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As filed with the Securities and Exchange Commission on March 31, 1998
REGISTRATION NO.June 20, 2003
Registration No. 333- ================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
-------------------------
FORM
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
ADVANCED ACCESSORY SYSTEMS, LLC
(Exact Name
(Exact name of Registrantregistrant as Specifiedspecified in Its Charter)
| Delaware (State or incorporation or organization) | 3714 (Primary Standard Industrial Classification Bankruptcy Code Number) | 13-3848156 (I.R.S. Employer Identification Number) |
Co-Registrants See Next Page c/o Advanced Accessory Systems, LLC 12900 Hall Pond Suite 200 Sterling Heights, Michigan 48213 (586) 997-2900 (Address, Including Zip Code, and Telephone Number, Including Area Code, of |
Executive Offices)
Barry G. Steele
Chief Financial Officer
12900 Hall Pond
Suite 200
Sterling Heights, Michigan 48213
(586) 997-2900
(Name, Address, Including Zip
Code, and Telephone Number,
Including Area Code,
of Agent For Service)
Copies to:
Michael R. Littenberg, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Ph: (212) 756-2000
Fax: (212) 593-5955
Approximate Date of Registrant's Principal Executive Offices)
-------------------------
AAS CAPITAL CORPORATION
(Exact NameCommencement of Registrant as Specified in Its Charter)
If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ]o
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]offering: o
If this formForm 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. [ ]
-------------------------
offering: o
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------------------------------------
9 3/4% Series B Senior Subordinated Notes due 2007.... $125,000,000 100% $125,000,000 $36,875
- ---------------------------------------------------------------------------------------------------------------------------------
Guarantees of the 9 3/4% Series B Senior Subordinated
Notes............................................... $125,000,000 (1) (1) (1)
=================================================================================================================================
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Security | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee(2) | ||||
|---|---|---|---|---|---|---|---|---|
| 103/4% Series B Senior Notes due 2011 and Note Guarantees | $150,000,000 | 100% | $150,000,000 | $12,135 | ||||
- (1)
This - Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of the Securities Act.
- (2)
- Calculated pursuant to Rule 457(f) under the Securities Act.
The Registrant hereby amends this Registration Statement coverson such date or dates as may be necessary to delay its effective date until the GuaranteesRegistrant 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 be issued by
subsidiariessaid Section 8(a), may determine.
Co-Registrants
| Exact Name of Co-Registrant as specified in Its Charter | State or Other Jurisdiction of Incorporation or Organization | Primary Standard Industrial Classification Code Number | I.R.S. Employer Identification Number | |||
|---|---|---|---|---|---|---|
| AAS Capital Corporation (Co-Issuer) | Delaware | 6719 | 13-3969422 | |||
CHAAS Acquisitions, LLC (Guarantor) | Delaware | 6719 | * | |||
Valley Industries, LLC (Guarantor) | Delaware | 3714 | 38-3363492 | |||
SportRack, LLC (Guarantor) | Delaware | 3714 | 13-3848154 | |||
AAS Acquisitions, LLC (Guarantor) | Delaware | 6719 | 84-1618508 | |||
ValTek, LLC (Guarantor) | Delaware | 3714 | 38-3402070 |
- *
- Issuance of EIN number pending.
SUBJECT TO COMPLETION, DATED JUNE 20, 2003
PRELIMINARY PROSPECTUS
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
$150,000,000
OFFER TO EXCHANGE
103/4% Senior Notes due 2011, Series B
for any and all outstanding
103/4% Senior Notes due 2011, Series A
of
Advanced Accessory Systems, LLC and AAS Capital Corporation
The exchange offer will expire at 5:00 p.m., New York City time,
on , which is 20 business days after the commencement of theirthe exchange offer, unless extended.
- •
- We are one of the world's largest designers and manufacturers of exterior accessories for the automotive original equipment manufacturer, or OEM, market and aftermarket. We design and manufacture a wide array of both rack systems and towing systems and related accessories.
The Company:
- •
- Advanced Accessory Systems, LLC, or AAS, and AAS Capital Corporation. AAS Capital Corporation is an indirect wholly-owned subsidiary of AAS with nominal assets and which conducts no business or operations. AAS and AAS Capital Corporation are collectively referred to in this prospectus as the "issuers".
The Issuers:
- •
- Offered securities: the securities offered by this prospectus are senior notes, which are being issued in exchange for senior notes sold by us in our private placement that we consummated on May 23, 2003. The new notes are substantially identical to the original notes and are governed by the same indenture governing the original notes.
- •
- Expiration of offering: the exchange offer expires at 5:00 p.m., New York City time, on , 2003, which is 20 business days after the commencement of the exchange offer, unless extended.
The Offering:
- •
- Maturity: June 15, 2011.
- •
- Interest payment dates: semiannually on each June 15 and December 15, beginning on December 15, 2003.
- •
- Redemption: we can redeem the new notes on or after June 15, 2007, except we may redeem up to 35% of the new notes prior to June 15, 2006 with the proceeds of one or more public equity offerings. We are required to redeem the new notes under some circumstances involving changes of control and asset sales.
- •
- Ranking: the new notes will be the senior unsecured obligations of the issuers and will rank pari passu with the existing and future unsecured senior debt of the issuers and senior to all of the issuers' existing and future subordinated debt. The guarantees of the new notes will rank pari passu with existing and future senior debt of CHAAS Acquisitions, LLC, the direct holding company of AAS, which we refer to as our "parent," and its material domestic subsidiaries that will guarantee the new notes. The new notes and the guarantees will be effectively subordinated to any of the issuers' or the guarantors' secured debt, including our obligations under the
9 3/4% Series B Senior Subordinated Notes. Such Guarantees arecredit facilities, to the extent of the value of the collateral securing such facilities. As of March 31, 2003, on a pro forma basis, we and the guarantors would have had $185.7 million of indebtedness, excluding interest accrued thereon, of which $25.7 million was secured. On the same date, on a pro forma basis, we would have had approximately $41.7 million of availability under our credit facilities.
The New Notes:
See "Risk Factors," beginning on page 11, for a discussion of some factors that should be issued for no additional consideration,considered by holders in connection with a decision to tender original notes in the exchange offer.
These securities have not been approved or disapproved by the Securities and therefore no registration feeExchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is required.
-------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)a criminal offense.
The date of this prospectus is , 2003
TABLE OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
2
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
------------------------
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
CONTENTS
| Page | ||
|---|---|---|
| Market Share, Ranking and Other | i | |
| Forward-Looking Statements | i | |
| Trademarks and Trade Names | ii | |
| Prospectus | 1 | |
| Risk | 11 | |
| Use of | 23 | |
| Capitalization | 25 | |
| Unaudited Pro Forma Financial | 26 | |
| Selected | 34 | |
| Management's Discussion and Analysis of Financial Condition and Results of | 38 | |
| The Exchange Offer | 49 | |
| Business | 58 | |
| Management | 68 | |
| Security Ownership | 73 | |
| Certain Relationships and Related Transactions | 74 | |
| Description of | 76 | |
| Description of the New Notes | 80 | |
| Material United States Federal Income Tax Consequences | 118 | |
| Plan of Distribution | 122 | |
| Legal Matters | 122 | |
| Experts | 122 | |
| Where You Can Find More Information | 123 | |
| Index to | F-1 |
MARKET SHARE, RANKING AND OTHER DATA
In this prospectus, we refer to information regarding market data obtained from internal sources, market research, publicly available information and industry publications. Although we believe the information is reliable, we cannot guarantee the accuracy or answer is in the negative.
3
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 STATE.
SUBJECT TO COMPLETION, DATED MARCH 31, 1998
PROSPECTUS
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
OFFER TO EXCHANGE UP TO $125,000,000 OF THEIR
9 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
------------------------
Advanced Accessory Systems, LLC ("AAS" and, together with its subsidiaries,
the "Company") and AAS Capital Corporation ("Capital Corp." and, together with
AAS, the "Issuers") hereby offer, upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer") to exchange $1,000 principal amount of
9 3/4% Series B Senior Subordinated Notes due 2007 (the "New Notes")completeness of the Issuersinformation and have not independently verified it. Unless otherwise noted, market share, ranking and other data are based on internal management estimates for each $1,000 principal amount of the issued2002 and outstanding 9 3/4%
Senior Subordinated Notes due 2007 (the "Old Notes,are approximations.
This prospectus includes "forward-looking statements." and the Old Notes and the
New Notes, collectively, the "Notes") of the Issuers from the Holders (as
defined herein) thereof. As of the date of this Prospectus, there is
$125,000,000 aggregate principal amount of the Old Notes outstanding. The terms
of the New Notes are identical in all material respects to the Old Notes, except
that the New Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and therefore willdoes not bear legends restricting
their transfer and will not contain certain provisions providing for the payment
of liquidated damagesapply to the holders of the Old Notes under certain
circumstances relating to the Registration Rights Agreement (as defined herein),
which provisions will terminate as to all of the Notes upon the consummation of
the Exchange Offer.
Interest on the New Notes will accrue from April 1, 1998 and will be payable
in cash semi-annually in arrears on April 1 and October 1 of each year
commencing October 1, 1998. Interest will be payable on the Old Notes accepted
for exchange to, but not including, April 1, 1998.
The New Notes will be unsecured and will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Issuers. The
New Notes will rank pari passu in right of payment with any future senior
subordinated Indebtedness (as defined) of the Issuers and will rank senior in
right of payment to all Subordinated Indebtedness (as defined) of the Issuers.
The New Notes will be guaranteed, on a senior subordinated basis, by each of the
Company's direct and indirect domestic subsidiaries (excluding Unrestricted
Subsidiaries (as defined)) (collectively, the "Guarantors"). See "Description of
the Notes." As of December 31, 1997, on a pro forma basis after giving effect to
the 1998 Transactions (as defined), the aggregate principal amount of the
Issuers' outstanding Senior Indebtedness would have been approximately $73.4
million (excluding unused commitments). In addition, the Indenture (as defined)
permits the Issuers to incur additional indebtedness, including Senior
Indebtedness, subject to certain limitations. See "Description of the
Notes -- Ranking" and "-- Subordination of the Notes -- Guarantees of the
Notes."
The Old Notes were not registered under the Securities Act in reliance upon
an exemption from the registration requirements thereof. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The New Notes are being offered hereby in order to satisfy
certain obligations of the Issuers contained in the Registration Rights
Agreement. Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Issuers believe that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Issuers within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such New Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes. Notwithstanding the foregoing, each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus"forward-looking statements" made in connection with "tender offers." Forward-looking statements include, without limitation, any resalestatement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "intend," "project," "will be," "will likely continue," "will likely result," or words or phrases of such New Notes. The Lettersimilar meaning including, among other things, statements concerning:
- •
- demand for our products;
- •
- industry trends, including demand for types of
Transmittal statesvehicles using our products; - •
- new product and customer initiatives;
- •
- manufacturing and related cost-saving initiatives;
- •
- our liquidity or capital resources; and
i
- •
- our acquisition strategy.
Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, including exchange rate fluctuations, competitive, governmental and technological factors outside of our control, that by so
acknowledgingmay cause our business, strategy or actual results to differ materially from the forward-looking statements. These risks and by deliveringuncertainties may include those discussed under the heading "Risk Factors." We operate in a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplementedchanging environment in which new risks can emerge from time to time, may be
used by a broker-dealer in connection with any resale of New Notes received in
exchangetime. It is not possible for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers). The
Issuers have agreed that, for a period of 180 days after the date of this
Prospectus, it will make this Prospectus availablemanagement to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the New Notes. The Issuers do not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotations system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Issuers will not receive any proceeds from the Exchange Offer. The
Issuers will paypredict all of these risks, nor can it assess the expenses incidentextent to which any factor, or a combination of factors, may cause our business, strategy or actual results to differ materially from those contained in forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements.
We own or have the Exchange Offer. Tendersrights to various trademarks and trade names used in this prospectus includingBarrecrafters®,Brink®,Dycrest Automotive®,Nomadic Sport® andValley®. This prospectus also includes trade names and trademarks of Old Notes pursuantother companies. Our use or display of other parties' trade names, trademarks or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined herein). trade name or trademark owners.
ii
The Exchange Offer is
subject to certain customary conditions.
This Prospectus has been prepared for use in connection with the Exchange
Offerfollowing summary contains basic information about us and may be used by Chase Securities Inc. ("CSI") in connection with offers
and sales related to market-making transactions in the Notes. CSI may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. See "Plan of
Distribution."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
4
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY OR THE INITIAL PURCHASERS
(AS DEFINED) AND CONDUCTED BY THIRD PARTIES AND FROM INDUSTRY OR GENERAL
PUBLICATIONS. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY
THIRD PARTIES OR INDUSTRY OR GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY
SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY
ANY INDEPENDENT SOURCES.
------------------------
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF
THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN.
THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND
STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES WILL BE
REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL; (5) ADVERSE
STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY
REGULATIONS; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR IN THE
MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH
FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER
INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE
COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
2
5
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the New
Notes being offered hereby. This Prospectusexchange offer. It likely does not contain all of the information set forth in the Registration Statement, certain portions of which
have been omitted pursuantthat is important to the rulesyou. You should read this entire prospectus carefully, including "Risk Factors" and regulations promulgated by the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed or incorporated by
reference as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Registration Statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may also be obtained at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such
materials can also be inspected on the Internet at http://www.sec.gov.
Upon consummation of the Exchange Offer, AAS will become subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith will file reports and
other information with the Commission. Such materials filed by AAS with the
Commission may be inspected, and copies thereof obtained, at the places, and in
the manner, set forth above.
In the event that AAS ceases to be subject to the informational reporting
requirements of the Exchange Act, AAS has agreed that, so long as the Notes
remain outstanding, it will file with the Commission and distribute to holders
of the Notes copies of the financial information that would have been contained
in annual reports and quarterly reports, including management's discussion and
analysis of financial condition and results of operations, that AAS would have
been required to file with the Commission pursuant to the Exchange Act. Such
financial information will include annual reports containing consolidated
financial statements and notes thereto, together with an opinion thereto
expressed by an independent public accounting firm, as well as quarterly reports
containing unaudited condensed consolidated financial statements for the first
three quarters of each fiscal year. AAS will also make such reports available to
prospective purchasers of the Notes, securities analysts and broker-dealers upon
their request. In addition, AAS has agreed that for so long as any of the Old
Notes remain outstanding it will make available to any prospective purchaser of
the Old Notes or beneficial owner of the Old Notes in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities Act,
until such time as the Issuers have either exchanged the Old Notes for
securities identical in all material respects which have been registered under
the Securities Act or until such time as the holders thereof have disposed of
such Old Notes pursuant to an effective registration statement filed by the
Issuers.
3
6
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this
Prospectus.included elsewhere. Unless the context otherwise requires, the term the "Company"all information in this prospectus which refers to "we," "our," "the Company," or "us" refers to Advanced Accessory Systems, LLC, a Delaware limited liability company, and
its subsidiaries, including SportRack, Brink and Valley. The term "SportRack"
refers to SportRack, LLC, a Delaware limited liability company, and its
subsidiaries; the term "Brink" refers to Brink International B.V., a private
company with limited liability incorporated under the laws of The Netherlands,
and its subsidiaries; the term "Valley" refers to Valley Industries, LLC, a
Delaware limited liability company; the term "SportRack International" refers to
SportRack International Inc., a Quebec corporation and a subsidiary of
SportRack;or AAS, AAS Capital Corporation and the term "Ellebi" refersother subsidiaries of CHAAS Acquisitions, LLC, the direct parent of AAS, which we also refer to Ellebi S.r.1., an Italian corporation
and a subsidiary of Brink. As used herein, the term "light vehicles" comprises
light trucks and passenger cars, and the term "light trucks" includes minivans,
standard size vans, sport utility vehicles ("SUVs") and pickup trucks.
