of operations of the Company for the periods covered thereby. The pro forma financial data set forth below for fiscal 1997 is derived from the audited Consolidated Financial Statements of the Company and adjusted to reflect the April 17, 1997 acquisition of TCR as if it had been consummated on April 1, 1996. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the related notes thereto appearing elsewhere in this Prospectus.
FISCAL YEAR ENDED MARCH 31, THREE MONTHS ENDED ----------------------------------------------------------------- ------------------------- 1997 JUNE 30, JUNE 29, 1993(1) 1994(1) 1995 1996 1997 PRO FORMA(2) 1996 1997 ------- ------- -------- -------- -------- ------------ -------- -------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Net sales: Specialty fastener products... $28,998 $52,319 $ 71,103 $127,487 $144,197 $ 167,539 $ 35,499 $ 41,155 Rescue hoist and cargo hook products.................... 35,001 29,554 30,019 30,537 34,487 34,487 9,141 8,768 ------- -------- -------- -------- -------- -------- -------- ------- Total net sales................. 63,999 81,873 101,122 158,024 178,684 202,026 44,640 49,923 Cost of sales................... 44,676 57,887 71,968 107,426 122,480 138,362 30,939 34,575 ------- -------- -------- -------- -------- -------- -------- ------- Gross profit.................... 19,323 23,986 29,154 50,598 56,204 63,664 13,701 15,348 General, administrative and selling expenses.............. 15,163 14,973 17,051 31,812 35,309 38,626 8,561 9,571 ------- -------- -------- -------- -------- -------- -------- ------- Operating income................ 4,160 9,013 12,103 18,786 20,895 25,038 5,140 5,777 Interest (income) expense, net........................... (435) 448 2,071 5,306 5,595 8,696 1,541 1,733 Royalty and other (income) expense....................... 310 (295) (810) (820) (1,320) (1,340) (17) (3) ------- -------- -------- -------- -------- -------- -------- ------- Income from continuing operations before income taxes......................... 4,285 8,860 10,842 14,300 16,620 17,682 3,616 4,047 Income taxes.................... 962 3,060 3,457 5,792 6,898 7,611 1,519 1,680 ------- -------- -------- -------- -------- -------- -------- ------- Income from continuing operations.................... 3,323 5,800 7,385 8,508 9,722 10,071 2,097 2,367 Gain/(loss) from discontinued operations.................... 1,810 1,084 (4,852) (1,134) (934) (934) (269) (102) ------- -------- -------- -------- -------- -------- -------- ------- Net income...................... $ 5,133 $ 6,884 $ 2,533 $ 7,374 $ 8,788 $ 9,137 $ 1,828 $ 2,265 ======= ======== ======== ======== ======== ======== ======== ======= Earnings per common share: Income from continuing operations.................. $ 0.65 $ 1.13 $ 1.45 $ 1.67 $ 1.92 $ 1.99 $ 0.41 $ 0.46 Income (loss) from discontinued operations..... 0.36 0.21 (0.95) (0.22) (0.18) (0.18) (0.05) (0.02) ------- -------- -------- -------- -------- -------- -------- ------- Earnings per common share..... $ 1.01 $ 1.34 $ 0.50 $ 1.45 $ 1.74 $ 1.80 $ 0.36 $ 0.44 ======= ======== ======== ======== ======== ======== ======== ======= Weighted average number of common shares and common share equivalents outstanding....... 5,095 5,143 5,109 5,093 5,064 5,064 5,104 5,186 Dividends per common share...... $ 1.56 $ 0.24 $ 0.26 $ 0.26 $ 0.26 $ 0.26 $ 0.07 $ 0.07 Supplemental earnings per common share(3): Income from continuing operations.................. $ 1.84 $ 1.90 $ 0.40 $ 0.44 Earnings per common share..... $ 1.68 $ 1.74 $ 0.35 $ 0.42 Supplemental shares used in computing supplemental earnings per common share..... 5,741 5,741 5,781 5,863
13 15
MARCH 31, ----------------------------------------------------------------- JUNE 29, 1997 1997 ------------------------- 1993(1) 1994(1) 1995 1996 1997 PRO FORMA(2) ACTUAL AS ADJUSTED(4) ------- ------- -------- -------- -------- ------------ -------- -------------- BALANCE SHEET DATA: Working capital................. $43,488 $53,846 $ 53,062 $ 57,348 $ 59,107 $ 58,609 $ 59,464 $ 60,592 Total assets.................... 97,763 125,857 129,396 199,367 199,136 241,064 234,677 235,805 Total debt...................... 12,425 34,634 40,377 78,591 73,423 107,579 105,382 79,797 Stockholders' equity............ 61,214 65,953 64,502 72,470 77,444 77,444 79,140 105,853
FISCAL YEAR ENDED MARCH 31, THREE MONTHS ENDED ----------------------------------------------------------------- ------------------------- 1997 JUNE 30, JUNE 29, 1993 1994 1995 1996 1997 PRO FORMA(2) 1996 1997 ------- ------- -------- -------- -------- ------------ -------- -------------- OTHER DATA: EBITDA (5)...................... $ 7,529 $13,518 $ 17,452 $ 24,813 $ 28,301 $ 32,892 $ 7,060 $ 7,929 Depreciation and amortization... 3,369 4,505 5,349 6,027 7,406 7,854 1,920 2,152 Capital expenditures............ 5,514 4,973 5,033 6,471 5,477 5,974 1,307 1,748
- --------------- (1) Certain amounts have been reclassified to conform to 1997 presentation. (2) Pro forma data gives effect to the April 17, 1997 acquisition of TCR as if it had occurred on April 1, 1996. (3) Supplemental earnings per share data reflect the historical and pro forma values for fiscal 1997 and the three months ended June 29, 1997 and June 30, 1996 adjusted to reflect (i) the sale by the Company of 1,000,000 shares of Common Stock offered hereby at an assumed offering price of $27.75 per share and (ii) the application of approximately $17.3 million of the anticipated net proceeds to the reduction of certain bank term indebtedness of the Company as if such debt reductions occurred on April 1, 1996. See "Use of Proceeds." (4) As adjusted to reflect (i) the sale by the Company of 1,000,000 shares of Common Stock offered hereby at an assumed offering price of $27.75 per share, (ii) the proceeds from options exercisable into 90,000 shares by the Selling Stockholders and (iii) the application of approximately $25.6 million of the anticipated net proceeds to the reduction of certain bank indebtedness of the Company. See "Use of Proceeds." (5) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization and is not a substitute for net income or cash flow as determined in accordance with generally accepted accounting principles. 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Selected Consolidated Financial Data" and the Company's Consolidated Financial Statements, including the related notes thereto, appearing elsewhere in this Prospectus. All statements other than statements of historical facts included in the following discussion regarding the Company's financial position, business strategy, and plans of management for future operations are forward-looking statements within the meaning of Section 27A of the Securities Act. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. GENERAL The Company is a leading worldwide designer and manufacturer of engineered specialty fastener products for niche applications serving a wide range of industrial markets, including automotive and truck, off-highway heavy machinery, machine tools and consumer durables. The Company targets fastener applications that require substantial design and engineering resources. Specialty fastener products include retaining rings, gear-driven band fasteners, assembly fasteners and custom cold-formed parts. In addition, through Breeze-Eastern, the Company operates the world's largest manufacturer of performance-critical rescue hoists and cargo hooks used primarily for helicopter rescue and transport applications. Since 1992, the Company has followed a strategy to be the market leader in providing engineered specialty fastener products for niche applications in markets such as automotive, heavy truck and industrial machinery. During this period of time, the Company has completed five acquisitions of specialty fastener businesses while simultaneously divesting unrelated businesses. The Company has accounted for each of its acquisitions under the purchase method of accounting and, accordingly, the operating results of each acquired entity have been included in the Company's results of operations since the date of each acquisition. Due to the magnitude of these acquisitions, results of operations for prior periods are not necessarily comparable with, or indicative of, results of operations for current or future periods. ACQUISITIONS In August 1993, the Company acquired the assets and business of the Palnut division of TRW, Inc. for $20.5 million in cash. Palnut is a manufacturer of stamped fasteners and for the twelve months ended June 30, 1993, had sales of approximately $26.1 million. In August 1994, the Company acquired all of the capital stock of Industrial Retaining Ring Company and its affiliated companies ("IRR") for $15.3 million in cash. IRR is a manufacturer of retaining rings and circlips used primarily in the heavy equipment and industrial machinery industries and for the twelve months ended June 30, 1994, had sales of approximately $8.3 million. In June 1995, the Company acquired the Seeger Group of companies ("Seeger") from a unit of AB SKF of Goteborg, Sweden for $46.8 million, including the assumption of trade debt and accrued expenses. Seeger is a manufacturer of circlips, snap rings and retaining rings primarily used in the production of automobiles, trucks, industrial equipment and appliances. For the twelve months ended December 31, 1994, Seeger had sales of approximately $59.1 million. In June 1996, the Company acquired the Pebra hose clamp business ("Pebra") from Pebra GmbH Paul Braun i.K for $3.0 million in cash. Pebra is a manufacturer of hose clamps primarily for use in the production of heavy trucks in Europe. For the twelve months ended December 31, 1995, Pebra had sales of approximately $6.9 million. On April 17, 1997, the Company acquired all of the outstanding stock of TCR for $32.6 million in cash, plus other contingent consideration. TCR designs and manufactures externally threaded, cold-formed fasteners and related products for the automotive, heavy vehicle, marine and industrial markets. For the twelve months ended December 31, 1996, TCR had sales of approximately $23.3 million. 15 17 The Company continues to seek out acquisitions in industries complementary to those where the Company already operates. In considering candidates for acquisition, after first considering the strategic fit of the target's products or manufacturing processes with those of the Company's existing operations, the Company expects such a target to add to earnings and cash flow, possess a strong management team, present opportunities for profitability improvement through productivity enhancements, expand channels of distribution and offer cross-marketing opportunities. DISCONTINUED OPERATIONS In fiscal 1996, the Company sold the U.S. and European units of its computer graphics service operations in two separate transactions to separate buyers. These businesses operated under the name TransTechnology Systems & Services and were classified as discontinued operations in fiscal 1995. The sale of the U.S. portion for approximately $700,000 in cash and $565,000 in notes receivable was approximately equal to book value. The sale of the European unit for $100,000 in cash and $155,000 in notes receivable resulted in an after-tax gain on disposal of approximately $144,000. Additional after-tax disposal costs of $174,000 were recorded in fiscal 1997 in connection with these sales. Also during fiscal 1996, the Company sold its electronics division for approximately $4.4 million in cash and $9.6 million in notes receivable. The sale of this operation resulted in an after-tax gain on disposal of approximately $185,000. During fiscal 1995, the Company sold substantially all of the assets of its chaff products operation for approximately $6.7 million in cash. The sale of this operation resulted in an after-tax loss on disposal of approximately $387,000. Additional after-tax disposal costs of approximately $202,000 were recorded in fiscal 1996 in connection with this sale. The Company retained the chaff avionics product line and negotiated its sale separately in fiscal 1996 for approximately $300,000 in cash and $700,000 in notes receivable, resulting in an after-tax gain on disposal of approximately $427,000. During the fourth quarter of fiscal 1996, the Company recorded an after-tax charge of $409,000 to record the anticipated loss on the sale of the facility formerly used by this operation and which was subsequently sold in the first quarter of fiscal 1997. Additional after-tax disposal costs of $99,000 were recorded in fiscal 1997 related to the final sale of this facility. Additional after-tax costs of $100,000, $641,000, $743,000 and $1.9 million were recorded in the first quarter of fiscal 1998 and the fiscal years 1997, 1996 and 1995, respectively. These charges were in connection with previously sold businesses and discontinued operations. These additional costs primarily represent environmental and legal matters. FOREIGN OPERATIONS Net sales produced by the Company's non-U.S. businesses for the three months ended June 29, 1997 and the fiscal years 1997 and 1996 were $14.6 million, $58.0 million and $45.2 million, respectively. These net sales represented 29.3%, 32.5% and 28.6% of total net sales, respectively. The Company's foreign operations are located in Europe and Brazil. Prior to fiscal 1996, the Company had no significant foreign operations. Additionally, the U.S. operations had net export sales for the three months ended June 29, 1997 and the fiscal years 1997, 1996 and 1995 of $5.8 million, $19.8 million, $16.9 million and $15.4 million, respectively. The Company enters into contracts to hedge foreign currency denominated debt instruments and certain foreign currency purchase commitments. These contracts are used to minimize exposure and to reduce risk from exchange rate fluctuations in the regular course of the Company's worldwide business. The Company does not, however, hedge the translation of foreign currency based financial statements to the U.S. dollar equivalents. 16 18 RESULTS OF OPERATIONS The following table is derived from the Company's Statement of Consolidated Operations for the periods indicated and represents the results of operations as a percentage of total net sales and percentage increase or decrease from the prior period:
INCREASE (DECREASE) FROM PRIOR PERIOD PERCENTAGE OF TOTAL NET SALES -------------------------------- --------------------------------------------------- FISCAL YEARS FISCAL YEAR ENDED MARCH THREE MONTHS ENDED ENDED THREE MONTHS 31, --------------------- MARCH 31, ENDED ------------------------- JUNE 30, JUNE 29, --------------- JUNE 29, 1995 1996 1997 1996 1997 1996 1997 1997 ----- ----- ----- -------- -------- ----- ----- ------------ Net sales: Specialty fastener products....... 70.3% 80.7% 80.7% 79.5% 82.4% 79.3% 13.1% 15.9% Rescue hoist and cargo hook products........................ 29.7 19.3 19.3 20.5 17.6 1.7 12.9 (4.1) ----- ----- ----- ----- ----- ----- ----- ----- Total net sales..................... 100.0 100.0 100.0 100.0 100.0 56.3 13.1 11.8 Cost of sales....................... 71.2 68.0 68.5 69.3 69.3 49.3 14.0 11.8 ----- ----- ----- ----- ----- ----- ----- ----- Gross profit........................ 28.8 32.0 31.5 30.7 30.7 73.6 11.1 12.0 General, administrative and selling expenses.......................... 16.9 20.1 19.8 19.2 19.2 86.6 11.0 11.8 ----- ----- ----- ----- ----- ----- ----- ----- Operating income.................... 12.0 11.9 11.7 11.5 11.6 55.2 11.2 12.4 Interest expense.................... 2.8 4.0 3.8 4.1 4.0 123.1 7.6 9.2 Interest income..................... (0.8) (0.6) (0.7) (0.6) (0.5) 32.9 19.0 (9.7) Royalty and other income............ (0.8) (0.5) (0.7) (0.0) (0.0) 1.2 61.0 (82.4) ----- ----- ----- ----- ----- ----- ----- ----- Income from continuing operations before income taxes............... 10.7 9.0 9.3 8.1 8.1 31.9 16.2 11.9 Income taxes........................ 3.4 3.7 3.9 3.4 3.4 67.5 19.1 10.6 ----- ----- ----- ----- ----- ----- ----- ----- Income from continuing operations... 7.3 5.4 5.4 4.7 4.7 15.2 14.3 12.9 Loss from discontinued operations... 4.8 0.7 0.5 0.6 0.2 (76.6) (17.6) (62.1) ----- ----- ----- ----- ----- ----- ----- ----- Net income.......................... 2.5% 4.7% 4.9% 4.1% 4.5% 191.1% 19.2% 23.9% ===== ===== ===== ===== ===== ===== ===== =====
RECENT DEVELOPMENTS The Company reported preliminary unaudited results of operations for the three months and six months ended September 28, 1997. Net sales for the three months ended September 28, 1997 increased by $6.4 million, or 14.8%, to $50.0 million from $43.6 million for the three months ended September 29, 1996. Specialty fastener products net sales for the three months ended September 28, 1997 increased $5.9 million, or 16.7%, to $41.5 million from $35.6 million for the three months ended September 29, 1996. Rescue hoists and cargo hook products net sales for the three months ended September 28, 1997 increased $497,000, or 6.2%, to $8.5 million from $8.0 million for the three months ended September 29, 1996. Operating income for the three months ended September 28, 1997 increased $1.3 million, or 28.8%, to $5.7 million from $4.4 million for the three months ended September 29, 1996. Specialty fastener products operating income for the three months ended September 28, 1997 increased $1.3 million, or 24.9%, to $6.3 million from $5.1 million for the three months ended September 29, 1996. Rescue hoists and cargo hook products operating income for the three months ended September 28, 1997 increased $384,000, or 27.8%, to $1.8 million from $1.4 million for the three months ended September 29, 1996. Other corporate expenses for the three months ended September 28, 1997 increased $382,000, or 18.5%, to $2.4 million from $2.1 million for the three months ended September 29, 1996. Income from continuing operations for the three months ended September 28, 1997 increased $660,000, or 38.2%, to $2.4 million from $1.7 million for the three months ended September 29, 1996. Net income for the three months ended September 28, 1997 increased $741,000, or 48.7%, to $2.3 million from $1.5 million for the three months ended September 29, 1996. 17 19 Earnings per share from continuing operations for the three months ended September 28, 1997 increased $0.11, or 32.4%, to $0.45 from $0.34 for the three months ended September 29, 1996. Earnings per share for the three months ended September 28, 1997 increased $0.13, or 43.3%, to $0.43 from $0.30 for the three months ended September 29, 1996. Net sales for the six months ended September 28, 1997 increased by $11.7 million, or 13.3%, to $99.9 million from $88.2 million for the six months ended September 29, 1996. Specialty fastener products net sales for the six months ended September 28, 1997 increased $11.6 million, or 16.3%, to $82.7 million from $71.1 million for the six months ended September 29, 1996. Rescue hoists and cargo hook products net sales for the six months ended September 28, 1997 increased $124,000, or 0.7%, to $17.2 million from $17.1 million for the six months ended September 29, 1996. Operating income for the six months ended September 28, 1997 increased $1.9 million, or 20.0%, to $11.4 million from $9.5 million for the six months ended September 29, 1996. Specialty fastener products operating income for the six months ended September 28, 1997 increased $1.7 million, or 15.3%, to $12.4 million from $10.8 million for the six months ended September 29, 1996. Rescue hoists and cargo hook products operating income for the six months ended September 28, 1997 increased $440,000, or 13.3%, to $3.7 million from $3.3 million for the six months ended September 29, 1996. Other corporate expenses for the six months ended September 28, 1997 increased $191,000, or 4.2%, to $4.7 million from $4.5 million for the six months ended September 29, 1996. Income from continuing operations for the six months ended September 28, 1997 increased $930,000, or 24.3%, to $4.8 million from $3.8 million for the six months ended September 29, 1996. Net income for the six months ended September 28, 1997 increased $1.2 million, or 35.2%, to $4.5 million from $3.3 million for the six months ended September 29, 1996. Earnings per share from continuing operations for the six months ended September 28, 1997 increased $0.16, or 21.3%, to $0.91 from $0.75 for the six months ended September 29, 1996. Earnings per share for the six months ended September 28, 1997 increased $0.21, or 31.8%, to $0.87 from $0.66 for the six months ended September 29, 1996. At September 28, 1997 the Company had total assets of $231.0 million compared to $199.1 million at March 31, 1997. At September 28, 1997 the Company had working capital of $55.5 million compared to $59.1 million at March 31, 1997. At September 28, 1997 the Company had total debt of $96.9 million compared to $73.4 million from March 31, 1997. At September 28, 1997 the Company had stockholders' equity of $81.8 million compared to $77.4 million at March 31, 1997. On October 22, 1997, the Company received service of a complaint filed by CAE Electronics, Inc. in the United States District Court, Northern District of California, San Jose Division, naming the Company as a potentially responsible party in an environmental proceeding in which it is alleged that the Company was a generator of waste and an operator of a site involving groundwater contamination. To the best of the Company's knowledge, based on a preliminary review of the allegations set forth in the complaint, this action relates to a site at which a division of the Company was a subtenant in the early 1970's. It is not possible to reliably estimate the costs, if any, which may be associated with any remedial work to be performed at this site until (i) a study at this site has been completed, (ii) a determination has been made as to whether the Company has any liability with respect to the site, (iii) the scope of work defined and (iv) a method of remediation approved by the relevant state authorities, and the costs allocated among all potentially responsible parties. THREE MONTHS ENDED JUNE 29, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996. Net Sales. Net sales for the three months ended June 29, 1997 increased by $5.3 million, or 11.8%, to $49.9 million from $44.6 million for the three months ended June 30, 1996. Specialty fastener products net sales for the three months ended June 29, 1997 increased $5.7 million, or 15.9%, to $41.2 million from $35.5 million for the three months ended June 30, 1996. The increase in net sales was primarily due to the inclusion of the financial results of TCR and Pebra for the three months ended June 29, 1997 and increased gear-driven band fastener demand to the heavy-duty truck market. This increase was offset partially by a 18 20 decrease in U.S. and European retaining ring net sales due to the consolidation of the marketing and customer service operations of the U.S. businesses and the stronger U.S. dollar relative to the Deutsche Mark for the European businesses. Rescue hoist and cargo hook products net sales for the three months ended June 29, 1997 decreased $373,000, or 4.1%, to $8.8 million from $9.1 million for the three months ended June 30, 1996. The decrease was primarily due to the timing of new orders and delivery of products to customers. Gross Profit. Gross profit for the three months ended June 29, 1997 increased $1.6 million, or 12.0%, to $15.4 million from $13.7 million for the three months ended June 30, 1996. The primary factors contributing to the increased gross profit were the same as those noted in the preceding paragraph concerning net sales. General, Administrative and Selling Expenses. General, administrative and selling expenses for the three months ended June 29, 1997 increased $1.0 million, or 11.8%, to $9.6 million from $8.6 million for the three months ended June 30, 1996. This increase is primarily due to the inclusion of the financial results of TCR in the three months ended June 29, 1997. Operating Income. Operating income for the three months ended June 29, 1997 increased $637,000, or 12.4%, to $5.8 million from $5.1 million for the three months ended June 30, 1996. Specialty fastener products operating income for the three months ended June 29, 1997 increased $390,000, or 6.8%, to $6.1 million from $5.7 million for the three months ended June 30, 1996. The increase was primarily due to the inclusion of the financial results of TCR and Pebra for the three months ended June 29, 1997 and increased net sales volume of gear-driven band fasteners. This increase was partially offset by the decrease in U.S. and European retaining ring net sales and the stronger U.S. dollar relative to the Deutsche Mark for the European businesses. Rescue hoist and cargo hook products operating income for the three months ended June 29, 1997 increased $56,000, or 2.9%, to $2.0 million from $1.9 million for the three months ended June 30, 1996. The primary factors contributing to the increase were the product sales mix and a slight decrease in engineering expense. Other corporate expenses for the three months ended June 29, 1997 decreased $191,000, or 7.7%, to $2.3 million from $2.5 million for the three months ended June 30, 1996. Interest Expense. Interest expense for the three months ended June 29, 1997 increased $166,000, or 9.2%, to $2.0 million from $1.8 million for the three months ended June 30, 1996. The increase is attributable to the increased bank borrowings incurred in the acquisition of TCR on April 17, 1997. Interest Income. Interest income for the three months ended June 29, 1997 decreased $26,000, or 9.7%, to $243,000 from $269,000 for the three months ended June 30, 1996. Interest income is derived from notes received from the sale of former operations and properties. Royalty and Other Income. Royalty and other income for the three months ended June 29, 1997 decreased $14,000, or 82.4%, to $3,000 from $17,000 for the three months ended June 30, 1996. Income Taxes. Income taxes from continuing operations for the three months ended June 29, 1997 increased $161,000, or 10.6%, to $1.7 million from $1.5 million for the three months ended June 30, 1996. This increase is attributable to increased income before income taxes and partially offset by a reduction in the effective income tax rate to 41.5% from 42.0%. Net Income. Income from continuing operations for the three months ended June 29, 1997 increased $270,000, or 12.9%, to $2.4 million from $2.1 million for the three months ended June 30, 1996. The increase is primarily attributable to the inclusion of the financial results of TCR and Pebra. Loss from discontinued operations for the three months ended June 29, 1997 decreased $167,000, or 62.1%, to $102,000 from $269,000 for the three months ended June 30, 1996. Net income for the three months ended June 29, 1997 increased $437,000, or 23.9%, to $2.3 million from $1.8 million for the three months ended June 30, 1996. Backlog. Speciality fastener products new orders for the three months ended June 29, 1997 increased $6.4 million, or 18.0%, to $42.5 million from $36.1 million for the three months ended June 30, 1996. The increase was primarily due to the inclusion of the financial results of TCR and Pebra in the three months ended June 29, 1997. Backlog of unfilled orders at June 29, 1997 was approximately $40.7 million compared to approximately $36.1 million at March 31, 1997. Rescue hoist and cargo hook products new orders for the three months ended June 29, 1997 increased $600,000, or 7.0%, to $9.3 million from $8.7 million for the three months ended June 30, 1996. The increase was primarily due to the timing and delivery of products to 19 21 customers. Backlog of unfilled orders at June 29, 1997 was approximately $33.0 million compared to approximately $32.5 million at March 31, 1997. FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996 Net Sales. Net sales for fiscal 1997 increased $20.7 million, or 13.1%, to $178.7 million from $158.0 million for fiscal 1996. Specialty fastener products net sales for fiscal 1997 increased $16.7 million, or 13.1%, to $144.2 million from $127.5 million for fiscal 1996. The increase was primarily due to the inclusion of twelve months of financial results of Seeger in fiscal 1997 compared to nine months in fiscal 1996, the inclusion of nine months of financial results of Pebra in fiscal 1997 and an overall increase in volume of U.S. gear-driven band fasteners. This increase was partially offset by a weakened economy in Europe and a stronger U.S. dollar relative to the Deutsche Mark. Rescue hoist and cargo hook products net sales for fiscal 1997 increased $4.0 million, or 12.9%, to $34.5 million from $30.5 million for fiscal 1996. This increase was attributable to both the rescue hoist systems and related spare parts and tie-down product lines, and was partially offset by lower cargo hook net sales. These increases and decreases in net sales were primarily due to customer timing and placement of new orders. Gross Profit. Gross profit for fiscal 1997 increased $5.6 million, or 11.1%, to $56.2 million from $50.6 million for fiscal 1996. The primary factor contributing to the increased gross profit was the increase in net sales. General, Administrative and Selling Expenses. General, administrative and selling expenses for fiscal 1997 increased $3.5 million, or 11.0%, to $35.3 million from $31.8 million for fiscal 1996. This increase is primarily due to the inclusion of the financial results of Pebra in fiscal 1997. Operating Income. Operating income for fiscal 1997 increased $2.1 million, or 11.2%, to $20.9 million from $18.8 million for fiscal 1996. Specialty fastener products operating income for fiscal 1997 increased $338,000, or 1.4%, to $24.0 million from $23.7 million for fiscal 1996. The primary factor contributing to the increase in operating income was an increase in net sales. This increase was partially offset by lower margins in Europe, excess capacity which increased price competition, reduced net sales and decreased operating efficiencies and a stronger U.S. dollar relative to the Deutsche Mark. Rescue hoist and cargo hook products operating income for fiscal 1997 increased $2.6 million, or 51.9%, to $7.5 million from $4.9 million for fiscal 1996. The increase was primarily due to plant operating efficiency improvements, higher net sales volume and product mix and inventory utilization improvements. Other corporate expenses for fiscal 1997 increased $784,000, or 8.0%, to $10.6 million from $9.8 million for fiscal 1996. Interest Expense. Interest expense for fiscal 1997 increased $481,000, or 7.6%, to $6.8 million from $6.3 million for fiscal 1996. The increase is primarily attributable to increased bank borrowings incurred to finance the acquisition of Seeger in June 1995. Interest Income. Interest income for fiscal 1997 increased $192,000, or 19.0%, to $1.2 million from $1.0 million for fiscal 1996. Interest income is derived from notes received from the sale of former operations and properties. Royalty and Other Income. Royalty and other income for fiscal 1997 increased $500,000, or 61.0%, to $1.3 million from $820,000 for fiscal 1996. This increase was primarily due to a one-time royalty payment received in fiscal 1997 related to the