Exhibit 99(b)(3)
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GENERAL BEARING CORPORATION
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FINANCING PROPOSAL
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Presented by
KeyBank National Association
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May 24, 2004
General Bearing Corporation Transaction Team
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Borrower: General Bearing Corporation or GBC Acquisition
Corp. (the "Company").
Guarantors: All existing and future domestic subsidiaries of
the Borrower.
Total Facility Amount: Up to $27,000,000. KeyBank intends to hold the
entire amount of the proposed Facilities, but
reserves the right to assign or participate a
portion of the Facilities.
Facility A : Up to a $21,000,000 Three (3) Year, Secured
Revolving Credit Facility (the "Revolving
Facility").
Facility B: Up to a $6,000,000 Five (5) Year, Term Loan (the
"Term Loan").
Purpose: Facility A; To support working capital financing
needs
Facility B; To finance the repurchase of the
Company's publicly owned stock and the expenses
associated with the transaction (the
"Going-Private Transaction").
Lender: KeyBank National Association ("KeyBank")
Maturity and Amortization: Facility A shall be on an interest-only basis,
with principal due in full at maturity. The
Facility shall mature three (3) years after the
date of closing (the "Closing").
Facility B shall be paid in quarterly principal
installments of $300,000.00 based on a five (5)
year amortization plus accrued interest.
Facility B shall mature five (5) years after the
date of closing (the "Closing").
General Bearing Corporation Transaction Team
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Availability: Facility A: Provided no Event of Default exists,
the Borrower will be able to borrow, repay and
reborrow up to the lesser of: (i) the Facility A
amount or (ii) the amount available under the
Facility A's monthly borrowing base formula, if
required.
Facility B: Will be fully funded at Closing and
the Borrower will not be able to reborrow any
principal that has be repaid.
Borrowing Base: Upon Closing, Facility A will be governed by a
monthly borrowing base requirement based upon
eligible accounts receivable, eligible inventory
and a $2,500,000 reserve requirement. It is
expected that the advance rates will be
consistent with those currently detailed in the
existing credit agreement dated December 20,
1999, and as amended. However, advance Rates and
eligibility will ultimately be subject to due
diligence by Xxxxxx, including receipt and
satisfactory review of a Field Examination. The
reserve requirement will be reduced quarterly
based on the principal payments applied towards
Facility B.
The borrowing base requirement will be
eliminated upon receipt of the 6/30/05 financial
statements, provided that: 1.) the Borrower is
in compliance with all of its financial
covenants on an ongoing basis, 2.) the
Consolidated Funded Debt Ratio is less than
2.75x (based upon the average outstandings under
Facility A as of two consecutive fiscal quarter
ends), and 3.) the balance under Facility B is
less than $3,000,000. The borrowing base
requirement will be reinstated following any
instance in which the Consolidated Funded Debt
Ratio exceeds 3.00x.
Field Examination: A field examination of the Borrower's accounts
receivable and inventory will be required by the
Lender prior to Closing. The field examination
will ultimately aid in determining the final
terms of the borrowing base, including, but not
limited to advance rates and asset eligibility.
The determination of the field examiner will be
made by the Lender, however the Borrower will be
responsible for the expense associated with the
field examination.
General Bearing Corporation Transaction Team
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Limited Personal Guarantees: Joint and several personal guarantees will be
required by Xxxxxxx Xxxxxxx and Xxxxx Xxxxxx on
Facility A and Facility B. The guarantees will
be limited to $6,000,000. The joint and several
personal guarantees will be eliminated upon
receipt of the 12/31/05 fiscal year end audit,
provided that: 1.) the Borrower is in compliance
with all of its financial covenants on an
ongoing basis, 2.) the Consolidated Funded Debt
Ratio is less than 2.75x, and 3.) the balance
under Facility B is less than $3,000,000.
Security: The Facilities shall be secured by a first
perfected security interest in all domestic
personal property, all tangible and intangible
assets, including, but not limited to, accounts
receivable, inventory, machinery and equipment,
patents, licenses, royalty agreements, trade
names, contract rights, etc. Pledge of 100% of
the stock of all significant domestic
subsidiaries. Permitted interest rate and
additional foreign exchange protection with the
Lenders shall be secured pari-passu with the
Facility.
Borrowing Rates: Base Rate or One, Two, Three or Six month LIBOR
plus the Applicable Margin.
Base Rate shall mean a rate per annum equal to
the greater of (a) the KeyBank National
Association Prime Rate or (b) one-half of one
percent in excess of the Federal Funds Effective
Rate.
Applicable Margin: The Applicable Margin and Commitment Fee will be
determined quarterly based upon the Borrower's
Consolidated Funded Debt Ratio for the most
recent rolling four quarters as indicated in the
grids below for each of the Facilities. Upon
Closing, the Applicable Margin will be set at
Level I until the Lender receives the 6/30/04
covenant compliance certificate.