THE COMPANY
GENERAL
Theas "our parent."
We are one of the world's largest designers and manufacturers and
suppliers of towing and rack systems and relatedexterior accessories for the automotive original equipment manufacturer, ("OEM")or OEM, market and the automotive aftermarket. The Company's products includeWe design and manufacture a complete linewide array of towing systems including
accessories such as trailer balls, ball mounts, electrical harnesses, safety
chains and locking hitch pins. The Company's broad offering ofboth rack systems includes fixed and detachable racks and accessories which can be installed on
vehicles to carry items such as bicycles, skis, luggage, surfboards and
sailboards. The Company's products are sold as standard accessories or options
for a variety of light vehicles. In 1997, on a pro forma basis, the Company
estimates that approximately 49% of its net sales were generated from products
sold for light trucks. The Company is the sole Tier 1 OEM supplier of towing or
rack systems for eight of the top ten light trucks produced in North America,
including the General Motors ("GM") C/K Pickup and Blazer, the Chrysler Grand
Cherokee (towing systems and rack systems), T-3000 Pickup and Caravan and the
Ford Explorer, Ranger and Windstar. On a pro forma basis for the year ended
December 31, 1997, the Company's net sales and EBITDA (as defined) would have
been $268.5 million and $36.3 million, respectively.
COMPETITIVE ADVANTAGES
Leading Global Market Position. The Company is the world's largest
designer, manufacturer and supplier of towing systems and one of the world's
largest designers, manufacturers and suppliers of rack systems. The Company isrelated accessories. We are the largest supplier of towing systems in Europe, the largest supplier of towing
systems to automotive OEMs in North Americaworld and the second largest supplier of
towing systems to the aftermarket in North America. The Company is also one of the two largest suppliers of rack systems soldsystems. Our products are designed and engineered to automotive OEMs in North
America. The Company has 19 engineering, manufacturingmeet vehicle-specific requirements, while improving vehicle functionality and distribution
facilities strategically located in the United States, Canada, The Netherlands,
Denmark, Germany, the United Kingdom, Sweden, Italy and France. By virtue of its
size and global presence, the Company believes it benefits from several
competitive advantages, including the ability to (i) satisfy local design,
production, quality and timing requirements of global OEMs; (ii) provide
"one-stop shopping" for customers' product and service requirements; (iii)
optimize plant production; (iv) maximize its raw material purchasing power; (v)
spread its selling, administrative and product development expenses over a large
base of net sales; and (vi) develop and maintain state-of-the-art production
facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systemsstyling. We sell our products to most of the OEMs manufacturingproducing vehicles in North America and Europe including Chrysler,and to many of the major aftermarket distributors, installers and retailers. As a Tier 1 supplier to the OEM market, we are generally awarded contracts to supply our products for a given vehicle platform on a sole source basis. For the twelve months ended March 31, 2003, our net sales were $335.3 million.
We have long-standing relationships with many of our major customers and have served our two largest customers for more than 10 years. Our OEM customers include BMW, DaimlerChrysler, Fiat, Ford, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat,Kia, Mitsubishi, Nissan, Volkswagen,Opel, SEAT, Skoda, Subaru, Toyota, Volkswagen and Kia. The Company supplies
Chrysler with substantially all its towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the towing and rack
system requirements of General Motors. Tier 1 status and strong customer
relationships are
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important elements in achieving continued profitable growth because, as OEMs
narrow their supplier bases, well regarded, existing suppliers have an advantage
in gaining new contracts. The evolution of OEM relationships into strategic
partnerships provides a significant advantage to Tier 1 suppliers with system
integration capabilities (such as the Company) in retaining existing contracts
as well as in participating during the design phase for new vehicles, which is
integral to becoming a supplier for such new platforms. The Company is also a
leading supplier of towing and rack systems to automotiveVolvo. Our aftermarket wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp,customers include Ace Hardware, Advance Auto Parts, Balkamp (NAPA Auto Parts), Brezan, Canadian Tire, Coast Distribution Systems, Discount Auto Parts, Ace
HardwareSystem, Feuvert, Norauto, and Canadian Tire.
Comprehensive Product Line. The Company continuesU-Haul. Sales to position itself asOEM customers represented 67.7% of our net sales for the twelve months ended March 31, 2003, while the remainder were from sales to customers serving the automotive aftermarket. For the twelve months ended March 31, 2003, 72.5% of our net sales were derived from our North American operations, while the remainder were from European operations. We are headquartered in Sterling Heights, Michigan and have a leading supplier to its customers for a growing rangetotal of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit virtually every light vehicle produced28 facilities located in North America and Europe. The
Company is one of a limited number of European manufacturers with such a broad
product line that also satisfies European Community ("EC") regulatory safety
standards, even though such standards have not yet been adopted by each EC
member country. Competitors whose products do not satisfy such standards face
substantial design and testing costs to offer a comparable product line that
meets these safety standards. The Company has provided OEMs with fixed rack
systems for approximately half of the light truck models produced in North
America that utilize vehicle-specific fixed racks. The Company's innovative
Mondial(R) product line of detachable rack systems, which consists of only 14
SKUs, is able to fit substantially all the light vehicles produced inboth North America and Europe, while some competitors' comparable product lines consist of more than 200 SKUs. The Company believes that its broad product offerings also
facilitate strategic partnerships with automotive aftermarket wholesalers,
retailers and installers.
Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. For
example, the Company developed a roll formed, aluminum cross rail which substantially reduced the weight of the Chrysler minivan rack at a competitive
cost. Additionally, the Company is responsible for many industry innovations,
including lighter, less obtrusive, round tube towing hitches as well as push
button and pull lever stanchions on fixed rack systems. The Company believes its
design and engineering capabilities provide significant value to its customers
by (i) shortening OEM new product development cycles; (ii) lowering OEM
manufacturing costs; (iii) providing technical expertise; and (iv) permitting
aftermarket customers to maintain lower inventory levels. The Company also
believes that its design innovations have created value for end users by
providing products that23 are durable and easy to install and that enhance vehicle
utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including Chrysler's Gold Pentastar Award, Ford's Q-1 Award,
Toyota's Distinguished Supplier Award and Nissan's Superior Supplier Performance
Award. Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or
QS-9000 certification for ten of its 17 manufacturing and engineering facilitiesfacilities.
Competitive Strengths
- •
- Leading global market position;
- •
- Strong customer relationships;
- •
- Design and
is in the process of obtaining certification for the rest of its facilities. The Company's low cost position is a result of its strict cost controls and continuous improvement programs designed to enhance productivity. OEMs typically prefer stable suppliers who can generate productivity gains that can be shared to reduce OEM costs. The Company's cost controls are closely integrated with itsengineering expertise; - •
- Comprehensive product line;
- •
- High quality,
driven manufacturing operations, thereby allowing it to profitably deliver high quality, easy to install and competitively priced components on a just-in-time basis. The Company's focus onlow cost manufacturingalso provides benefits when selling products to the less price sensitive aftermarket. BUSINESS STRATEGY The Company'sposition; and - •
- Experienced management with a proven track record.
1
Business Strategy
Our objective is to strengthen itsour position as a leading global supplier of automotive exterior accessories, thereby increasing revenue and cash flow. In order toTo accomplish itsour goal, the Company intendswe intend to pursue the following strategies.
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strategies:
- •
- Increase
Global Market Share. The Company intends to capitalize on its expanded presence in North America and Europe by marketing products to its global automotive OEM customers. Through its past acquisitions of complementary product lines, the Company is able to offer an expanded range of products and services to its extended customer base. The Company also expects to secure new customers by virtue of its expanded market presence and broad product and service offerings. The Company believes its continued emphasis on new technology (both product and process), will result in the development of more innovative, high margin towing and rack system products which it expects to market to its expanding customer base. Maintain and Enhance Strong Customer Relationships. The Company intends to strengthen and expand its relationships with global automotive OEMs and aftermarket customers by (i) continuing its commitment to innovative design and development of products during the early stages of vehicle design and redesign; (ii) building on its position as a low cost supplier of quality accessory products; (iii) offering new products in existing and new geographic areas by taking advantage of existing OEM relationships; and (iv) working with aftermarket customers to develop new products and marketing strategies. The Company has recently obtained orders from Mercedes Benz, BMW, SEAT and Chrysler to supply products for new SUVs. Increase Operating Efficiencies. The Company believes there are significant opportunities for improvement in margins and cash flow through intercompany cooperation among its various acquired business units, including (i) realizing economies of scale from the combined purchasing power of a larger company; (ii) achieving production and other operating efficiencies through the implementation of a "best practices" program; (iii) reducing certain selling, administrative and product development expenses; and (iv) reducing capital and operating expenditures from coordinated use of manufacturing resources. Pursue Strategic Acquisitions. In response to the trend in the OEM market toward systems suppliers, the Company is focused on making strategic acquisitions that will enhance its ability to provide integrated systems (such as a towing or rack system) or otherwise leverage its existing business by providing additional product, manufacturing and service capabilities. The Company also intends to pursue acquisitions which will expand its customer base by providing an entreesales to newcustomers, including expansion into selected geographic areas.and existing customers; - •
- Emphasize new product introductions;
- •
- Increase operating efficiencies; and
- •
- Pursue strategic acquisitions.
The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
INDUSTRY OVERVIEW
In 1996, the North American exterior accessories market for light vehicles
was approximately $3.3 billion. In 1996, in the first year of ownership, North
American consumers spent approximately $1.4 billion on exterior accessories for
their light trucks as compared to approximately $0.8 billion in 1986,
representing a compound annual growth rate of 5.9%. Growth in this market, and
in towing systems and rack systems in particular, resulted in large part from
the increased production and sale of light trucks, which in 1996 accounted for
approximately 46% of total light vehicle production in North America as compared
to 32% in 1986. According to DRI/McGraw-Hill Ward's Global Automotive Group,
production of light trucks in North America and Western Europe has outpaced
overall production in the light vehicle market (ten-year compound annual growth
rate of 1.3% in North America and 1.4% in Western Europe), resulting primarily
from the growth in minivans (ten-year compound annual growth rate of 8.6% in
North America and 30.8% in Western Europe) and SUVs (ten-year compound annual
growth rate of 11.6% in North America and 13.7% in Western Europe), although no
assurance can be given that such production rates of light trucks will continue
or will continue to outpace overall production.
The strong growth in production of light trucks is attributable to several
factors, including (i) the more sizable and comfortable interiors and
aesthetically pleasing modern designs offered by light trucks; (ii) the changing
lifestyle of the population, which is aging and therefore devoting more time to
recreational activities; (iii) the versatile product offerings targeted toward
both the luxury and economy market sectors; (iv) the increasing acceptance of
light truck use for everyday transportation; and (v) the durability and special
performance capabilities (e.g. four-wheel drive) of light trucks.
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9
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it will continue to benefit from
the following automotive OEM and aftermarket trends: (i) consolidation of
supplier base by OEMs; (ii) emergence of EC safety standards; (iii) increased
levels of manufacturing in North America by transplants; and (iv) increased
outsourcing by OEMs.
MANAGEMENT AND OWNERSHIP
Chase Capital Partners ("CCP") and certain members of the Company's
management formed the Company in September 1995, to make strategic acquisitions
of automotive exterior accessory manufacturers and to integrate those
acquisitions into a global enterprise that would be a preferred supplier to the
automotive industry. The Company's senior management team has an average of over
20 years of experience in manufacturing and marketing automotive-related
products. The Company believes that members of its management team have strong
and successful track records in the operation of their respective businesses.
Members of the Company's senior management own, in the aggregate, approximately
23.2% of the issued and outstanding voting securities of the Company on a fully
diluted basis.
CCP is the private equity group of The Chase Manhattan Corporation, the
largest bank holding company in the United States, and is one of the largest
private equity organizations in the United States, with over $4.0 billion under
management. Through its affiliates, CCP invests in leveraged buyouts,
recapitalizations and venture capital opportunities by providing equity and
mezzanine debt capital. Since its inception in 1984, CCP has closed over 450
direct investments in a variety of industries. Affiliates of CCP own
approximately 47.7% of the issued and outstanding voting securities of the
Company on a fully diluted basis. See "Plan of Distribution."
ACQUISITION HISTORY
In September 1995, the Company, through its SportRack subsidiary, acquiredTransactions
On April 15, 2003, substantially all of the net assetsequity interests of AAS were acquired by Castle Harlan Partners IV, L.P., or CHP IV, a private equity investment fund organized and managed by Castle Harlan Inc., or Castle Harlan, a leading private equity firm. We refer to the foregoing transaction as the "acquisition" in this prospectus. As used in this prospectus, we refer to the "Transactions" collectively as (i) the consummation of the MascoTech Accessories division (the
"MascoTech Division")acquisition and the repayment of MascoTech, Inc. ("MascoTech"). The MascoTech Division
was a North American suppliercertain of rack systemsour then existing indebtedness in connection therewith, (ii) the borrowings under our credit facilities entered into in connection with acquisition and accessories to(iii) the automotive
OEM market and aftermarket.
In October 1996, the Company acquired (the "Brink Acquisition") allissuance of the capital stockoriginal notes and the application of Brink B.V., a private company with limited liability
incorporated under the laws of The Netherlands and a European supplier of towing
systemsproceeds therefrom. We refer to the automotive OEM market and aftermarket. In December 1996,
ownership of Brink B.V.CHP IV and its subsidiaries was transferred to a newly formed
subsidiaryaffiliates (other than CHAAS Holdings, LLC, or CHAAS Holdings, the direct parent of the Company, Brink International B.V.
In August 1997, the Company formed Valley to acquire (the "Valley
Acquisition") the net assets of Valley Industries, Inc. ("Valley Industries"), a
North American supplier of towing systems to the automotive OEM marketour parent, and aftermarket.
Two smaller acquisitions were completed in July 1997 by a subsidiary of
SportRack, SportRack International. SportRack International acquired from Bell
Sports Corporation ("Bell") the net assets of its SportRack division, a Canadian
supplier of rack systems and accessories to the automotive aftermarket. CCP is a
significant equity investor in Bell. SportRack International also acquired the
capital stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian supplier of rack
systems and accessories to the automotive OEM market and aftermarket. The
acquisitions of the SportRack division of Bell and Nomadic are collectively
referred tosubsidiaries) in this Prospectusprospectus as the "SportRack International Acquisition."Castle Harlan Group." 7
10
In January 1998,See "The Acquisition" for further information concerning the Company formed Ellebi to acquireacquisition including information on the net assets of a
division of Ellebi S.p.A. (the "Ellebi Acquisition"). Ellebi is an Italian
manufacturerclosing purchase price and distributor of towing systems toadjustments, the European automotive OEM
marketearnout, sources and aftermarket.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. (the "Transfo-Rakzs
Acquisition"), a designer, manufactureruses and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S.
The Ellebi Acquisition and the Transfo-Rakzs Acquisition are referred to
herein collectively as the "1998 Transactions."