rescue hoist and cargo hook segment. Income Taxes. Income taxes from continuing operations for fiscal 1997 increased $1.1 million, or 19.1%, to $6.9 million from $5.8 million for fiscal 1996. This increase is attributable to increased income before income taxes and an increase in the effective income tax rate to 41.5% from 40.5%. Net Income. Income from continuing operations for fiscal 1997 increased $1.2 million, or 14.3%, to $9.7 million from $8.5 million for fiscal 1996. The increase is primarily attributable to the same factors discussed in operating income. Loss from discontinued operations for fiscal 1997 decreased $200,000, or 17.6%, to $934,000 from $1.1 million for fiscal 1996. Net income for fiscal 1997 increased $1.4 million, or 19.2%, to $8.8 million from $7.4 million for fiscal 1996. Backlog. Specialty fastener products new orders for fiscal 1997 increased $33.1 million, or 27.0%, to $156.0 million from $122.9 million for fiscal 1996. The primary reasons for the increase were the inclusion of 20 22 twelve months of financial results of Seeger in fiscal 1997 compared to nine months in fiscal 1996, the inclusion of nine months of financial results of Pebra in fiscal 1997 and an overall increase in volume of U.S. gear-driven band fasteners. Backlog of unfilled orders was approximately $36.1 million at March 31, 1997 compared to approximately $31.4 million at March 31, 1996. Rescue hoist and cargo hook products new orders for fiscal 1997 decreased $3.6 million, or 9.0%, to $27.3 million from $30.9 million for fiscal 1996. The decrease was primarily due to the timing of new orders and an unusually high level of orders in fiscal 1996. At March 31, 1997, the backlog of unfilled orders was approximately $32.5 million compared to approximately $30.9 million at March 31, 1996. FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995 Net Sales. Net sales for fiscal 1996 increased $56.9 million, or 56.3%, to $158.0 million from $101.1 million for fiscal 1995. Specialty fastener products net sales for fiscal 1996 increased $56.4 million, or 79.3%, to $127.5 million from $71.1 million for fiscal 1995. The increase in net sales was primarily due to the inclusion of the financial results of nine months of Seeger in fiscal 1996, and to a lesser extent, the inclusion of a full year of financial results of IRR in fiscal 1996 compared to eight months of financial results in fiscal 1995. Additionally, the increase in net sales was attributable to increased industrial and heavy truck OEM demand for gear-driven band fasteners in fiscal 1996 compared to fiscal 1995. Rescue hoist and cargo hook products net sales for fiscal 1996 increased $518,000, or 1.7%, to $30.5 million from $30.0 million for fiscal 1995. Gross Profit. Gross profit for fiscal 1996 increased $21.4 million, or 73.6%, to $50.6 million from $29.2 million for fiscal 1995. The primary factor contributing to the increased gross profit was the increase in net sales. Gross profit expressed as a percentage of net sales increased to 32.0% in fiscal 1996 from 28.8% in fiscal 1995. This increase was primarily due to the inclusion of an additional four months of financial results of IRR in fiscal 1996 and higher plant operating efficiencies, price adjustments and better inventory utilization at Breeze-Eastern in fiscal 1996. General, Administrative and Selling Expenses. General, administrative and selling expenses for fiscal 1996 increased $14.8 million, or 86.6%, to $31.8 million from $17.1 million for fiscal 1995. This increase is primarily due to the inclusion of nine months of financial results of Seeger and an additional four months of financial results of IRR in fiscal 1996. Operating Income. Operating income for fiscal 1996 increased $6.7 million, or 55.2%, to $18.8 million from $12.1 million for fiscal 1995. Specialty fastener products operating income for fiscal 1996 increased $7.2 million, or 43.7%, to $23.7 million from $16.5 million for fiscal 1995. The primary factors contributing to the increase are the inclusion of nine months of financial results of Seeger in fiscal 1996, and to a lesser extent, the inclusion of a full year of financial results of IRR in fiscal 1996 compared to eight months of financial results in fiscal 1995. Additionally, the increase was attributable to increased industrial and heavy truck OEM demand for gear-driven band fasteners in fiscal 1996 compared to fiscal 1995. Rescue hoist and cargo hook products operating income for fiscal 1996 increased $4.8 million, or 2,980.0%, to $4.9 million from $160,000 for fiscal 1995. This substantial increase was accomplished primarily because of higher plant operating efficiencies, price adjustments and better inventory utilization. Other corporate expenses for fiscal 1996 increased $5.3 million, or 116.0%, to $9.8 million from $4.6 million for fiscal 1995, primarily due to a write-down of marketable equity securities received from the sale of a former operation. Interest Expense. Interest expense for fiscal 1996 increased $3.5 million, or 123.1%, to $6.3 million from $2.8 million for fiscal 1995. The increase is primarily attributable to increased bank borrowings incurred to finance the acquisition of Seeger in June 1995. Interest Income. Interest income for fiscal 1996 increased $250,000, or 33.0%, to $1.0 million from $760,000 for fiscal 1995. Interest income is derived from notes received from the sale of former operations and properties. Royalty and Other Income. Royalty and other income for fiscal 1996 increased $10,000, or 1.2%, to $820,000 from $810,000 for fiscal 1995. Income Taxes. Income taxes from continuing operations for fiscal 1996 increased $2.3 million, or 67.5%, to $5.8 million from $3.5 million for fiscal 1995. This increase is attributable to increased income before income taxes and an increase in the effective income tax rate to 40.5% from 31.9%. 21 23 Net Income. Net income from continuing operations for fiscal 1996 increased $1.1 million, or 15.2%, to $8.5 million from $7.4 million for fiscal 1995. The increase is primarily attributable to the same factors discussed in operating income. Loss from discontinued operations for fiscal 1996 decreased $3.7 million, or 76.6%, to $1.1 million from $4.9 million for fiscal 1995. Net income for fiscal 1996 increased $4.8 million, or 191.1%, to $7.4 million from $2.5 million for fiscal 1995. Backlog. Specialty fastener products new orders for fiscal 1996 increased $48.8 million, or 66.0%, to $122.9 million from $74.1 million for fiscal 1995. The primary reasons for the increase were the inclusion of nine months of financial results of Seeger in fiscal 1996, and to a lesser extent, the inclusion of twelve months of financial results of IRR in fiscal 1996 compared to eight months of financial results in fiscal 1995 and increased industrial and heavy truck OEM demand for gear-driven band fasteners in fiscal 1996. Backlog of unfilled orders was approximately $31.4 million at March 31, 1996 compared to approximately $12.7 million at March 31, 1995. Rescue hoist and cargo and hook products new orders for fiscal 1996 increased $9.3 million, or 31.0%, to $39.7 million from $30.4 million for fiscal 1995. The increase was primarily due to increased marketing efforts and the timing of new orders. At March 31, 1996 the backlog of unfilled orders was approximately $30.9 million compared to approximately $21.8 million at March 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements consist primarily of general working capital needs, capital expenditures, debt service, dividends and capital for future acquisitions. Except with respect to the funding of any future acquisitions, management believes that funds available under the Credit Facility, together with cash generated from operations, will be sufficient to support cash requirements in fiscal 1998. Management further believes that the Company could obtain additional capital to make acquisitions primarily through either issuances of common or preferred stock, or debt or lease financing, although no assurance can be given with respect to whether such financing would be available when required or whether such financing can be obtained on terms acceptable to the Company. For the three months ended June 29, 1997, net cash provided by operating activities was $2.3 million compared to $3.3 million for the three months ended June 30, 1996. The primary sources of cash from operations during the three months ended June 29, 1997 included net income of $2.3 million, non-cash charges for depreciation and amortization of $2.2 million, a decrease in inventory of $1.5 million and an increase in other liabilities of $1.3 million, offset primarily by decreases in accounts payable of $3.4 million, and accrued compensation of $2.3 million (which was primarily attributable to the payment of accrued fiscal 1997 Company-wide annual employee bonuses). For fiscal 1997, net cash provided by operating activities was $14.3 million compared to $10.7 million and $7.5 million for fiscal 1996 and 1995, respectively. The primary sources of cash from operations during fiscal 1997 included net income of $8.8 million, non-cash charges for depreciation and amortization of $7.4 million, and increase in other liabilities of $1.4 million, offset primarily by a decrease in accounts payable of $3.7 million. The primary sources of cash from operations in fiscal 1996 included net income of $7.4 million, non-cash charges for depreciation, amortization and a loss on the write-down of marketable securities of $6.0 million and $2.6 million, respectively, a decrease in accounts receivable and other assets of $4.3 million and $4.8 million, respectively, and an increase in accrued compensation of $2.2 million (which was primarily attributable to accrued fiscal 1996 Company-wide annual bonuses), offset primarily by increases in inventory and assets held for sale of $6.1 million and $1.9 million, respectively, and a decrease in other liabilities of $8.6 million. The Company's capital expenditures were $1.7 million, $5.5 million, $6.5 million and $5.0 million for the three months ended June 29, 1997 and fiscal 1997, 1996 and 1995, respectively. The Credit Facility is with a group of commercial banks and is secured by all of the Company's assets. As of March 31, 1997, the Credit Facility was amended to increase the capital expenditures limitation to $9.0 million per year. The Company believes that the combination of internally generated cash flow and amounts available for borrowing under the Credit Facility is sufficient to fund capital expenditure requirements anticipated in fiscal 1998. The Company is subject to various contingencies related to land and groundwater contamination at several facilities. Expenditures made pursuant to the remediation and restoration of these sites approximated $1.1 million and $1.3 million in fiscal 1997 and fiscal 1996, respectively. These expenditures are primarily of a non-recurring 22 24 nature and are not capitalized. The Company expects additional environmental-related expenditures in fiscal 1998 to approximate prior years' expenditures. Management believes that, after taking into consideration information provided by counsel, the resolution of these matters will not have a material adverse effect on the Company's liquidity. On April 17, 1997, the Company acquired TCR for $32.6 million in cash, plus other contingent consideration. The purchase price was financed entirely with borrowings under the Credit Facility. In fiscal 1997, the Company completed the sale of a facility formerly used by the chaff products operation for $2.1 million in cash. The proceeds from the sale were used to repay a portion of the outstanding balance under the Revolver. The Credit Facility is comprised of the Revolver, the International Lines of Credit, Term Loan A and Term Loan B. As of October 26, 1997, the Revolver had borrowings outstanding of $8.6 million from a total commitment of $30.0 million. As of October 26, 1997, the International Lines of Credit had borrowings outstanding of $9.7 million from a total commitment of $10.0 million. Interest on amounts outstanding under the Revolver and the International Lines of Credit is tied to the primary lending bank's prime rate, or at the Company's option, the London Interbank Offered Rate ("LIBOR"), plus a margin that varies depending upon the Company's achievement of certain operating and financial goals. Term Loan A and Term Loan B are secured by the same collateral and are due and payable on March 31, 2002 and June 30, 2002, respectively. Quarterly principal payments on Term Loan A are $2.2 million, with increases to $3.0 million, $3.2 million and $4.0 million in June 1998, June 1999 and June 2000, respectively. Interest on Term Loan A is tied to the primary lending bank's prime rate, or LIBOR, plus a margin that varies depending upon the Company's achievement of certain operating and financial goals. Annual principal payments on Term Loan B of $500,000 are due through June 30, 2000, with balloon payments of $7.5 million and $15.0 million due on June 30, 2001 and June 30, 2002, respectively. Interest on Term Loan B accrues at the primary lending bank's prime rate plus two percentage points. The Credit Facility also gives the Company the option of using LIBOR plus three and one-quarter percentage points. At June 29, 1997, $79.8 million of the Company's outstanding borrowings were based on LIBOR. The Credit Facility contains other outstanding financial covenants, including a limitation on the ability of the Company to pay quarterly dividends in excess of 25% of the Company's cumulative net income and that at least 50% of the net proceeds of a financing such as the Offering are required to be used to prepay outstanding indebtedness. In May 1994, the Company obtained authorization to repurchase up to 200,000 shares of Common Stock. Under this program, the Company repurchased 172,500 and 5,000 shares of Common Stock at a cost of $2.1 million and $65,000 in fiscal 1995 and 1996, respectively. In September 1996, the Company obtained special authorization and purchased an additional 100,000 shares of Common Stock at a cost of $1.6 million The Company paid dividends to holders of Common Stock totaling $326,000, $1.3 million, $1.3 million and $1.3 million for the three months ended June 29, 1997 and fiscal 1997, 1996 and 1995, respectively. The Company expects to continue declaring and paying dividends on its Common Stock; however, no assurance can be made that the Company will declare or pay any dividends in the future. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share and is effective for fiscal 1998. The Company believes that the effect of implementing this standard will not effect results differently than currently reported. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which will be effective for the Company beginning in the fiscal year ending March 31, 1999. SFAS No. 131 redefines how operating segments are determined and requires expanded quantitative and qualitative disclosures relating to a company's operating segments. The Company has not yet completed its analysis of which operating segments, if any, it will disclose differently than previously reported. 23 25 BUSINESS GENERAL The Company is a leading worldwide designer and manufacturer of engineered specialty fastener products for niche applications serving a wide range of industrial markets, including automotive and truck, off-highway heavy machinery, machine tools and consumer durables. The Company targets fastener applications that require substantial design and engineering resources. Specialty fastener products include retaining rings, gear-driven band fasteners, assembly fasteners and custom cold-formed parts. In addition, through Breeze-Eastern, the Company operates the world's largest manufacturer of performance-critical rescue hoists and cargo hooks used primarily for helicopter rescue and transport applications. In fiscal 1997, the Company's specialty fastener segment accounted for approximately 81% of net sales. Over five years ago, the Company's current management identified the engineered specialty fastener market as a core business and began repositioning the Company to achieve significant growth in this sector. From fiscal 1993 through fiscal 1997, the Company committed its management and financial resources to successfully acquire and integrate five specialty fastener companies while it divested various unrelated businesses. As a result of these acquisitions and internal growth, net sales and operating income for the specialty fastener segment have grown at a compound annual growth rate of 49% and 44%, respectively, from fiscal 1993 through fiscal 1997. Significant investments in manufacturing efficiency, product development, systems and management have better positioned the Company to take advantage of future growth opportunities. BUSINESS STRATEGY The Company's objectives are to become a premier manufacturer of specialty fastener products and other industrial components used by other manufacturers in the production of their finished goods and to sustain long-term profitable growth. In order to accomplish these objectives, the Company is implementing the following strategies: Focus on Niche Markets. The Company's products focus on niche market applications which demand proprietary design and engineering to serve non-standard requirements in markets with few direct competitors. The Company believes its engineering capabilities provide a competitive advantage allowing it to achieve a greater market share in many of its product lines. Increase Market Share. The Company believes that constantly improving both the quality of its products and its low-cost manufacturing base along with the development of new products will permit it to increase market share in each of the markets in which it competes. Trends by OEMs, including single sourcing, that favor high quality and reliable suppliers who provide design and engineering capabilities may present growth opportunities for the Company. Develop New Proprietary Products. The Company also intends to expand its existing array of products and applications by qualifying new fasteners, fastening systems and other industrial components for integration into customers' new product lines. New fastener products with proprietary design and engineering are developed by combining skilled engineering and marketing teams and allowing them to work alongside customers creating better design and functionality. The Company also plans to expand its rescue hoist and cargo hook business by developing motion control products for the helicopter, aerospace, and weapons systems markets. Integrate Marketing Capabilities. The Company is integrating its marketing capabilities across its specialty fastener product lines and geographic areas to capitalize on cross-marketing opportunities. The Company intends to leverage existing customer relationships by marketing additional products which the Company has traditionally neither provided to the customer nor marketed through a separate sales channel. Furthermore, the Company anticipates marketing its various specialty fastener product lines through a coordinated marketing program designed to provide customers with a single supplier capable of fulfilling all of a customer's requirements for items produced by any of the Company's operations. The Company believes 24 26 many cross-marketing opportunities exist between its European and U.S. operations in several product markets in which it competes. Improve Operating Efficiencies. The Company strives to constantly improve the efficiency and productivity of its operations so as to achieve and maintain low-cost producer status in each of its product lines. The Company has implemented a series of programs designed to improve efficiency while at the same time maintaining or improving quality control. The Company utilizes statistical process control systems to record information at each stage of the production process to ensure specifications are met and to identify areas which may require further improvement. Pursue Strategic Acquisitions. To enhance future growth, the Company intends to continue to pursue strategic acquisitions. In considering candidates for acquisition, after first considering the strategic fit of the target's products or manufacturing processes with those of the Company's existing operations, the Company expects such a target to add to earnings and cash flow, possess a strong management team, present opportunities for profitability improvement through productivity enhancements, expand channels of distribution and offer cross-marketing opportunities. ACQUISITION HISTORY The Company believes it is the seventh largest specialty fastener company in the highly fragmented U.S. fastener market and the leading worldwide manufacturer of rescue hoists and cargo hooks. Since management identified the specialty fastener market as a core business in 1992, the Company has divested several unrelated businesses and completed five acquisitions of specialty fastener companies. The following table sets forth certain information concerning the businesses which have been acquired through September 28, 1997:
NAME OF ACQUIRED PRINCIPAL DATE TOTAL COMPANY LOCATION ACQUIRED NET SALES(1) CONSIDERATION PRINCIPAL PRODUCTS - -------- ----------- ------------ ------------ ------------- ------------------------- (IN MILLIONS) Palnut New Jersey August 1993 $ 26.1 $20.5 Stamped fasteners IRR New Jersey August 1994 8.3 15.3 Retaining rings Seeger Germany June 1995 59.1 46.8 Retaining rings Pebra Germany June 1996 6.9 3.0 Gear-driven band fasteners TCR Minnesota April 1997 23.3 32.6 Cold-formed fasteners
- --------------- (1) Represents the acquired companies' sales during their respective last completed fiscal year immediately preceding the acquisition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Acquisitions." PRODUCTS The Company's specialty fastener products are typically integral components of its customers' end products. The Company competes in niche markets by offering engineered, customized and value-added products for specific applications. The Company's rescue hoist and cargo hook products group is the world's leading supplier of rescue hoists and cargo hook systems which are primarily used in military and civilian helicopters worldwide. These products are designed to be efficient and reliable in extreme operating conditions. Specialty fastener products and rescue hoist and cargo hook products accounted for approximately 25 27 81% and 19% of the Company's fiscal 1997 net sales, respectively. See Note 13 to the Consolidated Financial Statements. The following table sets forth certain information with respect to the Company's products:
- --------------------------------------------------------------------------------------------------------- PLANT LOCATIONS PRODUCTS TRADE NAMES (NUMBER) PRIMARY MARKETS - --------------------------------------------------------------------------------------------------------- RETAINING RINGS Retaining rings, C and E clips, Seeger, Anderton, Germany (2) Automotive and truck, industrial snap rings, circlips Waldes Truarc, U.S. (2) distribution, industrial Industrial U.K. (1) machinery Retaining Ring Brazil (1) - --------------------------------------------------------------------------------------------------------- GEAR-DRIVEN BAND FASTENERS Worm drive clamps, Breeze Industrial, U.S. (1) Automotive and truck, industrial T-bolt clamps, V-band clamps Pebra Germany (1) distribution, hardware, plumbing, aerospace - --------------------------------------------------------------------------------------------------------- ASSEMBLY FASTENERS Single and multi-thread stamped Palnut U.S. (1) Automotive and truck, industrial nuts, clips, push-nuts distribution, industrial machinery, consumer products - --------------------------------------------------------------------------------------------------------- EXTERNALLY THREADED AND SPECIALTY MACHINED COMPONENTS Custom cold-formed components, TCR U.S. (1) Automotive and truck, commercial friction welded parts, screw equipment, industrial machinery, machined parts consumer products - --------------------------------------------------------------------------------------------------------- RESCUE HOISTS AND CARGO HOOKS Rescue hoists, cargo winches, Breeze-Eastern U.S. (1) Transportation, aerospace, cargo hooks, tie-downs defense - ---------------------------------------------------------------------------------------------------------
SPECIALTY FASTENER PRODUCTS The Company derived approximately 81% of its fiscal 1997 net sales from the manufacture and sale of engineered specialty fasteners, and believes it is the seventh largest specialty fastener manufacturer in the highly fragmented U.S. fastener market which is estimated to be $8 billion. Operating in small niches within the U.S. and worldwide fastener markets, the Company competes under established brand names and believes it is among the market leaders in most of its product lines. The Company's specialty fastener products are used around the world in a wide range of industries, such as automotive and heavy truck, computer disk drives, toys, cameras and appliances. Through increased engineering and marketing resources, the Company continues to search for new applications for its products in current and new industries worldwide. Retaining Rings. The Company believes it is the world's largest manufacturer of retaining rings, with operations in the U.S., Germany, the U.K. and Brazil. The Company manufactures and markets products for both the U.S. and international transportation equipment and industrial markets under established trade names such as Seeger(R) (distributed by Seeger-Orbis (Germany) and Seeger-Reno (Brazil)), Anderton(TM) (U.K.), Waldes Truarc(R) (U.S.) and Industrial Retaining Ring(TM) (U.S.). Retaining rings are typically engineered to a customer's exacting specifications or industry-wide standards and are used primarily in transmissions and drive train and braking systems on automobiles, trucks and off-highway equipment. The Company's retaining rings are also used in industrial equipment, computers, photographic equipment, marine equipment and almost any situation where movement on a shaft must be restricted. The North American retaining ring market, which the Company estimates to be at least $45 million, is primarily served by the Company and one competitor. The market has experienced limited growth as retaining rings are eliminated from certain applications; however, new retaining ring applications are also being developed. The Company's retaining rings are sold primarily to distributors who sell these products to a broad 26 28 range of end users. As with many industrial component markets, the retaining ring market is also experiencing distributor consolidation, long-term contracts at competitive pricing and just-in-time ordering. In response to these trends, the Company has undertaken a comprehensive review of manufacturing processes, floor layout, headcount and capacity to improve the profitability of the U.S. retaining ring business. As a result of this study, consolidation of two U.S. marketing and customer service functions has been completed in the first quarter of fiscal 1998. In addition, the Company continues to rationalize international manufacturing capacity with the closing of Seeger's Eichen, Germany, facility and the moving of production equipment into an existing and modified plant in Bingley, U.K., which the Company expects to be completed by the end of the third quarter of fiscal 1998. The Company anticipates its Seeger unit will realize cost savings from lower U.K. wage rates, lower headcount and improved manufacturing efficiencies. The Company expects these initiatives to allow it to gain additional market share through lower selling prices while improving margins. Each of the Company's retaining ring operations in the U.K., Germany and Brazil have received an ISO-9000 series certification (meeting the comprehensive quality standards promulgated by the major OEMs). The facilities in the U.S. are in the process of completing the required audit and anticipate achieving ISO-9000 certification by the end of fiscal 1998. Gear-Driven Band Fasteners. The Company believes Breeze Industrial has one of the broadest lines of gear-driven band fasteners in the world. Breeze(R) stainless steel band fasteners are well known for their quality and engineering; Breeze(R) T-bolt and patented Constant-Torque(R) fastener products are used primarily in diesel engine, heavy truck, marine and off-highway equipment applications throughout the world. Breeze Industrial is a certified supplier to Caterpillar Inc., Navistar International Corporation and other heavy equipment manufacturers. Breeze Industrial's Aero-Seal(R), Euro-Seal(R) and Power-Seal(R) gear-driven band fasteners are found in hardware, automotive and retail stores for use in repair, maintenance and overhaul applications, and are used by many manufacturers of industrial and consumer products. The Company is focusing its marketing efforts on the heavy vehicle segment worldwide, where the Company believes its superior products provide it with a competitive advantage. Breeze Industrial has recently developed and introduced a new worm-driven V-band fastener capable of greater tolerances for use in the heavy truck and plumbing markets. The Company estimates that approximately 15% to 20% of current sales of gear-driven band fasteners are attributable to proprietary products. Breeze Industrial competes with several companies in a highly competitive market on the basis of quality, performance, timely delivery and pricing. As end users of the Company's products strive to reduce their costs through price reduction of components and shortened lead times, pricing of the Company's products is under pressure as independent distributors continue to consolidate and increase their purchasing power. Breeze Industrial is developing additional products for its major customers to take advantage of the consolidation trend by offering the broadest product line available. To better position the Company to meet the current and anticipated demand and to alleviate current capacity limitations, the Company expects to expand its North American gear-driven band fasteners facility in the current fiscal year to house additional manufacturing capacity. The Company is also currently considering a more substantial capacity increase. Breeze Industrial was recently advised that it had passed its audit for ISO-9000, and expects to receive its certification by the end of October 1997. Assembly Fasteners. The Company believes Palnut is one of the leading U.S. manufacturers of assembly fasteners. Palnut supplies engineered, custom fastening devices, including lock nuts, push-nuts, u-nuts and a variety of single and multi-threaded stainless and high-carbon steel fasteners, primarily to the automotive industry. Palnut serves primarily OEMs and tier I and tier II suppliers with applications for interior and exterior trim components, instrument panels, grills and radiators. Assembly fasteners are also used in a broad range of other applications such as in appliances, toys, electronics, lighting, mining and construction equipment. The North American assembly fastener market in which Palnut competes is estimated by the Company to be $170 million. Market trends include the expectation of continuous improvement of quality, cost reduction and delivery performance, rapid response and supplier rationalization by the Company's customers. 