General Bearing Corporation Transaction Team
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Facility A:
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Consolidated LIBOR Margin Base Rate Commitment
Level Funded Debt Ratio (bps) Margin (bps) Fee (bps)
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I > 4.00x 275 175 37.5
II <= 4.00x but
> 3.50x 225 100 37.5
III <= 3.50x but
> 3.00x 200 75 37.5
IV <= 3.00x 175 50 37.5
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Facility B:
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Consolidated LIBOR Margin Base Rate
Level Funded Debt Ratio (bps) Margin (bps)
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I > 4.00x 400 275
II <= 4.00x but
> 3.50x 325 200
III <= 3.50x but
> 3.00x 300 175
IV <= 3.00x 275 150
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Fees: Commitment Fee: A Commitment Fee calculated on
the average daily unused portion of Facility A,
payable quarterly in arrears commencing upon
closing. The Commitment Fee shall be determined
by the Borrower's Consolidated Funded Debt Ratio
based on the pricing grid above. The Commitment
Fee will be calculated on a 360-day basis
Upfront Fee: An Upfront Fee of $50,000 shall be
payable to the Lender at closing.
Banking & Depository
Relationship: Traditional banking services with KeyBank shall
be required.
Interest Payment Dates: For Base Rate borrowings the Interest Payment
Dates shall be quarterly.
For LIBOR borrowings the Interest Payment Dates
shall be at the end of an Interest Period but in
no case more than ninety (90) days.
General Bearing Corporation Transaction Team
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Representations and
Warranties: Customary for transactions of this nature.
Financial Reporting: The Borrower will provide to the Lender:
o Quarterly (unaudited) consolidated and
consolidating financial statements on the
Borrower and its domestic subsidiaries within
45 days of the end of each quarterly period.
o Quarterly covenant compliance certificate
within 45 days of the end of each quarterly
period certified by the Chief Financial
Officer of the Borrower.
o Annual Financial Statements:
i. Annual audited consolidated financial
statements with a consolidating schedule
for the domestic operations and a
compliance certificate within 90 days of
the end of each fiscal year, certified by
the Chief Financial Officer of the General
Bearing Corp. as to compliance and to
no-default. The audited financial
statements of the Borrower shall be
prepared in accordance with U.S. GAAP with
the exception of the presentation of the
Chinese joint ventures, which will be
presented under the equity method.
ii. Annual audited financial statements for
the Chinese joint ventures prepared in
accordance with The Peoples Republic of
China GAAP.
iii. Annual reconcilement of the PRC GAAP
statements to the equity investments line
in the U.S. statements.
iv. Annual internally prepared (unaudited)
consolidating financial statements of
Borrower and it majority owned domestic
and foreign owned subsidiaries.
o An annual forecast including balance sheet,
income statement, and statement of cash flows
with in 30 days following each fiscal year
end;
o Monthly borrowing base certificates within 10
days from the end of each month in the event
that a borrowing base is required; and
General Bearing Corporation Transaction Team
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o Annual submission of signed and dated
personal financial statements by Xxxxxxx
Xxxxxxx and Xxxxx Xxxxxxx as long as the
Limited Personal Guarantees are required.
o Other financial reports as the Agent may
reasonably request.
Conditions Precedent to
Borrowing: Customary for transactions of this nature,
including but not limited to:
o Submission of signed and satisfactorily
reviewed dated personal financial statements
on KeyBank's standard form, by Xxxxxxx
Xxxxxxx and Xxxxx Xxxxxxx.
o Receipt and Satisfactory Review of the
required Field Examination by the Lender;
o Additional Due Diligence Satisfactory to the
Lender;
o Absence of Default;
o Absence of Material Adverse Change;
o Accuracy of Representations & Warranties; and
o Negotiation & Execution of Satisfactory
Closing Documents.
Covenants: Customary for transactions of this nature,
including but not limited to:
o Maximum Consolidated Funded Debt Ratio: The
Borrower shall not permit the ratio of
Domestic Total Funded Debt (including
outstanding letters of credit) to rolling
four (4) quarter Domestic EBITDA to exceed
4.75x effective 9/30/04, stepping down to
4.00x effective 12/31/04, 3.25x effective
12/31/05 and, to 3.00x effective 6/30/06 and
thereafter.
o Minimum Adjusted Fixed Charge Coverage Ratio:
The Borrower shall maintain a minimum ratio
of rolling four (4) quarter Adjusted EBITDA
to rolling four (4) quarter Domestic Fixed
Charges of 1.20x at all times.
o Minimum Consolidated Net Income: The Borrower
shall not permit the net income from non-U.S.
operations and foreign subsidiaries to be
less than $1.00 on a rolling four quarter
basis.
o Minimum Tangible Net Worth: The Borrower
shall have a Minimum Tangible Net Worth of an
amount to be determined, prior to closing.