------------------------
Capital Corp. is a newly formed Delaware corporation and is a wholly owned
subsidiary of the Company. The New Notes will be the joint and several
obligations of the Company and Capital Corp. Capital Corp. has no assets and
does not conduct any operations.
Theour post- acquisition organizational structure chart.
Our principal executive offices of the Company are located at Sterling Town Center, 12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313 and its48313. Our telephone number is (810)(586) 997-2900.
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2
THE EXCHANGE OFFER
Registration Rights
Agreement.....................
| Expiration Date | 5:00 p.m., New York City time, on , 2003, which is 20 business days after the commencement of the exchange offer, unless we extend the exchange offer. | |||
Exchange and Registration Rights | In an A/B exchange registration rights agreement dated May 23, 2003, the holders of the issuers' 103/4% senior notes due 2011, series A, which are referred to in this prospectus as the "Original Notes", were granted exchange and registration rights. This exchange offer is intended to satisfy these rights. You have the right to exchange the Original Notes that you hold for the issuers' 103/4% senior notes due 2011, series B, which are referred to in this prospectus as the "New Notes", with substantially identical terms. Once the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your Original Notes. | |||
Accrued Interest on the New Notes and Original Notes | The New Notes will bear interest from May 23, 2003. Holders of Original Notes which are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on those Original Notes accrued to the date of issuance of the New Notes. | |||
Conditions to the Exchange Offer | The exchange offer is conditioned upon some customary conditions which we may waive and upon compliance with securities laws. | |||
Procedures for Tendering Original Notes | Each holder of Original Notes wishing to accept the exchange offer must: | |||
• | complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or | |||
• | arrange for DTC to transmit required information in accordance with DTC's procedures for transfer to the exchange agent in connection with a book-entry transfer. | |||
You must mail or otherwise deliver this documentation together with the Original Notes to the exchange agent. | ||||
Special Procedures for Beneficial Holders | If you beneficially own Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Original Notes in the exchange offer, you should contact the registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your Original Notes, either arrange to have your Original Notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. | |||
3
Guaranteed Delivery Procedures | You must comply with the applicable procedures for tendering if you wish to tender your Original Notes and: | |||
• | time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer; or | |||
• | you cannot complete the procedure for book-entry transfer on time; or | |||
• | your Original Notes are not immediately available. | |||
Withdrawal Rights | You may withdraw your tender of Original Notes at any time by or prior to 5:00 p.m., New York City time, on the expiration date, unless previously accepted for exchange. | |||
Failure to Exchange Will Affect You Adversely | If you are eligible to participate in the exchange offer and you do not tender your Original Notes, you will not have further exchange or registration rights and you will continue to be restricted from transferring your Original Notes. Accordingly, the liquidity of the Original Notes will be adversely affected. | |||
Federal Tax Considerations | We believe that the exchange of the Original Notes for the New Notes pursuant to the exchange offer will not be a taxable event for United States federal income tax purposes. A holder's holding period for New Notes will include the holding period for Original Notes, and the adjusted tax basis of the New Notes will be the same as the adjusted tax basis of the Original Notes exchanged. See "Material United States Federal Income Tax Consequences." | |||
Exchange Agent | BNY Trust Midwest Company, trustee under the indenture under which the New Notes will be issued, is serving as exchange agent. | |||
Use of Proceeds | We will not receive any proceeds from the exchange offer. | |||
4
The Oldsummary below describes the principal terms of the New Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The "Description of the New Notes" section of this prospectus contains a more detailed description of the terms and conditions of the New Notes.
| Issuers | Advanced Accessory Systems, LLC, or AAS, and AAS Capital Corporation. AAS Capital Corporation is an indirect wholly-owned subsidiary of AAS with nominal assets and which conducts no business or operations. AAS and AAS Capital Corporation are collectively referred to in this prospectus as the "issuers." | |||
Securities Offered | The form and terms of the New Notes will be the same as the form and terms of the Original Notes except that: | |||
• | the New Notes will bear a different CUSIP number from the Original Notes; | |||
• | the New Notes will have been registered under the Securities Act of 1933, or the Securities Act, and, therefore, will not bear legends restricting their transfer; and | |||
• | you will not be entitled to any exchange or registration rights with respect to the New Notes. | |||
The New Notes will evidence the same debt as the Original Notes. They will be entitled to the benefits of the indenture governing the Original Notes and will be treated under the indenture as a single class with the Original Notes. | ||||
Maturity | June 15, 2011. | |||
Interest | The New Notes will bear cash interest at the rate of 103/4% per annum (calculated using a 360-day year), payable semi-annually in arrears. | |||
Payment frequency—every six months on June 15 and December 15. | ||||
First payment—December 15, 2003. | ||||
Ranking | The New Notes will be the senior unsecured obligations of the issuers and will rank pari passu with the existing and future unsecured senior debt of the issuers and senior to all of the issuers' existing and future subordinated debt. The guarantees of the New Notes will rank pari passu with existing and future senior debt of CHAAS Acquisitions, LLC, the direct holding company of AAS, which we refer to as our "parent," and its material domestic subsidiaries that will guarantee the New Notes. The New Notes and the guarantees will be effectively subordinated to any of the issuers' or the guarantors' secured debt, including our obligations under the credit facilities, to the extent of the value of the collateral securing such facilities. As of March 31, 2003, on a pro forma basis, we and the guarantors would have had $185.7 million of indebtedness, excluding interest accrued thereon, of which $25.7 million was secured. On the same date, on a pro forma basis, we would have had approximately $41.7 million of availability under our credit facilities. | |||
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Guarantees | Our parent and each of its material domestic subsidiaries (other than the issuers) will jointly and severally guarantee the New Notes with unconditional guarantees. If our parent creates or acquires a new domestic subsidiary, it will, under specified circumstances, guarantee the New Notes. The guarantees will be unsecured senior obligations of such entities and will rank senior to all of such entities' existing and future subordinated debt and will be effectively subordinated to any secured debt of such entities. Our parent's foreign subsidiaries will not guarantee the New Notes. See "Description of the New Notes—Guarantees." | |||
Optional Redemption | Except as described below, the issuers cannot redeem the New Notes until June 15, 2007. Thereafter, the issuers may redeem some or all of the New Notes, at their option, at the redemption prices listed in the "Description of the New Notes" section under the heading "Optional Redemption," plus accrued and unpaid interest, if any, to the date of redemption. | |||
Optional Redemption After Public Equity Offerings | At any time (which may be more than once) before June 15, 2006, the issuers can choose to redeem up to 35% of the outstanding New Notes with money that they or our parent or any holding company of our parent raise in one or more public equity offerings, as long as: | |||
• | the issuers pay 110.750% of the face amount of the New Notes, plus interest; | |||
• | the issuers redeem the New Notes within 90 days of completing the public equity offering; and | |||
• | at least 65% of the aggregate principal amount of New Notes issued remains outstanding afterwards. | |||
Change of Control Offer | If a change in control occurs, unless the issuers have exercised their right to redeem all of the New Notes as described above, they must give holders of the New Notes the opportunity to sell to the issuers their New Notes at 101% of their face amount, plus accrued and unpaid interest to the date of repurchase. | |||
The issuers might not be able to pay you the required price for the New Notes you present to them at the time of a change of control, because: | ||||
• | the issuers might not have enough funds at that time; or | |||
• | the terms of our other senior debt may prevent them from paying. | |||
See "Risk Factors—Risks Related to The New Notes—The issuers may be unable to purchase the New Notes upon a change of control." | ||||
Asset Sale Proceeds | Under the indenture, if the issuers, our parent or our parent's other material domestic subsidiaries engage in asset sales, the issuers generally must either invest the net cash proceeds from such sales in our business within a period of time, permanently repay the debt under our credit facilities or make an offer to purchase a principal amount of the New Notes equal to the excess net cash proceeds. The purchase price of the New Notes will be 100% of their principal amount, plus accrued interest. See "Description of the New Notes—Certain Covenants—Limitation on Asset Sales." | |||
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Certain Indenture Provisions | The indenture governing the New Notes will contain covenants that, among other things, limit the issuers' and our parent's ability, and the ability of our parent's other material domestic subsidiaries, to: | |||
• | incur additional debt or guarantee obligations; | |||
• | grant liens on assets; | |||
• | make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our capital stock); | |||
• | make investments or acquisitions; | |||
• | sell assets; | |||
• | enter into transactions with affiliates; and | |||
• | merge or consolidate with another company or transfer substantially all of our assets. | |||
These covenants are subject to a number of important limitations and exceptions as described under "Description of the New Notes." | ||||
Exchange Offer; Registration Rights | You have the right to exchange the Original Notes for New Notes with substantially identical terms. This exchange offer is intended to satisfy that right. The New Notes will not provide you with any further exchange or registration rights. | |||
Resales Without Further Registration | We believe that the New Notes issued in the exchange offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act, if: | |||
• | you are acquiring the New Notes issued in the exchange offer in the ordinary course of your business; | |||
• | you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in the distribution of the New Notes issued to you in the exchange offer; and | |||
• | you are not our "affiliate," as defined under Rule 405 of the Securities Act. | |||
Each of the participating broker-dealers that receives New Notes for its own account in exchange for Original Notes that were acquired by it as a result of market-making or other activities must acknowledge that it will deliver a prospectus in connection with the resale of the New Notes. We do not intend to list the New Notes on any securities exchange. | ||||
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Summary Consolidated Historical and Unaudited Pro Forma Financial Data
The following table sets forth summary consolidated historical financial data for 2000, 2001 and 2002, and for the unaudited three month periods ended March 31, 2002 and 2003, and unaudited pro forma financial data for the twelve month period ended March 31, 2003 for Advanced Accessory Systems, LLC, our pre-acquisition parent, and should be read in conjunction with our financial statements, the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Unaudited Pro Forma Financial Statements" and notes thereto included elsewhere in this prospectus.
The summary consolidated historical financial data for Advanced Accessory Systems, LLC and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, have been derived from our consolidated historical financial statements included elsewhere in this prospectus. The summary consolidated historical financial data for the three month periods ended March 31, 2002 and 2003 have been derived from our consolidated unaudited historical financial statements which, in the opinion of management, include all adjustments, including usual recurring adjustments, necessary for the fair presentation of that information for such periods. The financial data presented for the interim periods are not necessarily indicative of the results for the full year.
The summary unaudited pro forma financial data for the twelve month period ended March 31, 2003 has been derived from the pro forma consolidated financial data included elsewhere in this prospectus. See "Unaudited Pro Forma Financial Statements." The summary pro forma condensed consolidated statement of income (unaudited) data presented herein gives pro forma effect to the Transactions as if they occurred at January 1, 2002. The summary pro forma condensed consolidated balance sheet (unaudited) data at March 31, 2003 gives pro forma effect to the Transactions as if they had occurred on March 31, 2003.
The unaudited pro forma financial data is not necessarily indicative of what our results of operations or financial position would have been had the Transactions taken place on the dates indicated and are not intended to project our results of operations or financial position for any future period or date.
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| | Historical | Pro Forma (4) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31, | Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||||
| | 2000 | 2001 | 2002 | 2002 | 2003 | 2003 | ||||||||||||||
| | (Dollars in thousands) | |||||||||||||||||||
| Statement of Operations Data: | ||||||||||||||||||||
| Net sales | $ | 318,817 | $ | 314,035 | $ | 329,782 | $ | 79,870 | $ | 85,340 | $ | 335,252 | ||||||||
| Cost of sales | 239,090 | 239,583 | 250,516 | 60,954 | 64,261 | 253,823 | ||||||||||||||
| Gross profit | 79,727 | 74,452 | 79,266 | 18,916 | 21,079 | 81,429 | ||||||||||||||
| Selling, administrative and product development expense | 45,527 | 44,769 | 49,309 | 10,850 | 12,399 | 52,458 | ||||||||||||||
| Amortization of intangible assets | 3,297 | 3,312 | 122 | 7 | 7 | 122 | ||||||||||||||
| Operating income | 30,903 | 26,371 | 29,835 | 8,059 | 8,673 | 28,849 | ||||||||||||||
| Other expense | 23,388 | 23,375 | 7,998 | 5,160 | 301 | 20,447 | ||||||||||||||
| Income before cumulative effect of accounting change and income taxes | 7,515 | 2,996 | 21,837 | 2,899 | 8,372 | 8,402 | ||||||||||||||
| Cumulative effect of accounting change for goodwill impairment | — | — | (29,207 | ) | (29,207 | ) | — | — | ||||||||||||
| Income (loss) before income taxes | 7,515 | 2,996 | (7,370 | ) | (26,308 | ) | 8,372 | 8,402 | ||||||||||||
| Net income (loss) | $ | 7,793 | $ | 2,394 | $ | (11,622 | ) | $ | (25,940 | ) | $ | 6,811 | $ | 3,837 | ||||||
Other Financial Data: | ||||||||||||||||||||
| Depreciation | $ | 10,346 | $ | 10,569 | $ | 11,299 | $ | 2,722 | $ | 2,966 | $ | 11,543 | ||||||||
| Capital expenditures | 10,445 | 7,580 | 15,354 | 1,883 | 2,512 | 16,478 | ||||||||||||||
| Cash flow from operations (1) | 21,416 | 27,651 | 21,004 | 4,697 | 1,635 | 15,398 | ||||||||||||||
| Cash flow from investing activities (1) | (13,249 | ) | (7,580 | ) | (15,354 | ) | (1,883 | ) | (2,512 | ) | (15,983 | ) | ||||||||
| Cash flow from financing activities (1) | (14,982 | ) | (20,389 | ) | (5,526 | ) | (4,099 | ) | 233 | 8,072 | ||||||||||
| EBITDA (2) | 44,546 | 40,252 | 41,892 | 10,918 | 11,798 | 44,157 | ||||||||||||||
| Pro forma cash interest expense (3) | 18,449 | |||||||||||||||||||
| Ratio of pro forma EBITDA to pro forma cash interest expense | 2.4 | x | ||||||||||||||||||
| Ratio of pro forma total debt to pro forma EBITDA | 4.2 | x | ||||||||||||||||||
Selected Balance Sheet Data (at end of period): | ||||||||||||||||||||
| Cash and cash equivalents | $ | 3,315 | $ | 2,139 | $ | 2,653 | $ | 1,324 | $ | 1,987 | $ | 11,253 | ||||||||
| Total assets | 242,497 | 228,290 | 224,155 | 203,443 | 241,917 | 358,356 | ||||||||||||||
| Total debt, including current maturities | 175,635 | 156,649 | 154,947 | 153,082 | 155,823 | 185,728 | ||||||||||||||
| Members' equity (deficit) | 5,896 | 8,324 | (6,388 | ) | (18,082 | ) | (751 | ) | 100,901 | |||||||||||
- (1)
- Pro forma cash flow reflects the cash flows for the twelve month period ended March 31, 2003 adjusted for the change in cash received via the Transactions and the change in interest expense, net of tax, also related to the Transactions.