27 29 Palnut's market segments are served through both direct sales and distribution. Palnut is currently pursuing ISO-9000 certification. Externally Threaded and Specialty Machined Components. TCR, which the Company acquired on April 17, 1997, designs and manufactures sophisticated externally threaded fastening devices and custom industrial components, utilizing its expertise in cold forming, machining technologies and friction welding in one integrated facility. Combined with TCR's in-house secondary manufacturing operations, these processes offer customers the ability to replace multi-part assemblies with single parts capable of higher tolerances, lower weight and lower costs. TCR focuses on large volume manufacturing of components and assemblies with high levels of production difficulty. TCR's products are used by industrial customers worldwide, primarily in the automotive, hydraulic and recreational products industries. Each of the market segments in which TCR competes is highly competitive with no single competitor having a dominant market share. The Company believes that TCR's combined capabilities in cold forming, machining technologies and friction welding provide it with marketplace differentiation and a competitive advantage. TCR competes in various markets where it designs and manufactures highly sophisticated fasteners and is typically the sole supplier. Market trends that are placing additional emphasis on supplier design and sub-assembly capabilities are expected to favorably position TCR for future growth opportunities. RESCUE HOIST AND CARGO HOOK PRODUCTS Breeze-Eastern is the world's leading designer and manufacturer of sophisticated helicopter rescue hoists, cargo winches and cargo hooks. These complex engineered systems add significantly to the versatility of an aircraft for a relatively small cost and are used worldwide by military and civilian agencies to complete rescue operations and mission profiles as well as transport cargo. Many of the leading aerospace and defense prime contractors, including Agusta SpA, Bell Helicopter Textron, Boeing Co., Eurocopter (a joint venture between Aerospatiale SA and Daimler-Benz AG), Lockheed Martin Corp., McDonnell Douglas Corp., Raytheon Company and Sikorsky Aircraft Corporation, specify the Company's systems as standard equipment on their platforms because of Breeze-Eastern's record for safety, reliability, durability and service. Innovation and new product development remain an important focus at Breeze-Eastern, which is one reason why its products are included in the design of the new V-22 Osprey vertical take-off and landing aircraft due to enter production in 1999 for the U.S. Marine Corps. Breeze-Eastern also manufactures fixed wing aircraft cargo winches, weapons handling systems for ground defense platforms, tie-down equipment and tow hook assemblies utilized by helicopters employed in U.S. Navy minesweeping operations. On August 27, 1997, Breeze-Eastern was recognized by Lockheed Martin Vought Systems ("LMVS") as a Certified Supplier of hoist equipment for the U.S. Army's Multiple Launch Rocket System ("MLRS"). During the 18 years of production of the MLRS weapons system, Breeze-Eastern has, on a sole-source basis, supplied LMVS with more than 2,500 hoist systems. Breeze-Eastern is the established leader in the estimated $50 million worldwide rescue hoist and cargo hook market with an estimated market share of more than 60%. Although the market leader, Breeze-Eastern competes against divisions or subsidiaries of larger companies with significantly greater financial resources. The Company believes that Breeze-Eastern's success can be attributed to several competitive advantages, including product recognition, a broad customer base, superior product design and engineering capabilities, a fully integrated manufacturing facility and superior aftermarket product support. Additionally, Breeze-Eastern is expanding its existing array of products into the highly fragmented aerospace and defense motion control systems market. Motion control systems have similar technologies and customer bases to those of Breeze-Eastern's rescue hoist, cargo winch and cargo hook products. This has facilitated the award to Breeze-Eastern of several orders for motion control products from major aerospace and defense prime contractors. Market trends, such as customer demand for enhanced system capabilities and consolidation of suppliers, are expected to create additional opportunities for Breeze-Eastern. 28 30 CUSTOMERS The Company's customers are comprised of a diverse group of manufacturers and distributors, including automotive OEMs, automotive suppliers, heavy truck OEMs, industrial components distributors, industrial machine manufacturers, consumer products manufacturers, helicopter OEMs, aerospace and defense contractors and commercial and military search and rescue agencies. The Company's strategy is to avoid reliance on a single end-user market or customer. During the three months ended June 29, 1997 and June 30, 1996, net sales to the Company's top ten customers accounted for approximately 21% and 23% of total net sales, respectively, and net sales to non-U.S. customers accounted for approximately 40% and 44% of total net sales, respectively. The following table shows the Company's fiscal 1997 specialty fastener products segment net sales by market type: FISCAL 1997 SPECIALTY FASTENER SEGMENT NET SALES BY MARKET TYPE INDUSTRIAL MACHINERY 11 CONSUMER / DURABLES 3 DISTRIBUTION 44 HEAVY TRUCK OEM 21 AUTOMOTIVE 21
SALES AND MARKETING The Company markets its specialty fastener products through a combination of a direct sales force, distributors and manufacturers' representatives. As of September 1997, the sales force consisted of 56 salespeople located in 10 offices throughout the world, 727 distributors worldwide and 191 manufacturers' representatives. The Company's sales offices are based at its manufacturing facilities with additional offices in Detroit, Michigan and Paris, France. The sales force sells products directly to automotive OEMs, heavy truck OEMs and various industrial and consumer products manufacturers, and are generally compensated on a salary and commission basis. The Company also sells its fasteners to distributors and manufacturers' representatives who, in turn, sell to OEMs, numerous manufacturers and other customers. Often the OEMs will determine whether the Company sells a product directly to the OEM or through an independent distributor. Each of the Company's specialty fastener product lines maintain independent sales and marketing efforts in order to address unique customer markets. The Company plans to leverage its expanding distribution base for specialty fastener products and capitalize on emerging cross-marketing opportunities by increasing the coordination of sales activities among its divisions and subsidiaries. In addition, management intends to aggressively pursue overseas sales expansion through cross-marketing opportunities with respect to both its retaining ring operations and gear-driven band fastener applications. Breeze-Eastern maintains an internal sales force and several independent manufacturers' representatives and distributors to market its rescue hoist and cargo hook products. The internal sales force consists of four salaried employees who sell directly to the major aircraft manufacturers from Breeze-Eastern's office in Union, New Jersey. The Company has taken certain actions to improve the efficiency of its domestic retaining ring sales and marketing. Marketing, sales, credit and customer service functions of the North American retaining ring 29 31 business have been consolidated into a new location at Breeze-Eastern's premises. This consolidation has facilitated the creation of a single sales force, price book and discount policy and brand image. MANUFACTURING AND PRODUCTION The primary production processes in the Company's specialty fastener segment include high-speed metal stamping, wire-forming, cold forming, machining, heat treating and plating. The products consist primarily of small carbon steel and stainless steel fasteners and assemblies that have low per-unit prices and are generally sold in large quantities. These products require a high level of engineering content and value can be added during the customer's design phase. The quality, condition and technology of the tools used in the production of such parts is the single most critical aspect of the manufacturing process. The rescue hoist and cargo hook products are manufactured using primarily purchased parts, such as motors and cables, which are produced to exacting specifications, as well as "mission-critical" parts manufactured by Breeze-Eastern. All of the finished products are engineered and require rigorous testing procedures. The following table sets forth certain information concerning the Company's principal manufacturing facilities for its continuing operations:
APPROXIMATE SQUARE LOCATION FUNCTION OWNERSHIP FOOTAGE - ------------------------------------ --------------------------------- ---------- ----------- SPECIALTY FASTENER SEGMENT Saltsburg, Pennsylvania Breeze Industrial offices and Owned 100,000 manufacturing plant Mountainside, New Jersey Palnut offices and manufacturing Owned 142,000 plant Irvington, New Jersey IRR manufacturing plant Owned 37,000 Somerset, New Jersey Seeger engineering and Leased 104,000 manufacturing plant Konigstein, Germany Seeger Group offices and Owned 149,000 Seeger-Orbis manufacturing plant Eichen, Germany Seeger-Orbis manufacturing plant Owned 51,000 Bingley, U.K. Anderton offices and Owned 124,000 manufacturing plant Sao Paulo, Brazil Seeger-Reno offices and Owned 85,000 manufacturing plant Frittlingen, Germany Pebra offices and manufacturing Owned 30,000 plant Minneapolis, Minnesota TCR offices and manufacturing Leased 130,000 plant RESCUE HOIST AND CARGO HOOK SEGMENT Union, New Jersey Breeze-Eastern offices and Owned 188,000 manufacturing plant; U.S. retaining ring marketing, sales, credit and customer service offices
The Company believes that such facilities are suitable and adequate and that additional space, if necessary, will be available. The Company continues to own or lease properties that it no longer needs in its operations. These properties are located in California, Pennsylvania, New York, New Jersey, Illinois and North Carolina. In some instances, the properties are leased or subleased and in nearly all instances these properties are for sale. The properties in New York and New Jersey are the subject of active sales negotiations and the property in North Carolina was recently sold. 30 32 Currently, the Company is evaluating the consolidation of certain of its operations. The Company has undertaken a comprehensive review of manufacturing processes, floor layout, headcount and capacity to improve the profitability of its businesses. The Company's Eichen, Germany retaining ring production facility has ceased operations and is expected to be fully closed by the end of the third quarter of fiscal 1998 with approximately two-thirds of the business to be transferred to the Bingley, U.K. facility and the balance to the Konigstein, Germany facility. PATENTS The Company currently holds a number of U.S. and international patents, covering a variety of products and processes. Although the Company believes patent protection to be valuable in certain circumstances, management does not believe that the termination, expiration or infringement of one or more of the Company's patents would have a material adverse effect on the business or prospects of the Company. The Company is not involved in any material patent infringement litigation and believes that its processes and products do not infringe on the intellectual property rights of others; however, there can be no assurance that a material patent infringement claim will not be asserted against the Company in the future. The Company has from time to time asserted infringement claims by notice to third parties. Such claims, however, have been settled by the Company and have not resulted in litigation. EMPLOYEES As of October 26, 1997, the Company employed 1,557 persons, including approximately 327 unionized employees at three North American manufacturing facilities who are subject to collective bargaining agreements and approximately 226 employees at five non-U.S. manufacturing facilities who are members of trade unions or the local equivalents. The Company has not experienced any work stoppages during the last five years. Management believes that its relations with its employees are good. As of October 26, 1997, there were 1,367 employees associated with the specialty fastener products segment, 170 employees with the rescue hoist and cargo hook products segment and 20 employees with the corporate office. ENVIRONMENTAL MATTERS Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination. Such laws typically impose clean-up responsibilities and liability without regard to whether the owner knew of or caused the presence of the contaminants, and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of such substances, or the failure to properly remediate the contamination of such property, may adversely affect the owner's ability to sell such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility also may be liable for the costs of removal or remediation of a release of hazardous or toxic substances at such disposal or treatment facility, whether or not such facility is owned or operated by such person. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs incurred in connection with the contamination. Finally, the owner of the site may be subjected to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from such site. The Company has commenced environmental site assessments and clean-up feasibility studies to determine the presence, extent and sources of any environmental contamination at a site in Pennsylvania which continues to be owned although the related business has been sold. Although no governmental action requiring remediation has been taken at this time, the Company is working in cooperation with the relevant state authority and any remedial work required to be performed would be subject to the approval of such authority. A design report for implementation of a portion of a remedy at the Pennsylvania site has been 31 33 prepared and submitted to the Commonwealth of Pennsylvania. At June 29, 1997, the balance of the Company's clean-up reserve was $2.0 million, which amount is payable over the next several years. In addition, the Company is pursuing recovery of a portion of clean-up costs in litigation with several of its insurance carriers. The Company expects that remediation work at the Pennsylvania site will not be completed before fiscal 2000. The Company also continues to participate in environmental assessments and remediation work at 13 other locations, which include operating facilities, facilities for sale and previously owned facilities. The Company estimates that its potential cost for implementing corrective action at these sites will not exceed $1.0 million, which amount is payable over the next several years, and has provided for the estimated costs in its accrual for environmental liabilities. In addition, the Company has been named as a potentially responsible party in six environmental proceedings pending in several other states in which it is alleged that the Company was a generator of waste that was sent to landfills and other treatment facilities and, as to several sites, it is alleged that the Company was an owner or operator. Such properties generally relate to businesses which have been sold or discontinued. It is not possible to reliably estimate the costs associated with any remedial work to be performed until studies at these sites have been completed, the scope of work defined and a method of remediation selected and approved by the relevant state authorities, and the costs allocated among the potentially responsible parties. LEGAL PROCEEDINGS During the ordinary course of business, the Company, from time to time, is threatened with or becomes a party to legal actions and other proceedings in addition to those referenced under the caption "-- Environmental Matters." Management is of the opinion that, after taking into consideration information furnished by its counsel, the outcome of currently known actions and proceedings to which it is a party will not, singly or in the aggregate, have a material adverse effect on the business, financial condition, results of operations and cash flow of the Company. 32 34 MANAGEMENT The following table sets forth certain information with respect to the executive officers and directors of the Company:
NAME AGE POSITION - ------------------------------ ---- -------------------------------------------------------- Michael J. Berthelot.......... 47 Chairman of the Board of Directors and Chief Executive Officer Patrick K. Bolger............. 62 President, Chief Operating Officer and Director Chandler J. Moisen............ 63 Executive Vice President Joseph F. Spanier............. 51 Vice President, Chief Financial Officer and Treasurer Winston Lau................... 51 Vice President of Operations Gerald C. Harvey.............. 47 Vice President, Secretary and General Counsel Gideon Argov.................. 41 Director Walter Belleville............. 70 Director Thomas V. Chema............... 50 Director Michel Glouchevitch........... 43 Director James A. Lawrence............. 44 Director William J. Recker............. 55 Director
MR. BERTHELOT has served as the Chairman of the Board of Directors and Chief Executive Officer of the Company since July 1995 and as a director since January 1991. In September 1991, he became Vice Chairman of the Board of Directors and, on January 1, 1992, he became acting President and Chief Executive Officer of the Company. From July to September 1992, Mr. Berthelot was removed from his Vice Chairman, acting President and Chief Executive Officer positions. From October 1992 to July 1995, Mr. Berthelot served as the Company's Chairman of the Board, President and Chief Executive Officer. Mr. Berthelot has been Chief Executive Officer of Canterbury Holdings Corporation, a private investment company, since September 1981. From 1989 to 1992, he was a partner in the certified public accounting/management consulting firm of Barnes, Wendling, Cook & O'Connor, Inc. MR. BOLGER has served as President and Chief Operating Officer of the Company since July 1995. He joined the Company as Group Vice President -- Aerospace Products in January 1990 and became Executive Vice President, Chief Operating Officer and a director in October 1992. From August to October 1992, Mr. Bolger served as one of three executive officers in the Company's Office of the President. Prior to joining the Company, he was Group Vice President of the Hamilton Standard Division of United Technologies Corporation, which manufactures control systems for the aerospace industry. MR. MOISEN has served as Executive Vice President of the Company since January 1997. He joined the Company in 1991 and served as Vice President, Treasurer and Chief Financial Officer of the Company from August 1991 to December 1996 and as Senior Vice President from October 1992 to December 1996. From August to October 1992, Mr. Moisen served as one of three executive officers in the Company's Office of the President. From 1989 to 1991, Mr. Moisen served as Senior Vice President and Chief Financial Officer of G-Tech Corp., a computer hardware and software manufacturer. MR. SPANIER has served as Vice President, Chief Financial Officer and Treasurer of the Company since January 1997. From November 1996 to January 1997, he served as the Company's Vice President of Finance. From November 1994 to November 1996, he served as Chief Financial Officer and Vice President of Financial Administration of MG Industries, a manufacturer of industrial gases and a subsidiary of Hoechst AG. From 1990 to November 1994, Mr. Spanier was Vice President and Corporate Controller of Quaker Chemical Corporation ("Quaker"), a manufacturer of chemical specialties. From May to November 1994, he also served as Treasurer of Quaker. MR. LAU has served as the Company's Vice President of Operations since November 1995. In April 1996, he became President of the Company's Palnut, IRR and Seeger business units. From June 1994 to November 1995, Mr. Lau was Vice President, International of Crane Company. From November 1991 to 33 35 May 1994, he was President and CEO of Crane Canada Inc., a manufacturer of industrial and commercial valves and plumbing fixtures and a national distributor of plumbing supplies. Mr. Lau previously held various executive positions with the Ingersoll-Rand Company in MIS, operations, marketing, distribution, finance and international operations. MR. HARVEY has served as Vice President, Secretary and General Counsel of the Company since February 1996. From 1994 to 1996, Mr. Harvey was a member of the law firm of Pfaltz & Woller, P.A. and, from 1988 to 1994, he was a member of the law firm of Hannoch Weisman, A Professional Corporation. MR. ARGOV has been a director of the Company since March 1995. Since 1991, he has been Chairman, President and Chief Executive Officer of Kollmorgen Corporation, a $230 million diversified technology company that manufactures high performance motion control and electro-optical instruments. From 1988 to 1991, Mr. Argov was President, Chief Executive Officer and a principal of High Voltage Engineering Corporation, a $150 million diversified electrical producer of industrial controls, instrumentation and industrial machinery. MR. BELLEVILLE has been a director of the Company since June 1992. Since 1983, he has been Chief Executive Officer and Chairman of the Board of ATI Machinery, Inc., the largest Caterpillar tractor rental and leasing company in the western U.S. Since 1985, he has also served as Chairman of the Board of Sav-Trac of Arizona, Inc., a heavy equipment repair facility. In addition, from 1985 to 1995, Mr. Belleville served as President and Chief Executive Officer of Happy Horizons, Inc., an aircraft brokerage firm, and President of Pacific Plus, Inc., a consulting firm that specializes in turnarounds of troubled companies. MR. CHEMA has been a director of the Company since September 1992. Since 1989, he has been a partner in the Cleveland, Ohio law firm of Arter & Hadden, specializing in energy and telecommunications consulting. From January 1990 to February 1996, he served as Chairman of the Ohio Building Authority, an independent state agency that annually issues approximately $650 million of bonds and is responsible for financing and operating state office buildings and other facilities for the State of Ohio. From May 1990 to July 1995, Mr. Chema also served as Executive Director of the Gateway Economic Development Corporation of Greater Cleveland, a not-for-profit corporation chartered to build a baseball stadium and arena in downtown Cleveland. Mr. Chema is President of Gateway Consultants, Inc., a firm he founded in 1995 to provide consulting services relative to the financing and development of public assembly facilities such as ballparks, stadiums and arenas. MR. GLOUCHEVITCH has been a director of the Company since May 1996. Since 1992, he has been a Managing Director of Triumph Capital Group, Inc., a manager of institutional funds making private equity investments in middle market companies. From 1988 to 1991, he was a general partner in Riordan Venture Management, where he managed the personal assets of Richard J. Riordan, now mayor of Los Angeles. MR. LAWRENCE has been a director of the Company since September 1992. Since 1996, he has been Executive Vice President and Chief Financial Officer of Northwest Airlines, Inc. From 1993 to 1996, he served as President and Chief Executive Officer, Asia/Middle East/Africa of Pepsi-Cola Company, the unit of PepsiCo responsible for soft drink operations outside North America. From 1992 to 1993, he served as Executive Vice President of Pepsi-Cola International. From 1983 to 1992, Mr. Lawrence was a partner of LEK Partnership, a general partnership organized in England to provide management consulting and merger and acquisition advisory services. From 1986 to 1992, he also served as the Chairman of LEK Consulting Inc., the U.S. operating subsidiary of LEK Partnership. MR. RECKER has been director of the Company since October 1997. Since 1990, he has been Managing Director, President and CEO of Gretag Imaging Group, Inc., an independent manufacturer of a broad line of photo finishing equipment. Mr. Recker also serves on the Board of Directors of Gretag-Macbeth AG, a public company, traded on the Swiss Stock Exchange. 34 36 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of Common Stock as of October 26, 1997, and as adjusted to reflect the completion of the Offering with respect to (i) each person who is known by the Company to be the beneficial owner of 5% or more of the then outstanding shares of Common Stock, (ii) each director and executive officer, (iii) each of the Selling Stockholders and (iv) all directors and executive officers as a group:
SHARES OF COMMON STOCK SHARES OF COMMON STOCK BENEFICIALLY SHARES OF BENEFICIALLY OWNED PRIOR TO THE COMMON OWNED AFTER THE OFFERING (1) STOCK TO BE OFFERING ------------------------ SOLD IN ---------------------- NAME NUMBER PERCENTAGE THE OFFERING NUMBER PERCENTAGE - ---------------------------------------- --------- ---------- --------------- --------- ---------- Arch C. Scurlock c/o Research Industries, Incorporated (2) 123 North Pitt Street Alexandria, Virginia 22314.............. 1,146,740(3) 22.5 -0- 1,146,740 18.5 Kennedy Capital Management, Inc. (2) 10829 Olive Blvd. St. Louis, Missouri 63141............... 403,425(4) 7.9 -0- 403,425 6.5 Michael J. Berthelot c/o TransTechnology Corporation 150 Allen Road Liberty Corner, New Jersey 07938........ 369,953(5) 7.1 40,000 329,953 5.3 Dimensional Fund Advisors, Inc. (2) 1299 Ocean Avenue, 11th Floor Santa Monica, California 90401.......... 356,900(6) 7.0 -0- 356,900 5.8 FMR Corp. (2) 82 Devonshire Street Boston, Massachusetts 02109............. 333,900(7) 6.5 -0- 333,900 5.4 Ryback Management Corporation (2) 7711 Carondelet Avenue Box 16900 St. Louis, Missouri 63105............... 319,500(8) 6.3 -0- 319,500 5.2 Patrick K. Bolger....................... 73,342(9) 1.4 40,000 33,342 * Chandler J. Moisen...................... 38,664(10) * 20,000 18,664 * Joseph F. Spanier....................... 6,172(11) * -0- 6,172 * Winston Lau............................. 3,372(12) * -0- 3,372 * Gerald C. Harvey........................ 3,359(13) * -0- 3,359 * Gideon Argov............................ 4,337 * -0- 4,337 * Walter Belleville....................... 8,960(14) * -0- 8,960 * Thomas V. Chema......................... 1,899(15) * -0- 1,899 * Michel Glouchevitch..................... 14,152(16) * -0- 14,152 * James A. Lawrence....................... 60,339(17) 1.2 -0- 60,339 * William J. Recker....................... -0- * -0- -0- * All directors and executive officers as a group (12 persons)................. 584,549(18) 11.0 100,000 484,549 7.6
- --------------- * Less than 1%. 35 37 (1) Unless otherwise indicated in these footnotes, each stockholder had sole voting and investment power with respect to the shares of Common Stock beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). (2) Based on the most recent Schedule 13D or 13G on file with the Commission. (3) Includes 1,100,000 shares of Common Stock owned by Research Industries, Incorporated ("RII"); Dr. Scurlock owns 95% of the outstanding shares of capital stock of RII and may be deemed to beneficially own the 1,100,000 shares of Common Stock owned by RII. (4) Kennedy Capital Management, Inc., an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "IAA"), has sole voting power with respect to 379,400 shares and sole dispositive power with respect to 403,425 shares. (5) Includes options exercisable within 60 days to purchase 129,000 shares of Common Stock. (6) Dimensional Fund Advisors, Inc., ("Advisors"), an investment adviser registered under the IAA, has sole voting power with respect to 215,800 shares and sole dispositive power with respect to 356,900 shares. Persons who are officers of Advisors also serve as officers of DFA Investment Dimensions Group Inc. (the "Fund") and The DFA Investment Trust Company (the "Trust"), each an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "ICA"). In their capacities as officers of the Fund and the Trust, such persons have sole voting power with respect to 99,100 shares and 42,000 shares, respectively. (7) As reported in Schedule 13G filed by FMR Corp. on February 14, 1997 (the "Schedule 13G"), Fidelity Management & Research Company ("Fidelity Research"), a wholly-owned subsidiary of FMR Corp. and an investment adviser registered under the IAA, beneficially owns 333,900 shares. Fidelity Low-Priced Stock Fund, an investment company registered under the ICA, beneficially owns 333,900 shares. In addition, the Schedule 13G reports that each of Edward C. Johnson III, the Chairman of FMR Corp., and FMR Corp., through its control of Fidelity Research, and certain related funds claim to have sole dispositive power as to 333,900 shares owned by such funds. The sole voting power of such shares resides in the respective Board of Trustees of each of the various funds. (8) As reported in Schedule 13G filed by Ryback Management Corporation on January 27, 1997, Lindner Growth Fund, an investment company registered under the ICA is the beneficial owner of 300,000 shares. Lindner Growth Fund is a separate series of the Lindner Investment Series Trust, an investment company registered under the ICA. Ryback Management Corporation, an investment adviser registered under the IAA, beneficially owns 19,500 shares. Ryback has the sole power to vote all 319,500 shares held by both Ryback and Lindner. (9) Includes options exercisable within 60 days to purchase 59,000 shares of Common Stock. (10) Includes 14,342 shares held jointly with Mr. Moisen's spouse and options exercisable within 60 days to purchase 22,700 shares of Common Stock. (11) Includes options exercisable within 60 days to purchase 5,000 shares of Common Stock. (12) Includes options exercisable within 60 days to purchase 3,000 shares of Common Stock. (13) Includes options exercisable within 60 days to purchase 3,083 shares of Common Stock. (14) Includes 3,000 shares held jointly with Mr. Belleville's spouse and options exercisable within 60 days to purchase 3,000 shares of Common Stock. (15) Includes options exercisable within 60 days to purchase 714 shares of Common Stock. (16) Includes options exercisable within 60 days to purchase 3,333 shares of Common Stock. (17) Includes options exercisable within 60 days to purchase 25,000 shares of Common Stock. (18) Includes options exercisable within 60 days to purchase 252,830 shares of Common Stock.