The Minimum Tangible Net Worth requirement
will increase by 25% of Net Income at the end
of each Fiscal Year.
General Bearing Corporation Transaction Team
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o Maximum Annual Capital Expenditures: The
Borrower shall not permit Capital
Expenditures for any fiscal year to exceed
$1,500,000. In the event that the Borrower
does not incur Capital Expenditures totaling
up to $1,500,000 in the previous fiscal year,
the Borrower may carry-over up to $750,000 of
the prior year's remaining permitted Capital
Expenditure amount into the current fiscal
year.
o Maximum Investements In and Advances To
Affiliates: The Borrower shall not permit
investments in and advances to affiliates to
exceed $2,000,000 in any fiscal year.
Compliance with all covenants, both before
and after giving effect to all investments
and advances, shall be required.
o Permitted Acquisitions: The Borrower will not
be permitted to make acquisitions with out
the prior written consent of the Lender.
All covenants will be calculated quarterly based
upon the domestic financial statements of the
Borrower and General Ball and Roller (combined).
Other Covenants: Customary in transactions of the nature and
subject to materiality provisions where
appropriate, including but not limited to:
o Limitations on investments and advances.
o Limitations on liens.
o Limitations on other indebtedness.
o Limitations on capital distributions.
o Limitations on mergers and sale of assets.
General Bearing Corporation Transaction Team
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Covenant Definitions: Adjusted EBITDA shall be defined as earnings
before interest, taxes, depreciation, and
amortization of the Borrower plus cash dividends
from foreign investments and return of
investments and advances from foreign affiliates
minus investments in and advanced to affiliates.
All non-cash gains and losses, as well as
extraordinary income, shall be excluded from the
definition of Adjusted EBITDA.
Domestic EBITDA shall be defined as earnings
before interest, taxes, depreciation, and
amortization of the Borrower. All non-cash gains
and losses, as well as extraordinary income,
shall be excluded from the definition of
Domestic EBITDA.
Domestic Fixed Charges shall be defined as the
sum of the Borrower's principal payments,
interest expense, cash taxes, capital
expenditures, and capital distributions.
Domestic Funded Debt shall be defined as the sum
of the Borrower's total debt, as evidenced by
notes, and shall include letters of credit.
Tangible Net Worth shall be defined as the
Borrower's Net Worth, minus intangible assets,
investments in affiliates, and advances to
affiliates.
Events of Default: Customary for transactions of this nature,
including but not limited to:
o Failure to pay any principal under the
Facility when due;
o Failure to pay any interest or fees within
five (5) business days of the due date;
o Failure to remain in compliance with the
monthly borrowing base formula;
o Defaults in the payment of principal,
interest and/or fees on other debt
instruments;
o Violations of covenants;
o ERISA Termination;
o Material Adverse Change;
o Cross Default; and
o Change of Control.
Remedies: Customary for transactions of this nature.
Assignments and Participants: The Borrower may not assign its rights or
obligations under the Facility without the prior
written consent of the Lender. The Lender may at
any time assign or participate its rights and
obligations under the Facilities in an agreed
upon minimum amounts, and subject to approval of
the Borrower, which approval shall not be
unreasonably withheld. The Facilities shall
provide for a mechanism which will allow for
each assignee to become a direct signatory to
the Facility and will relieve the assigning
Lender of its obligations with respect to the
assigned portion of the commitment.
Expenses and Indemnifications: All third-party filing fees will be paid by the
Borrower. All costs, expenses and charges
incurred by the Lender will be reimbursed by the
Borrower. All charges of external legal counsel
for the Lender will be for the account of the
Borrower and will not be limited. In addition,
the Borrower agrees to indemnify the Lender and
its directors, officers, employees and agents
from, and hold each harmless against, any and
all losses, liabilities, claims, damages or
expenses incurred, except by reason of gross
negligence or willful misconduct of the Lender.
Counsel for KeyBank: Xxxxx, Xxxxxx & Xxxxxx, LLP
Governing Law: State of New York.
Proposal Expiration Date: July 30, 2004
Corporate Lending
Xxxx Xxxxxxxx, Senior Vice President 000-000-0000
Fax Number 000-000-0000
Xxx Xxxxxx, Senior Vice President 000-000-0000
Fax Number 000-000-0000
General Bearing Corporation Transaction Team
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Credit Administration
Xxxx Xxxxxxxxx, Executive Vice President 000-000-0000
Fax Number 000-000-0000
Xxxxx Xxxx, Senior Vice President 000-000-0000
Fax Number 000-000-0000
Xxxxx Xxxxx, Senior Vice President 000-000-0000
Fax Number 000-000-0000