- (2)
- EBITDA is defined as operating income plus depreciation and amortization. Historical EBITDA had been computed without inclusion of foreign exchange gains or losses. If foreign exchange gains and losses had been included in the computation of historical EBITDA, historical EBITDA would have been $39,160, $35,304 and $50,321 for the fiscal years ended December 31, 2000, 2001 and 2002 respectively. Pro forma EBITDA does not include foreign exchange gains or loses since such gains or loses were related to U.S. dollar denominated indebtedness of Brink Internaional B.V. ("Brink") for our then existing capital structure that will not be carried over under our new capital structure. Our management uses EBITDA as a measure of liquidity and we are including it because we believe that it provides our investors and industry analyists additional information to evaluate our ability to meet our debt service obligations. Moreover, our senior credit agreement requires us to use EBITDA in calculating our leverage and fixed charge coverage ratios. EBITDA is not a recognized term under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income or cash flow from operating activites determined in accordance with GAAP. Because EBITDA, as determined by us, excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other
9
companies.The following table sets forth (i) our calculation of EBITDA and (ii) a reconciliation of EBITDA, as so calculated, to our cash flow provided by operating activites.
| | | | Historical | Pro Forma | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31, | Three Months Ended March, 31 | Twelve Months Ended March, 31 | |||||||||||||||||||||
| | 1998 | 1999 | 2000 | 2001 | 2002 | 2002 | 2003 | 2003 | ||||||||||||||||
| Net income | $ | (90 | ) | $ | 4,978 | $ | 7,793 | $ | 2,394 | $ | (11,622 | ) | $ | (25,940 | ) | $ | 6,811 | $ | 3,837 | |||||
| Add (Subtract): | ||||||||||||||||||||||||
| Provision (benefit) for income taxes | 903 | 417 | (278 | ) | 602 | 4,252 | (368 | ) | 1,561 | 4,565 | ||||||||||||||
| Interest expense, net | 18,046 | 16,831 | 17,325 | 17,006 | 15,000 | 3,714 | 3,613 | 18,947 | ||||||||||||||||
| Depreciation and amortization | 14,995 | 14,411 | 14,268 | 14,455 | 12,964 | 3,102 | 3,335 | 13,197 | ||||||||||||||||
| Foreign currency (gains) losses | (4,995 | ) | 7,912 | 5,386 | 4,948 | (8,429 | ) | 1,244 | (3,596 | ) | — | |||||||||||||
| Loss (gain) on sale of fixed assets | — | (10 | ) | 37 | 701 | 365 | — | 68 | 433 | |||||||||||||||
| Other (income) expense | — | 2,000 | 15 | 146 | 155 | (41 | ) | (3 | ) | 193 | ||||||||||||||
| Impairment charge | 9,505 | — | — | — | — | — | — | — | ||||||||||||||||
| Cumulative effect of accounting change for goodwill impairment | — | — | — | — | 29,207 | 29,207 | — | — | ||||||||||||||||
| EBITDA: | $ | 38,364 | $ | 46,539 | $ | 44,546 | $ | 40,252 | $ | 41,892 | $ | 10,918 | $ | 11,789 | $ | 41,172 | ||||||||
| — | — | — | — | — | — | — | ||||||||||||||||||
| Add (Subtract): | ||||||||||||||||||||||||
| Benefit (provision) for income taxes | (903 | ) | (417 | ) | 278 | (602 | ) | (4,252 | ) | 368 | (1,561 | ) | ||||||||||||
| Interest expense, net | (18,046 | ) | (16,831 | ) | (17,325 | ) | (17,006 | ) | (15,000 | ) | (3,714 | ) | (3,613 | ) | ||||||||||
| Other adjustments | 289 | (349 | ) | 35 | 40 | 90 | (120 | ) | (89 | ) | ||||||||||||||
| Other income expense | — | (2,000 | ) | (15 | ) | (42 | ) | (155 | ) | 41 | 3 | |||||||||||||
| Foreign currency gains (losses) | 47 | (1,615 | ) | (227 | ) | 17 | 239 | (612 | ) | 67 | ||||||||||||||
| Deferred income tax provision | (688 | ) | (2,433 | ) | (908 | ) | (161 | ) | 1,298 | (417 | ) | 75 | ||||||||||||
| Changes in working capital and other assets and liabilities | 2,816 | 2,120 | (4,968 | ) | 5,153 | (3,108 | ) | (1,767 | ) | (5,036 | ) | |||||||||||||
| Net cash provided by operating activites: | $ | 21,879 | $ | 25,014 | $ | 21,416 | $ | 27,651 | $ | 21,004 | $ | 4,697 | $ | 1,635 | ||||||||||
- (3)
- Does not include any amortization of debt issuance costs.
- (4)
- We believe that the presentation of pro forma data for the twelve month period ended March 31, 2003 is appropriate to provide meaningful comparisons with other sources of data in the automotive industry since such data usually is presented on a twelve month basis.
10
In addition to the other information set forth in this prospectus, you should carefully consider the following factors before tendering the Original Notes were soldin exchange for the New Notes. The following risks could materially harm our business, financial condition or future results. If that occurs, the value of the New Notes could decline, and you could lose all or part of your investment.
Risks Relating to Our Indebtedness
Our substantial debt could adversely affect our financial health and prevent the issuers from making payments on the New Notes.
We have a substantial amount of debt. As of March 31, 2003, after giving effect to the Transactions, we would have had approximately $185.7 million of debt, excluding interest accrued thereon, and, on a pro forma basis, $41.7 million of additional borrowing availability under our credit facilities, subject to compliance with our financial and other covenants and the terms set forth therein.
Our substantial debt could have important consequences to you. For example, it could:
- •
- make it more difficult for the issuers to satisfy their obligations with respect to the New Notes;
- •
- make us vulnerable to general adverse economic and industry conditions;
- •
- limit our ability to obtain additional financing for future working capital, capital expenditures, product development efforts, strategic acquisitions and other general corporate requirements;
- •
- expose us to interest rate fluctuations because the interest on the debt under our credit facilities is at variable rates;
- •
- require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes;
- •
- limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
- •
- place us at a competitive disadvantage compared to our competitors that may have proportionately less debt.
Our debt service will require a significant amount of cash.
To service our debt, we require a significant amount of cash. Our ability to generate cash, make scheduled payments or to refinance our obligations depends on our successful financial and operating performance. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient for payment of our debt in the future, a substantial portion of which will mature prior to the New Notes. Our financial and operating performance, cash flow and capital resources performance depend upon prevailing economic conditions, and certain financial, business and other factors, many of which are beyond our control. These factors include, among others:
- •
- economic and competitive conditions affecting the market for our products and the automotive accessories and automotive markets generally;
- •
- operating difficulties, increased operating costs or pricing pressures we may experience;
- •
- increased raw material costs; and
- •
- delays in implementing any strategic projects.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capacity expansion and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. In the event that we are required to dispose of material assets or operations or restructure our debt to meet our debt service and other obligations, we cannot assure you as to the terms of any such transaction or how soon any such transaction could be completed, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."
We may incur additional debt.
We may incur substantial additional indebtedness in the future. The terms of the indenture permit us to incur a substantial amount of additional debt and our credit facilities permit additional
11
borrowings under certain circumstances. As of March 31, 2003, after giving effect to the Transactions, we would have had, on a pro forma basis, approximately $41.7 million of additional borrowing availability under our credit facilities, subject to compliance with our financial and other covenants and the terms set forth therein. Our incurrence of additional indebtedness would increase the risks described above.
The indenture and our credit facilities and our subordinated promissory notes contain various restrictive covenants that limit our management's discretion in operating our business. In particular, these agreements will limit our ability to, among other things:
- •
- incur additional debt or guarantee obligations;
- •
- grant liens on assets;
- •
- make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our equity);
- •
- make investments or acquisitions;
- •
- sell assets;
- •
- engage in transactions with affiliates; and
- •
- merge, consolidate or transfer substantially all of our assets.
In addition, our credit facilities also require us to maintain certain financial ratios and limits our ability to make capital expenditures.
If we fail to comply with the restrictions of the indenture, our credit facilities, our subordinated promissory notes or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related debt under certain circumstances as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders may be able to terminate any commitments they had made to supply us with further funds.
Risks Relating to the New Notes
The New Notes are unsecured and effectively subordinated to our secured indebtedness.
The New Notes will not be secured. Our credit facilities are secured by the Issuers on
September 25, 1997 to CSIsubstantially all of our domestic assets and First Chicago
Capital Markets, Inc. (the "Initial
Purchasers"), who resold the Old Notes to
qualified institutional investors in reliance
on Rule 144Acertain foreign assets. If we become insolvent or are liquidated, or if payment under the Securities Act. In
connection therewith,credit facilities or any of our other existing or future secured debt obligations is accelerated, our lenders would be entitled to exercise the Issuers, the
Guarantorsremedies available to a secured lender under applicable law and the Initial Purchasers executed
and delivered for the benefit ofwill have a claim on those assets before the holders of the Old NotesNew Notes. As a registration rights agreement
(the "Registration Rights Agreement")
providing, among other things, forresult, the Exchange
Offer.
The Exchange Offer............ New Notes are being offered in exchange for a
like principal amount of Old Notes. Aseffectively subordinated to our secured indebtedness to the extent of the date hereof, $125,000,000 aggregate principal
amount of Old Notes are outstanding. The
Issuers will issue the New Notes to Holders
promptly following the Expiration Date. See
"Risk Factors -- Consequences of Failure to
Exchange."
Expiration Date............... 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended as
provided herein, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Interest...................... Each New Note will bear interest from April 1,
1998. Interest will be payable on the Old Notes
accepted for exchange to, but not including,
April 1, 1998.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Issuers. The Issuers reserve the right to
amend, terminate or extend the Exchange Offer
at any time prior to the Expiration Date upon
the occurrence of any such condition. See "The
Exchange Offer -- Conditions."
Procedures for Tendering Old
Notes......................... Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any
other required documentation to the exchange
agent (the "Exchange Agent") at the address set
forth herein. By executing the Letter of
Transmittal, each Holder will represent to the
Issuers, among other things, that (i) the New
Notes acquired pursuant to the Exchange Offer
by the Holder and any beneficial owners of Old
Notes are being obtained in the ordinary course
of businessvalue of the person receiving such New
Notes, (ii) neitherassets securing that indebtedness and the Holder nor such
beneficial owner has an arrangement with any
person to participate in the distribution of
such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person
is engaging in or intends to engage in a
distribution of such New Notes and (iv) neither
the Holder nor such beneficial owner is an
"affiliate," as defined under Rule 405
promulgated under the Securities Act, of the
Issuers. Each broker-dealer that receives New
Notes for its own account in exchange for Old
Notes, where such Old Notes
9
12
were acquired by such broker-dealer as a result
of marketmaking activities or other trading
activities (other than Old Notes acquired
directly from the Issuers), may participate in
the Exchange Offer but may be deemed an
"underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus
in connection with any resale of such New
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. See "The
Exchange Offer - Procedures for Tendering" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such beneficial owner's own
behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering his Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered
Holder. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights............. Tenders may be withdrawn as provided herein at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes......... The Issuers will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer."
Exchange Agent................ First Union National Bank is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange
Agent."
Use of Proceeds............... There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange
Offer.
10
13
Consequences of Failure to
Exchange.................... Holders of Old Notes who do not exchange their
Old Notes for New Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Notes
as set forth in the legend thereon as a
consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions
not subject to, the registration requirements
of the Securities Act and applicable state
securities laws. In general, Old Notes may not
be offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws.
11
14
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $125,000,000 aggregate principal amount of
Old Notes. The termsholders of the New Notes are identicalmay recover ratably less than the lenders of our secured debt in all material respectsthe event of our bankruptcy or liquidation. As of March 31, 2003, after giving effect to the Old Notes exceptTransactions, the issuers and the guarantors would have had $25.7 million of senior secured indebtedness outstanding, and, on a pro forma basis, approximately $41.7 million of additional borrowing availability under our credit facilities, subject to compliance with our financial and other covenants and the terms set forth therein. In addition, subject to the terms of the indenture, we will be permitted to borrow substantial additional indebtedness, including secured debt, in the future. Accordingly, there can be no assurance that there will be sufficient assets remaining after satisfying our obligations under our senior secured debt for the issuers to pay amounts due on the New Notes.
Not all of our parent's subsidiaries will guarantee the New Notes, have been registered underand your right to receive payments on the Securities ActNew Notes could be adversely affected if any non-guarantor subsidiaries declare bankruptcy, liquidate or reorganize.
Not all of our parent's subsidiaries will guarantee the New Notes. Although our parent and therefore,all of its material domestic subsidiaries (other than the issuers) will not bear legends restricting their transfer
andguarantee the New Notes, none of our parent's foreign subsidiaries will not contain certain provisions providing forguarantee the paymentNew Notes. In the event that any of liquidated
damages to the non-guarantor subsidiaries becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of the Old Notes under certain circumstances relating to
the Registration Rights Agreement, which provisionstheir indebtedness and their trade creditors will evidence the same debt
as the Old Notes and, except as set forth in the immediately preceding sentence,
willgenerally be entitled to payment on their claims from the benefitsassets of the Indenture, under which both the Old
Notes were, andthose subsidiaries before any of those assets are made available to us. Consequently, your
12
claims in respect of the New Notes will be issued. See "Descriptioneffectively subordinated to all of Notes."
Securities Offered............ $125,000,000 aggregate principal amount of
9 3/4% Series B Senior Subordinated Notes due
2007.
Maturity...................... October 1, 2007.
Interest Payment Dates........ April 1 and October 1, commencing October 1,
1998.
Sinking Fund.................. None.
Optional Redemption........... Except as described below, the Issuers may not
redeem the Notes prior to October 1, 2002. On
or after such date, the Issuers may redeem the
Notes, in whole or in part, at the redemption
prices set forth herein, together with accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time and from
time to time on or prior to October 1, 2000,
the Issuers may redeem up to 35% of the
aggregate principal amount of the Notes with
the net cash proceeds of one or more Public
Equity Offerings by the Company, at a
redemption price equal to 109.750% of the
principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65%
of the aggregate principal amount of the Notes
originally issued remain outstanding after each
such redemption. See "Description of the Notes
-- Optional Redemption."
Change of Control............. Upon the occurrence of a Change of Control, the
Issuers will be required to make an offer to
repurchase the Notes at a price equal to 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the
date of purchase. See "Description of the Notes
-- Change of Control."
Subsidiary Guarantees......... The New Notes will be guaranteed (the
"Guarantees"), jointly and severally on a
senior subordinated basis, by the Guarantors.
The Guarantors also guarantee all obligations
of the Company under the Amended and Restated
Credit Agreement. The obligations of each
Guarantor under its Guarantee will be
subordinated in right of payment to the prior
payment in full of all existing and future Guarantor Senior Indebtedness (as defined) of
such Guarantor to substantially the same extent
as the Notes are subordinated to all existing
and future Senior Indebtednessliabilities of the Issuers.
See "Descriptionnon-guarantor subsidiaries. Net sales from international operations (including Canada) for the twelve months ended March 31, 2003 were $103.5 million, or 30.9% of the Notes -- Guarantees of
the Notes."
Ranking....................... The New Notes will be unsecured and will be
subordinated in right of payment to all
existing and future Senior Indebtedness of the
Issuers. The New Notes will rank pari passu in
right of payment with any future senior
subordinated Indebtedness (as defined) of the
Issuers and will rank senior to all
Subordinated Indebtedness
12
15
(as defined) of the Issuers.our net sales. As of DecemberMarch 31, 1997, on a pro forma basis2003, assets associated with these operations were 46.7% of total assets. As of March 31, 2003, after giving effect to the 1998 Transactions, the aggregate
principal amountnon-guarantor subsidiaries would have had approximately $18 million of debt outstanding.