36 38 DESCRIPTION OF CAPITAL STOCK The Company's Certificate of Incorporation, as amended (the "Certificate of Incorporation"), provides for authorized capital stock of 15,000,000 shares, consisting of 14,700,000 shares of Common Stock, par value $.01 per share, and 300,000 shares of preferred stock, par value $1.00 per share ("Preferred Stock"). As of October 26, 1997, 5,099,759 shares of Common Stock were issued and outstanding and no shares of Preferred Stock were issued and outstanding. The following summary of the material terms of the capital stock of the Company does not purport to be complete and is subject to and qualified in its entirety by reference to the Certificate of Incorporation and Bylaws. COMMON STOCK All shares of Common Stock offered hereby will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock, holders of Common Stock are entitled to receive dividends on such stock if, as and when authorized and declared by the Board of Directors out of assets legally available therefor and to share ratably in the assets of the Company legally available for distribution to its shareholders in the event of the liquidation, dissolution or winding up after payment of or adequate provision for all known debts and liabilities of the Company. Each outstanding share of Common Stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors and, except as provided with respect to any other class or series of stock, the holders of such shares will possess the exclusive voting power. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of Common Stock can elect all of the directors then standing for election and the holders of the remaining shares will not be able to elect any directors. Holders of shares of Common Stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any securities of the Company. Shares of Common Stock have equal dividend, liquidation and other rights. PREFERRED STOCK The Board of Directors is authorized to issue Preferred Stock in series and to fix designations, powers, preferences, rights, qualifications, limitations or restrictions of any such series, including, without limitation, the rate and nature of dividends, the price and terms and conditions on which shares may be redeemed, the amount payable in the event of voluntary or involuntary liquidation, the terms and conditions for conversion or exchange into any other class or series of stock, voting rights, preemptive rights and other terms. To date, the Board of Directors has not so fixed any such Preferred Stock. Although no Preferred Stock is currently outstanding, because the Board of Directors has the power to establish the preferences and rights of the shares of any series of such Preferred Stock, it may afford holders of any such Preferred Stock preferences, powers and rights (including voting rights), senior to the rights of holders of Common Stock, which could adversely affect the holders of Common Stock. CERTAIN ANTI-TAKEOVER PROVISIONS Certain Effects of Authorized But Unissued Stock. Under the Certificate of Incorporation, as of October 26, 1997, after giving effect to the Offering, there were approximately 8,510,241 shares of Common Stock and 300,000 shares of Preferred Stock available for future issuance. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate corporate acquisitions. One of the effects of the existence of unissued and unreserved Common Stock and Preferred Stock may be to enable the Board of Directors to issue shares to persons friendly to current management that could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of the Company's management. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of the Company. 37 39 Delaware Business Combination Act. Section 203 (the "Delaware Business Combination Act") of the Delaware General Corporation Law generally imposes a three-year moratorium on business combinations between a Delaware corporation and an "interested stockholder" (in general, a stockholder owning 15% or more of a corporation's outstanding voting stock) or an affiliate or associate thereof unless (i) prior to an interested stockholder becoming such, the board of directors of the corporation approved either the business combination or the transaction resulting in the interested stockholder becoming such; (ii) upon consummation of the transaction resulting in an interested stockholder becoming such, the interested stockholder owns at least 85% of the voting stock outstanding at the time the transaction commenced (excluding, from the calculation of outstanding shares, shares beneficially owned by directors who are also officers and certain employee stock plans); or (iii) on or after an interested stockholder becomes such, the business combination is approved by (a) the board of directors and (b) holders of at least two-thirds of the outstanding shares (other than those shares beneficially owned by the interested stockholder) at a meeting of stockholders. The Delaware Business Combination Act applies to certain public companies incorporated in the State of Delaware unless the corporation expressly elects not to be governed by such legislation and sets forth such election in (i) the corporation's original certificate of incorporation; (ii) an amendment to the corporation's bylaws as adopted by the corporation's board of directors within 90 days of the effective date of such legislation; or (iii) an amendment to the corporation's certificate of incorporation or bylaws as approved by (in addition to any other vote required by law) a majority of the shares entitled to vote (however, such amendment would not be effective until twelve months after the date of its adoption and would not apply to any business combination between the corporation and any person who became an interested stockholder on or prior to such adoption of such amendment). The Company has not made such an election and is therefore subject to the Delaware Business Combination Act. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Wachovia Bank & Trust Co. N.A. 38 40 UNDERWRITING The underwriters named below (the "Underwriters"), for whom ABN AMRO Chicago Corporation and EVEREN Securities, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions specified in the underwriting agreement among the Company, the Representatives and the Selling Stockholders (the "Underwriting Agreement"), to purchase from the Company and the Selling Stockholders the respective number of shares of Common Stock set forth opposite their names below:
NUMBER OF SHARES UNDERWRITER OF COMMON STOCK ------------------------------------------------------------------- --------------- ABN AMRO Chicago Corporation....................................... EVEREN Securities, Inc............................................. --------- Total.................................................... 1,100,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters thereunder are subject to approval of certain legal matters by counsel and to various other conditions and that the Underwriters will be obligated to purchase all of the shares of Common Stock offered hereby (other than those shares covered by the over-allotment option described below) if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances the purchase commitments of non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers at such public offering price less a concession not in excess of $ per share, and that the Underwriters and such dealers may allow to certain other dealers, including any Underwriters, a discount not in excess of $ per share. After the initial offering to the public, the public offering price and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable by ABN AMRO Chicago Corporation, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to an aggregate of 165,000 additional shares of Common Stock at the public offering price less the underwriting discount as set forth on the cover page of this Prospectus. Such option may be exercised only to cover over-allotments in the sale of the shares of Common Stock offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Common Stock as it was obligated to purchase pursuant to the Underwriting Agreement. Each of the Company's executive officers and directors and each Selling Stockholder, who collectively will own 483,549 shares of Common Stock upon the completion of the Offering, and the Company, have agreed for a period of 90 days after the date of this Prospectus not to register for sale, sell, offer, contract to sell, grant an option for sale or otherwise dispose of or transfer any capital stock of the Company or any securities convertible into or exchangeable or exercisable for capital stock of the Company, without the prior written consent of ABN AMRO Chicago Corporation, except (i) in the case of the Company, issuances pursuant to the exercise of employee stock options granted under the Company's existing incentive plans and, 39 41 (ii) in the case of the executive officers and directors and each Selling Stockholder, permitted transfers, gifts and pledges of shares where the donees or pledgees, as the case may be, agree in writing to be bound by the terms of such agreement. The Company and the Selling Stockholders have agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Common Stock is traded on the New York Stock Exchange under the symbol "TT." The Representatives, on behalf of the Underwriters, may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of the Common Stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the Representatives to reclaim a selling concession from a syndicate member when the Common Stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the Common Stock to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time. LEGAL MATTERS The legality of the Common Stock offered hereby will be passed upon for the Company and the Selling Stockholders by Hahn Loeser & Parks LLP, Cleveland, Ohio. Certain legal matters will be passed upon for the Underwriters by Jones, Day, Reavis & Pogue, Chicago, Illinois. Jones, Day, Reavis & Pogue from time to time acts as counsel in certain matters for the Company. EXPERTS The financial statements of the Company and its consolidated subsidiaries, except The New Seeger Group (whose members are consolidated subsidiaries), as of March 31, 1996 and 1997 and for each of the three years in the period ended March 31, 1997 included in this Prospectus and the related financial statement schedule incorporated by reference in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are included and incorporated by reference herein. The financial statements of The New Seeger Group as of March 31, 1996 and for the period then ended have been audited by Arthur Andersen LLP as stated in their report included herein. Such financial statements of the Company and its consolidated subsidiaries are included herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing. The financial statements of TCR as of December 31, 1996 and 1995 and for the years then ended incorporated by reference in this Prospectus have been audited by Ocel, Heimer & Associates, Ltd., independent auditors, as stated in their report incorporated by reference herein. Such financial statements of TCR are incorporated by reference herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. Each of the foregoing firms are independent auditors. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-2 (of which this Prospectus is a part) under the Securities Act, with respect to the securities offered hereby. This Prospectus does not contain all information set forth in the Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. For further information about the Company and the securities offered hereby, reference is made to the Registration Statement, including the exhibits filed as a part thereof and otherwise incorporated therein. Statements made in this Prospectus as to 40 42 the contents of any document referred to are not necessarily complete, and in each instance reference is made to such exhibit for a more complete description and each such statement is qualified in its entirety by such reference. The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith files periodic reports, proxy statements and other information with the Commission. The Registration Statement, including exhibits thereto, as well as such reports, proxy statements and other information filed by the Company with the Commission can be inspected, without charge, and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. The Common Stock is listed on the New York Stock Exchange. Reports, proxy statements and other information filed by the Company with the Commission may be inspected and copied at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the Commission and that is located at http://www.sec.gov. The Registration Statement was filed electronically with the Commission. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission pursuant to the Exchange Act are incorporated by reference in this Prospectus and made a part hereof: the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997; the Company's Current Reports on Form 8-K dated April 29, 1997 (as amended by Form 8-K/A) and October 17, 1997; and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997. Any statement contained in any document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies, supersedes or replaces such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, upon written or oral request of any such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference in such documents). Requests for such copies should be directed to TransTechnology Corporation, 150 Allen Road, Liberty Corner, New Jersey 07938, telephone number (908) 903-1600, Attention: Gerald C. Harvey, Vice President, Secretary and General Counsel. 41 43 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- TransTechnology Corporation and Subsidiaries: Audited Financial Statements Independent Auditors' Reports....................................................... F-2 Consolidated Balance Sheets as of March 31, 1997 and 1996........................... F-4 Statements of Consolidated Operations for the Years Ended March 31, 1997, 1996 and 1995............................................................................. F-5 Statements of Consolidated Cash Flows for the Years Ended March 31, 1997, 1996 and 1995............................................................................. F-6 Statements of Consolidated Stockholders' Equity for the Years Ended March 31, 1997, 1996 and 1995.................................................................... F-7 Notes to Consolidated Financial Statements.......................................... F-8 Unaudited Financial Statements Condensed Consolidated Balance Sheets as of June 29, 1997 and March 31, 1997........ F-23 Condensed Statements of Consolidated Operations for the Three Months Ended June 29, 1997 and June 30, 1996........................................................... F-24 Condensed Statements of Consolidated Cash Flows for the Three Months Ended June 29, 1997 and June 30, 1996........................................................... F-25 Condensed Statements of Consolidated Stockholders' Equity for the Three Months Ended June 29, 1997.................................................................... F-26 Notes to Condensed Consolidated Financial Statements................................ F-27
F-1 44 INDEPENDENT AUDITORS' REPORT To The Stockholders and the Board of Directors of TransTechnology Corporation: We have audited the accompanying consolidated balance sheets of TransTechnology Corporation and subsidiaries as of March 31, 1997 and 1996, and the related statements of consolidated operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997. 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 did not audit the financial statements of The New Seeger Group (whose members are consolidated subsidiaries) for the period ended March 31, 1996, which statements reflect total assets and total revenues constituting 32% and 28%, respectively, of the related consolidated totals for the year. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for The New Seeger Group for the period ended March 31, 1996, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of TransTechnology Corporation and subsidiaries at March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey May 12, 1997 F-2 45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of The New Seeger Group: We have audited the accompanying combined balance sheet in U.S. Dollars of The New Seeger Group (as defined in notes 1 and 3) as of March 31, 1996, and the related combined statements of income, shareholders' equity and cash flows for the period July 1, 1995 though March 31, 1996 which, as described in Note 3, have been prepared on the basis of accounting principles generally accepted in the United States. These financial statements are the responsibility of The New Seeger Group's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements in U.S. Dollars referred to above present fairly, in all material respects, the financial position of The New Seeger Group as of March 31, 1996, and the results of their operations and their cash flows for the period July 1, 1995 through March 31, 1996, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN Wirtschaftsprufungsgestllschaft Steuerberatungsgesellschaft mbH /s/ LAUPENMUHLEN Laupenmuhlen Wirtschaftsprufer (certified auditor) /s/ KUGLER Kugler Wirtschaftsprufer (certified auditor) Eschborn/Frankfurt/M. May 28, 1996 F-3 46 TRANSTECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, --------------------- 1997 1996 -------- -------- Assets Current Assets: Cash and cash equivalents...................................................... $ 3,540 $ 2,362 Accounts receivable (net of allowance for doubtful accounts of $588 and $735 in 1997 and 1996, respectively)................................................. 28,392 28,368 Notes receivable............................................................... 1,838 1,258 Inventories.................................................................... 50,677 50,551 Prepaid expenses and other current assets...................................... 1,028 1,726 Deferred income taxes.......................................................... 4,293 1,037 Assets held for sale........................................................... 7,617 9,980 -------- -------- Total current assets.................................................... 97,385 95,282 -------- -------- Property: Land........................................................................... 12,272 12,616 Buildings...................................................................... 20,636 20,523 Machinery and equipment........................................................ 42,760 39,600 Furniture and fixtures......................................................... 6,349 5,398 Leasehold improvements......................................................... 190 189 -------- -------- Total................................................................... 82,207 78,326 Less accumulated depreciation and amortization................................. 23,594 17,749 -------- -------- Property -- net......................................................... 58,613 60,577 -------- -------- Other Assets: Notes receivable............................................................... 11,125 12,824 Costs in excess of net assets of acquired businesses (net of accumulated amortization of $3,869 and $3,308 in 1997 and 1996, respectively)............ 18,878 16,411 Other.......................................................................... 13,135 14,273 -------- -------- Total other assets...................................................... 43,138 43,508 -------- -------- TOTAL............................................................................ $199,136 $199,367 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Current portion of long-term debt.............................................. $ 5,907 $ 6,026 Accounts payable -- trade...................................................... 11,050 14,719 Accrued compensation........................................................... 6,845 6,473 Accrued income taxes........................................................... 1,632 1,415 Other current liabilities...................................................... 12,844 9,301 -------- -------- Total current liabilities............................................... 38,278 37,934 -------- -------- Long-term Debt Payable to Banks and Others....................................... 67,516 72,565 -------- -------- Other Long-term Liabilities...................................................... 15,898 16,398 -------- -------- Commitments and Contingencies Stockholders' Equity: Preferred stock -- authorized, 300,000 shares; none issued Common stock -- authorized, 14,700,000 shares of $.01 par value; issued, 5,316,971 and 5,276,463 shares in 1997 and 1996, respectively................ 53 53 Additional paid-in capital..................................................... 46,745 46,188 Retained earnings.............................................................. 36,937 29,467 Other stockholders' equity..................................................... (2,352) (1,083) -------- -------- 81,383 74,625 Less treasury stock, at cost -- 289,237 and 177,500 shares in 1997 and 1996, respectively................................................................. (3,939) (2,155) -------- -------- Total stockholders' equity.............................................. 77,444 72,470 -------- -------- TOTAL............................................................................ $199,136 $199,367 ======== ========
See notes to consolidated financial statements. F-4 47 TRANSTECHNOLOGY CORPORATION STATEMENTS OF CONSOLIDATED OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED MARCH 31, ------------------------------------- 1997 1996 1995 --------- --------- --------- Net sales................................................. $ 178,684 $ 158,024 $ 101,122 Cost of sales............................................. 122,480 107,426 71,968 --------- --------- --------- Gross profit.................................... 56,204 50,598 29,154 General, administrative and selling expenses.............. 35,309 31,812 17,051 Interest expense.......................................... 6,797 6,316 2,831 Interest income........................................... (1,202) (1,010) (760) Royalty and other income.................................. (1,320) (820) (810) --------- --------- --------- Income from continuing operations before income taxes..... 16,620 14,300 10,842 Income taxes.............................................. 6,898 5,792 3,457 --------- --------- --------- Income from continuing operations......................... 9,722 8,508 7,385 Discontinued operations: Loss from operations (net of applicable tax benefits of $323 and $1,619 for 1996 and 1995, respectively)..... -- (517) (2,602) Loss from disposal (net of applicable tax benefits of $663, $1,077 and $1,400 for 1997, 1996 and 1995, respectively)........................................ (934) (617) (2,250) --------- --------- --------- Net income.............................................. $ 8,788 $ 7,374 $ 2,533 ========= ========= ========= Earnings per share: Income from continuing operations....................... $ 1.92 $ 1.67 $ 1.45 Loss from discontinued operations....................... (0.18) (0.22) (0.95) --------- --------- --------- Net income.............................................. $ 1.74 $ 1.45 $ 0.50 ========= ========= ========= Number of shares used in computation of per share information............................................. 5,064,000 5,093,000 5,109,000
See notes to consolidated financial statements. F-5 48 TRANSTECHNOLOGY CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)
YEARS ENDED MARCH 31, ---------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................... $ 8,788 $ 7,374 $ 2,533 Adjustments to reconcile net income to net cash provided by operating activities: Loss recognized on write down of marketable securities.......................................... -- 2,613 -- Depreciation and amortization......................... 7,406 6,027 5,349 Provision for losses on accounts receivable........... 139 468 65 Loss (gain) on sale or disposal of fixed assets and discontinued businesses............................. 64 (307) 704 Change in assets and liabilities -- net of acquisitions and dispositions: (Increase) decrease in accounts receivable.......... (620) 4,290 (2,672) Decrease (increase) in inventories.................. 191 (6,098) 5,595 Decrease (increase) in assets held for sale......... 262 (1,915) (3,672) (Increase) decrease in other assets................. (453) 4,825 (2,521) (Decrease) increase in accounts payable............. (3,650) 462 3,211 Increase in accrued compensation.................... 553 2,226 1,041 Increase (decrease) in income tax payable........... 242 (676) (121) Increase (decrease) in other liabilities............ 1,385 (8,577) (2,043) -------- -------- -------- Net cash provided by operating activities........... 14,307 10,712 7,469 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions.................................... (3,602) (45,594) (15,952) Capital expenditures..................................... (5,477) (6,471) (5,033) Proceeds from sale of fixed assets and discontinued business.............................................. 2,705 8,111 6,977 Decrease in notes receivable............................. 1,119 1,055 2,515 -------- -------- -------- Net cash used in investing activities................. (5,255) (42,899) (11,493) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings....................... 40,105 107,363 42,019 Payments on long-term debt............................... (45,273) (73,156) (36,289) Proceeds from issuance of stock under stock option plan.................................................. 365 188 202 Treasury stock purchases................................. (1,625) (65) (2,090) Dividends paid........................................... (1,318) (1,325) (1,301) -------- -------- -------- Net cash (used in) provided by financing activities...... (7,746) 33,005 2,541 -------- -------- -------- Effect of exchange rate changes on cash.................. (128) -- -- Increase (decrease) in cash and cash equivalents......... 1,178 818 (1,483) Cash and cash equivalents at beginning of year........... 2,362 1,544 3,027 -------- -------- -------- Cash and cash equivalents at end of year................. $ 3,540 $ 2,362 $ 1,544 ======== ======== ======== Supplemental information: Interest payments........................................ $ 6,606 $ 5,036 $ 3,054 Income tax payments...................................... $ 3,810 $ 1,989 $ 1,573
See notes to consolidated financial statements. F-6 49 TRANSTECHNOLOGY CORPORATION STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED COMMON STOCK TREASURY STOCK ADDITIONAL OTHER MARCH 31, 1997, ------------------- ------------------- PAID-IN RETAINED STOCKHOLDERS' 1996 AND 1995 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY TOTAL - ------------------------------ --------- ------ -------- ------- ---------- -------- ------------- ------- BALANCE, MARCH 31, 1994....... 5,189,104 $ 52 -- $ -- $ 45,283 $ 22,186 $(1,568) $65,953 Net income.................. -- -- -- -- -- 2,533 -- 2,533 Cash dividends ($.255 per share).................... -- -- -- -- -- (1,301) -- (1,301) Purchase of treasury stock..................... -- -- (172,500) (2,090) -- -- -- (2,090) Issuance of stock under stock option plan......... 24,789 -- -- -- 202 -- -- 202 Issuance of stock under incentive bonus plan -- net............... 28,423 -- -- -- 317 -- (122) 195 Foreign translation adjustments............... -- -- -- -- -- -- 54 54 Unrealized investment holding losses............ -- -- -- -- -- -- (1,044) (1,044) --------- --- -------- ------- ------- ------- ------- -------- BALANCE, MARCH 31, 1995....... 5,242,316 52 (172,500) (2,090) 45,802 23,418 (2,680) 64,502 Net income.................. -- -- -- -- -- 7,374 -- 7,374 Cash dividends ($.26 per share).................... -- -- -- -- -- (1,325) -- (1,325) Purchase of treasury stock..................... -- -- (5,000) (65) -- -- -- (65) Issuance of stock under stock option plan......... 20,308 1 -- -- 187 -- -- 188 Issuance of stock under incentive bonus plan -- net............... 13,839 -- -- -- 199 -- (122) 77 Foreign translation adjustments............... -- -- -- -- -- -- (894) (894) Realized investment holding losses.................... -- -- -- -- -- -- 2,613 2,613 --------- --- -------- ------- ------- ------- ------- -------- BALANCE, MARCH 31, 1996....... 5,276,463 53 (177,500) (2,155) 46,188 29,467 (1,083) 72,470 Net income.................. -- -- -- -- -- 8,788 -- 8,788 Cash dividends ($.26 per share).................... -- -- -- -- -- (1,318) -- (1,318) Purchase of treasury stock..................... -- -- (100,000) (1,625) -- -- -- (1,625) Issuance of stock under stock option plan......... 30,381 -- -- -- 365 -- -- 365 Issuance of stock under incentive bonus plan -- net............... 10,127 -- (11,737) (159) 192 -- 75 108 Foreign translation adjustments............... -- -- -- -- -- -- (1,061) (1,061) Unrealized investment holding losses............ -- -- -- -- -- -- (283) (283) --------- --- -------- ------- ------- ------- ------- -------- BALANCE, MARCH 31, 1997....... 5,316,971 $ 53 (289,237) $(3,939) $ 46,745 $ 36,937 $(2,352) $77,444 ========= === ======== ======= ======= ======= ======= ========
See notes to consolidated financial statements. F-7 50 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING PRINCIPLES TransTechnology Corporation (the "Company") develops, manufactures and sells a wide range of products in two industry segments, Specialty Fastener Products and Rescue Hoist and Cargo Hook Products. The Company has manufacturing facilities located in the United States, Germany, the United Kingdom and Brazil. The Specialty Fastener Products Segment produces highly engineered precision metal retaining rings, clamps, circlips and other fasteners primarily for the automotive, heavy truck, industrial and toy markets and accounted for approximately 81% of the Company's consolidated 1997 net sales. Through its Rescue Hoist and Cargo Hook Products Segment, the Company develops, manufactures, sells and services a complete line of sophisticated lifting and restraining products -- principally helicopter rescue hoist and cargo hook systems, and winches and hoists for aircraft and weapons systems, and accounted for approximately 19% of the Company's consolidated 1997 net sales. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation -- The accompanying consolidated financial statements include the accounts of TransTechnology Corporation and its subsidiaries, all of which are wholly-owned. Intercompany balances and transactions are eliminated in consolidation. Related Party -- Research Industries Incorporated owns approximately 22% of the Company's outstanding common stock. Two former directors of the Company are the only shareholders of Research Industries Incorporated and each of these directors had a consulting contract with the Company that expired during fiscal 1995. During fiscal 1995, the Company expensed and paid $0.7 million for these contracts. Accounting for Contracts -- All of the Company's contracts are firm fixed-price. Sales and cost of sales on such contracts are recorded as deliveries are made. Losses on contracts are recorded as they are identified. Cash and Cash Equivalents -- The Company considers all highly liquid investments with a maturity at date of acquisition of three months or less to be cash equivalents. Accounts Receivable -- Accounts receivable from the United States Government represent billed receivables and substantially all amounts are expected to be collected within one year. The Company has no amounts billed under retainage provisions of contracts. Inventories -- Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Cost includes material, labor and manufacturing overhead costs. Property and Related Depreciation and Amortization -- Provisions for depreciation are made on a straight-line basis over the estimated useful lives of depreciable assets ranging from three to thirty years. Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the estimated useful lives of the improvements or the terms of the leases. In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During 1997 the Company adopted this statement and determined that no impairment loss need be recognized for applicable assets. F-8 51 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Costs in Excess of Net Assets of Acquired Businesses -- The difference between the purchase price and the fair value of the net assets of acquired businesses is included in the accompanying Consolidated Balance Sheets under the caption "Costs in Excess of Net Assets of Acquired Businesses" and is being amortized over 40 years, or shorter periods where deemed appropriate. The Company has determined that there is no impairment in value since projected future operating results on an undiscounted basis through the period such costs in excess of net assets of acquired businesses are being amortized are expected to be sufficient to absorb the amortization. Earnings per Share -- Earnings per share are based on the weighted average number of common shares and, if dilutive, common stock equivalents (stock options) outstanding during each year. Research and Development and Engineering Costs -- Research and development and engineering costs in support of active products, which are charged to expense when incurred, amounted to $2.0 million, $1.7 million and $1.4 million in 1997, 1996 and 1995, respectively. Included in these amounts were expenditures of $0.8 million, $0.9 million and $0.4 million in 1997, 1996 and 1995, respectively, which represent costs related to research and development activities. Foreign Currency Translation -- Pursuant to Statement of Financial Accounting Standards No. 52, the assets and liabilities of the Company's international operations, other than the operations located in a highly inflationary country, have been translated into U.S. dollars at year-end exchange rates, with resulting translation gains and losses accumulated as a separate component of other stockholders' equity. Income and expense items are converted into U.S. dollars at average rates of exchange prevailing during the year. Translation adjustments of the operation located in a country with a highly inflationary economy, are included as a component of operating income. Income Taxes -- Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Investments -- On March 1, 1994, the Company received 465,000 shares of Mace Security International common stock, valued at $3.4 million, as partial consideration for the sale of a division. In the fourth quarter of 1996, the Company recorded a $2.6 million pretax charge to continuing operations to write down the carrying value of these shares to their current market value as the decline in value of these shares was determined to be other than temporary. Gross unrealized holding losses of $0.3 million were reported as a reduction of other stockholders' equity in the March 31, 1997 balance sheet. Financial Instruments -- The Company does not hold or issue financial instruments for trading purposes. Amounts to be paid or received under interest rate swap agreements are recognized as increases or reductions in interest expense in the periods in which they accrue. The Company enters into off-balance sheet forward foreign exchange instruments in order to hedge purchase commitments and certain foreign denominated long-term debt. Gains and losses on these instruments are included in other income/expense. New Accounting Standards -- In February 1997, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 establishes standards for computing and presenting earnings per share and is effective for the Company's fiscal year ending March 31, 1998. The Company believes that the effect of implementing this standard will not effect results differently than currently reported. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which will be effective for the Company beginning in the fiscal year ending March 31, 1999. SFAS No. 131 redefines how operating segments are determined and requires expanded quantitative and qualitative disclosures relating to a F-9 52 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED company's operating segments. The Company has not yet completed its analysis of which operating segments, if any, it will disclose differently than previously reported. Reclassifications -- Certain reclassifications have been made to prior years to conform to the 1997 presentation. 2. DISCONTINUED OPERATIONS In June 1995 and January 1996, the Company sold the domestic and European portions of its computer graphics service operations, respectively, in two separate transactions to two different buyers. These businesses operated under the name TransTechnology Systems & Services and were classified as discontinued operations in March 1995. The sale of the domestic portion for $0.7 million in cash and $0.6 million in notes receivable was for book value, and the sale of the European portion for $0.1 million in cash and $0.2 million in notes receivable resulted in an after-tax gain on disposal of $0.1 million in 1996. Additional after-tax disposal costs of $0.2 million were recorded in 1997 in connection with these sales. In August 1995, the Company sold its Electronics division for $4.4 million in cash and $9.6 million in notes receivable. The sale of this operation resulted in an after-tax gain on disposal of $0.2 million. In March 1995, the Company sold substantially all of the assets and business of its chaff products operation for $6.7 million in cash. The sale of this operation resulted in an after-tax loss on disposal of $0.4 million. Additional after-tax disposal costs of $0.2 million were recorded in 1996 in connection with the sale. The Company retained the chaff avionics product line and negotiated its sale separately in May 1995 for $0.3 million in cash and $0.7 million in notes receivable, resulting in an after-tax charge of $0.4 million. In the fourth quarter of 1996, the Company recorded an after-tax charge of $0.4 million to record the anticipated loss on the sale of the facility that was formerly used by this operation. Additional after-tax disposal costs of $0.1 million were recorded in 1997 related to the final sale of this facility. Additional after-tax costs of $0.6 million, $0.7 million and $1.9 million were recorded in 1997, 1996 and 1995, respectively, in connection with other previously discontinued and sold operations. These additional costs represent adjustments to previous estimates related primarily to legal and environmental matters. Operating results of the discontinued businesses were as follows (in thousands):
1996 1995 ------ ------- Total sales................................................... $7,951 $35,515 ====== ======= Loss before income taxes...................................... $ (840) $(4,221) Income tax benefit............................................ 323 1,619 ------ ------- Loss from operations.......................................... $ (517) $(2,602) ====== =======
The loss from operations includes interest expense of $0.2 million and $0.5 million in 1996 and 1995, respectively. Assets held for sale at March 31, 1997 and 1996 were as follows (in thousands):
1997 1996 ------ ------ Inventory...................................................... $ 429 $ 529 Property....................................................... 6,577 8,039 Other assets................................................... 611 1,412 ------ ------ Assets held for sale........................................... $7,617 $9,980 ====== ======
F-10 53 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 3. ACQUISITIONS On June 18, 1996, the Company acquired the Pebra hose clamp business from Pebra GmbH Paul Braun i.K. for approximately $3.0 million in cash plus direct acquisition costs. Pebra manufactures heavy duty hose clamps primarily for use in the manufacture of heavy trucks in Europe. On June 30, 1995, the Company acquired the Seeger Group of companies from a unit of AB SKF of Goteborg, Sweden for approximately $43.0 million in cash plus direct acquisition costs and the assumption of trade debts and accrued expenses. The Seeger Group, headquartered in Konigstein, Germany, manufactures circlips, snap rings and retaining rings. Effective August 31, 1994, the Company acquired all of the outstanding capital stock of Industrial Retaining Ring Company and its affiliated companies for a total purchase price of $15.3 million in cash and the assumption of liabilities. Industrial Retaining Ring Company manufactures retaining rings and clips used primarily in the heavy equipment and industrial machinery industries. 4. INVENTORIES Inventories at March 31 consisted of the following (in thousands):
1997 1996 ------- ------- Finished goods............................................... $21,897 $22,645 Work in process.............................................. 10,335 9,326 Purchased and manufactured parts............................. 18,445 18,580 ------- ------- Total........................................................ $50,677 $50,551 ======= =======
5. INCOME TAXES The components of total income (loss) from operations (including continuing and discontinued operations) before income taxes were (in thousands):
1997 1996 1995 ------- ------- ------ Domestic............................................ $12,167 $ 8,124 $3,694 Foreign............................................. 2,856 3,642 (723) ------- ------- ------ Total..................................... $15,023 $11,766 $2,971 ======= ======= ======
The provision for income taxes is summarized below (in thousands):
1997 1996 1995 ------ ------ ---- Currently payable: Domestic............................................. $3,549 $1,813 $140 Foreign.............................................. 42 656 -- State................................................ 975 517 208 ------ ------ ---- 4,566 2,986 348 Deferred............................................... 1,669 1,406 90 ------ ------ ---- Total........................................ $6,235 $4,392 $438 ====== ====== ====
F-11 54 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The provision (benefit) for income taxes is allocated between continuing and discontinued operations as summarized below (in thousands):
1997 1996 1995 ------ ------- ------- Continuing.......................................... $6,898 $ 5,792 $ 3,457 Discontinued........................................ (663) (1,400) (3,019) ------ ------- ------- Total..................................... $6,235 $ 4,392 $ 438 ====== ======= =======
The consolidated effective tax rates for continuing operations differ from the federal statutory rates as follows:
1997 1996 1995 ---- ---- ---- Statutory federal rate...................................... 35.0% 34.0% 34.0% State income taxes after federal income tax................. 4.5 3.6 4.6 Earnings of the foreign sales corporation................... (2.0) (2.6) (2.6) Amortization of purchase adjustments not deductible for tax purposes.................................................. -- 1.9 1.0 Revision of prior years' tax accruals....................... -- -- (5.1) Foreign rate differential................................... 2.4 2.6 -- Other....................................................... 1.6 1.0 -- ---- ---- ---- Consolidated effective tax rate............................. 41.5% 40.5% 31.9% ==== ==== ====
The following is an analysis of accumulated deferred income taxes (in thousands):
1997 1996 ------- ------ Assets: Current: Inventory................................................ $ 2,025 $ 969 Net operating loss....................................... 650 -- Tax basis in excess of book basis on disposal of subsidiary............................................. 640 -- Other.................................................... 978 68 ------- ------ Total current....................................... 4,293 1,037 Noncurrent: Environmental............................................ 917 1,067 Purchase accounting adjustments.......................... 2,068 3,820 Investment............................................... 1,128 1,049 Net operating loss....................................... 1,618 -- Other.................................................... -- 737 ------- ------ Total noncurrent.................................... 5,731 6,673 ------- ------ Total assets.................................................. $10,024 $7,710 ======= ====== Liabilities: Noncurrent: Depreciation............................................. $ 3,765 $1,200 Purchase accounting adjustments.......................... 2,097 2,097 Other.................................................... 938 605 ------- ------ Total liabilities............................................. $ 6,800 $3,902 ======= ======
F-12 55 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Summary -- accumulated deferred income taxes (in thousands):
1997 1996 ------- ------ Net current assets............................................ $ 4,293 $1,037 Net noncurrent (liabilities) assets........................... (1,069) 2,771 ------- ------ Total............................................... $ 3,224 $3,808 ======= ======
6. LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS Long-term debt payable, including current maturities, at March 31 consisted of the following (in thousands):
1997 1996 ------- ------- Credit agreement -- 7.580%................................... $22,825 $ -- Credit agreement -- 7.965%................................... -- 21,420 Term loan -- 7.50%........................................... 25,289 -- Term loan -- 7.804%.......................................... -- 31,320 Term loan -- 9.79%........................................... 24,500 25,000 Other........................................................ 809 851 ------- ------- 73,423 78,591 Less current maturities...................................... 5,907 6,026 ------- ------- Total.............................................. $67,516 $72,565 ======= =======
Credit Agreement -- At March 31, 1997, the Company's debt consisted of $16.7 million of borrowings under a revolving credit line, $6.1 million of borrowings under international lines of credit, a $25.3 million term loan, a $24.5 million term loan and $0.8 million of other borrowings. The revolving bank credit line commitment as amended on December 31, 1996 is $30.0 million, will be available to the Company through December 31, 2000 and is subject to a borrowing base formula. The agreement provides for borrowings and letters of credit based on collateralized accounts receivable and inventory. In addition, all of the remaining assets of the Company and its subsidiaries are included as collateral. Letters of credit, which are included in the borrowing base formula, are limited to $5.0 million. Letters of credit under the line at March 31, 1997 were $0.1 million. The total commitment from the international lines of credit as amended on December 31, 1996 is $10.0 million and has the same availability and collateral as the revolving credit line, but is not subject to a borrowing base formula. Interest on the revolver and international lines of credit are tied to the primary bank's prime rate, or, at the Company's option, the London Interbank Offered Rate (LIBOR) plus a margin that varies depending upon the Company's achievement of certain operating and financial goals. The $25.3 million (which includes $7.6 million and $6.3 million payable in Deutsche Mark and pound sterling, respectively) and $24.5 million term loans are with the same lenders as the revolving and international lines of credit, are secured by the same collateral, and are due and payable on March 31, and June 30, 2002, respectively. The $25.3 million term loan had an additional $15.0 million available through March 1997 for future acquisitions. Quarterly principal payments on the $25.3 million term loan of $1.4 million, with escalations to $1.8 million and $2.8 million in June 1999 and June 2000, respectively, began on December 31, 1995, and are due and payable on the last day of each quarter through December 31, 2000. Interest on the $25.3 million term loan is tied to the lending bank's prime rate, or LIBOR, plus a margin that varies, depending on the Company's achievement of certain operating and financial goals. Principal payments on the $24.5 million term loan of $0.5 million are due and payable annually beginning on June 30, 1996 through June 30, 2000, with final balloon payments of $7.5 million and $15.0 million due and payable on June 30, 2001 and June 30, 2002, respectively. Interest on the $24.5 million term loan accrues at the primary F-13 56 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED lending bank's prime rate plus two percentage points. The agreement also gives the Company the option of using LIBOR plus three and one-quarter percentage points. At March 31, 1997, the Company had $49.9 million of borrowings utilizing LIBOR. The agreement as amended March 31, 1997, provides for additional term loans of $20.0 million. The credit facility limits the Company's ability to pay dividends to 25% of net income and restricts capital expenditures to $9.0 million annually, as well as containing other customary financial covenants. Other -- Other long-term debt is comprised principally of an obligation due under a collateralized borrowing arrangement with a fixed interest rate of 3% due December 2004 and loans on life insurance policies owned by the Company with a fixed interest rate of 5%.
DEBT MATURITIES (IN THOUSANDS): -------------------------------------------------------------------------- 1998 (current)............................................................ $ 5,907 1999...................................................................... 5,852 2000...................................................................... 7,180 2001...................................................................... 8,588 2002...................................................................... 30,373 Thereafter................................................................ 15,523 ------- Total................................................................... $73,423 =======
7. STOCKHOLDERS' EQUITY AND EMPLOYEE/DIRECTOR STOCK OPTIONS Under the terms of the Company's amended and restated 1992 long-term incentive plan, 570 thousand of the Company's common shares may be granted as stock options or awarded as restricted stock to officers, directors and certain employees of the Company through September 2002. Option exercise prices equal the market price of the common shares at their grant dates. Options expire not later than five years after the date of the grant. Options granted vest ratably over three years beginning one year after the date of grant. Restricted stock is payable in equivalent number of common shares; the shares are distributable in a single installment and vest ratably over a three year period from the date of the award. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," in October 1995. Under SFAS No. 123, companies can either continue to account for stock compensation plans pursuant to existing accounting standards or elect to expense the value derived from using an option pricing model such as Black-Scholes. The Company will continue to apply existing accounting standards. However, SFAS No. 123 requires disclosure of pro forma net income and earnings per share as if the Company had adopted the expensing provisions of SFAS No. 123. Based on Black-Scholes values, pro forma net income for 1997 and 1996 would be $8.7 million and $7.4 million, respectively; pro forma earnings per common share for 1997 and 1996 would be $1.73 and $1.45, respectively. F-14 57 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table summarizes stock option activity over the past two years under the plan:
WEIGHTED-AVERAGE NUMBER EXERCISE OF SHARES PRICE --------- ---------------- Outstanding at April 1, 1995.............................. 375,015 $12.37 Granted................................................. 109,000 12.40 Exercised............................................... (20,308) 9.22 Canceled or expired..................................... (55,111) 13.12 ------- Outstanding at March 31, 1996............................. 408,596 12.62 Granted................................................. 97,000 16.85 Exercised............................................... (30,381) 12.04 Canceled or expired..................................... (11,001) 12.55 ------- Outstanding at March 31, 1997............................. 464,214 13.54 ======= Options exercisable at March 31, 1996..................... 177,253 11.97 Options exercisable at March 31, 1997..................... 264,211 12.26
In 1997 and 1996, the Company awarded restricted stock totaling 6,435 and 18,267 shares, respectively. The weighted-average fair value of this restricted stock was $17.25 and $13.33 in 1997 and 1996, respectively. The expense recorded in 1997 and 1996 for restricted stock awards was $159 thousand and $122 thousand, respectively. The weighted-average Black-Scholes value per option granted in 1997 and 1996 was $13.55 and $10.28, respectively. The following weighted-average assumptions were used in the Black-Scholes option pricing model for options granted in 1997 and 1996:
1997 1996 ---- ---- Dividend yield....................................................... 1.4% 2.0% Volatility........................................................... 29.0% 25.0% Risk-free interest rate.............................................. 6.2% 5.7% Expected term of options (in years).................................. 4 4
For options outstanding and exercisable at March 31, 1997, the exercise price ranges and average remaining lives were:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------- ----------------------------------- RANGE OF NUMBER WEIGHTED- NUMBER WEIGHTED-AVERAGE EXERCISE OUTSTANDING AT WEIGHTED-AVERAGE AVERAGE EXERCISABLE AT EXERCISE PRICES MARCH 31, 1997 REMAINING LIFE EXERCISE PRICE MARCH 31, 1997 PRICE - -------------- -------------- ---------------- --------------- -------------- ---------------- $ 9 to $14 232,214 2 $ 11.24 174,213 $10.77 $15 to $19 232,000 3 15.85 89,998 15.13 ------- ------- 464,214 3 $ 13.54 264,211 $12.26 ======= =======
8. EMPLOYEE BENEFIT PLANS The Company has an incentive bonus plan which provides for cash payments to selected employees based upon formulas approved by the Board of Directors. Provisions for awards under the plan approximated $1.6 million, $1.7 million and $1.2 million in 1997, 1996 and 1995, respectively. The Company has two defined contribution plans covering substantially all domestic employees. Contributions are based on certain percentages of an employee's eligible compensation. Expenses related to these plans were $2.5 million, $2.2 million and $1.6 million in 1997, 1996 and 1995, respectively. F-15 58 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The Company provides postretirement benefits to union employees at one of the Company's divisions. The Company continues to fund these benefits on a pay-as-you-go basis. The components of net postretirement benefit cost for the years ended March 31 were as follows (in thousands):
1997 1996 1995 ---- ---- ---- Service cost (benefits earned during the year)................. $ 3 $ 88 $ 94 Interest cost on projected postretirement benefit obligation... 79 168 168 Amortization of transition obligation.......................... -- 101 101 Amortization of net gain -- (10) -- --- ---- ---- Total postretirement benefit cost.................... $82 $347 $363 === ==== ====
The accumulated postretirement benefit obligation and funded status at March 31 were as follows (in thousands):
1997 1996 ------- ------- Accumulated postretirement benefit obligation: Retirees...................................................... $ (920) $ (774) Fully eligible plan participants.............................. (20) (365) Other active plan participants................................ (70) (1,161) ------- ------- Accumulated postretirement benefit obligation in excess of plan assets........................................................ (1,010) (2,300) Unrecognized net gain........................................... (6) (217) Unrecognized transition obligation -- 1,724 ------- ------- Accrued postretirement benefit liability........................ $(1,016) $ (793) ======= =======
As of March 31, 1997 the Plan was amended reducing the remaining service lives of participants and limiting certain benefits provided by the Plan. The curtailment resulted in an additional 1997 expense of approximately $530 thousand. Accrued postretirement benefit cost is included in other liabilities on the balance sheet. The assumed health care cost trend rates used for measurement purposes was 12% for 1997 and 1996, trending down 1% each year to 10% in 1999 and then decreasing .5% each year to 6% in 2007 and beyond, for substantially all participants. The weighted-average discount rate used was 7.5% at March 31, 1997 and 1996. A 1% increase in health care trend rate would increase the annual expense by approximately 12.2% for the year ended March 31, 1997 and accumulated postretirement benefit obligation by approximately 13.6% at March 31, 1997. In addition, the Company maintains several defined benefit retirement plans for certain non-U.S. employees. Funding policies are based on local statutes. Net periodic pension cost for the plans for the years ended March 31 includes the following (in thousands):
1997 1996 ---- ---- Service cost......................................................... $ 49 $ 40 Interest cost........................................................ 436 343 Net deferral and amortization........................................ 43 34 ---- ---- Net periodic pension cost............................................ $528 $417 ==== ====
F-16 59 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table sets forth the funded status of the plans at March 31 (in thousands):
1997 1996 ------ ------ Total accumulated benefit obligation.............................. $5,408 $6,370 ------ ------ Projected benefit obligation...................................... $5,489 $6,615 Unrecognized net gain (loss)...................................... 75 (245) ------ ------ Unfunded accrued pension cost (included in other long-term liabilities).................................................... $5,564 $6,370 ====== ======
In determining the projected benefit obligation, the discount rates were 7.25% and 7.5% at March 31, 1997 and 1996, respectively, and the rates of salary increases were 2.5% and 3% in 1997 and 1996, respectively. 9. FINANCIAL INSTRUMENTS Interest Rate Swap Agreements -- The Company periodically enters into interest rate swap agreements to effectively convert all or a portion of its floating-rate debt to fixed-rate debt in order to reduce the Company's risk to movements in interest rates. Such agreements involve the exchange of fixed and floating interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. Accordingly, the impact of fluctuations in interest rates on these interest rate swap agreements is fully offset by the opposite impact on the related debt. Swap agreements are only entered into with strong creditworthy counterparties. The swap agreements in effect were as follows:
RECEIVE MATURITIES RATE(1) PAY RATE NOTIONAL ---------- ------- -------- AMOUNT -------------- (IN THOUSANDS) March 31, 1997............................ $25,000 8/98 5.56% 6.54% DM12,648 12/98 3.31% 4.57% March 31, 1996............................ $25,000 8/98 5.88% 6.54% DM15,313 12/98 3.36% 4.57%
- --------------- (1) Based on three-month LIBOR Foreign Currency Exchange Agreements -- The Company enters into forward foreign currency agreements to hedge foreign currency denominated debt instruments. Realized and unrealized gains and losses arising from forward currency contracts are recognized as adjustments to the gains and losses resulting from the underlying hedged transactions. In addition, the Company enters into forward currency contracts to hedge certain foreign currency purchase commitments. Gains and losses from these transactions are included in the cost of the underlying purchases. The table below summarizes by currency the contractual amounts of the Company's foreign exchange contracts at March 31, 1997. The "Buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent to sell foreign currencies (in thousands):
1997 1996 -------------- -------------- CURRENCY BUY SELL BUY SELL ------------------------------------------------ --- ------- ------ ---- Deutsche Mark................................... $96 $11,992 $1,015 $-- Pound Sterling.................................. -- 1,459 -- -- -- --- ------- ------ $96 $13,451 $1,015 $-- === ======= ====== ==
F-17 60 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Fair Value of Financial Instruments -- The fair values of cash and cash equivalents, receivables and notes receivable approximate their carrying values due to the short-term nature of the instruments. The fair value of the Company's long-term notes receivable and debt approximates their carrying values due to the variable interest-rate feature of the instruments. The fair values of the Company's interest rate swaps and forward foreign exchange agreements are the estimated amounts the Company would have to (pay) or receive to terminate the agreements at March 31, 1997 based upon quoted market prices as provided by financial institutions which are counterparties to the agreements and were as follows (in thousands):
1997 1996 ------------ ------------ (PAY)RECEIVE (PAY)RECEIVE Interest rate swap agreements.............................. $ (240) $ (1,397) Forward foreign exchange agreements........................ 1,329 30
10. COMMITMENTS Rent expense under operating leases, net of subleases, for the years ended March 31, 1997, 1996, and 1995 was $2.3 million, $2.0 million and $1.8 million, respectively. The Company has no material capital leases. The Company and its subsidiaries have minimum rental commitments under noncancellable operating leases (relating primarily to leased buildings) which are as follows (in thousands):
YEAR ENDING MARCH 31, - ------------------------------------------------------ 1998........................................... $2,669 1999........................................... 2,117 2000........................................... 1,032 2001........................................... 604 2002........................................... 489 Thereafter..................................... 132 ------ Total.................................. $7,043 ======
Included in the above amounts is the aggregate lease commitment associated with the Company's former corporate office which has been subleased. Future sublease rentals receivable at March 31, 1997 totalled $0.6 million. Other long-term liabilities at March 31, 1997 include a $0.1 million obligation associated with the lease which expires in July 1998. 11. CONTINGENCIES Environmental Matters. The Company has commenced environmental site assessments and cleanup feasibility studies to determine the presence, extent and sources of any environmental contamination at a site in Pennsylvania which continues to be owned although the related business has been sold. Although no governmental action requiring remediation has been taken at this time, the Company is working in cooperation with the relevant state authority and any remedial work required to be performed would be subject to its approval. A design report for implementation of a portion of a remedy at the Pennsylvania site has been prepared and submitted to the state. At March 31, 1997, the balance of the Company's cleanup reserve was $2.1 million payable over the next several years. In addition, the Company is pursuing recovery of a portion of cleanup costs in litigation with several of its insurance carriers. The Company expects that remediation work at the Pennsylvania site will not be completed until fiscal 2000. The Company also continues to participate in environmental assessments and remediation work at twelve other locations, which include operating facilities, facilities for sale, and previously owned facilities. The F-18 61 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Company estimates that its potential cost for implementing corrective action at these sites will not exceed $1.0 million payable over the next several years, and has provided for the estimated costs in its accrual for environmental liabilities. In addition, the Company has been named as a potentially responsible party in five environmental proceedings pending in several other states in which it is alleged that the Company was a generator of waste that was sent to landfills and other treatment facilities and, as to several sites, it is alleged that the Company was an owner or operator. Such properties generally relate to businesses which have been sold or discontinued. It is not possible to reliably estimate the costs associated with any remedial work to be performed until studies at these sites have been completed, the scope of work defined and a method of remediation selected and approved by the relevant state authorities, and the costs allocated among the potentially responsible parties. Litigation. The Company is also engaged in various other legal proceedings incidental to its business. It is the opinion of management that, after taking into consideration information furnished by its counsel, the above matters will have no material effect on the Company's consolidated financial position or the results of the Company's operations in future periods. 12. SUBSEQUENT EVENTS On April 17, 1997, the Company acquired all of the outstanding stock of TCR Corporation for $32.6 million cash plus other contingent consideration. TCR, located in Minneapolis, produces externally threaded fasteners and related products for the automotive, heavy vehicle, marine and industrial markets. TCR sales were approximately $23.0 million for calendar year 1996. The acquisition was financed by a term loan under the Company's credit agreement resulting in increased annual principal payments of approximately $3.4 million beginning June 1997. 13. SEGMENT AND GEOGRAPHIC INFORMATION The Company develops, manufactures and sells, primarily, specialty fastener products and rescue hoist and cargo hook products. Specialty Fastener Products include gear-driven band fasteners, threaded fasteners and retaining rings for the marine, auto, toy, aircraft, heavy equipment and industrial machinery industries. Rescue Hoist and Cargo Hook Products include lifting, control, and restraint devices -- principally helicopter rescue hoists and external hook systems, winches and hoists for aircraft and weapon-handling systems, and aircraft and cargo tie-downs. Operating profit is net sales less operating expenses. General corporate expenses, interest and income taxes have not been deducted in determining operating profit. Assets, depreciation and amortization, and capital expenditures are those identifiable to a particular segment by their use. Approximately 9%, 8% and 18% of sales from continuing operations in 1997, 1996 and 1995, respectively, were derived from sales to the United States Government and its prime contractors which are attributable primarily to the Rescue Hoist and Cargo Hook Products Segment. F-19 62 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DEPRECIATION/ FISCAL OPERATING CAPITAL AMORTIZATION IDENTIFIABLE (IN THOUSANDS) YEAR SALES PROFIT(1) EXPENDITURES(2) EXPENSE(2) ASSETS - --------------------------------- ------ -------- --------- --------------- ------------- ------------ Specialty fastener products...... 1997 $144,197 $ 24,040 $ 4,715 $ 5,881 $140,960 1996 127,487 23,702 5,171 4,710 138,001 1995 71,103 16,500 3,193 1,906 60,986 -------- Rescue hoist and cargo hook products....................... 1997 34,487 7,483 618 645 26,146 1996 30,537 4,928 901 756 26,334 1995 30,019 160 469 605 24,493 -------- Total segments................... 1997 178,684 31,523 5,333 6,526 167,106 1996 158,024 28,630 6,072 5,466 164,335 1995 101,122 16,660 3,662 2,511 85,479 -------- Corporate........................ 1997 -- (9,253) 144 825 32,030 1996 -- (8,987) 399 438 35,032 1995 -- (3,882) 64 260 43,917 -------- Corporate interest and other income......................... 1997 -- 1,147 -- -- 1996 -- 973 -- -- -- 1995 -- 895 -- -- -- -------- Interest expense................. 1997 -- (6,797) -- -- -- 1996 -- (6,316) -- -- -- 1995 -- (2,831) -- -- -- -------- Consolidated..................... 1997 $178,684 $ 16,620 $ 5,477 $ 7,351 $199,136 1996 158,024 14,300 6,471 5,904 199,367 1995 101,122 10,842 3,726 2,771 129,396 --------
- --------------- (1) Operating profit represents net sales less operating expenses which include all costs and expenses related to the Company's operations in each segment. General corporate expenses and interest and other income earned at the corporate level are included in the corporate section. Interest expense is also separately reported. The amount of the "Consolidated" line represents "Income from Continuing Operations Before Income Taxes." Loss from discontinued operations is not included. (2) The capital expenditures and depreciation/amortization expense from discontinued operations are excluded from the above schedule. F-20 63 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED In 1997, 1996 and 1995, the Company had revenues from export sales as follows (in thousands):
1997 1996 1995 ------- ------- ------- Western Europe..................................... $ 8,349 $ 7,230 $ 6,641 Canada............................................. 6,316 6,323 5,896 Pacific and Far East............................... 3,027 2,312 1,638 Mexico, Central and South America.................. 1,751 851 1,015 Middle East........................................ 194 167 114 Other.............................................. 156 22 136 ------- ------- ------- Total.................................... $19,793 $16,905 $15,440 ======= ======= =======
Results set forth below for international operations represent sales and operating income of foreign-based Company operations (in thousands):
1997 1996 -------- -------- Net sales: Domestic operations...................................... $120,655 $112,860 International operations (1)............................. 58,029 45,164 -------- -------- Net sales.................................................. $178,684 $158,024 ======== ======== Operating income: Domestic operations...................................... $ 24,991 $ 22,454 International operations (1)............................. 6,532 6,176 -------- -------- Operating income...................................... 31,523 28,630 Interest expense........................................... (6,797) (6,316) Corporate expense and other................................ (8,106) (8,014) -------- -------- Income from continuing operations before tax............... $ 16,620 $ 14,300 ======== ======== Identifiable assets: Domestic operations...................................... $ 94,794 $ 96,944 International operations (1)............................. 72,312 67,391 Corporate................................................ 32,030 35,032 -------- -------- Total assets............................................... $199,136 $199,367 ======== ========
- --------------- (1) International operations are primarily located in Europe. Prior to 1996 the Company had no significant international operations. F-21 64 TRANSTECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 14. UNAUDITED QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- 1997 Net sales.................................. $44,640 $43,580 $42,851 $47,613 $178,684 Gross profit............................... 13,701 12,496 13,990 16,017 56,204 Income from continuing operations.......... 2,097 1,727 3,020 2,878 9,722 Loss from discontinued operations.......... (269) (206) (199) (260) (934) ------- ------- ------- ------- -------- Net income....................... $ 1,828 $ 1,521 $ 2,821 $ 2,618 $ 8,788 ======= ======= ======= ======= ======== Earnings (loss) per share (a): Income from continuing operations.......... $ 0.41 $ 0.34 $ 0.60 $ 0.55 $ 1.92 Loss from discontinued operations.......... (0.05) (0.04) (0.04) (0.05) (0.18) ------- ------- ------- ------- -------- Net income................................. $ 0.36 $ 0.30 $ 0.56 $ 0.50 $ 1.74 ======= ======= ======= ======= ======== 1996 Net sales.................................. $26,207 $43,861 $41,087 $46,869 $158,024 Gross profit............................... 8,268 11,889 13,818 16,623 50,598 Income from continuing operations.......... 1,733 1,343 2,793 2,639 8,508 Loss from discontinued operations.......... (172) (149) (447) (366) (1,134) ------- ------- ------- ------- -------- Net income....................... $ 1,561 $ 1,194 $ 2,346 $ 2,273 $ 7,374 ======= ======= ======= ======= ======== Earnings (loss) per share: Income from continuing operations.......... $ 0.34 $ 0.26 $ 0.55 $ 0.52 $ 1.67 Loss from discontinued operations.......... (0.03) (0.03) (0.09) (0.07) (0.22) ------- ------- ------- ------- -------- Net income................................. $ 0.31 $ 0.23 $ 0.46 $ 0.45 $ 1.45 ======= ======= ======= ======= ========
- --------------- (a) Calculation of earnings per share for the quarter ended March 31, 1997 includes common stock equivalents of approximately 170,000 shares relating to stock options. F-22 65 TRANSTECHNOLOGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED JUNE 29, MARCH 31, 1997 1997 --------- --------- Assets Current assets: Cash and cash equivalents.......................................... $ 2,298 $ 3,540 Accounts receivable (net of allowance for doubtful accounts of $548 at June 29, 1997 and $588 at March 31, 1997).................... 32,372 28,392 Notes receivable................................................... 3,749 1,838 Inventories........................................................ 50,928 50,677 Prepaid expenses and other current assets.......................... 1,703 1,028 Deferred income taxes.............................................. 4,212 4,293 Assets held for sale............................................... 7,205 7,617 -------- -------- Total current assets....................................... 102,467 97,385 -------- -------- Property, Plant and Equipment........................................ 89,658 82,207 Less accumulated depreciation and amortization..................... 25,145 23,594 -------- -------- Property, Plant and Equipment -- net............................ 64,513 58,613 -------- -------- Other Assets: Notes receivable................................................... 8,988 11,125 Costs in excess of net assets of acquired businesses (net of accumulated amortization: June 29, 1997, $4,153; March 31, 1997, $3,869)......................................................... 46,194 18,878 Other.............................................................. 12,515 13,135 -------- -------- Total other assets......................................... 67,697 43,138 -------- -------- TOTAL................................................................ $ 234,677 $ 199,136 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt.................................. $ 10,004 $ 5,907 Accounts payable -- trade.......................................... 9,832 11,050 Accrued compensation............................................... 4,525 6,845 Accrued income taxes............................................... 2,333 1,632 Other current liabilities.......................................... 16,309 12,844 -------- -------- Total current liabilities.................................. 43,003 38,278 -------- -------- Long-term debt payable to banks and others........................... 95,378 67,516 -------- -------- Other long-term liabilities.......................................... 17,156 15,898 -------- -------- Stockholders' equity: Preferred stock-authorized, 300,000 shares; none issued Common stock-authorized, 14,700,000 shares of $.01 par value; issued 5,319,759 at June 29, 1997, and 5,316,971 at March 31, 1997............................................................ 54 53 Additional paid-in capital......................................... 46,800 46,745 Retained earnings.................................................. 38,876 36,937 Other stockholders' equity......................................... (2,602) (2,352) -------- -------- 83,128 81,383 Less treasury stock, at cost -- (291,719 shares at June 29, 1997 and 289,237 shares at March 31, 1997)........................... (3,988) (3,939) -------- -------- Total stockholders' equity................................. 79,140 77,444 -------- -------- TOTAL................................................................ $ 234,677 $ 199,136 ======== ========
See notes to unaudited condensed consolidated financial statements. F-23 66 TRANSTECHNOLOGY CORPORATION CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED ------------------------------- JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- Net sales........................................................ $ 49,923 $ 44,640 Cost of sales.................................................... 34,575 30,939 ----------- ----------- Gross profit........................................... 15,348 13,701 ----------- ----------- General, administrative and selling expenses..................... 9,571 8,561 Interest expense................................................. 1,976 1,810 Interest income.................................................. (243) (269) Other income..................................................... (3) (17) ----------- ----------- Income from continuing operations before income taxes............ 4,047 3,616 Income taxes..................................................... 1,680 1,519 ----------- ----------- Income from continuing operations................................ 2,367 2,097 Discontinued operations: Loss from disposal (net of applicable tax benefit of $72 and $189 for the three months ended June 29, 1997 and June 30, 1996, respectively)......................................... (102) (269) ----------- ----------- Net income..................................................... $ 2,265 $ 1,828 =========== =========== Earnings per share: Income from continuing operations.............................. $ 0.46 $ 0.41 Loss from discontinued operations.............................. (0.02) (0.05) ----------- ----------- Net income..................................................... $ 0.44 $ 0.36 =========== =========== Number of shares used in computation of per share information.... 5,186,000 5,104,000
See notes to unaudited condensed consolidated financial statements. F-24 67 TRANSTECHNOLOGY CORPORATION CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS UNAUDITED (IN THOUSANDS)
THREE MONTHS ENDED ------------------------------- JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income....................................................... $ 2,265 $ 1,828 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 2,152 1,920 Provision for losses on accounts receivable.................... 23 52 Loss on sale or disposal of fixed assets and discontinued businesses.................................................. 5 38 Change in assets and liabilities net of acquisitions and dispositions: (Increase) decrease in accounts receivable.................. (60) 2,146 Decrease in inventories..................................... 1,475 988 Decrease in assets held for sale............................ 412 865 Increase in other assets.................................... (325) (3,909) Decrease in accounts payable................................ (3,356) (2,361) Decrease in accrued compensation............................ (2,320) (1,663) Increase in income tax payable.............................. 701 770 Increase in other liabilities............................... 1,324 2,645 -------- -------- Net cash provided by operating activities................... 2,296 3,319 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions net of cash acquired....................... (33,929) (3,344) Capital expenditures............................................. (1,748) (1,307) Proceeds from sale of fixed assets and discontinued business..... 261 1,987 Decrease in notes receivable..................................... 226 235 -------- -------- Net cash used in investing activities....................... (35,190) (2,429) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings............................... 45,500 8,431 Payments on long-term debt....................................... (13,541) (10,200) Proceeds from issuance of stock under stock option plan.......... 56 179 Dividends paid................................................... (326) (332) -------- -------- Net cash provided by (used in) financing activities......... 31,689 (1,922) -------- -------- Effect of exchange rate changes on cash.......................... (37) -- Decrease in cash and cash equivalents............................ (1,242) (1,032) Cash and cash equivalents at beginning of period................. 3,540 2,362 -------- -------- Cash and cash equivalents at end of period....................... $ 2,298 $ 1,330 ======== ======== Supplemental information: Interest payments................................................ $ 1,145 $ 1,342 Income tax payments.............................................. $ 115 $ 337
See notes to unaudited condensed consolidated financial statements. F-25 68 TRANSTECHNOLOGY CORPORATION CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY UNAUDITED (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK TREASURY STOCK ADDITIONAL OTHER FOR THE QUARTER ------------------ ------------------ PAID-IN RETAINED STOCKHOLDERS' ENDED JUNE 29, 1997 SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY TOTAL - ------------------- --------- ------ -------- ------- ---------- -------- ------------ ------- Balance, March 31, 1997............. 5,316,971 $ 53 (289,237) $(3,939) $ 46,745 $ 36,937 $ (2,352) $77,444 Net income......... -- -- -- -- -- 2,265 -- 2,265 Cash dividends ($.065 per share)........... -- -- -- -- -- (326) -- (326) Unrealized investment holding losses... -- -- -- -- -- -- (40) (40) Effects of stock under incentive bonus plan -- net...... 2,788 1 (2,482) (49) 55 -- (17) (10) Foreign translation adjustments...... -- -- -- -- -- -- (193) (193) ==== --------- ------- ------- ------- ------- ------- Balance, June 29, 1997............. 5,319,759 $ 54 (291,719) $(3,988) $ 46,800 $ 38,876 $ (2,602) $79,140 ========= ======== ======= ======= ======= ======= =======
See notes to unaudited condensed consolidated financial statements. F-26 69 TRANSTECHNOLOGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) 1. FINANCIAL STATEMENTS The unaudited Statements of Consolidated Operations, Consolidated Balance Sheets and Statements of Consolidated Cash Flows are of TransTechnology Corporation and its consolidated subsidiaries. These financial statements reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary to a fair presentation of the results of operations for the interim periods reflected therein. The results reflected in the unaudited Statements of Consolidated Operations for the period ended June 29, 1997 are not necessarily indicative of the results to be expected for the entire year. The unaudited Consolidated Financial Statements should be read in conjunction with the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as the audited financial statements and related notes thereto contained elsewhere in this Prospectus. 2. EARNINGS PER SHARE Earnings per share are based on the weighted average number of common stock and common stock equivalents (stock options) outstanding during each period. Calculation of earnings per share for the period ended June 29, 1997 includes common stock equivalents of approximately 159,000 shares relating to stock options. 3. INVENTORIES Inventories consisted of the following:
JUNE 29, 1997 MARCH 31, 1997 ------------- -------------- Finished goods........................................ $22,003 $ 21,897 Work in process....................................... 10,131 10,335 Purchased and manufactured parts...................... 18,794 18,445 ------- ------- Total inventories........................... $50,928 $ 50,677 ======= =======
4. LONG-TERM DEBT PAYABLE TO BANKS AND OTHERS Long-term debt payable, including current maturities, at June 29, 1997 and March 31, 1997 consisted of the following:
INTEREST RATE JUNE 29, 1997 MARCH 31, 1997 ------------- ------------- -------------- Credit agreement........................... 5.15% $ 2,441 -- Credit agreement........................... 7.58% -- $ 22,825 Credit agreement........................... 7.81% 10,000 -- Credit agreement........................... 8.72% 5,320 -- Credit agreement........................... 9.00% 2,200 -- Term loan.................................. 6.57% 7,451 -- Term loan.................................. 7.5% -- 25,289 Term loan.................................. 7.69% 600 -- Term loan.................................. 7.81% 45,800 -- Term loan.................................. 8.72% 6,325 -- Term loan.................................. 9.06% 24,000 -- Term loan.................................. 9.79% 500 24,500 Other...................................... 745 809 ------- -------- 105,382 73,423 Less current maturities.................... 10,004 5,907 ------- -------- Total............................ $95,378 $ 67,516 ======= ========