The guarantees may not be enforceable because of fraudulent conveyance laws.
The incurrence of the Issuers' outstanding
Senior Indebtedness would have been
approximately $73.4 million (excluding unused
commitments). See "Descriptionguarantees by the guarantors (including any future guarantees) may be subject to review under U.S. federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the Notes --
Ranking" and "-- Subordinationguarantors' unpaid creditors. Under these laws, if in such a case or lawsuit a court were to find that, at the time such guarantor incurred a guarantee of the Notes."
Certain Covenants.............New Notes, such guarantor:
- •
- incurred the guarantee of the New Notes with the intent of hindering, delaying or defrauding current or future creditors;
- •
- received less than reasonably equivalent value or fair consideration for incurring the guarantee obligations of the New Notes and such guarantor:
- •
- was insolvent or was rendered insolvent;
- •
- was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or
- •
- intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes);
then such court could avoid the guarantee of such guarantor or subordinate the amounts owing under such guarantee to such guarantor's presently existing or future debt or take other actions detrimental to you.
It may be asserted that the guarantors incurred all or a portion of their guarantees for our benefit and they incurred the obligations under the guarantees for less than reasonably equivalent value or fair consideration.
The indenturemeasure of insolvency for purposes of the foregoing considerations will vary depending upon the law of jurisdiction that is being applied in any such proceeding. Generally, a company would be considered insolvent if, at the time it incurred the debt or issued the guarantee, any of the following occurred:
- •
- the sum of its debts (including contingent liabilities) is greater than its assets, at fair valuation;
- •
- the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured; or
- •
- it could not pay its debts as they became due.
If a guarantee is avoided as a fraudulent conveyance or found to be unenforceable for any reason, you will not have a claim against that obligor and will only be a creditor of our company or any guarantor whose obligation was not set aside or found to be unenforceable.
We believe that each guarantor will receive, directly and indirectly, reasonably equivalent value for the incurrence of its respective guarantee. In addition, on the basis of historical financial information, recent operating history and other factors, we believe that each guarantor, after giving effect to its respective guarantee will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard.
13
AAS is a holding company with virtually no independent operations. Its ability to repay the New Notes depends upon the performance of its subsidiaries and their ability to make distributions to AAS.
AAS is an issuer of the New Notes. Substantially all of AAS' consolidated operations will be conducted by AAS' subsidiaries and, therefore, its ability to pay its debt, including its obligations under which the Old Notes were,
and the New Notes, will be issued (the
"Indenture") contains certain covenants that,
amongdependent upon cash dividends and distributions or other things, limit (i)transfers from its subsidiaries. AAS' subsidiaries' ability to make any payments to AAS will depend on their indebtedness, business and tax considerations, legal and regulatory restrictions and economic conditions.
AAS Capital Corporation has nominal assets from which to make payments on the incurrenceNew Notes; our parent is a holding company with virtually no independent operations and depends upon the performance of additional indebtedness by the Companyits subsidiaries and its
Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stocktheir ability to make distributions to it.
AAS Capital Corporation is also an issuer of the CompanyNew Notes. AAS Capital Corporation is a wholly-owned subsidiary of AAS with no operations and nominal assets from which to make payments on the New Notes. In addition, our parent is a holding company, which was formed in connection with the acquisition, whose sole source of operating income and cash flow is derived from direct and indirect wholly-owned subsidiaries. Our parent is therefore dependent upon dividends and distributions of earnings from its Restricted Subsidiaries
and the redemption of certain subordinatedsubsidiaries to perform its obligations under its guarantee.
Our controlling equity holders may take actions that conflict with your interests.
Substantially all of the Companyvoting power of our equity is held by affiliates of Castle Harlan. Accordingly, they control the power to elect our directors and its Restricted
Subsidiaries, (iii) investments, (iv)managers, to appoint new management and to approve all actions requiring the approval of the holders of our equity, including adopting amendments to our constituent documents and approving mergers, acquisitions or sales of
assets and Restricted Subsidiary stock, (v)
transactions with affiliates and (vi)
consolidations, mergers and transfers of all or substantially all of the Company'sour assets. The Indenturedirectors and managers have the authority, subject to the terms of our debt, to issue additional indebtedness or equity, implement equity repurchase programs, declare dividends and make other such decisions about our equity.
In addition, the interests of our controlling equity holders could conflict with your interests. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our controlling equity holders might conflict with your interests as a holder of the New Notes. Our controlling equity holders also prohibits certain restrictions
on distributions from Restricted Subsidiaries.
However,may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to you, as holders of the New Notes.
The issuers may be unable to purchase the New Notes upon a change of control.
Upon the occurrence of specified "change of control" events, the issuers will be required to offer to purchase each holder's New Notes at a price of 101% of their principal amount plus accrued and unpaid interest, unless all New Notes have been previously called for redemption. The issuers may not have sufficient financial resources to purchase all of the New Notes that holders tender to them upon a change of control offer. The occurrence of a change of control also could constitute an event of default under our credit facilities, the subordinated promissory notes and/or any of our future credit agreements. Our bank lenders may also have the right to prohibit any such purchase or redemption, in which event the issuers would be in default on the New Notes. See "Description of the New Notes—Change of Control."
An active trading market may not develop for the New Notes.
The New Notes will be a new class of securities for which there currently is no established market, and we cannot be sure if an active or liquid trading market will develop for these limitationsnotes. The issuers do not intend to apply for listing of the New Notes on any securities exchange or on any automated dealer quotation system. The initial purchasers of the Original Notes are not obligated to make a market in the New Notes and prohibitionsany market making may be discontinued at any time without notice. If a market for
14
the New Notes were to develop, the New Notes could trade at prices that may be higher or lower than reflected by their initial offering price, depending on many factors, including among other things:
- •
- changes in the overall market for high yield debt securities;
- •
- changes in our financial performance or prospects;
- •
- the prospects for companies in our industry generally;
- •
- the number of holders of the New Notes;
- •
- the interest of securities dealers in making a market for the New Notes; and
- •
- prevailing interest rates.
In addition, the market for non-investment grade debt has been historically subject to disruptions that have caused substantial volatility in the prices of securities similar to the New Notes. The market for the New Notes, if any, may be subject to similar disruptions. Any such disruption could adversely affect the value of your notes.
Risks Relating to Our Business
Demand for automotive accessories is dependent on the North American and the European automotive industries and economies.
Our financial performance depends on conditions in the global automotive industry, and, generally, on the North American and European economies. Demand in the automotive industry fluctuates significantly in response to overall economic conditions and is particularly sensitive to changes in interest rate levels, consumer confidence and fuel costs. Any sustained weakness in demand or continued downturn in the economy generally would have a material adverse effect on our business, results of operations and financial condition.
Our sales are also impacted by retail inventory levels and our OEM customers' production schedules. We cannot predict when the OEMs will decide to either build or reduce inventory levels or whether new inventory levels will approximate historical levels. This may result in significant quarter-to-quarter variability in our performance. Uncertainty regarding inventory levels has been exacerbated by favorable consumer financing programs initiated by our OEM customers which may accelerate sales that otherwise would occur in future periods. In addition, we have historically experienced sales declines during the OEMs' scheduled shut-downs or shut-downs resulting from unforeseen events. Continued uncertainty and other unexpected fluctuations may have a material adverse effect on business, results of operations and financial condition.
The OEM supplier industry is also cyclical and, in large part, dependent upon the overall strength of consumer demand for various types of motor vehicles. A decrease in consumer demand for motor vehicles in general or specific types of vehicles could have a material adverse effect on our business, results of operations and financial condition.
Our customer base is concentrated and the loss of business from a major customer or the discontinuation of particular vehicle models could reduce our sales and harm our profitability.
DaimlerChrysler and General Motors, our two largest customers, accounted for 22.0% and 25.1%, respectively, of our aggregate net sales for the twelve months ended March 31, 2003. In addition, for the twelve months ended March 31, 2003, our ten largest customers including DaimlerChrysler and General Motors, accounted for 63.7% of our aggregate net sales. The loss of either or both of DaimlerChrysler and General Motors as a customer or the loss of significant business from either of these customers would have a material adverse effect on our business, results of operations and financial condition. In addition, the loss of significant business from other OEM customers could have a material adverse effect on our business, results of operations and financial condition. Most of our
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OEM sales are made pursuant to purchase orders. These purchase orders generally provide for supplying the customer's requirements for a particular model or model year rather than for the purchase of a minimum or a specific quantity of products and are terminable at will by the customers. In addition, we have contracts with certain large OEM customers which require us to make annual price reductions. Future price accommodations to these customers or any of our other large customers could have a material adverse effect on our business, results of operations and financial condition.
Our industry is highly competitive.
Although we are one of the world's largest suppliers of rack and towing systems and accessories, we have a large number of competitors, some of which are larger than us and have substantially greater resources than we do. See "Business—Competition." Our business may be adversely affected by increased competition, including pricing competition, in the markets in which we currently operate.
We are subject to certain risks associated with our foreign operations.
We manufacture and/or sell our products in Europe, Canada and Mexico, in addition to the United States. For the twelve months ended March 31, 2003, 30.9% of our net sales were derived from operations conducted outside the United States, mostly from Europe. These sales are principally in euros. Foreign operations are subject to certain risks that can materially affect our sales, profits, cash flows and financial position. These risks include, but are not limited to:
- •
- currency exchange rate fluctuations;
- •
- tax rates in certain foreign countries potentially exceeding those in the United States and foreign earnings potentially being subject to withholding requirements or the imposition of tariffs, exchange controls or other restrictions;
- •
- general economic and political conditions in countries where we operate and/or sell our products, including inflation;
- •
- the difficulties associated with managing a large organization spread throughout various countries; and
- •
- required compliance with a variety of foreign laws and regulations.
In particular, currency exchange rate fluctuations have in the past impacted our revenues, gross margins and debt servicing requirements. As of March 31, 2003, after giving effect to the Transactions, we would have had approximately $18 million of debt denominated in currencies other than the U.S. dollar. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk."
Some of our employees are unionized.
As is common in many European jurisdictions, substantially all of our approximately 850 employees in Europe are covered by country-wide collective bargaining agreements. Approximately 170 of our employees in the United States at the Port Huron, Michigan facility are represented by the Teamsters Union. Collective bargaining agreements with the Teamsters Union affecting these employees expire in April 2004. While we believe that our relations with our employees are satisfactory, a significant dispute with our employees could have a material adverse effect on our business, results of operations and financial condition.
Labor disputes at our customers and other suppliers of our customers could adversely affect us.
Many of our OEM and other Tier 1 supplier customers, and other suppliers to our customers, are unionized, and work stoppages, slowdowns or other labor disputes experienced by, and the labor relations policies of, OEMs and other Tier 1 suppliers could adversely affect demand for our products
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in the short-term, which could adversely affect our business, results of operations and financial condition.
We may incur material product liability and product recall costs.
We face an inherent business risk of exposure to product liability claims in the event that the failure of our products to perform to specifications results, or is alleged to result, in property damage, bodily injury and/or death. We cannot assure you that we will not experience any material product liability losses in the future or that we will not incur significant costs to defend these claims. To date, we have not experienced any material losses relating to product liability claims.
In addition, if any products we design are or are alleged to be defective, we may be required to participate in government-imposed or OEM-instituted recalls involving our products, which would result in additional costs to us, which could be material. We also may incur costs relating to product recalls arising out of car design issues, rather than issues relating to the design of our products or their quality or performance. Our subsidiary Brink and three of our OEM customers are in the process of voluntarily recalling approximately 41,000 towing assemblies produced between 1999 to 2001. The recall is expected to result in an expense to Brink of up to $4.0 million. The sellers in the acquisition have agreed to indemnify us for 100% of the losses we incur in connection with the recall. The recall is not expected to have a material adverse effect on our business, financial condition or results of operation, or on our relationship with these OEM customers. In addition to the foregoing, there have been two additional recalls of our products since our formation in 1995, neither of which had a material adverse effect on our business, results of operations or financial condition.
If we are unable to obtain our raw materials at favorable prices, it could adversely impact our financial condition.
Numerous raw materials are used in the manufacture of our products. Steel, which is purchased in sheets, rolls, bars or tubes, and resin accounted for the most significant components of our raw material costs in 2002. The domestic steel industry has experienced substantial financial instability due to numerous factors, including energy costs and the effect of foreign competition. We also purchase significant amounts of aluminum and plastics. See "Business—Raw Materials." While we have various suppliers globally and have not had difficulties in procuring raw materials, prices of these materials continually fluctuate. In addition, we may be unable to pass on the increased costs of raw materials to our customers. Our inability to pass on increased raw material costs to our customers could adversely affect our business, results of operations and financial condition.
We may make acquisitions, which present additional risks.
Part of our growth strategy includes pursuing acquisitions. We cannot assure you that we will be able to consummate acquisitions in the future on terms acceptable to us, if at all. In addition, we cannot assure you that the integration of any future acquisitions will be successful or that the anticipated strategic benefits of any future acquisitions will be realized. Acquisitions may involve a number of important qualificationsspecial risks, including, but not limited to:
- •
- adverse short-term effects on our reported operating results;
- •
- diversion of management's attention;
- •
- difficulties assimilating and integrating the operations of the acquired company with our own; and
- •
- unanticipated liabilities or contingencies relating to the acquired company.
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We depend on the service of key individuals, the loss of which could materially harm our business.
Our success will depend, in part, on the efforts of our executive officers and other key employees. Although we do not anticipate that we will have to replace any of our key employees in the near future, the loss of the services of any of our key employees could have a material adverse effect on us until a suitable replacement can be found.
Environmental laws and regulations may impose risks and costs on us.
Our operations, both in the United States and throughout Europe, are subject to certain federal, state, local and foreign laws, ordinances and regulations governing the protection of the environment, including, but not limited to, those regulating discharges into the air and water, the use, handling and contracting for the disposal of hazardous or toxic substances, the management of wastes, the cleanup of contamination and the control of noise and odors. We could be subject to potentially significant fines or penalties if we fail to comply with these environmental regulatory requirements. Under certain environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of at real property, may be held liable for the cost to investigate or clean up such substances on or under the property and for related damages to natural resources. We may be subject to liability, including liability for cleanup costs, resulting from historical or ongoing operations if contamination is discovered at one of our facilities or at a landfill or other location where we have disposed of, or arranged for the disposal of, wastes. We believe that we are in substantial compliance with all environmental laws, although we cannot assure you of this. We have made and will continue to make expenditures to comply with current and future environmental requirements. Increasingly stringent environmental requirements or more aggressive enforcement actions or discovery of unknown conditions may cause our expenditures for environmental compliance to increase and we may incur material costs associated with environmental compliance in the future. See "Business—Environmental Regulation."
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On April 15, 2003, substantially all of the equity interests of AAS were acquired by CHP IV, a private equity investment fund organized and managed by Castle Harlan, a leading private equity firm.
Closing Purchase Price and Adjustments
The consideration paid at or shortly after the closing of the acquisition consisted of approximately $260 million, approximately $168 million of which was used to repay, assume or defease certain of our indebtedness at the time of the acquisition and approximately $92 million (inclusive of the subordinated promissory notes discussed below) of which was used for the closing purchase price of the equity interests of AAS. The cash purchase price payable to the sellers is subject to an adjustment based on working capital at the acquisition closing date, as determined by an audit currently being conducted of our balance sheet, adjusted for certain agreed upon items, to the extent that working capital was more or less than $55.0 million.