F-27 70 TRANSTECHNOLOGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CREDIT AGREEMENT On June 29, 1997 the Company's debt consisted of $12.2 million of borrowings under a revolving credit line ("the Revolver"), $7.8 million of borrowings under international lines of credit ("the International Lines of Credit"), a $60.2 million term loan ("Term Loan A"), a $24.5 million term loan ("Term Loan B") and $0.7 million of other borrowings. The Revolver commitment of $30.0 million will be available to the Company through December 31, 2000 and is subject to a borrowing base formula. The Company's credit agreement with a group of commercial banks provides for borrowings and letters of credit based on collateralized accounts receivable and inventory. In addition, all of the remaining assets of the Company and its subsidiaries are included as collateral. Letters of credit, which are included in the borrowing base formula are limited to $5.0 million. Letters of credit under the line at June 29, 1997 were $0.1 million. The total commitment under the International Lines of Credit is $10.0 million and is subject to the same availability and collateral as the revolver, but is not subject to a borrowing base formula. Interest on the Revolver and the International Lines of Credit is tied to the primary lending bank's prime rate, or at the Company's option, the London Interbank Offered Rate ("LIBOR"), plus a margin that varies depending upon the Company's achievement of certain operating and financial goals. On March 31,1997, the Company amended its Term Loan A bank debt to increase the availability by $20.0 million, giving the Company a total of $35.0 million available for acquisitions. On April 17, 1997, $32.6 million of this amount was used by the Company to acquire TCR Corporation. The $60.2 million and $24.5 million term loans are with the same lenders as the revolving and international lines of credit, are secured by the same collateral, and are due and payable on March 31, and June 30, 2002, respectively. Quarterly principal payments on Term Loan A are $2.2 million, with escalations to $3.0 million, $3.2 million and $4.0 million in June, 1998, 1999 and 2000, respectively. Interest on Term Loan A is tied to the primary lending banks prime rate, or LIBOR, plus a margin that varies depending upon the Company's achievement of certain operating and financial goals. Annual principal payments on Term Loan B of $0.5 million are due through June 30, 2000, with final balloon payments of $7.5 million and $15.0 million due on June 30, 2001 and June 30, 2002, respectively. Interest on Term Loan B accrues at the primary lending bank's prime rate plus two percentage points. The agreement also gives the Company the option of using LIBOR plus three and one-quarter percentage points. At June 29, 1997, $79.8 million of the Company's outstanding borrowings utilized LIBOR. Additionally, the credit facility limits capital expenditures to $9.0 million annually and contains other customary financial covenants including a limit on the Company's ability to pay dividends to 25% of net income. OTHER Other long-term debt is comprised principally of an obligation due under a collateralized borrowing arrangement with a fixed interest rate of 3% due December 2004 and loans on life insurance policies owned by the Company with a fixed interest rate of 5%. F-28 71 TRANSTECHNOLOGY CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DEBT MATURITIES
JUNE 30, ------------------------------------------------- 1998 (current)................................... $ 10,004 1999............................................. 12,524 2000............................................. 13,980 2001............................................. 43,859 2002............................................. 25,015 -------- Total.................................. $105,382 ========
5. DISCONTINUED OPERATIONS After-tax costs of $0.1 million were recorded in the first quarter of 1998, in connection with previously discontinued and sold businesses. These costs represent adjustments to previous estimates related primarily to environmental and legal matters. Assets held for sale at June 29, 1997 and March 31, 1997 were as follows:
JUNE 29, 1997 MARCH 31, 1997 ------------- -------------- Inventory............................................. $ 427 $ 429 Property.............................................. 6,611 6,577 Other assets.......................................... 167 611 ------ ------ Assets held for sale.................................. $ 7,205 $7,617 ====== ======
6. ACQUISITIONS On June 18, 1996 the Company acquired the Pebra hose clamp business from Pebra GmbH Paul Braun i.K. for approximately $3.0 million in cash plus direct acquisition costs. Pebra is located in Frittlingen, Germany, and manufactures heavy duty hose clamps primarily for use in the manufacture of heavy trucks in Europe. On April 17, 1997 the Company acquired all of the outstanding stock of TCR Corporation ("TCR") for $32.6 million in cash plus direct acquisition costs and other contingent consideration. TCR, located in Minneapolis, Minnesota, produces externally threaded fasteners and related products for the automotive, heavy vehicle, marine and industrial markets. The results of TCR have been included from the date of acquisition. The results for the period from April 1, 1997 to the date of acquisition were not deemed material and, therefore, APB No. 16 pro forma information has not been presented for the quarter ended June 29, 1997. 7. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board("FASB") adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which establishes standards for computing and presenting earnings per share and is effective for the Company's financial year ending March 31, 1998. The Company believes that the effect of implementing this standard will not effect results differently than as currently reported. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which will be effective for the Company's fiscal year ending March 31, 1999. SFAS No. 131 redefines how operating segments are determined and requires expanded quantitative and qualitative disclosures relating to a company's operating segments. The Company has not yet completed its analysis of which operating segments, if any, it will disclose differently than previously reported. 8. RECLASSIFICATIONS Certain reclassifications have been made to the prior year to conform to the 1998 presentation. F-29 72 ====================================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary................... 3 Cautionary Statement Regarding Forward-Looking Information........ 6 Risk Factors......................... 6 Use of Proceeds...................... 10 Price Range of Common Stock and Dividend Policy.................... 11 Capitalization....................... 12 Selected Consolidated Financial Data............................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 15 Business............................. 24 Management........................... 33 Principal and Selling Stockholders... 35 Description of Capital Stock......... 37 Underwriting......................... 39 Legal Matters........................ 40 Experts.............................. 40 Available Information................ 40 Incorporation of Certain Documents by Reference.......................... 41 Index to Consolidated Financial Statements......................... F-1
====================================================== ====================================================== 1,100,000 SHARES TRANSTECHNOLOGY CORPORATION LOGO COMMON STOCK PROSPECTUS ABN AMRO CHICAGO CORPORATION EVEREN SECURITIES, INC. November , 1997 ====================================================== 73 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Common Stock being registered.
APPROXIMATE AMOUNT ------------- Securities and Exchange Commission Registration Fee................. $ 10,278.13 NYSE Listing Fee.................................................... 14,750.00 NASD Filing Fee..................................................... 3,892.00 Printing Expenses................................................... 200,000.00 Accounting Fees and Expenses........................................ 75,000.00 Legal Fees and Expenses............................................. 150,000.00 Transfer Agent Fees................................................. 10,000.00 Miscellaneous Fees and Expenses..................................... 36,079.87 ---------- Total..................................................... $ 500,000.00 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company is a corporation organized under the laws of the State of Delaware. The Company's Certificate of Incorporation provides that the Company may indemnify its officers and directors to the full extent permitted by law. Section 145 of the General Corporation Law of the State of Delaware ("DGCL") provides that a Delaware corporation has the power to indemnify its officers and directors in certain circumstances. Subsection (a) of Section 145 of the DGCL empowers a corporation 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 expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding provided that such director or officer acted in good faith 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 director or officer had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation 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 or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit provided that such director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that, despite the adjudication of liability, but in view of all the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of such other court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any II-1 74 claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation shall have the power to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made only as authorized in the specific case upon a determination by a majority vote of the directors who are not parties to such action, suit or proceeding (or, if there are no such directors, by an independent counsel or by the stockholders) that indemnification is proper in the circumstances because he has met the standard of conduct set forth in subsections (a) and (b). The Company's Certificate of Incorporation also provides that, to the fullest extent permitted by the DGCL, a director shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Section 102 of the DGCL authorizes such a provision, and states that such a provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) for unlawful payments of dividends or unlawful stock purchases or redemptions by the corporation, or (d) for any transaction from which the director derived an improper benefit. The Company's Bylaws provide that the Company shall indemnify, to the fullest extent permitted by law, any person who was or is made or is threatened to be made a party to (or is otherwise involved in) any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture or other business or nonprofit entity. The Bylaws provide that the Company shall be required to indemnify a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors of the Company. The Bylaws provide that the Company shall pay the expenses (including attorneys' fees) incurred in defending any proceeding in advance of its final disposition, provided that any such advance payments shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should ultimately be determined that the director or officer is not entitled to be indemnified under the Bylaws or otherwise. The Company has entered into an indemnification agreement with each of its directors and executive officers pursuant to which the Company has agreed to indemnify such persons against liability to the fullest extent permitted by law. The Company may from time to time enter into similar agreements with additional individuals who become officers and/or directors of the Company. ITEM 16. EXHIBITS. 1.1 Form of Underwriting Agreement 4.1 Form of Common Stock Certificate (1) 5.1 Opinion of Hahn Loeser & Parks LLP regarding the legality of the securities being offered 10.1 1996-1998 Incentive Compensation Plan of the Company (10) **10.2 Amended and Restated 1992 Long Term Incentive Plan of the Company 10.3 Form of Incentive Stock Option Agreement (2) 10.4 Form of Director Stock Option Agreement (3) 10.5 Form of Restricted Stock Award Agreement used under the Company's Amended and Restated 1992 Long Term Incentive Plan (4)
II-2 75 10.6 Indemnification Agreement dated February 11, 1987 between the Company and each of its officers and directors (5) 10.7 Executive Life Insurance Plan (6) 10.8 Revolving Credit and Loan Agreement dated as of June 30, 1995 between the Company and The First National Bank of Boston (7) 10.9 First Amendment to the Revolving Credit and Loan Agreement dated as of August 29, 1995 between the Company and the First National Bank of Boston (8) 10.10 Second Amendment to the Revolving Credit and Loan Agreement dated as of October 27, 1995 between the Company and the First National Bank of Boston (8) 10.11 Third Amendment to the Revolving Credit and Loan Agreement dated as of March 29, 1996 between the Company and the First National Bank of Boston (8) 10.12 Fourth Amendment to the Revolving Credit and Loan Agreement dated as of December 31, 1996 between the Company and the First National Bank of Boston (10) 10.13 Fifth Amendment to the Revolving Credit and Loan Agreement dated as of March 31, 1997 between the Company and the First National Bank of Boston (9) 10.14 Form of Executive Severance Agreement with Officers of the Company (10) 10.15 Form of Executive Severance Agreement with Subsidiary Presidents (10) 10.16 Form of Executive Severance Agreement with Division Presidents (10) 10.17 Form of Executive Severance Agreement with Overseas Subsidiary Managing Directors (10) 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Arthur Andersen LLP 23.3 Consent of Ocel, Heimer & Associates, Ltd. 23.4 Consent of Hahn Loeser & Parks LLP (contained in Exhibit 5.1) **24.1 Power of Attorney (set forth on the signature page hereof)
- --------------- ** Previously filed. (1) Incorporated by reference from the Company's Registration Statement on Form 8-A filed on December 22, 1987 (File No. 1-7872). (2) Incorporated by reference from the Company's Registration Statement on Form S-8 No. 33-87800 dated December 22, 1994. (3) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 (File No. 1-7872). (4) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (File No. 1-7872). (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1987 (File No. 1-7872). (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1989 (File No. 1-7872). (7) Incorporated by reference from the Company's Report on Form 8-K filed on July 14, 1995 (File No. 1-7872). (8) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (File No. 1-7872). (9) Incorporated by reference from the Company's Report on Form 8-K filed on April 29, 1997 (File No. 1-7872). (10) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 (File No. 1-7872). II-3 76 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 77 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Liberty Corner, New Jersey, on this 4th day of November, 1997. TransTechnology Corporation By: /s/ JOSEPH F. SPANIER ------------------------------------ Joseph F. Spanier, Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------- ----------------------------------- ------------------ * /s/ MICHAEL J. BERTHELOT Chairman of the Board and Chief November 4, 1997 - ------------------------------------- Executive Officer (Principal Michael J. Berthelot Executive Officer) * /s/ PATRICK K. BOLGER President, Chief Operating Officer November 4, 1997 - ------------------------------------- and Director Patrick K. Bolger /s/ JOSEPH F. SPANIER Vice President, Chief Financial November 4, 1997 - ------------------------------------- Officer (Principal Financial and Joseph F. Spanier Accounting Officer) and Treasurer * /s/ GIDEON ARGOV Director November 4, 1997 - ------------------------------------- Gideon Argov * /s/ WALTER BELLEVILLE Director November 4, 1997 - ------------------------------------- Walter Belleville * /s/ THOMAS V. CHEMA Director November 4, 1997 - ------------------------------------- Thomas V. Chema * /s/ MICHEL GLOUCHEVITCH Director November 4, 1997 - ------------------------------------- Michel Glouchevitch * /s/ JAMES A. LAWRENCE Director November 4, 1997 - ------------------------------------- James A. Lawrence *By: /s/ JOSEPH F. SPANIER - ------------------------------------- Joseph F. Spanier, Attorney-in-fact
II-5 78 EXHIBIT INDEX
EXHIBIT DESCRIPTION - -------- ------------------------------------------------------------------------ 1.1 Form of Underwriting Agreement 4.1 Form of Common Stock Certificate (1) 5.1 Opinion of Hahn Loeser & Parks LLP regarding legality of the securities being offered 10.1 1996 -- 1998 Incentive Compensation Plan of the Company (10) **10.2 Amended and Restated 1992 Long Term Incentive Plan of the Company 10.3 Form of Incentive Stock Option Agreement (2) 10.4 Form of Director Stock Option Agreement (3) 10.5 Form of Restricted Stock Award Agreement used under the Company's Amended and Restated 1992 Long Term Incentive Plan (4) 10.6 Indemnification Agreement dated February 11, 1987 between the Company and each of its officers and directors (5) 10.7 Executive Life Insurance Plan (6) 10.8 Revolving Credit and Loan Agreement dated as of June 30, 1995 between the Company and the First National Bank of Boston (7) 10.9 First Amendment to the Revolving Credit and Loan Agreement dated as of August 29, 1995 between the Company and the First National Bank of Boston (8) 10.1 Second Amendment to the Revolving Credit and Loan Agreement dated as of October 27, 1995 between the Company and the First National Bank of Boston (8) 10.11 Third Amendment to the Revolving Credit and Loan Agreement dated as of March 29, 1996 between the Company and the First National Bank of Boston (8) 10.12 Fourth Amendment to the Revolving Credit and Loan Agreement dated as of December 31, 1996 between the Company and the First National Bank of Boston (10) 10.13 Fifth Amendment to the Revolving Credit and Loan Agreement dated as of March 31, 1997 between the Company and the First National Bank of Boston (9) 10.14 Form of Executive Severance Agreement with Officers of the Company (10) 10.15 Form of Executive Severance Agreement with Subsidiary Presidents (10) 10.16 Form of Executive Severance Agreement with Division Presidents (10) 10.17 Form of Executive Severance Agreement with Overseas Subsidiary Managing Directors (10) 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of Arthur Andersen LLP 23.3 Consent of Ocel, Heimer & Associates, Ltd. 23.4 Consent of Hahn Loeser & Parks LLP (contained in Exhibit 5.1) **24.1 Power of Attorney (set forth in the signature page hereof)
- --------------- ** Previously filed. (1) Incorporated by reference from the Company's Registration Statement on Form 8-A filed on December 22, 1987 (File No. 1-7872). (2) Incorporated by reference from the Company's Registration Statement on Form S-8 No. 33-87800 dated December 22, 1994. II-6 79 (3) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 (File No. 1-7872). (4) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (File No. 1-7872). (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1987 (File No. 1-7872). (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1989 (File No. 1-7872). (7) Incorporated by reference from the Company's Report on Form 8-K filed on July 14, 1995 (File No. 1-7872). (8) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (File No. 1-7872). (9) Incorporated by reference from the Company's Report on Form 8-K filed on April 29, 1997 (File No. 1-7872). (10) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 (File No. 1-7872). II-7 EX-1.1 2 EXHIBIT 1.1 1 EXHIBIT 1.1 1,100,000 SHARES* TRANSTECHNOLOGY CORPORATION Common Stock UNDERWRITING AGREEMENT ______________ ___, 1997 ABN AMRO CHICAGO CORPORATION EVEREN SECURITIES, INC. As Representatives of the several Underwriters named in Schedule I hereto c/o ABN AMRO Chicago Corporation 208 South LaSalle Street Chicago, Illinois 60604 Ladies and Gentlemen: Pursuant to the terms of this Underwriting Agreement (this "Agreement"), TransTechnology Corporation, a Delaware corporation (the "Company"), proposes, upon the terms and subject to the conditions set forth herein, to issue and sell an aggregate of 1,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of the Company to the several underwriters named in Schedule I hereto (collectively, the "Underwriters") and the stockholders of the Company named in Schedule II hereto (the "Selling Stockholders") propose, upon the terms and subject to the conditions set forth herein, to sell to the Underwriters an aggregate of 100,000 shares of Common Stock. The Company has agreed to issue and sell to the several Underwriters, upon the terms and subject to the conditions set forth in Section 2 hereof, up to an additional 165,000 shares of - -------- * Plus an option to purchase up to 165,000 Additional Shares to cover over-allotments. 2 Common Stock. The aggregate of 1,100,000 shares to be sold by the Company and the Selling Stockholders are herein called the "Firm Shares" and the aggregate of 165,000 additional shares to be sold by the Company and the Selling Stockholders are herein called the "Additional Shares." The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." ABN AMRO Chicago Corporation and EVEREN Securities, Inc. are acting individually and as representatives of the several Underwriters and in such capacity are hereinafter referred to as the "Representatives." Prior to the purchase and public offering of the Shares by the several Underwriters, the Company and the Representatives shall enter into an agreement substantially in the form of EXHIBIT A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Representatives and shall specify such applicable information as is indicated in EXHIBIT A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company and the Selling Stockholders are advised by the Representatives that the Underwriters have agreed to make a public offering of their respective portions of the Shares as soon after the Registration Statement (as defined below) has become effective and the Pricing Agreement has been executed as in the judgment of the Representatives is advisable and to first offer the Shares upon the terms set forth in the Prospectus (as defined below). The Company, the Representatives and the other Underwriters hereby agree to the following matters with respect to the purchase and sale of the Shares: SECTION 1. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Underwriter that: (i) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-2 (File No. 333-37395), including a preliminary prospectus, relating to the Shares and certain amendments thereto. The Company will next file with the Commission one of the following: (A) prior to effectiveness of such registration statement, a further amendment thereto, including the form of final prospectus, (B) a final prospectus in accordance with Rules 430A and 424(b) under the Act or (C) a term sheet (the "Term Sheet") as described in and in accordance with Rules 434 and 424(b) under the Act. As filed, the final prospectus, if one is used, or the Term Sheet and the latest Preliminary Prospectus, -2- 3 if a final prospectus is not used, shall include all Rule 430A Information (as defined below). There have been or will promptly be delivered to the Representatives three signed copies of such registration statement and amendments, together with three copies of all documents incorporated by reference therein, three copies of each exhibit filed therewith, and conformed copies of such registration statement and amendments (but without exhibits) and of the related preliminary prospectus or prospectuses and final forms of prospectus or Term Sheet, if a Term Sheet is used, for each of the Underwriters. The term "Registration Statement" as used in this Agreement shall mean such registration statement at the time such registration statement becomes effective and, in the event any amendment thereto becomes effective prior to the Closing Date (as hereinafter defined), shall also mean such registration statement as so amended; provided, however, that such term shall also include all Rule 430A Information deemed to be included in such registration statement at the time such registration statement becomes effective as provided by Rule 430A and, if a Term Sheet is used, shall also include all information deemed to be included in such registration statement at the time such registration statement becomes effective as provided by Rule 434; provided, further, that if the Company files a registration statement under the Act to register a portion of the Shares and relies on Rule 462(b) for such registration statement to become effective upon filing with the Commission (the "Rule 462 Registration Statement"), then any reference to "Registration Statement" herein shall be deemed to be to both the registration statement referred to above (No. 333-37395) and the Rule 462 Registration Statement, as each such registration statement may be amended pursuant to the Act. The term "Preliminary Prospectus" as used in this Agreement shall mean any preliminary prospectus relating to the Shares filed with the Commission under the Act and the rules and regulations thereunder, including any preliminary prospectus included in the Registration Statement at the time it becomes effective that omits Rule 430A Information. The term "Prospectus" as used in this Agreement shall mean: (X) the prospectus relating to the Shares in the form in which it is first filed with the Commission pursuant to Rule 424(b) under the Act; (Y) if a Term Sheet is not used and no filing pursuant to Rule 424(b) under the Act is required, the form of final prospectus included in the Registration Statement at the time the Registration Statement becomes effective; or (Z) if a Term Sheet is used in lieu of a prospectus, the Term Sheet in the form in which it is first filed with the Commission pursuant to Rule 424(b) under the Act, together with the latest Preliminary Prospectus included in the Registration Statement at the time it becomes effective (such Term Sheet and Preliminary Prospectus are sometimes collectively referred to herein as the "Rule 434 Prospectus"). The term "Rule 430A Information" as used in this Agreement shall mean information with respect to the Shares and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A under the Act. The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder are hereinafter collectively referred to as the "Exchange Act." Any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Form S-2 under the Act ("Incorporated Documents"), as of the date of such -3- 4 Preliminary Prospectus or Prospectus, as the case may be. The Incorporated Documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (ii) The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus, and each Preliminary Prospectus complied in all material respects when so filed with the requirements of the Act (except to the extent that, in conformity with the Act, such Preliminary Prospectus is subject to completion). (iii) The Registration Statement in the form in which it becomes effective and also in such form as it may be when the Pricing Agreement is executed or any post-effective amendment to the Registration Statement shall become effective, and the Prospectus when and in the form last filed with the Commission as part of the Registration Statement prior to effectiveness or, if applicable, first filed pursuant to Rule 424(b) under the Act, and when any supplement or amendment thereto is filed with the Commission, each will comply in all material respects with the requirements of the Act, will not at any such time contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. This representation and warranty does not apply to statements in or omissions from the Registration Statement or the Prospectus (or any supplement or amendment thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of such Underwriter through the Representatives specifically for use in the Registration Statement. (iv) There is no contract or other document of a character required to be described in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. (v) The accountants who have expressed their opinions with respect to certain of the financial statements of the Company included or incorporated by reference in the Registration Statement and the Prospectus, are independent public accountants as required by the Act. -4- 5 (vi) The consolidated financial statements, together with the notes thereto, of the Company included or incorporated by reference in the Registration Statement and the Prospectus comply in all material respects with the Act and present fairly the consolidated financial position of the Company as of the dates indicated, and the consolidated results of operations, cash flows and changes in financial position of the Company for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the entire period involved except to the extent disclosed therein. The pro forma financial statements and other pro forma information included in the Prospectus present fairly the information shown therein, have been prepared in accordance with generally accepted accounting principles and the Commission's rules and guidelines with respect to pro forma financial statements and other pro forma information, have been properly compiled on the pro forma basis described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate under the circumstances. (vii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus. The Company is duly qualified to do business as a foreign corporation and in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except in any such case in which the failure to so qualify or be in good standing would not have a material adverse effect upon the business of the Company and its subsidiaries, taken as a whole; and no proceeding of which the Company has knowledge has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (viii) Each of the Company's subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and Prospectus. Each of the Company's subsidiaries is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except in any such case in which the failure to so qualify or be in good standing would not have a material adverse effect on the business of the Company and its subsidiaries, taken as a whole. Each of the Company's subsidiaries has all authorizations, approvals, orders, certificates and permits of and from all state, federal and other regulatory officials and bodies necessary to own its properties and to conduct its business as described in the Registration Statement and Prospectus, except where the failure to have any such authorization, approval, order, certificate -5- 6 or permit would not have a material adverse effect on the business affairs, business prospects, properties, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. Except for the capital stock of the subsidiaries and except as otherwise described in the Prospectus or as disclosed to the Representatives in writing, the Company does not own any capital stock of, or other securities evidencing an equity interest in, any corporation, partnership or other entity. All of the issued and outstanding shares of capital stock of the Company's subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable, and except as described in the Prospectus, are owned by the Company, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. Except as described in the Prospectus, there are no outstanding subscriptions, rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock of any of the Company's subsidiaries. (ix) The Company has an authorized and outstanding capitalization as set forth in the Prospectus and the Shares conform to the description thereof contained in the Prospectus. All of the issued and outstanding shares of Common Stock (including the Shares to be sold by the Selling Stockholders to the Underwriters) have been duly authorized, validly issued and are fully paid and non-assessable and free of preemptive or other similar rights and there are no options, agreements, contracts or other rights in existence to acquire from the Company any shares of Common Stock, except as set forth in the Prospectus. (x) The Shares to be sold by the Company pursuant to this Agreement and the Pricing Agreement have been duly authorized and, when issued and paid for in accordance with this Agreement and the Pricing Agreement, will be validly issued, fully paid and non-assessable; the holders of the Shares will not be subject to personal liability by reason of being such holders; there are no holders of securities of the Company having rights, contractual or otherwise, to registration thereof or preemptive rights to purchase Common Stock; all corporate actions required to be taken for the authorization, issue and sale of the Shares have been validly and sufficiently taken; and upon delivery of and payment for such Shares hereunder, the Underwriters will acquire valid and marketable title thereto, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. (xi) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated or contemplated therein, there has not been (A) any material adverse change in the condition (financial or otherwise), earnings, affairs, business or prospects of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, (B) any material transaction entered into, or any material liability or obligation incurred, by the Company or its subsidiaries other than in the ordinary course of business, (C) any change in the capital stock, or material increase in the short-term debt or long-term debt of the Company or its subsidiaries, or (D) any -6- 7 dividend or distribution of any kind declared, paid or made by the Company or its subsidiaries on its capital stock. (xii) The Company and each of its subsidiaries have good and marketable title to all properties and assets reflected as owned in the financial statements hereinabove described or described in the Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions of any kind, except such as are referred to in such financial statements or the Prospectus or which are not material to the business of the Company and its subsidiaries, taken as a whole; all of the leases and subleases material to the business of the Company and its subsidiaries, taken as a whole or under which the Company or its subsidiaries holds properties are in full force and effect; and neither the Company nor any of its subsidiaries has received any notice of any material claim of any sort which has been asserted by anyone adverse to the rights of the Company or any subsidiary as owner or as lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (xiii) Neither the Company nor any of its subsidiaries is in default in the observance of any provision of its Certificate of Incorporation or by-laws, or in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or any of its properties may be bound, the effect of which could be materially adverse to the condition (financial or otherwise), earnings, affairs, business or prospects of the Company and its subsidiaries, taken as a whole. (xiv) The execution and delivery of this Agreement and the Pricing Agreement, the issuance and delivery of the Shares, the consummation of the transactions contemplated herein and in the Registration Statement and compliance with the terms of this Agreement and the Pricing Agreement have been duly authorized by all necessary corporate action and will not result in any violation of the Certificate of Incorporation or by-laws of the Company or any of its subsidiaries, and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge, encumbrance or restriction of any kind upon any property or assets of the Company or any of its subsidiaries under any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries, or any of their respective properties, is bound, or any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their respective properties. No approval, authorization or consent of any court, regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any of its subsidiaries is required in connection with the sale of -7- 8 the Shares to the Underwriters, except such as may be required under the Act, state securities or Blue Sky laws or from the clearance of the offering with the National Association of Securities Dealers, Inc. (the "NASD"). (xv) Except as disclosed in the Registration Statement or the Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, or any arbitrator or arbitration panel, now pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries which could result in any material adverse change to the condition (financial or otherwise), earnings, affairs, business or prospects of the Company and its subsidiaries, taken as whole; and there is no decree, judgment or order of any kind in existence against or restraining the Company or any of its subsidiaries, or any of their respective officers, employees or directors, from taking any actions of any kind in connection with the business of the Company or any such subsidiary. (xvi) The Company and each of its subsidiaries own or possess or have obtained all material governmental licenses, permits, consents, orders, approvals and other authorizations necessary to lease or own, as the case may be, and to operate their properties and to carry on their businesses as presently conducted, and neither the Company nor any such subsidiary has received any notice of proceedings related to revocation or modification of any such licenses, permits, consents, orders, approvals or authorizations which singly or in the aggregate, if the subject of an unfavorable ruling or finding, would be materially adverse to the condition (financial or otherwise), earnings, affairs, business or prospects of the Company and its subsidiaries, taken as a whole. (xvii) The conduct of the business of the Company and each of its subsidiaries is in compliance with all applicable federal, state and local laws and regulations that regulate or are concerned in any way with the business of the Company or such subsidiaries, where the effect of the failure to comply would be materially adverse to the condition (financial or otherwise), earnings, affairs, business or prospects of the Company and its subsidiaries, taken as a whole. -8- 9 (xviii) The Company together with its subsidiaries owns or possesses, or can acquire on reasonable terms, all right, title and interest in or to, or has duly licensed from third parties, all patents, trademarks, service marks, copyrights, trade names, trade secrets and other proprietary rights ("Trade Rights") necessary to conduct the business now or proposed to be conducted by it, and neither the Company nor any of its subsidiaries has received any notice of, and has no knowledge of, infringement of or conflict with asserted rights of others with respect to any such Trade Rights which, singly or in the aggregate, if the subject of any unfavorable decision, ruling or finding, would be materially adverse to the condition (financial or otherwise), earnings, affairs, business or prospects of the Company and its subsidiaries, taken as a whole. (xix) The Company has filed all tax returns required to be filed and has paid all taxes which were payable pursuant to said returns or any assessments with respect thereto, other than any tax returns which the Company is contesting in good faith or which are not material to the Company and there is no tax deficiency that has been, or to the knowledge of the Company might be, asserted against the Company or any of its properties or assets that would or could be expected to have a material adverse affect upon the condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole. (xx) This Agreement has been duly executed and delivered by the Company. (xxi) A registration statement relating to the Common Stock has been declared effective by the Commission pursuant to the Exchange Act and the Common Stock is duly registered thereunder. The Shares have been authorized for trading on the New York Stock Exchange, subject to notice of issuance or sale, as the case may be. (xxii) The Company is not, and does not intend to conduct its business in a manner in which it would become, an "investment company" as defined in Section 3(a) of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (xxiii) All offers and sales of the Company's capital stock prior to the date hereof were at all relevant times (A) registered under the Act or exempt from the registration requirements thereof and (B) duly registered with, or the subject of an available exemption from, the registration requirements of the applicable state securities or Blue Sky laws. (xxiv) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company. (xxv) Except as disclosed in the Registration Statement and the Prospectus, no transaction has occurred between or among the Company, on the one hand, and any of its officers or directors or any affiliate or affiliates of any such officer or director, on the other hand, that is required to be so disclosed, including, but not limited to, any outstanding loans, advances or guaranties of indebtedness by the Company to or for the benefit of any affiliates of the Company, or any of the officers or directors of the Company, or any family member of any of them. (xxvi) The Company has not, directly or indirectly, at any time (A) made any contributions to any candidate for foreign political office, or if made, failed to disclose fully any such contribution made in violation of law, or (B) made any payment to any state, federal or foreign governmental officer or official, or other person charged with -9- 10 similar public or quasi-public duties, other than payments or contributions required or allowed by applicable law. The Company's internal accounting controls and procedures are sufficient to enable the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended. (xxvii) Except as disclosed in the Registration Statement or the Prospectus, the Company and each of its subsidiaries (a) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (b) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (c) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (xxviii) In the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws of any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). Except as disclosed in the Registration Statement and Prospectus, on the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (xxix) The Company and each of its subsidiaries are in compliance with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any of its subsidiaries would have any liability; neither the Company nor any of its subsidiaries has incurred or expects to incur liability (i) under Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) for violation of section 412 or for any tax under 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which either the Company or any of its subsidiaries would have any liability that is intended to be qualified under section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. -10- 11 (b) REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder severally but not jointly represents and warrants and agrees with the Company and the Underwriters that: (i) Such Selling Stockholder has good and marketable title to the Shares proposed to be sold by such Selling Stockholder hereunder and full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, assign, transfer and deliver such Shares hereunder, free and clear of all voting trust arrangements, security interests, claims, liens, encumbrances, community property rights or adverse interests of any nature; and upon delivery of and payment for such Shares hereunder, the Underwriters will acquire valid and marketable title thereto, free and clear of all voting trust arrangements, security interests, claims, liens, encumbrances, property rights or adverse interests of any nature. (ii) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or which might be reasonably expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (iii) Such Selling Stockholder has executed and delivered a Power of Attorney ("Power of Attorney") among the Selling Stockholder, Joseph F. Spanier, and Gerald C. Harvey (the "Agents"), naming the Agents as such Selling Stockholder's attorneys-in-fact (and, by the execution by any Agent of this Agreement, such agent hereby represents and warrants that he has been duly appointed an attorney-in-fact by the Selling Stockholders pursuant to the Power of Attorney) for the purpose of entering into and carrying out this Agreement and the Pricing Agreement, and the Power of Attorney has been duly executed by such Selling Stockholder and a copy thereof has been delivered to the Representatives. (iv) Such Selling Stockholder further represents and warrants and agrees that such Selling Stockholder has deposited in custody, under a Custody Agreement ("Custody Agreement") with Wachovia Bank N.A., as custodian ("Custodian"), certificates in negotiable form for the Shares to be sold hereunder by such Selling Stockholder, for the purpose of further delivery pursuant to this Agreement. Such Selling Stockholder agrees that the Shares to be sold by such Selling Stockholder on deposit with the Custodian are subject to the interests of the Company, the Underwriters and the other Selling Stockholders, that the arrangements made for such custody, and the appointment of the Agents pursuant to the Power of Attorney, are to that extent irrevocable, and that the obligations of such Selling Stockholder hereunder and under the Power of Attorney and the Custody Agreement shall not be terminated except as provided in this Agreement, the Power of Attorney or the Custody Agreement by any act of such Selling Stockholder, by operation of law, whether, in the case of an individual Selling Stockholder, by the death or incapacity of such Selling Stockholder or, in the case of a trust or estate, by -11- 12 the death of the trustee or trustees or the executor or executors or the termination of such trust or estate, or, in the case of a partnership or corporation, by the dissolution, winding-up or other event affecting the legal life of such entity, or by the occurrence of any other event. If any individual Selling Stockholder, trustee or executor should die or become incapacitated, or any such trust, estate, partnership or corporation should be terminated, or if any other event should occur before the delivery of the Shares hereunder, the documents evidencing Shares then on deposit with the Custodian shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death, incapacity, termination or other event had not occurred, regardless of whether or not the Custodian shall have received notice thereof. Each Agent has been authorized by such Selling Stockholder to execute and deliver this Agreement and the Pricing Agreement and the Custodian has been authorized to receive and acknowledge receipt of the proceeds of sale of the Shares to be sold by such Selling Stockholder against delivery thereof and to otherwise act on behalf of such Selling Stockholder. The Custody Agreement has been duly executed by such Selling Stockholder and a copy thereof has been delivered to the Representatives. (v) Each Preliminary Prospectus, insofar as it has related to such Selling Stockholder and, to the knowledge of such Selling Stockholder in all other respects, as of its date, has conformed in all material respects with the requirements of the Act and, as of its date, has not included any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; and the Registration Statement at the time of effectiveness, and at all times subsequent thereto, (A) such parts of the Registration Statement and the Prospectus and any amendments or supplements thereto as relate to such Selling Stockholder, and the Registration Statement and the Prospectus and any amendments or supplements thereto, to the knowledge of such Selling Stockholder in all other respects, contained or will contain all statements that are required to be stated therein in accordance with the Act and in all material respects conformed or will in all material respects conform to the requirements of the Act, and (B) neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as it relates to such Selling Stockholder, and, to the knowledge of such Selling Stockholder in all other respects, included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that neither clause (A) nor (B) shall have any affect if information has been given by such Selling Stockholder to the Company and the Representatives in writing which would eliminate or remedy any such untrue statement or omission. (vi) Except as set forth in the letters of even date herewith, each among a Selling Stockholder, the Company and the Underwriters (collectively, the "Lockup Agreements"), except as set forth in the letters of even date herewith, each among a Selling Stockholder, the Company and the Underwriters (collectively, the "Lockup Agreements"), such Selling Stockholder agrees with the Company and the Underwriters not to sell, contract to sell or otherwise dispose of any Common Stock or rights to purchase Common Stock for a period of 90 days after the date of the Pricing Agreement without the prior written consent from ABN AMRO Chicago Corporation. -12- 13 SECTION 2. AGREEMENT TO SELL AND PURCHASE. (a) Subject to such adjustments to eliminate any fractional share sales or purchases as the Representatives in their discretion may make, (i) the Company hereby agrees to issue and sell to the Underwriters an aggregate of 1,000,000 Firm Shares, (ii) the Selling Stockholders hereby agree, severally and not jointly, to sell to the Underwriters in the respective amounts set forth in Schedule II hereto, an aggregate of 100,000 Firm Shares, and (iii) on the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from (A) the Company and the Selling Stockholders, at the purchase price per Share set forth in the Pricing Agreement (the "Purchase Price per Share"), the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares as such Underwriter shall be obligated to purchase pursuant to the provisions of Section 9 hereof) and (B) the Selling Stockholders the number of Firm Shares set further opposite the name of such Selling Stockholder in Schedule II hereto. (b) The Company and the Selling Stockholders agree to sell to the Underwriters and, on the basis of the representations, warranties and agreements of the Company and the Selling Stockholders set forth herein and subject to the terms and conditions set forth herein, the Underwriters shall have the right to purchase, from the Company up to 165,000 Additional Shares at the Purchase Price per Share upon delivery to the Company and the Agents of the notice hereinafter referred to. Such Additional Shares may be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments to eliminate fractional Shares as the Representatives may determine) which bears the same proportion to the total number of Additional Shares to be purchased from the Company as the number of Firm Shares set forth opposite such Underwriter's name in Schedule I (or such number of Firm Shares increased pursuant to the terms set forth in Section 9 hereof) bears to the total number of Firm Shares. -13- 14 SECTION 3. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. (a) Delivery to the Underwriters of the Firm Shares shall be made against payment therefor at 9:00 a.m., Chicago, Illinois time, on the third full business day following the date of the Pricing Agreement (the "Closing Date") at the offices of Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601-1692. The place of the closing and the Closing Date may be varied by agreement among the Representatives and the Company. (b) Delivery to the Underwriters of any Additional Shares to be purchased by the several Underwriters shall be made in Chicago, Illinois against payment therefor at the offices of Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601-1692 at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date, but shall in no event be earlier than the Closing Date nor earlier than three nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in written notice from the Representatives to the Company and the Agents of the determination to purchase a number, specified in said notice, of Additional Shares. Said notice may be given at any time within 30 days after the date of the execution of the Pricing Agreement. The place of the closing and the Option Closing Date may be varied by agreement among the Representatives and the Company. (c) If the Representatives, the Company and the Selling Stockholders have elected to enter into the Pricing Agreement after the Registration Statement is effective, the Purchase Price per Share to be paid by the several Underwriters for the Shares shall be an amount equal to the public offering price, less an amount to be determined by agreement among the Representatives, the Company and the Selling Stockholders. The public offering price per Share of the Shares shall be a fixed price to be determined by agreement between the Representatives and the Company. The public offering price and the Purchase Price per Share, when so determined, shall be set forth in the Pricing Agreement. If such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company, the Selling Stockholders and the -14- 15 Representatives and except as otherwise provided in Section 5 hereof. If the Representatives, the Company and the Selling Stockholders have elected to enter into the Pricing Agreement prior to the Registration Statement becoming effective, the public offering price and the Purchase Price per Share to be paid by the several Underwriters for the Shares having each been determined and set forth in the Pricing Agreement, the Company agrees to file an amendment to the Registration Statement and the Prospectus before the Registration Statement becomes effective. (d) Certificates for the Firm Shares and for the Additional Shares shall be registered in such names and in such denominations as the Representatives shall request upon at least 48 hours prior notice to the Company and the Custodian preceding the Closing Date or the Option Closing Date, as the case may be. Such certificates shall be made available to the Representatives at the office of The Depository Trust Company, New York, New York, for inspection and packaging not later than at least 24 hours prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and the Additional Shares shall be delivered to the Representatives on the Closing Date or the Option Closing Date, as the case may be, with any transfer taxes thereon duly paid by the Company or the Selling Stockholders, as the case may be, for the respective accounts of the several Underwriters, against payment of the purchase price therefor by wire or other immediately available funds. It is understood by the Company and the Selling Stockholders that each of the Underwriters has authorized the Representatives, for its account, to accept delivery of, receipt for and make payment of the purchase price for, the Shares it has agreed to purchase. SECTION 4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) The Company will endeavor to cause the Registration Statement to become effective and will advise the Representatives promptly and, if requested by the Representatives, will confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment to it becomes effective, and of the filing of any final prospectus or supplement or amendment to the Prospectus, (ii) of any request by the Commission for amendments or supplements to the Registration Statement or Prospectus or any Preliminary Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation or contemplation of any proceeding for such purposes, and (iv) within the period of time referred to in paragraph (f) below, of the happening of any event which makes any statement made in the Registration Statement or Prospectus (as then amended or supplemented) untrue in any material respect or which requires the making of any additions to or changes in the Registration Statement or Prospectus (as then amended or supplemented) in order to make the statements therein not misleading or the necessity to amend or supplement the Prospectus to comply with -15- 16 the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. If the Company elects to rely on Rule 434 of the Act, the Company will prepare a Term Sheet that complies with the requirements of Rule 434 of the Act and will provide the Representatives with copies of the form of Rule 434 Prospectus in such numbers as the Representatives may reasonably request and file or transmit for filing with the Commission the form of Prospectus complying with Rule 434(c)(2) of the Act in accordance with Rule 424(b) of the Act by the close of business in Chicago on the business day immediately succeeding the date hereof. If the Company elects not to rely on Rule 434, the Company will provide the Representatives with copies of the form of Prospectus in such numbers as the Representatives may reasonably request and file or transmit for filing with the Commission such Prospectus in accordance with Rule 424(b) of the Act, by the close of business in Chicago on the business day immediately succeeding the date hereof. (b) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A under the Act, then promptly following the execution of the Pricing Agreement, the Company will prepare and file with the Commission, in accordance with Rule 430A and Rule 424(b) under the Act, copies of an amended Prospectus, or, if required by Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus) containing all information so omitted. (c) Neither the Company nor any of its subsidiaries will, prior to the earlier of the Option Closing Date or termination or expiration of the related option, incur any liability or obligation, direct or contingent, or enter into any material transaction, other than in the ordinary course of business, except as contemplated in the Prospectus. (d) The Company will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus of which the Representatives shall not previously have been advised or to which the Representatives shall promptly after being so advised reasonably object in writing. (e) Prior to the effective date of the Registration Statement, the Company has delivered or will deliver to each of the Underwriters, without charge, copies of each form of Preliminary Prospectus in such quantities as they have reasonably requested or may hereafter reasonably request. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the effective date of the Registration Statement, of each Preliminary Prospectus so furnished by the Company. (f) On the effective date of the Registration Statement and thereafter from time to time during such period as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered in connection with -16- 17 offers or sales of the Shares by an Underwriter or a dealer, the Company will deliver to each Underwriter and dealer, without charge, as many copies of the Registration Statement, the Prospectus and each Preliminary Prospectus and the Incorporated Documents (and of any amendment or supplement to such documents) as they may reasonably request. During such period, if any event occurs which in the judgment of the Company, or in the opinion of counsel for the Underwriters, should be set forth in the Prospectus in order to ensure that no part of the Prospectus includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances at the time the Prospectus is delivered to a purchaser, not misleading, the Company will forthwith prepare, submit to the Representatives, file with the Commission and deliver, without charge to the several Underwriters and dealers (whose names and addresses will be furnished by the Representatives to the Company) to whom shares have been sold by the Underwriters or to other dealers any amendments or supplements to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will comply with the standards set forth in this sentence. The Company consents to the use of such Prospectus (and of any amendments or supplements thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions described in the preliminary Blue Sky memorandum in which the Shares are lawfully offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering or sale of the Shares and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. In case any Underwriter is required to deliver a Prospectus (and any amendment or supplement thereto) more than nine months after the first date upon which the Shares are offered to the public, the Company will, upon request, but at the expense of such Underwriter, promptly prepare and furnish such Underwriter with reasonable quantities of a Prospectus complying with Section 10(a)(3) of the Act. (g) The Company will cooperate with the Representatives and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as the Representatives may designate, will continue such registrations or qualifications in effect so long as reasonably required for the distribution of the Shares and will file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided that in no event shall the Company be obligated (i) to qualify to do business in any jurisdiction where it is not now so qualified, (ii) to file any general consent to service of process, or (iii) take any action that would subject it to income taxation in any jurisdiction where it is not so qualified. (h) For a period of five years after the date of the Pricing Agreement: (i) the Company will furnish to the Representatives (A) as soon as available, a copy of each report of the Company of general interest mailed to any class of its security holders (B) copies of all annual reports and current -17- 18 reports filed with the Commission on Forms 10-K, 10-Q and 8-K and any amendment thereto or such other similar forms as may be designated by the Commission and (C) from time to time, such other information concerning the Company as the Representatives may reasonably request; (ii) if at any time during such five year period, the Company shall cease filing with the Commission the annual reports and current reports on Forms 10-K, 10-Q and 8-K or other similar forms referred to in clause (i) above, the Company will forward to its stockholders generally and the Representatives and upon request to each of the other Underwriters (A) as soon as practicable after the end of each fiscal year, copies of a balance sheet and statements of income and retained earnings of the Company as of the end of and for such fiscal year, certified by independent public accountants, and (B) as soon as practicable after the end of each quarterly fiscal period, except for the last quarterly fiscal period in each fiscal year, a summary statement (which need not be certified) of income and retained earnings of the Company for such period, which shall also be made publicly available; and (iii) the Company will furnish to the Representatives and to the NASD, and by issuance of a press release, on the date of declaration, notice of all dividends, including the amount and medium of payment, the record date (which shall be not less than ten days subsequent to the declaration date) and the payment date (which shall be not less than ten days subsequent to the record date). (i) The Company will make generally available to its security holders an earnings statement of the Company, which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including Rule 158). (j) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to Section 9 hereof or by notice given by the Representatives of termination of this Agreement pursuant to Section 10 hereof), or if this Agreement shall be terminated by the several Underwriters because of any failure or refusal on the part of the Company to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the several Underwriters for all out-of-pocket expenses (including reasonable fees and expenses of counsel for the Underwriters) reasonably incurred by them in connection herewith but without any further obligation of the Company for lost profits or otherwise. If this Agreement is terminated pursuant to Section 9 or Section 10 hereof, the several Underwriters shall themselves bear any such out-of-pocket expenses incurred by them. -18- 19 (k) Except as set forth in the Lockup Agreements, the Company will not sell, contract to sell or otherwise dispose of any Common Stock or rights to purchase Common Stock for a period of 90 days after the date of the Pricing Agreement without the prior written consent of the Representatives. The Company will also obtain similar agreements from each of its executive officers and directors. (l) The Company will apply the net proceeds from the sale of the shares to be sold by it under this Agreement and the Pricing Agreement for the purposes set forth in the Prospectus under the caption "Use of Proceeds." (m) The Company will use its best efforts, subject to notice of issuance, to list the Shares on the New York Stock Exchange. SECTION 5. PAYMENT OF EXPENSES. The Company will pay, or reimburse if paid by the Representatives, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated, all costs and expenses incident to the performance by it of its obligations under this Agreement and the Pricing Agreement, including, without limiting the generality of the foregoing, (a) preparation, printing, filing and distribution (including postage, air freight charges and charges for counting and packaging) of the original registration statement, the Registration Statement, each Preliminary Prospectus, the Prospectus (including all Incorporated Documents, any exhibits and financial statements and any Term Sheet delivered by the Company pursuant to Rule 434 of the Act), each amendment and/or supplement to any of the foregoing, and this Agreement, the Pricing Agreement, the Agreement Among Underwriters, Selected Dealers Agreement, Powers of Attorney and Underwriters' Powers of Attorney and Questionnaires, (b) furnishing to the several Underwriters and dealers copies of the foregoing materials (provided, however, that any such copies furnished by the Company more than nine months after the first date upon which the Shares are offered to the public shall be at the expense of the several Underwriters or dealers so requesting as provided in Section 4(f) above), (c) the registrations or qualifications referred to in Section 4(g) above (including filing fees and fees and disbursements of counsel in connection therewith) and expenses of printing and delivering to the several Underwriters copies of the preliminary and final Blue Sky memoranda, (d) the review of the terms of the public offering of the Shares by the NASD (including the filing fees paid to the NASD in connection therewith) and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith, (e) the performance by the Company and each of the Selling Stockholders of its other obligations under this Agreement, including the fees of the Company's and each Selling Stockholder's counsel and accountants, (f) the issuance of the Shares and the preparation and printing of the stock certificates representing the Shares, including any stamp taxes payable in connection with the original issuance of the Shares, (g) furnishing to the several Underwriters copies of all reports and information required by Section 4(h) above, including reasonable costs of shipping and mailing, and (h) the listing of the Common Stock on the New York Stock Exchange. -19- 20 SECTION 6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) That the Registration Statement shall have become effective not later than 1:00 p.m., Chicago time, on the first full business day after the date of this Agreement, or at such later date and time as shall be consented to in writing by the Representatives, and, if the Representatives and the Company have elected to rely upon Rule 430A, the price of the Shares and any price-related or other information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed time period, and, if the Representatives and the Company have elected to rely upon a Term Sheet, such Term Sheet shall have been transmitted to the Commission for filing pursuant to Rule 434 and Rule 424(b) within the prescribed time period, and on or prior to the Closing Date, the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A. No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for the purpose shall have been instituted or shall be pending or, to the knowledge of the Company or the Selling Stockholders, shall be contemplated by the Commission and there shall not have come to the attention of the Representatives any facts that would cause them to believe that the Prospectus, at the time it was required to be delivered to purchasers of the Shares, contained any untrue statement of material fact or omitted to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) That subsequent to the effective date of the Registration Statement, (i) there shall not have occurred any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Company or its subsidiaries not contemplated by the Prospectus, which, in the Representatives' opinion, as Representatives of the several Underwriters, would materially adversely affect the market for the Shares or make it impracticable or inadvisable to proceed with the offering or the delivery of the Shares, as contemplated herein and in the Prospectus, or to attempt to enforce contracts for the purchase of Shares, and (ii) the business and operations of the Company shall not have been adversely affected by strike, fire, flood, accident or other calamity (whether or not insured). (c) The Representatives shall have received from Gerald C. Harvey, Vice President, Secretary and General Counsel of the Company, a favorable opinion dated the Closing Date and satisfactory to the Representatives and the Underwriters' counsel to the effect that: -20- 21 (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement. The Company is duly qualified to do business as a foreign corporation and in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except in any such case where the failure to so qualify or be in good standing would not have a material adverse effect on the condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole. (ii) An opinion to the same general effect as clause (i) of this subparagraph (c) in respect of each direct and indirect subsidiary of the Company. (iii) All of the issued and outstanding capital stock of the subsidiaries of the Company has been duly authorized and validly issued and is fully paid and non-assessable, and except as disclosed in the Registration Statement, the Company owns directly or indirectly 100 percent of the outstanding capital stock of each subsidiary and, to the best knowledge of such counsel, such stock is owned free and clear of any security interests, claims, liens, encumbrances or adverse interests of any nature. (iv) The issued and outstanding capital stock of the Company has been duly authorized and validly issued and is fully paid and non-assessable and free of preemptive rights. (v) The authorized capitalization of the Company consists entirely of 14,700,000 shares of Common Stock, of which __________ were issued and outstanding on the date of the Prospectus and 300,000 shares of Preferred Stock, of which no shares were issued and outstanding on the date of the Prospectus and all of which conforms to the description thereof in the Registration Statement and the Prospectus. (vi) The certificates for the Shares to be delivered by the Company hereunder are in due and proper form, and when duly countersigned by the Company's transfer agent and delivered to the Representatives against payment of the agreed consideration therefor in accordance with the provisions of this Agreement and the Pricing Agreement, the Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable and free of preemptive rights and, to the knowledge of such counsel, will be free of any security interest, claim, lien, encumbrance or adverse interest of any nature, or rights of first refusal in favor of, stockholders with respect to any of the Shares or the issuance or sale thereof, pursuant to the Certificate of Incorporation or by-laws of the Company and, to such counsel's knowledge, there are no contractual preemptive rights, rights of first refusal, rights of co- -21- 22 sale or other similar rights which exist with respect to any of the Shares or the issuance and sale thereof; and the Shares to be sold by the Company hereunder have been duly and validly authorized and qualified for listing on the New York Stock Exchange, subject to notice of issuance. (vii) This Agreement and the Pricing Agreement have been duly and validly authorized, executed and delivered by the Company and are legal, valid and binding obligations of the Company, enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity, and except that such counsel need express no opinion as to those provisions relating to indemnities for liabilities under the Act. (viii) No authorization, approval, order or consent of any governmental authority or agency is required for the valid issuance and sale of the Shares, except such as may be required under the Act or state securities laws as to which such counsel need express no opinion. (ix) The execution, delivery and performance of this Agreement and the Pricing Agreement by the Company, the issue and sale of the Shares, and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach of any of the provisions of, or constitute a default under (A) the Company's Certificate of Incorporation or by-laws or any agreement, franchise, license, indenture, mortgage, deed of trust or other instrument or agreement known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of their respective properties is subject or (B) so far as known to such counsel, any statute, order, rule or regulation applicable to the Company or any of its subsidiaries of any court or other governmental authority or body having jurisdiction over the Company or any of its subsidiaries or any of its properties. (x) To such counsel's knowledge, except as disclosed in the Prospectus, no person has the right, contractual or otherwise, to cause the Company to register pursuant to the Act any shares of capital stock of the Company, upon the issuance and sale of the Shares to be sold by the Company to the Underwriters pursuant to this Agreement. (xi) To such counsel's knowledge, all offers and sales of the Company's capital stock prior to the date hereof were at all relevant times (A) registered under the Act or exempt from the registration requirements of the Act or (B)duly registered or the subject of an available exemption from the registration requirements of the applicable state securities or blue sky laws. -22- 23 In rendering such opinion, such counsel may state that he is relying upon the certificate of the transfer agent for the Common Stock, as to the number of shares of Common Stock at any time or times outstanding. Such counsel may also rely upon the opinions of other competent counsel and, as to factual matters, on certificates of state officials, in which case such counsel's opinion is to state that they are so doing and copies of such opinions or certificates are to be attached to the opinion unless such opinions or certificates (or, in the case of certificates, the information therein) have been furnished to the Representatives otherwise. (d) The Representatives shall have received from Hahn Loeser & Parks LLP, counsel for the Company and the Selling Stockholders, a favorable opinion dated the Closing Date and satisfactory to the Representatives and the Underwriters' counsel to the effect that: (i) All documents incorporated by reference in the Prospectus, when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act; and such counsel have no reason to believe that any of such documents, when they were so filed, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; such counsel need express no opinion as to the financial statements or other financial or statistical data contained in any such document. (ii) The Registration Statement has become effective under the Act, and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act. (iii) The Registration Statement (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable) as amended or supplemented (except for the financial statements and notes thereto, the financial statement schedules and other financial data included therein as to which such counsel need express no opinion) and the Prospectus and any supplements or amendments thereto (except for the financial statements and notes thereto, the financial statement schedules and other financial data included therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules of the Commission thereunder and nothing has come to the attention of such counsel that would cause such counsel to believe that the