At the closing, subordinated promissory notes in an aggregate principal amount of $10.0 million were issued to the sellers by Valley and SportRack, two subsidiaries of CHAAS Holdings and guarantors of the notes. The subordinated promissory notes are guaranteed on a subordinated basis by our parent and all of its domestic subsidiaries. The interest rate on the subordinated promissory notes is 12% per annum until maturity. Accrued interest is not payable in cash but capitalized and added to principal. The maturity date on the subordinated promissory notes will be no earlier than 91 days subsequent to the maturity date of the New Notes, subject to certain exceptions. See "Description of Certain Indebtedness" for additional information concerning the subordinated promissory notes.
Earnout
CHAAS Holdings also agreed to pay the sellers additional consideration of up to a maximum of $10.0 million in the aggregate to the extent that the Castle Harlan Group achieves an assumed annualized internal rate of return of 30% on its total equity investment in CHAAS Holdings and its subsidiaries as calculated as of the end of each of the 2003, 2004 and 2005 calendar years. The Castle Harlan Group's internal rate of return is determined at the end of each calendar year by calculating the proceeds the Castle Harlan Group would receive in a hypothetical sale of CHAAS Holdings, based upon a value equal to 5.65 times the consolidated EBITDA of CHAAS Holdings and its subsidiaries, adjusted for certain non-recurring items, as of the calendar year then ended and after making appropriate adjustments for cash and indebtedness of CHAAS Holdings and its subsidiaries and other specified items described in the securities purchase agreement relating to the acquisition.
If there is a change in control (as defined in the securities purchase agreement) prior to March 31, 2006, the full amount of the additional consideration that was not previously earned by the sellers would be accelerated, subject to the Castle Harlan Group achieving a 30% annualized internal rate of return on its total equity investment in our parent and its subsidiaries based on the proceeds the Castle Harlan Group actually receives in the change in control.
In the event the Castle Harlan Group receives proceeds from certain sales of equity interests in or assets of CHAAS Holdings or from certain sales of our assets or equity interests that do not otherwise constitute a change in control, CHAAS Holdings has agreed to accelerate payment to the sellers of a percentage of any unearned portion of the additional consideration equal to the percentage of the value of the interests sold or redeemed by the Castle Harlan Group in each such transaction, subject in all cases to the Castle Harlan Group having achieved an assumed 30% annualized internal rate of return on its total equity investment in CHAAS Holdings and its subsidiaries at the time of each transaction. We will have no obligation to pay any portion of the annual additional consideration that has not been earned by the sellers on or before March 31, 2006, except as to any consideration that would have been earned but was deferred because of a holdback, escrow, earnout or other similar arrangements in connection with a change in control.
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To the extent the payment of any portion of any additional consideration earned by the sellers would constitute, upon payment, or within the following fiscal quarter, an event of default under the terms governing our indebtedness, including the New Notes, --then that portion will be paid in the form of subordinated promissory notes, referred to as "contingent payment notes," that will be substantially in the form of the subordinated promissory notes issued to the sellers at the closing of the acquisition and that will be subordinated on the same basis as the subordinated promissory notes are subordinated to our senior indebtedness, including the New Notes. CHAAS Holdings has agreed to cause the issuers of the contingent payment notes to pay the maximum amount of principal and interest owing under any contingent payment note at the end of each fiscal year to the extent any such payment would not cause or result in an event of default under our senior indebtedness.
Rollover of Equity; Management Equity Investment
In connection with the acquisition, options to purchase equity interests of AAS previously held by certain of our executive officers were cancelled and CHAAS Holdings issued new options to acquire approximately 1.5% of its common and preferred equity interests to those officers. Certain Covenants.of our executive officers also acquired common equity interests in CHAAS Holdings at the closing of the acquisition. In addition, in connection with the acquisition, we entered into new employment agreements with certain members of our executive management team. See "Management," 13
Securities Purchase Agreement
The securities purchase agreement contains customary representations and warranties, covenants and indemnities by and for the benefit of CHAAS Holdings and the sellers. CHAAS Holdings has agreed to cause one or more of its subsidiaries to satisfy any payment obligations under the securities purchase agreement to the extent that it does not have sufficient funds to do so. The sellers' indemnification obligations, which are several and not joint, for breaches of representations and warranties generally survive until June 30, 2004, except for representations and warranties relating to certain tax and environmental matters which generally survive until April 15, 2007 and certain other specified matters which survive indefinitely. The sellers' obligations to indemnify CHAAS Holdings and CHAAS Holdings' obligation to indemnify the sellers are not triggered until the other suffers losses of $1.75 million, but once that threshold is reached, indemnification may be sought for all losses incurred by that party. The sellers' aggregate indemnification obligations are generally capped at approximately $30 million in the aggregate, consisting of the $10.0 million in cash plus expenses deposited in escrow at the closing of the acquisition as described below, a right of set-off of CHAAS Holdings against the $10.0 million in subordinated promissory notes issued to the sellers at closing and a right of set-off of our parent against any portion of the $10.0 million in additional consideration earned by the sellers as described above. An additional $10.0 million is available for indemnification for tax and environmental matters. Each sellers' individual indemnification obligations are generally capped at the proceeds received from the sale of their equity interests in AAS. CHAAS Holdings' indemnification obligations are generally capped at $20.0 million. The sellers have authorized J. P. Morgan Partners (23A SBIC), LLC, the seller that held a majority of our former equity, to act on their behalf on all indemnification and other matters arising under the securities purchase agreement.
At the closing of the acquisition, the sellers deposited $10.0 million with a third party escrow agent to secure the sellers' indemnification obligations and certain other contingent payment obligations of the sellers under the securities purchase agreement. The escrow agreement expires and the funds
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remaining in escrow, if any, will be distributed to the sellers on June 30, 2004, except that if any dispute between CHAAS Holdings and the sellers exists on that date as to any claim of CHAAS Holdings to any escrowed funds, the amount in dispute will continue to be held in escrow until the dispute is resolved either by agreement of CHAAS Holdings and sellers or by a non-appealable order of a court of competent jurisdiction.
The securities purchase agreement also provides that CHAAS Holdings is entitled to indemnification from the sellers, without regard to any threshold, cap or time limitation, for any losses incurred by CHAAS Holdings and its affiliates (including us) in connection with our pending litigation with Douglas and Andrew Gibbs, two of our former employees. The Gibbs litigation resulted in a judgment against AAS in the amount of approximately $3.8 million, plus attorneys' fees and pre- and post-judgment interest awarded by the trial court, which as of March 31, 2003, approximated $3.1 million. Both AAS and the Gibbs are currently appealing the judgment before the United States Court of Appeals for the Sixth Circuit. To secure its appeal, prior to closing of the acquisition AAS issued a letter of credit in the amount of $8.3 million for the benefit of the Gibbs. At closing, the sellers deposited with the financial institution that issued the letter of credit $9.0 million in cash in a separate escrow account to cash collateralize the letter of credit and to secure the sellers' obligations to pay all losses incurred by AAS and its affiliates in connection with the Gibbs litigation. The sellers control any further proceedings relating to the Gibbs litigation, subject to certain exceptions. See "Business—Legal Proceedings" for additional information regarding the Gibbs litigation.
The sellers have also agreed in the securities purchase agreement to indemnify CHAAS Holdings and its affiliates (including us), without regard to any threshold, cap or time limitation, for any losses incurred by CHAAS Holdings and its affiliates in connection with the recall instituted by three OEMs of approximately 41,000 G 3.0 model removable towbar systems produced by Brink between 1999 and 2001, which is described under "Risk Factors—We may incur material product liability and product recall costs." The securities purchase agreement provides that we may settle all matters relating to this recall for up to an aggregate of $4.0 million without the consent of the sellers. Any settlement that exceeds $4.0 million requires the consent of the sellers, although the sellers continue to maintain responsibility for all losses, whether or not they agree to any such settlement.
The sellers have also agreed to indemnify CHAAS Holdings and its affiliates, without regard to any threshold, for any losses incurred on or before April 15, 2009 in connection with the December 15, 2002 sale of our Reims, France manufacturing facility. In addition, the sellers have agreed to indemnify CHAAS Holdings and its affiliates for any losses that exceed $250,000 without regard to the $1.75 million general indemnification threshold, in connection with an adverse determination of The Netherlands taxing authorities from an audit of Brink which is currently being appealed. The potential liability to The Netherlands taxing authority, which is currently estimated at approximately €200,000, is not taken into account for purposes of the working capital adjustment described above.
The securities purchase agreement also includes customary covenants by the sellers to maintain certain proprietary information about us confidential and by certain of the sellers not to compete with us for a period of two years after the closing of the acquisition and not to solicit for employment certain of our key employees and members of senior management for a period of one year after the closing of the acquisition. CHAAS Holdings has agreed, subject to certain exceptions, to refrain from engaging in transactions with affiliates on a non-arms' length basis or from redeeming any equity interests of CHAAS Holdings at any time while any subordinated promissory note or contingent payment note is outstanding.
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Organizational Chart
The following chart shows our current organizational structure. All of the entities that are directly or indirectly owned by our parent are wholly-owned. AAS Capital Corporation, an issuer of the New Notes, is an indirect wholly-owned subsidiary of AAS with nominal assets and which conducts no business or operations. Our parent was formed in May 2003 and has virtually no independent operations. CHAAS Holdings was formed in connection with the acquisition and is the direct parent of our parent and also has virtually no independent operations.
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This exchange offer is intended to satisfy our obligations under the registration rights agreement entered into in connection with the offering of the Original Notes. We will not receive any proceeds from the exchange offer. In consideration for issuing the New Notes, we will receive Original Notes with like original principal amount. The form and terms of the Original Notes are the same as the form and terms of the New Notes, except as otherwise described in this prospectus. The Original Notes surrendered in exchange for New Notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the New Notes will not result in any increase in our outstanding debt.
The net proceeds of the issuance of the Original Notes, net of fees, were approximately $145.5 million and were used to refinance a significant portion of the interim financing incurred in connection with the acquisition and to pay certain fees and expenses related to the offering of the Original Notes.
The estimated sources and uses of funds in connection with the Transactions are set forth below (dollars in millions):
| Source of Funds | | |||
|---|---|---|---|---|
| Senior secured credit facilities (1) | $ | 18.5 | ||
| Capital leases | 7.2 | |||
| New Notes | 150.0 | |||
| Subordinated promissory notes | 10.0 | |||
| Equity investment (2) | 100.9 | |||
| Total Sources | $ | 286.6 | ||
| Use of Funds | | |||
|---|---|---|---|---|
| Repayment of certain indebtedness (3) | $ | 162.3 | ||
| Assumed capital leases | 7.2 | |||
| Purchase equity | 91.8 | |||
| Fees and expenses | 25.3 | |||
| Total Use of Funds | $ | 286.6 | ||
See "Security Ownership of Certain Beneficial Owners and Management," "Certain Relationships and Related Transactions" and "Description of Certain Indebtedness" for additional information concerning our equity ownership and financing arrangements.
- (1)
- At the time of the acquisition, we entered into a new credit facility consisting of a revolving credit facility and term loans as follows: (1) a revolving credit facility comprised of (a) a $29.7 million U.S. revolving credit facility and (b) a €9.6 million European revolving credit facility; (2) a term loan A facility comprised of (a) a $29.7 million U.S. term loan A and (b) a €9.6 million European term loan A; and (3) a term loan B comprised of (a) a $48.2 million U.S. term loan B and (b) a €15.6 million European term loan B.
- The
- amount shown in the table above reflects the net borrowings of $7.7 million under our revolving credit facility, which facility size was increased on May 23, 2003 to a $35.0 million U.S. revolving credit facility, a €15.0 million European revolving credit facility, and a €10.0 million European term loan facility. We used a portion of the proceeds from the issuance of the Original Notes to (i) repay our U.S. term loan A, (ii) repay our U.S. term loan B and (iii) repay a portion of our European term loan B, together with interest accrued thereon. As of May 7, 2003, the interest rates on our U.S. term loan A, European term loan A, U.S. term loan B and European term loan B were 5.07%, 6.34%, 5.57% and 6.84%, respectively. All applicable dollar amounts in this paragraph are based on a euro to dollar conversion rate of 1.08 U.S. dollars to 1.0 euro. See "Description of Certain Indebtedness."
- (2)
- Consists of an equity investment of $99.5 million and $0.2 million from Advanced Accessory Acquisitions, LLC, or AAA, a wholly-owned subsidiary of CHP IV, and members of our management, respectively, to acquire common and preferred units of CHAAS Holdings, LLC. In addition, management reinvested an additional $1.2 million that they were entitled to receive at the consummation of the acquisition to acquire equity of CHAAS Holdings. The table above does not include bridge
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financing consisting of a convertible senior subordinated bridge note issued to CHP IV by Valley and SportRack. The bridge note was guaranteed on a subordinated basis by CHAAS Holdings and all of its domestic subsidiaries other than our parent. We used a portion of the proceeds from the issuance of the Original Notes to fully repay the bridge note, together with interest thereon. The interest rate on the bridge note was 12% per annum.
- (3)
- On May 16,
SUMMARY CONSOLIDATED HISTORICAL AND2003, we redeemed all of our then outstanding 93/4% Senior Subordinated Notes due 2007 at the optional redemption price of 1047/8% of the principal amount thereof plus accrued interest. Upon consummation of the acquisition, we deposited funds in escrow sufficient to effect a covenant defeasance of the senior subordinated notes and to consummate the redemption through the redemption date. The amount of the redemption, which included accrued interest and premiums, was approximately $132.6 million.
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The following table sets forth the capitalization of CHAAS Holdings on a consolidated basis as of March 31, 2003, on an actual and adjusted basis. Adjusted capitalization gives effect to the Transactions as if they had occurred on March 31, 2003.
You should read this table together with our historical and unaudited pro forma financial statements and the related notes thereto included elsewhere in this prospectus. For additional information regarding our outstanding indebtedness and our credit facilities and notes, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and "Description of Certain Indebtedness."
| | As of March 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| | Actual | Adjusted | ||||||
| | (Dollars in thousands) | |||||||
| Cash | $ | 1,987 | $ | 11,253 | ||||
Debt: | ||||||||
| Existing credit facilities | 23,861 | — | ||||||
| New revolving credit facility | — | 7,700 | ||||||
| New term loan A | — | 10,800 | ||||||
| Capital lease obligations | 7,228 | 7,228 | ||||||
| Original Notes | — | 150,000 | ||||||
| 93/4 Series B senior subordinated notes | 124,734 | — | ||||||
| Subordinated promissory notes | — | 10,000 | ||||||
| Total debt | 155,823 | 185,728 | ||||||
Total members' equity | (751 | ) | 100,901 | |||||
| Total capitalization | $ | 155,072 | $ | 286,629 | ||||
The dollar amount in the foregoing table with respect to our €10.0 million term loan is based on a euro to dollar conversion rate of 1.08 U.S. dollars to 1.0 euro.