Registration Statement (including the information deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A(b), if applicable) as amended or supplemented (except -23- 24 for the financial statements and notes thereto, the financial statement schedules and other statistical or financial data included therein as to which such counsel need express no opinion) at the time it became effective, at the time the Pricing Agreement was executed and at the Closing Date, contained any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or that, as of its date, the Prospectus or any amendment or supplement thereto (except for the financial statements and notes thereto, the financial statement schedules and other statistical or financial data included therein as to which such counsel need express no opinion) included or includes any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Rule 434 Prospectus conforms to the requirements of Rule 434 of the Act. (iv) The statements in the Prospectus in the sections captioned "Management" and "Description of Capital Stock," in each case insofar as such statements reflect a summary of the material legal matters or the documents referred to therein, fairly and accurately present the information called for by the Act and the applicable rules and regulations promulgated thereunder. (v) To the knowledge of such counsel, there are no statutes or regulations, provisions of the Delaware General Corporation Law or any pending or threatened litigation or governmental proceedings against the Company required to be described in the Prospectus which are not so described, nor any contracts or documents of a character required to be described in or filed as a part of the Registration Statement which are not described or filed as required. (vi) Neither the Company nor any of its subsidiaries is an "investment company" or, to the knowledge of such counsel, a person "controlled by" an "investment company" within the meaning of the Investment Company Act. (vii) The certificates for the Shares to be delivered by the Selling Stockholders hereunder are in due and proper form, and when duly countersigned by the Company's transfer agent and delivered to the Representatives against payment of the agreed consideration therefor in accordance with the provisions of this Agreement and the Pricing Agreement, the Shares represented thereby will be duly authorized and validly issued, fully paid and nonassessable and free of preemptive rights and, to the knowledge of such counsel, will be free of any security interest, claim, lien, encumbrance or adverse interest of any nature, or rights of first refusal in favor of, -24- 25 stockholders with respect to any of the Shares or the issuance or sale thereof, pursuant to the Certificate of Incorporation or by-laws of the Company and, to such counsel's knowledge, there are no contractual preemptive rights, rights of first refusal, rights of co-sale or other similar rights which exist with respect to any of the Shares or the issuance and sale thereof; and the Shares to be sold by the Selling Stockholders hereunder have been duly and validly authorized and qualified for listing on the New York Stock Exchange, subject to notice of issuance. (viii) With respect to each Selling Stockholder, this Agreement and the Pricing Agreement have been duly authorized, executed and delivered by or on behalf of each such Selling Stockholder; the Agents and the Custodian for each such Selling Stockholder have been duly and validly authorized to carry out all transactions contemplated herein on behalf of each such Selling Stockholder; and the execution and performance of this Agreement and the Pricing Agreement, the sale and transfer of the Shares by such Selling Stockholder and the consummation of the transactions contemplated herein by such Selling Stockholder will not contravene, conflict with any of the provisions of, or result in a breach or default under, any agreement, franchise, license, indenture, mortgage, deed of trust or other agreement or instrument known to such counsel to which any of such Selling Stockholders is a party or by which any are bound or to which any of the property of such Selling Stockholders is subject, nor will such actions violate any order, rule or regulation known to such counsel of any court or regulatory or governmental body having jurisdiction over any of such Selling Stockholders or any of their properties; and no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement and the Pricing Agreement involving the sale and transfer of Shares by the Selling Stockholders, except such as may be required under the Act or state securities laws as to which counsel need express no opinion. (ix) Each Selling Stockholder has full right, power and authority to enter into this Agreement and the Pricing Agreement and to sell, transfer and deliver the Shares to be sold on the Closing Date or the Option Closing Date, as the case may be, by such Selling Stockholder hereunder; upon registration in the name of the Underwriters of such Shares to be sold by such Selling Stockholder hereunder, the Underwriters (who counsel may assume to be bona fide purchasers) will acquire valid title to such Shares so sold, free and clear of all voting trust arrangements, security interests, claims, liens, encumbrances, community property rights or any adverse interests of any nature imposed on such Shares by such Selling Stockholder or the Company. (x) This Agreement and the Pricing Agreement are legal, valid and binding agreements of each Selling Stockholder except as enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or -25- 26 other similar laws affecting creditors' rights generally and by general principles of equity, and except that such counsel need express no opinion to those provisions relating to indemnities for liabilities arising under the Act. (xi) The Power of Attorney and Custody Agreement have been duly executed and delivered by each Selling Stockholder and constitute valid and binding agreements of each such Selling Stockholder in accordance with their terms, except as enforceability of the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity, and except that such counsel need express no opinion to those provisions relating to indemnities for liabilities arising under the Act. In rendering such opinion, such counsel may state that they are relying upon the certificate of the Selling Stockholders and of officers of the Company and the transfer agent for the Common Stock, as to the number of shares of Common Stock at any time or times outstanding, and that insofar as their opinion under clause (iii) above relates to the accuracy and completeness of the Prospectus and Registration Statement, it is based upon a general review with the Company's representatives and independent accountants of the information contained therein, without independent verification by such counsel of the accuracy or completeness of such information. Such counsel may also rely, as to factual matters, on certificates of officers of the Company and of the Selling Stockholders, in which case their opinion is to state that they are so doing and copies of such certificates are to be attached to the opinion unless such certificates (or the information therein) have been furnished to the Representatives otherwise. (e) That the Representatives shall have received on the Closing Date a favorable opinion dated the Closing Date from Jones, Day, Reavis & Pogue, counsel for the Underwriters, as to such matters as the Representatives may reasonably require. (f) That the Representatives shall have received letters addressed to the Representatives and dated the date hereof and the Closing Date from Deloitte & Touche LLP, independent public accountants for the Company, to the effect set forth in Schedule III. There shall not have been any change or decrease specified in the letters referred to in this subparagraph which makes it impractical or inadvisable in the judgment of the Representatives to proceed with the public offering or purchase of the Shares as contemplated hereby. (g) That (i) no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short or long-term debt of the Company from that set forth or contemplated in the Registration Statement; (iii) there shall not have been, since the respective dates as to which information is given in the Registration Statement and the Prospectus, except as may otherwise be set forth or contemplated in the Registration Statement and the Prospectus, any material adverse -26- 27 change in the financial condition or results of operations of the Company; (iv) the Company shall not have incurred any material liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), other than those reflected in the Registration Statement, and (v) all of the representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and the Closing Date as if made on and as of each such date, and the Representatives shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the principal financial officer (or such other officers as are acceptable to the Representatives) to the effect set forth in this Section 6(g) and in Section 6(h) hereof. (h) That the Company shall not have failed at or prior to the Closing Date to have performed or complied in all material respects with any of the agreements herein contained and required to be performed or complied with by it at or prior to the Closing Date. (i) Within 24 hours after the Registration Statement becomes effective, or within such longer period as to which the Representatives shall have consented, the Shares shall have been qualified for sale or exempted from such qualification under the securities laws of such jurisdictions as the Representatives shall have designated prior to the time of execution of the Pricing Agreement and such qualification or exemption shall continue in effect to and including the Closing Date. (j) That the representations and warranties of each Selling Stockholder contained in this Agreement shall be true and correct on and as of the date hereof and the Closing Date as if made on and as of each such date, and the Representatives shall have received a certificate, dated the Closing Date, to the effect set forth in this Section 6(j). The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of the Option Closing Date of the conditions set forth in paragraphs (a) through (j); except that the opinions called for in paragraphs (c), (d) and (e) shall be revised to reflect the sale of Additional Shares and shall be dated the Option Closing Date, if different from the Closing Date. SECTION 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act from and against any and all losses, claims, damages or liabilities, joint or several, whatsoever (including any investigation, legal or other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which such Underwriter, or such controlling person may become subject, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus or -27- 28 the Registration Statement or the Prospectus or in any amendment or supplement thereto or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred, except insofar as such losses, claims, damages or liabilities arise out of or are based upon any such untrue statement or omission or allegation thereof that has been made therein or omitted therefrom in reliance upon and in conformity with information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through the Representatives expressly for use therein; provided, however, that the indemnification contained in this paragraph with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or of any person controlling such Underwriter) with respect to any action or claim arising from the sale of the Shares by such Underwriter brought by any person who purchased Shares from such Underwriter if (i) a copy of the Prospectus (as amended or supplemented if any amendments or supplements thereto shall have been furnished to the Underwriter prior to the written confirmation of the sale involved) shall not have been given or sent to such person by or on behalf of the Underwriter with or prior to the written confirmation of the sale involved and (ii) the untrue statement or omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus (as amended or supplemented if amended or supplemented as aforesaid). (b) The Selling Stockholders, severally in proportion to the number of Shares to be sold by each of them hereunder, agree to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act or the Exchange Act from and against any and all losses, claims, damages or liabilities, joint or several, whatsoever (including any investigation, legal or other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) to which such Underwriter, or such controlling person may become subject, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus or the Registration Statement or the Prospectus or in any amendment or supplement thereto or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Selling Stockholder specifically for inclusion therein, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred, except insofar as such losses, claims, damages or liabilities arise out of or are based upon any such untrue statement or omission or allegation thereof that has been made therein or omitted therefrom in reliance upon and in conformity with information -28- 29 relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through the Representatives expressly for use therein; provided, however, that the indemnification contained in this paragraph with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or of any person controlling such Underwriter) with respect to any action or claim arising from the sale of the Shares by such Underwriter brought by any person who purchased Shares from such Underwriter if (i) a copy of the Prospectus (as amended or supplemented if any amendments or supplements thereto shall have been furnished to the Underwriter prior to the written confirmation of the sale involved) shall not have been given or sent to such person by or on behalf of the Underwriter with or prior to the written confirmation of the sale involved and (ii) the untrue statement or omission of a material fact contained in such Preliminary Prospectus was corrected in the Prospectus (as amended or supplemented if amended or supplemented as aforesaid). In no event, however, shall the liability of any Selling Stockholder for indemnification under this Section 7(b) exceed the proceeds received by such Selling Stockholder from the sale of Shares under this Agreement. (c) If any action or claim shall be brought against any Underwriter or any person controlling such Underwriter, in respect of which indemnity may be sought against the Company, such Underwriter shall promptly notify the Company in writing, and the Company shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Any Underwriter or any such person controlling such Underwriter shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person and shall be reimbursed as they are incurred unless (i) the Company has agreed in writing to pay such fees and expenses, (ii) the Company has failed to assume the defense and employ counsel or (iii) the named parties to any such action (including any impleaded party) included such Underwriter or controlling person and the Company and such Underwriter or controlling person shall have been advised by such counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the Company and that may also result in a conflict of interest (in which case if such Underwriter or controlling person notifies the Company, the Company shall not have the right to assume the defense of such action on behalf of such Underwriter or controlling person, it being understood, however, that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all such Underwriters and controlling persons, which firm shall be designated in writing by the Representatives). The Company shall not be liable for any settlement or any such action effected without the written consent of the Company, but if settled with the written consent of the Company, or if there shall be a final judgment for the plaintiff in any such action and the time for filing all appeals has expired, the Company agrees to indemnify and hold -29- 30 harmless any Underwriter and any such controlling person from and against any loss or liability by reason of such settlement or judgment. (d) Each Underwriter will severally indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each Selling Stockholder, and any person controlling the Company within the meaning of the Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing to the Company by or on behalf of such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus or any Preliminary Prospectus. If any action or claim shall be brought or asserted against the Company, any of its directors, any such officer, any such Selling Stockholder, or any such controlling person based on the Registration Statement, the Prospectus or any Preliminary Prospectus and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company pursuant to Section 7(c) hereof (except that if the Company shall have assumed the defense thereof, such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), and the Company, its directors, any such officer, any such Selling Stockholder and any such controlling person shall have the rights and duties given to the Underwriters by Section 7(c) hereof. (e) (i) If the indemnification provided for in this Section 7 is unavailable as a matter of law to any indemnified party under this Section 7 in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by damages, liabilities or expenses (A) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Selling Stockholders and the Underwriters from the offering of the Shares or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (A) above but also the relative fault of the Company, the Selling Stockholders and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company, the Selling Stockholders and the Underwriters shall be deemed to be in the same proportion in the case of the Company and the Selling Stockholders, as the total price paid to the Company and the Selling Stockholders for the Shares by the Underwriters (net of underwriting discount but before deducting expenses), and in the case of the Underwriters as the underwriting discount received by them bears to the total of such amounts paid to the Company and the Selling Stockholders and received by the Underwriters as underwriting discount, in each case as contemplated by the Prospectus. The relative fault of the Company, the Selling Stockholders and the Underwriters shall be determined by reference to, among other things, whether the -30- 31 untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in this Section shall be deemed to include, subject to the limitations set forth in this Section, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. (ii) The Company, the Selling Stockholders and the Underwriters agree that the determination of contribution pursuant to this Section based on pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph would not be just and equitable (even if the several Underwriters were treated as one entity for such purpose). Notwithstanding the provisions of this Section, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section are several in proportion to their respective underwriting commitments and not joint. In no event, however, shall the liability of any Selling Stockholder for contribution under this Section 7(e)(ii) exceed the proceeds received by such Selling Stockholder from the sale of Shares under this Agreement. (f) The indemnity and contribution agreements contained in this Section and the representations and warranties of the Company and the Selling Stockholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company or its directors or officers or any Selling Stockholder, (or any person controlling the Company or any Selling Stockholder), (ii) acceptance of any Shares and payment therefor hereunder and (iii) any termination of this Agreement. A successor or assign of an Underwriter, the Company or its directors or officers, and their legal and personal representatives (or of any person controlling an Underwriter, or the Company or any Selling Stockholder) shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section. (g) The Underwriters severally confirm, and the Company and each Selling Stockholder acknowledge, that the statements with respect to the public offering of the Shares set forth on the cover page of, the legend concerning stabilization on the inside front cover page of, the names of the Underwriters and the number of Shares that they are purchasing, the concession and reallowance figures and the information contained in the eighth paragraph, in each case appearing under -31- 32 the caption "Underwriting" in, the Prospectus are correct and constitute the only information furnished in writing by or on behalf of the Underwriters expressly for use in the Registration Statement, the Prospectus or any Preliminary Prospectus. SECTION 8. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective immediately as to Sections 5, 7, 10 and 11 and as to all other provisions at 10:00 A.M., Chicago Time, on the day following the date upon which the Pricing Agreement is executed and delivered, unless such a day is a Saturday, Sunday or holiday (and in that event this Agreement shall become effective at such hour on the business day next succeeding such Saturday, Sunday or holiday); but this Agreement shall nevertheless become effective at such earlier time after the Pricing Agreement is executed and delivered as the Representatives may determine on and by notice to the Company and the Selling Stockholders or by release of any Shares for sale to the public. For the purposes of this Section, the Shares shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Shares or upon the release by the Representatives of telecommunications (i) advising Underwriters that the Shares are released for public offering, or (ii) offering the Shares for sale to securities dealers, whichever may occur first. SECTION 9. DEFAULT OF UNDERWRITERS. If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares which it or they have agreed to purchase under this Agreement and the Pricing Agreement and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as the Representatives may specify in accordance with the Agreement Among Underwriters to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares and arrangements satisfactory to the Representatives and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either the Representatives or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. -32- 33 (b) Any notice under this Section 9 may be made by telecopy or telephone but shall be subsequently confirmed by letter. SECTION 10. TERMINATION OF AGREEMENT. This Agreement and the Pricing Agreement shall be subject to termination by notice given by the Representatives to the Company, if (a) after the execution and delivery of this Agreement and the Pricing Agreement and prior to the Closing Date (and with respect to the Additional Shares, the Option Closing Date) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York or in Chicago shall have been declared by either Federal, New York or Illinois State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Representatives, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event, singly or together with any other such event, makes it, in the judgment of the Representatives, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. Notice of such cancellation shall be given to the Company by telecopy or telephone but shall be subsequently confirmed by letter. SECTION 11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale to the Underwriters of the Shares on the Closing Date is not consummated because any condition to the Underwriters' obligations hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company or the Selling Stockholders to perform any agreement herein or to comply with any provision hereof, unless such failure to satisfy such condition or to comply with any provision hereof is due to the default or omission of any Underwriter, the Company and the Selling Stockholders agree to reimburse you and the other Underwriters upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel), but without any further obligation of the Company for lost profits or otherwise, that shall have been reasonably incurred by you and them in connection with the proposed purchase and the sale of the Shares. Any such termination shall be without liability of any party to any other party except that the provisions of this Section, Section 5 and Section 7 shall at all times be effective and shall apply. SECTION 12. NOTICES. Except as otherwise provided in Sections 9 and 10 hereof, notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be delivered (a) if to the Company, at the office of the Company at TransTechnology Corporation, 150 Allen Road, Liberty Corner, New Jersey 07938, Attention: Gerald C. Harvey, with a copy to Hahn Loeser & Parks LLP, 3300 BP America Building, 200 Public Square, Cleveland, Ohio 44114, Attention: F. Ronald O'Keefe or (b) if to the Representatives, at the offices of ABN AMRO Chicago -33- 34 Corporation, 208 South LaSalle Street, 4th Floor, Chicago, Illinois 60604, Attention: Corporate Finance Department, with a copy to Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601, Attention: Gary T. Johnson or (c) if to the Selling Stockholders, to the Agents and the Custodian at such address as they have previously furnished to the Company and the Representatives, with a copy to Hahn Loeser & Parks LLP, 3300 BP America Building, 200 Public Square, Cleveland, Ohio 44114, Attention: F. Ronald O'Keefe, or in any case to such other address as the person to be notified may have requested in writing. SECTION 13. SUCCESSORS. The Agreement and the Pricing Agreement are made solely for the benefit of the several Underwriters, the Company, their directors and officers and other controlling persons referred to in Section 7 hereof, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement or the Pricing Agreement. The term "successors and assigns" as used in this Agreement shall not include a purchaser from any of the several Underwriters of any of the Shares in his status as such purchaser. SECTION 14. REPRESENTATION OF UNDERWRITERS. The Representatives will act for the several Underwriters in connection with the purchase, offering and sale of the Shares, and any action taken by the Representatives will be binding upon all the Underwriters. SECTION 15. PARTIAL UNENFORCEABILITY. If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other section, paragraph or provision hereof. SECTION 16. APPLICABLE LAW. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. SECTION 17. COUNTERPARTS. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. -34- 35 Please confirm that the foregoing correctly sets forth the agreement among the Company and the several Underwriters. Very truly yours, TRANSTECHNOLOGY CORPORATION BY:_______________________ NAME: TITLE: The Selling Stockholders named in Schedule II hereto, acting severally BY: ------------------------------ Attorney-in-Fact ACCEPTED AND DELIVERED AS OF THE DATE FIRST WRITTEN ABOVE. ABN AMRO CHICAGO CORPORATION EVEREN SECURITIES, INC. ACTING AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS NAMED IN SCHEDULE I HERETO. BY: ABN AMRO CHICAGO CORPORATION BY: _____________________________ -35- 36 TRANSTECHNOLOGY CORPORATION SCHEDULE I UNDERWRITERS NUMBER OF NAME FIRM SHARES - ------------------------------------------------------------------------------- ABN AMRO Chicago Corporation................................. EVEREN SECURITIES, INC....................................... ________ TOTAL......................................... ======== 37 TRANSTECHNOLOGY CORPORATION SCHEDULE II SELLING STOCKHOLDERS NUMBER OF FIRM SHARES NAME TO BE SOLD Michael J. Berthelot............................................ Patrick K. Bolger............................................... Chandler J. Moisen.............................................. ________ TOTAL............................................ ======== 38 TRANSTECHNOLOGY CORPORATION SCHEDULE III Comfort Letter of Deloitte & Touche LLP (1) They are independent public accountants with respect to the Company and its subsidiaries within the meaning of the Act. (2) In their opinion the consolidated financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement and the consolidated financial statements of the Company from which the information presented under the caption "Selected Consolidated Financial Data" has been derived which are stated therein to have been examined by them comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act. (3) On the basis of specified procedures (but not an examination in accordance with generally accepted auditing standards), including inquiries of certain officers of the Company and its subsidiaries responsible for financial and accounting matters as to transactions and events subsequent to ______, 1997, a reading of minutes of meetings of the stockholders and directors of the Company and its subsidiaries since ___________, 1997, a reading of the latest available interim unaudited consolidated financial statements of the Company and its subsidiaries (with an indication of the date thereof) and other procedures as specified in such letter, nothing came to their attention which caused them to believe that (i) the unaudited consolidated financial statements of the Company and its subsidiaries included or incorporated by reference in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act or that such unaudited financial statements are not fairly presented in accordance with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement, [cover pro forma financial statements] and (ii) at a specified date not more than five days prior to the date thereof in the case of the first letter and not more than two business days prior to the date thereof in the case of the second and third letters, there was any change in the capital stock or long-term debt or short-term debt (other than normal payments) of the Company and its subsidiaries on a consolidated basis or any decrease in consolidated net current assets or consolidated] stockholders' equity as compared with amounts shown on the latest unaudited balance sheet of the Company included in the Registration Statement or for the period from the date of such balance sheet to a date not more than five days prior to the day thereof in the case of the first letter and not more than two business days prior to the date thereof in the case of the second and third letters, there were any decreases, as compared with the 39 corresponding period of the prior year, in consolidated net sales, consolidated income before income taxes or in the total or per share amounts of consolidated net income except, in all instances, for changes or decreases which the Prospectus discloses have occurred or may occur or which are set forth in such letter. (4) They have carried out specified procedures, which have been agreed to by the Representatives, with respect to certain information in the Prospectus specified by the Representatives, and on the basis of such procedures, they have found such information to be in agreement with the general accounting records of the Company and its subsidiaries. -3- 40 Exhibit A 1,100,000 SHARES* TRANSTECHNOLOGY CORPORATION COMMON STOCK PRICING AGREEMENT __________, 1997 ABN AMRO CHICAGO CORPORATION EVEREN SECURITIES, INC. Individually and as Representatives of the Several Underwriters Named in Schedule I to the Underwriting Agreement c/o ABN AMRO Chicago Corporation 208 South LaSalle Street 4th Floor Chicago, Illinois 60604 Ladies and Gentlemen: Reference is made to the Underwriting Agreement, dated _______ __, 1997 (the "Underwriting Agreement"), relating to the purchase by the several Underwriters named in Schedule I thereto (collectively, the "Underwriters"), for whom you are acting individually and as representatives (the "Representatives"), of the above referenced Common Stock (the "Shares") of TransTechnology Corporation (the "Company"). Pursuant to Section 3 of the Underwriting Agreement, the Company agrees with each of the Underwriters as follows: 1. The public offering price per share of the Shares determined as provided in said Section 3 shall be $_______. 2. The purchase price per share of the Shares to be paid by the several Underwriters shall be $________, being an amount equal to the public offering price set forth above, less $_______ per Share. - -------- * Plus an option to purchase up to 165,000 Additional Shares to cover over-allotments. 41 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms. Very truly yours, TRANSTECHNOLOGY CORPORATION BY:______________________________ NAME: TITLE: Confirmed and Accepted, as of the date first above written for themselves and as Representatives of the other Underwriters named in the Underwriting Agreement: ABN AMRO CHICAGO CORPORATION EVEREN SECURITIES, INC. Acting as Representatives of the Several Underwriters named in Schedule I to the Underwriting Agreement BY: ABN AMRO CHICAGO CORPORATION BY: _____________________________ -2- EX-5.1 3 EXHIBIT 5.1 1 EXHIBIT 5.1 [HAHN LOESER PARKS LETTERHEAD] November 4, 1997 TransTechnology Corporation 150 Allen Road Liberty Corner, New Jersey 07938 Gentlemen: As counsel for TransTechnology Corporation, a Delaware corporation (the "Company"), we are familiar with the Company's Registration Statement on Form S-2, as amended (the "Registration Statement"), first filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on October 8, 1997, with respect to 1,265,000 shares of the Company's Common Stock, $0.01 par value per share, of which 1,000,000 shares are offered for the account of the Company ("Company Shares"), 100,000 shares are offered for the accounts of certain selling stockholders (the "Selling Stockholders") named in the Registration Statement (the "Selling Stockholder Shares") and 165,000 shares are subject to an over-allotment option granted to the underwriters by the Company (the "Over-Allotment Shares"). In connection with the foregoing, we have examined (a) the Amended and Restated Certificate of Incorporation and the Amended Bylaws of the Company; (b) the proposed form of Underwriting Agreement filed as an exhibit to the Registration Statement (the "Underwriting Agreement") with respect to the Company Shares, the Selling Stockholder Shares and the Over-Allotment Shares, and (c) such records of the corporate proceedings of the Company and such other documents as we deemed necessary to render this opinion. Based upon such examination, we are of the opinion that: 1. The Company is a corporation organized and validly existing under the laws of the State of Delaware. 2. The Company Shares and the Over-Allotment Shares to be sold by the Company have been duly authorized and, when issued and sold pursuant to the duly executed Underwriting Agreement (in substantially the form filed as an exhibit to the Registration Statement) and in the manner contemplated by the Registration Statement, will be validly issued, fully paid and nonassessable. 2 TransTechnology Corporation November 4, 1997 Page 2 3. The Selling Stockholder Shares to be sold by the Selling Stockholders when sold pursuant to the duly executed Underwriting Agreement (in substantially the form filed as an exhibit to the Registration Statement) and in the manner contemplated by the Registration Statement will be duly authorized, validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and the reference to us under the caption "Legal Matters" in the Prospectus that is a part of the Registration Statement. Very truly yours, /s/ HAHN LOESER & PARKS LLP ----------------------------------- HAHN LOESER & PARKS LLP EX-23.1 4 EXHIBIT 23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 2 to Registration Statement No. 333-37395 of TransTechnology Corporation on Form S-2 of our reports dated May 12, 1997, included and incorporated by reference in the Annual Report on Form 10-K of TransTechnology Corporation for the year ended March 31, 1997 and to the use of our report dated May 12, 1997, appearing in the Prospectus, which is part of such Registration Statement. We also consent to the reference to us under the headings "Summary Consolidated Financial Data" and "Experts" in such Prospectus. Deloitte & Touche LLP Parsippany, New Jersey November 4, 1997 EX-23.2 5 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The New Seeger Group: As independent public accountants, we hereby consent to use of our report included in this registration statement and to the incorporation by reference of our report dated May 28, 1996 included in the Annual Report on Form 10-K of TransTechnology Corporation for the year ended March 31, 1997 and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN Wirtschaftsprufungsgellschaft Steuerberatungsgesellschaft mbH Laupenmuhlen Wirtschaftsprufer (certified auditor) Eschborn/Frankfurt/M. November 4, 1997 EX-23.3 6 EXHIBIT 23.3 1 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 2 to Registration Statement No. 333-37395 of TransTechnology Corporation on Form S-2 of our report dated February 6, 1997 on our audit of the financial statements of TCR Corporation as of December 31, 1996 and 1995 and for the years ended, appearing in the Current Report on Form 8K/A of TransTechnology Corporation dated April 17, 1997, which is also incorporated by reference in this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. Ocel, Heimer & Associates, Ltd. Minneapolis, MN November 4, 1997 -----END PRIVACY-ENHANCED MESSAGE-----