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UNAUDITED PRO FORMA FINANCIAL DATASTATEMENTS
The following table presents summary historicalunaudited pro forma condensed consolidated financial data of the
MascoTech Division ("Predecessor") for the years ended December 31, 1993 and
1994 and the period from January 1, 1995 through September 27, 1995 (the period
prior to the acquisition of the net assets of the MascoTech Division by the
Company). The data as of and for the years ended December 31, 1993 and 1994 have
been derived from the unaudited financial statements of the MascoTech Division
and the data for the period from January 1, 1995 through September 27, 1995 have been derived from the audited historical financial statements of Advanced Accessory Systems, LLC included elsewhere in this Prospectus. The historical data as of and for the period from September 28, 1995
through December 31, 1995 and for the years ended December 31, 1996 and 1997
represent consolidated financial data of the Company subsequentprospectus, adjusted to give pro forma effect to the acquisition of the MascoTech Division, and include (i) the operations of Brink
subsequent to the Brink Acquisition on October 30, 1996; (ii) the operations of
Bell and Nomadic subsequent to the SportRack International Acquisition on July
2, 1997 and July 24, 1997, respectively, and (iii) the operations of Valley
subsequent to the Valley Acquisition on August 5, 1997.Transactions.
The historical data for
the Company have been derived from the audited financial statements of the
Company included elsewhere in this Prospectus. The summaryunaudited pro forma condensed consolidated statement of operations data and other financial data forincome information presented herein gives pro forma effect to the year ended December 31, 1997
were prepared to illustrate the effect of (i) the offering of the Old Notes (the
"Offering"); (ii) the Valley Acquisition and the SportRack International
Acquisition; and (iii) the 1998 Transactions as if all of such transactions hadthey occurred on January 1, 1997.2002. The summaryunaudited pro forma condensed consolidated balance sheet data at DecemberMarch 31, 1997 was prepared2003 gives pro forma effect to illustrate the effect of the 1998 Transactions as if eachthey had occurred on DecemberMarch 31, 1997.2003.
The unaudited pro forma financial data dois not purport
to benecessarily indicative of our operations or financial position had the Transactions taken place on the dates indicated and are not intended to project our results of operations or the financial position of the
Company that would have been obtained if the acquisitions and Offering had been
completed as of such dates or to project the results of operations or the
financial position of the Company for any future dateperiod or period.date.
The pro forma adjustments are based on preliminary estimates, available information and certain assumptions that we believe are reasonable and may be revised as additional information becomes available. The pro forma adjustments and certain assumptions are described in the accompanying notes. Other information included under this heading has been presented to provide additional analysis. The acquisition has been accounted for using the purchase method of accounting. However, it is not possible at this time to reasonably estimate the separate amounts attributable to identifiable intangible assets or goodwill since the measurement of these assets requires the expertise of an independent appraiser who has not been engaged at this time. Accordingly, the entire amount of the excess of the purchase consideration has currently been allocated to goodwill, but is expected to be allocated between goodwill and other identifiable intangible assets such as brand names, trademarks, and technologies based primarily on the appraiser's valuation. Completion of the valuation and the resulting reallocation will occur within one year following tablethe acquisition. Thus, the final allocation of the purchase price could differ materially from the pro forma allocation reflected herein. In particular, if additional value is granted to certain tangible or definite lived intangible assets, the pro forma amortization expense would be increased.
The unaudited pro forma financial statements set forth below should be read in conjunction with theour financial statements, of the Company, Valley Industries and Ellebi, "Selected Historical Financial Data,"
"Unaudited Pro Forma Financial Information" and, in each case, the related
notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
14
17
SUMMARY CONSOLIDATED HISTORICAL AND prospectus.
26
30 31 The pro forma condensed consolidated balance sheet (unaudited) includes adjustments necessary to reflect the estimated effect of the Transactions as if they had occurred on March 31, 2003. 32 with the historical financial statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and notes thereto included elsewhere in this prospectus. 33 The following table sets forth selected consolidated historical financial data for 1998, 1999, 2000, 2001 and 2002, and for the unaudited three month periods ended March 31, 2002 and 2003. The selected consolidated historical financial data for Advanced Accessory Systems, LLC and its subsidiaries at December 31, 2001 and 2002, and the results of 34 35 36 sets forth (i) our calculation of EBITDA 37 The Overview We are Company Background We were formed in September 1995 by a consortium of investors to make strategic acquisitions of automotive exterior manufacturers. At the time of our formation, we acquired substantially all of the assets of the MascoTech Accessories division of MascoTech Inc., a North American supplier of rack systems and accessories to the automotive OEM market and automotive aftermarket. Since then, we have made several strategic acquisitions and, as a result, we have introduced new and complementary products to enhance our market position. Results of Operations The following table presents the major components of our statement of operations together with percentages of each component as a percentage of net sales for 2000, 2001 and 2002 and for the three months ended March 31, 2002 and 2003. The selected consolidated historical financial data for the three month periods ended March 31, 2002 and 2003 have been derived from our historical condensed financial statements which, in the opinion of management, include all adjustments, including usual recurring adjustments, necessary for the fair presentation of that information for such periods. 38 Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002 Net sales. Net sales for the first quarter of 2003 were $85.3 million, representing an increase of $5.5 million, or 6.8%, compared with net sales for the first quarter of 2002. This increase resulted primarily from a $4.2 million increase due to the effect of increasing exchange rates between the U.S. dollar and the currencies used by our foreign subsidiaries, primarily in Europe. In Gross profit. Gross profit for the first quarter of 2003 was $21.1 million, representing an increase of $2.2 million, or 11.4%, from the gross profit for the first quarter of 2002. This increase resulted from the increase in sales and an increase in the gross margin percentage. Gross profit as a percentage of net sales was 24.7% in the first quarter of 2003 compared to 23.7% in the first quarter of 2002. The increase in the gross margin percentage was primarily attributable to higher production efficiency for Brink, which restructured its manufacturing facilities in The Netherlands during the first quarter of 2002 and due to a higher percentage of our aggregate net sales by Brink, which has a higher gross margin percentage than we do as a whole. Partially offsetting this increase was a decrease in the gross margin percentage caused by a change in the mix of products sold being weighted more towards lower margin products than in the prior year. Selling, administrative and product development expenses. Selling, administrative and product development expenses for the first quarter of 2003 were $12.4 million, representing an increase of $1.5 million, or 14.3%, over the selling, administrative and product development expenses for the first quarter of 2002. Selling, administrative and product development expenses as a percentage of net sales increased to 14.5% in the first quarter of 2003 from 13.6% in the first quarter of 2002. This increase was primarily attributable to a higher percentage of our aggregate net sales by Brink, which has a higher selling, administrative and product development expense percentage than we do as a whole, increased product development costs for SportRack due to an increased number of products under development for its OEM customers and unexecuted transaction costs of $179,000 recorded during the first quarter of 2003. Operating income. Operating income for the first quarter of 2003 was $8.7 million, an increase of $614,000, or 7.6%, from operating income for the first quarter of 2002, reflecting the increase in gross profit offset partially by higher selling, administrative and product development expenses. Operating income as a percentage of net sales increased to 10.2% in the first quarter of 2003 from 10.1% in the first quarter of 2002. Interest expense. Interest expense for the first quarter of 2003 was $3.8 million, which was $125,000 lower than interest expense for the first quarter of 2002. The decrease was primarily due to reduced average borrowings partially offset by higher interest rates on our variable rate indebtedness. Foreign currency loss (gain). Foreign currency gain in the first quarter of 2003 was $3.6 million, compared to a foreign currency loss of $1.2 million in the first quarter of 2002. Our foreign currency exposure was primarily related to Brink which has indebtedness denominated in U.S. dollars, including intercompany debt and a portion of the loans under our then existing credit facility. During the first quarter of 2003, the U.S. dollar weakened in relation to the euro, the functional currency of Brink, and in the first quarter of 2002 the U.S. dollar strengthened in relation to the euro. Provision (benefit) for income taxes. We and certain of our domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, our domestic taxable income accrues to the individual members. Certain of our domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. During the first quarter 39 of 2003, we had income before income taxes for our taxable subsidiaries totaling $5.1 million and recorded a provision for income taxes of $1.6 million. The effective tax rate differed from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack Accessories recorded during 2003 and differences in the tax rates of foreign countries. During the first quarter of 2002, we had a loss before income taxes for our taxable subsidiaries totaling $528,000 and recorded a benefit for income taxes of $368,000. Cumulative effect of accounting change. On January 1, 2002, we adopted the accounting standards set forth in statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142). See "—New Accounting Pronouncements." As a result of this accounting change, we recorded a loss totaling $29.2 million to write down goodwill recorded in connection with the acquisition of Valley. Net income (loss). Net income for the first quarter of 2003 was $6.8 million, as compared to a net loss of $25.9 million in the first quarter of 2002, a change of $32.8 million. The change in net income was primarily attributable to the cumulative effect of accounting change due to the adoption of SFAS 142 recorded in the first quarter of 2002 and due to higher foreign currency gain and the operating income in the first quarter of 2003 compared with a foreign currency loss during the first quarter of 2002. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Net sales. Net sales for 2002 were $329.8 million, representing an increase of $15.7 million, or 5.0%, compared with net sales for 2001. This increase resulted primarily from increased sales to OEMs of approximately $12.9 million and was attributable to increased vehicle production in North America compared to the prior year. Additionally, sales were $4.0 million higher due to an increase in average exchange rates for the period between the U.S. dollar and the currencies, primarily the euro, used by our foreign subsidiaries. Partially offsetting these increases was a decline in aftermarket sales of approximately $1.2 million. Gross profit. Gross profit for 2002 was $79.3 million, representing an increase of $4.8 million, or 6.5%, from gross profit for 2001. This increase resulted from the increase in net sales described above and an increase in gross margin percentage. Gross profit as a percentage of net sales was 24.0% in 2002 compared to 23.7% in 2001. The increase in the gross margin percentage was primarily attributable to the effects of spreading fixed costs over a higher sales base and increased gross margin for North American towing products resulting from increased productivity and cost cutting efforts. These increases were partially offset by reduced gross margin resulting from a change in the mix of products sold being weighted more towards lower margin products and lower production efficiency at Brink, which restructured its Netherlands manufacturing facilities during the first quarter of 2002. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2002 were $49.3 million, representing an increase of $4.5 million, or 10.1%, from the selling, administrative and product development expenses for 2001. This increase was primarily the result of a $3.0 million expense recorded for the recall of the G 3.0 model removable towbar system at Brink and unexecuted transaction costs of $1.2 million. In July 2002, Brink and three European automotive OEM customers of Brink Sweden recalled in total approximately 41,000 G 3.0 model removable towbars, which we supplied. The unexecuted transaction expenses are associated with our negotiations with Castle Harlan to purchase us. Without the effects of the recall and unexecuted transaction expenses, selling, administrative and product development expenses were $45.1 million, representing an increase of $310,000. Also, before the effects of the recall and unexecuted transaction costs, selling, administrative and product development expenses as a percentage of net sales were 13.7% compared with 14.3% for 2001. This decrease was primarily attributable to the effect of covering 40 fixed costs with greater sales, our ongoing cost containment initiatives and the lack of costs incurred to relocate a warehouse operation during the first quarter of 2001. Amortization of intangible assets. Amortization of intangible assets for 2002 was $122,000, representing a decrease of $3.2 million compared with amortization of intangible assets, which included amortization of goodwill, for 2001. This decrease was the result of the adoption of SFAS 142 on January 1, 2002, which ceased the amortization of goodwill as of that date. Operating income. Operating income for 2002 was $29.8 million, an increase of $3.5 million, or 13.1%, over operating income for 2001, reflecting the increase in gross profit and the decrease in amortization of intangible assets, partially offset by the increase in selling, administrative and product development expenses. Operating income as a percentage of net sales increased to 9.0% in 2002 from 8.4% in 2001. Interest expense. Interest expense for 2002 was $15.9 million, which was $1.8 million lower than interest expense for 2001. The decrease was due to lower average interest rates charged on our variable rate indebtedness and reduced average borrowings. Foreign currency loss (gain). Foreign currency gain in 2002 was $8.4 million, compared to a foreign currency loss of $4.9 million in 2001. Our foreign currency gain was primarily related to Brink, which had indebtedness denominated in U.S. dollars, including intercompany debt and a portion of the loans under our credit agreement that was then in place. During 2002, the U.S. dollar weakened significantly in relation to the euro, the functional currency of Brink, whereas during 2001, the U.S. dollar strengthened in relation to the euro. This was partially offset by the foreign currency loss of SportRack Accessories, which had intercompany indebtedness denominated in U.S. dollars. During 2002 the U.S. dollar strengthened in relation to the Canadian dollar, the functional currency of SportRack Accessories. Provision (benefit) for income taxes. During 2002, we recorded a tax provision amounting to $263,000 relating to an ongoing income tax audit in Italy covering the periods from 1998 to 2001. During 2002, we had income before income taxes for our taxable subsidiaries totaling $8.1 million and recorded a provision for income taxes of $4.0 million exclusive of the $263,000 provision related to the income tax audit. Our effective tax rate differed from the U.S. federal income tax rate primarily due to changes in valuation allowances on the deferred tax assets of SportRack Accessories recorded during 2002 and differences in the tax rates of foreign countries. During 2001, we had a loss before income taxes for our taxable subsidiaries totaling $3.2 million and recorded a provision for income taxes of $602,000. The provision in 2001 resulted primarily from the pretax income of Brink, which was offset by the pretax losses of SportRack Accessories. The tax benefit of SportRack Accessories was offset by the increase in the valuation allowance recorded against the tax assets of that subsidiary. Cumulative effect of accounting change. On January 1, 2002, we adopted the accounting standards set forth in SFAS 142. See "—New Accounting Pronouncements." As a result of this accounting change, we recorded a loss totaling $29.2 million to write down goodwill recorded in connection with the Valley acquisition. Net income (loss). Net loss for 2002 was $11.6 million, as compared to net income of $2.4 million in 2001, a change of $14.0 million. The change in net loss was primarily attributable to the cumulative effect of accounting change due to the adoption of SFAS 142 and the increase in the provision for income taxes, offset partially by the increase in operating income, lower interest expense and the foreign currency gain in 2002 as compared with the foreign currency loss of 2001. 41 Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 Net sales. Net sales for 2001 were $314.0 million, representing a decrease of $4.8 million, or 1.5%, from net sales for 2000. This decrease resulted from decreased sales to OEMs of approximately $4.2 million and the effect of declining exchange rates between the U.S. dollar and the currencies used by our foreign subsidiaries totaling $2.1 million. North American OEMs reduced vehicle production beginning in the fourth quarter of 2000 and continuing in 2001 in response to lower sales of new vehicles in the North American automotive market, resulting in an approximately $9.0 million decrease in sales. Sales were also reduced by approximately $6.0 million as a result of price decreases given to our OEM customers during 2001. Additionally, in efforts to reduce overall vehicle cost, certain of our customers reduced or eliminated certain components of their vehicles, including products manufactured by us, resulting in an approximately $6.0 million decrease in sales. These decreases were partially offset by approximately $17.0 million in sales of new products for new vehicles introduced during 2001 and higher sales to the automotive aftermarket totaling $1.4 million. Gross profit. Gross profit for 2001 was $74.5 million, representing a decrease of $5.3 million, or 6.6%, from the gross profit for 2000. Gross profit as a percentage of net sales was 23.7% in 2001 compared to 25.0% in 2000. The decrease in the gross margin percentage was primarily attributable to price reductions given to our largest customer, which were only partially offset by internal cost reductions. Additionally, our North American OEM towing business continued to experience reduced productivity during 2001. The gross profit percentage was also reduced due to proportionately lower sales for Brink, which has a greater gross margin percentage as compared with the rest of our operations as a whole. Reduced sales for Brink were attributable to the decline in the exchange rate between the euro and the U.S. dollar for 2001 compared with 2000. Selling, administrative and product development expenses. Selling, administrative and product development expenses for 2001 were $44.8 million, representing a decrease of $758,000, or 1.7%, compared with the selling, administrative and product development expenses for 2000. The decrease resulted from an approximately $633,000 reduction in corporate administrative expenses, lower sales at Brink, which had greater selling, administrative and product development expenses as a percentage of sales compared to our operations as a whole, and the lack of approximately $900,000 of legal and accounting costs incurred in 2000 relating to a potential recapitalization of our equity securities during the year, partially offset by the lack of the $1.9 million benefit recognized in 2000 relating to a contingent obligation to a customer. Selling, administrative and product development expenses as a percentage of net sales was 14.3% in 2001 and 2000. Operating income. Operating income for 2001 was $26.4 million, a decrease of $4.5 million, or 14.7%, compared with operating income for 2000. The decrease in operating income reflects the decrease in gross profit partially offset by the decrease in selling, administrative and product development expenses. Operating income as a percentage of net sales decreased to 8.4% in 2001 from 9.7% in 2000 due primarily to the decrease in the gross margin percentage. Interest expense. Interest expense for 2001 was $17.7 million, a decrease of $266,000 from interest expense for 2000. Lower average indebtedness and lower interest rates on our variable rate debt were partially offset by $342,000 of bank fees related to amending our credit agreement then in place and $150,000 more interest recorded in 2001 than 2000 for an estimated contingent legal liability. Foreign currency loss. Foreign currency loss in 2001 was $4.9 million, compared to a foreign currency loss of $5.4 million in 2000. Our foreign currency loss during 2001 was primarily related to Brink and SportRack Accessories, each of which had indebtedness, including intercompany indebtedness, denominated in U.S. dollars. During 2001 and 2000, the U.S. dollar strengthened significantly in relation to the euro, the functional currency of Brink. The U.S. dollar strengthening was 42 less significant during 2001 than 2000. Additionally, the U.S. dollar strengthened significantly in relation to the Canadian dollar, the functional currency of SportRack Accessories. Other expense. Other expense for 2001 consists primarily of losses on the disposal of property and equipment. Provision (benefit) for income taxes. During 2001, we had a loss before income taxes for our taxable subsidiaries totaling $3.1 million but recorded a provision for income taxes of $602,000. The provision resulted primarily from the pretax income of Brink, which was offset by the pretax losses of SportRack Accessories. The tax benefit for SportRack Accessories was offset by the increase in the valuation allowance recorded against the tax assets of that subsidiary. Additionally, the effective tax rate differed from the U.S. federal income tax rate due to differences in the tax rates of foreign countries. During 2000, we had a loss before income taxes for our taxable subsidiaries totaling $3.0 million and recorded a benefit for income taxes of $278,000. Net income. Net income for 2001 was $2.4 million, as compared to net income of $7.8 million in 2000, a decrease of $5.4 million. The change in net income was primarily attributable to the decrease in operating income and increases in other expenses and taxes, partially offset by the decrease in foreign currency losses. Liquidity and Capital Resources Our principal liquidity requirements are to service our debt and meet our working capital and capital expenditure needs. Our indebtedness at March 31, 2003 on a pro forma basis giving effect to the Working Capital and Cash Flows Working capital and key elements of the consolidated statement of cash flows are as follows: Working capital increased by $2.1 million to $23.1 million at March 31, 2003 from $21.0 million at December 31, 2002 due primarily to an increase in accounts receivable of $12.8 million, an increase of $4.2 million in inventory and an increase related to foreign currency exchange rates of our foreign subsidiaries' functional currencies against the U.S. dollar of $1.2 million. These increases were partially offset by a decreases in other current assets and cash of $1.3 million and 43 Cash decreased by $666,000 to $2.0 million at March 31, 2003 from $2.7 million at December 31, 2002 primarily due to cash being used for investing activities of $2.5 million, partially offset by cash provided by operating activities and financing activities of $1.6 million and $233,000, respectively. The increase in accounts receivable was attributable to increased sales levels in the first quarter of 2003 as compared with the fourth quarter of 2002. Differences in sales levels between the two consecutive quarters were partly due to seasonal cycles and increased sales to OEMs. Increases in accounts payable during the quarter reflected increased purchasing activities to support the increased sales volume. Inventory increased primarily due to a seasonal buildup in our aftermarket products. Accrued liabilities increased as a result of an increase of $3.0 million in accrued interest for our 93/4% Senior Subordinated Notes due 2007 as compared with amounts recorded as of December 31, 2002. Working capital decreased by $2.4 million to $21.0 million at December 31, 2002 from $23.4 million at December 31, 2001. This decrease was due primarily to a decrease in inventory of $2.0 million, a change in current deferred tax assets and liabilities of $1.5 million, an increase in accrued liabilities of $6.2 million, an increase in accounts payable of $2.5 million, an increase in the current portion of long term debt of $7.2 million and an increase in mandatorily redeemable warrants of $120,000. These working capital decreases were partially offset by an increase in accounts receivable of $4.4 million, an increase of $8.5 million in other current assets, an increase in cash of $514,000 and an increase related to foreign currency exchange rate of our subsidiaries' functional currencies against the U.S. dollar of $6.1 million. The increase in accounts receivable was attributable to increased sales levels in the fourth quarter of 2002 as compared with the fourth quarter of 2001 and to a difference in the timing of a payment from our second largest OEM customer. Differences in sales levels between the two quarters were partly due to increased sales to automotive OEMs. Increases in accounts payable during the quarter reflected increased purchasing activities to support the increased sales volume. Inventory decreased primarily at Brink, which sold product out of inventory during a plant reorganization in The Netherlands. Accrued liabilities increased as a result of an increase of $2.9 million in accrued expenses for the G 3.0 recall, by $2.7 million in accrued income taxes and by $1.0 million for accrued unexecuted transaction costs. Other current assets increased primarily due to an increased amount of tooling costs reimbursable from our North American OEM customers related to new programs under development and for advances receivable under an operating lease at Brink. Operating Activities Cash flow provided by operating activities for the first quarter of 2003 was $1.6 million, compared to $4.7 million in the first quarter of 2002. Cash flow for the first quarter of 2003 decreased primarily due to an increase in working capital during the first quarter of 2003 as compared with a decrease for the first quarter of 2002. Partially offsetting this decrease was an increase resulting from higher operating income during the first quarter of 2003 compared with the first quarter of 2002. Cash flow provided by operating activities for 2002 was $21.0 million, compared to $27.7 million in 2001 and $21.4 million in 2000. Cash flow provided by operating activities for 2002 decreased from 2001 primarily due to a smaller decrease in working capital during 2002 and a net investment in noncurrent assets in 2002 (compared to a decrease in noncurrent assets in 2001), partially offset by higher income in 2002 (before depreciation and amortization, deferred taxes, foreign currency gains and losses, loss on disposal of assets and the cumulative effect of the accounting change for goodwill impairment). Cash flow for 2001 increased from 2000 primarily due to a net decrease in working capital investment during 2001. Our European and Canadian subsidiaries had income tax net operating loss carryforwards ("NOLs") of approximately $1.6 million and $2.4 million, respectively, at December 31, 2002. The European NOLs have no expiration date and the Canadian NOLs expire in 2005 through 2008. 44 Management believes that it is more likely than not that a portion of the deferred tax assets of the Canadian subsidiaries will not be realized and a valuation allowance of $2.8 million has been recorded against such assets. No valuation allowance has been recorded for the European NOLs as it is management's belief that it is more likely than not that the related deferred tax asset will be realized. Investing Activities During the first quarter of 2003 and 2002, investing cash flows included acquisitions of property and equipment of $2.5 million and $1.9 million, respectively, and were primarily for the expansion of capacity, productivity and process improvements and maintenance. Investing cash flows include acquisitions of property and equipment of $15.4 million, $7.6 million and $10.4 million in 2002, 2001 and 2000, respectively. Capital expenditures for 2002 include approximately $9.0 million for a new production facility constructed in France during the year. The facility replaced a former factory also in France. The move from the old facility occurred in October 2002 and the plant is currently ramping up to full production capacity. The lower capital expenditures during 2001 reflected a reduced need to increase production capacity and management's efforts to increase the productivity of existing equipment. We estimate that capital expenditures for 2003 will be approximately $11.0 million, primarily for the expansion of capacity, productivity and process improvements and maintenance. Our 2003 capital expenditures are anticipated to be paid for from cash flow provided by operating activities or borrowings against our revolving credit facilities and include approximately $4.0 million for replacing and upgrading existing equipment. Investing cash flows in 2000 included $2.8 million for the acquisitions of Titan and the assets of Barrecrafters. Financing Activities During the first quarter of 2003 and 2002, financing cash flows included scheduled payments of principal on our term indebtedness of $2.2 million and $3.5 million, respectively. During 2002, financing cash flows included payments of principal on our term indebtedness of $13.4 million, net borrowing of $5.6 million on our then existing revolving line of credit, borrowing against a capital lease for the new plant in France of $5.6 million and distributions to members in amounts sufficient to meet the tax liability of our domestic taxable income that accrued to individual members totaling $3.4 million. During 2001, financing cash flows included payments of principal on our term indebtedness of $11.7 million, net payments of $8.3 million on our then existing revolving line of credit and distributions to members in amounts sufficient to meet the tax liability on our domestic taxable income which accrued to individual members totaling $801,000. During 2000, financing cash flows included net borrowings on our then existing revolving line of credit totaling $11.3 million, offset by payments of principal on our then existing term indebtedness of $13.9 million, distributions to members in amounts sufficient to meet the tax liability on our domestic taxable income that accrued to individual members totaling $6.1 million and repurchase of membership units of $6.4 million. Principal payments included $12.5 million in scheduled repayments and a $1.4 million mandatory prepayment required as a result of us having excess cash flows during 1999 as defined by our then existing credit facility. 45 Debt and Credit Sources Our pro forma indebtedness, after giving effect to the Transactions, would have been $185.7 million at March 31, 2003. We expect that our primary sources of cash will be from operating activities and borrowings under our revolving credit facility. On April 15, 2003, we entered into a new credit facility consisiting of a revolving credit facility and term loans as follows: (1) a revolving credit facility comprised of (a) a $29.7 million U.S. revolving credit facility and (b) a €9.6 million European revolving credit facility; (2) a term loan A facility comprised of (a) a $29.7 million U.S. term loan A and (b) a €9.6 million European term loan A; and (3) a term loan B comprised of (a) a $48.2 million U.S. term loan B and (b) a €15.6 million European term loan B. As of May 7, 2003, the interest rates on our U.S. term loan A, European term loan A, U.S. term loan B and European term loan B were 5.07%, 6.34%, 5.57% and 6.84%, respectively. Borrowings under our credit facilities may be as index rate loans or LIBOR rate loans at our election. On May 23, 2003, we used a portion of the proceeds from the issuance of the Original Notes to (i) repay our U.S. term loan A, (ii) repay our U.S. term loan B and (iii) repay a portion of our European term loan B, together with interest accured thereon. In addition, our revolving credit facility was increased to a $35 million U.S. revolving credit facility and a €15 million European revolving credit facility. See "Description of Certain Indebtedness" for a discussion of certain of the terms of our credit facilities. On April 15, 2003, a convertible senior subordinated bridge note in the principal amount of $55 million was issued to CHP IV by Valley and SportRack. On May 23, 2003, we used a portion of the proceeds from the issuance of the Original Notes to fully repay the bridge note, together with accrued interest thereon. The bridge note was guaranteed on a subordinated basis by CHAAS Holdings and all of its domestic subsidiaries other than our parent. The interest rate on the bridge note was 12% per annum. On April 15, 2003, subordinated promissory notes in an aggregate principal amount of $10.0 million were issued to the sellers by Valley and SportRack. The subordinated promissory notes are guaranteed on a subordinated basis by CHAAS Holdings and all of its domestic subsidiaries. The interest rate on the subordinated promissory notes is 12% per annum until maturity, subject to certain exceptions. Accrued interest is not payable in cash but is capitalized and added to principal. The maturity date on the subordinated promissory notes will be no earlier than 91 days subsequent to the maturity date of the New Notes, subject to certain exceptions. See "Description of Certain Indebtedness" for additional information concerning the subordinated promissory notes. On May 16, 2003, we redeemed all of our then outstanding 93/4% Senior Subordinated Notes due 2007 at the optional redemption price of 1047/8% of the principal amount thereof plus accrued interest. Upon consummation of the acquisition, we deposited funds in escrow sufficient to effect a covenant defeasance of the senior subordinated notes and to consummate the redemption through the redemption date. The amount of the redemption, which includes accrued interest and premiums, was $132.6 million. During 2002, we borrowed €5.70 million under a €6.85 million 12 year capital lease for a new manufacturing plant in France. The remaining €872,000 available under the lease was borrowed by us in the first quarter of 2003. Repayments under the lease are due in 48 equal quarterly installments of €143,000 plus interest and commenced on March 31, 2003. Interest accrues at a fixed rate of 5.21% on half of the outstanding loan balance and accrues on the remaining outstanding loan balance at an adjustable rate, which is determined each quarter by reference to the three month EURIBOR rate plus a margin of 0.85%. 46 Commitments, after giving effect to the issuance of the Original Notes and the application of proceeds therefrom, and the consummation of the exchange of the New Notes for the Original Notes, for the principal payments required on our long-term debt are as follows: All applicable dollar amounts in the foregoing table with respect our €10.0 million term loan are based on a euro to dollar conversion rate of 1.08 U.S. dollar to 1.0 euro. Our ability to satisfy our debt obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business, and other factors, certain of which are beyond our control, as well as the availability of revolving credit borrowings under our revolving credit facility. We anticipate that, based on current and expected levels of operations, our operating cash flow, together with borrowings under our revolving credit facilities, should be sufficient to meet our debt service, working capital and capital expenditure requirements for the foreseeable future, although no assurances can be given in this regard. See "Risk Factors—Risks Relating to Our Indebtedness" for a discussion of certain risks relating to our indebtedness. Quantitative and Qualitative Disclosures About Market We are exposed to certain market risks, which exist as a part of our ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. dollars, indebtedness, including intercompany indebtedness, of foreign subsidiaries denominated in currencies other than their functional currency and movements in Federal Funds rates and LIBOR. Most of the revenues and costs and expenses of our operations in foreign countries are denominated in the local currencies. We may periodically use foreign currency forward option contracts to offset the effects of exchange rate fluctuations on cash flows denominated in foreign currencies. We had no outstanding foreign currency forward options at March 31, 2003 and do not use derivative financial instruments for trading or speculative purposes. Our credit facilities are subject to interest rates based on a floating benchmark rate (such as LIBOR or the Federal Funds rate), plus an applicable margin. The New Accounting Pronouncements On January 1, 2002, we adopted the accounting standards set forth in SFAS 142 and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 142 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29.2 million to write 47 down goodwill related to the Valley acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change. Under the new standard, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which are determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley for which taxable income accrues to the individual members, no tax effect was recorded for this charge. Additionally, under the new standard, goodwill is no longer amortized but is to be tested periodically for impairment. The effect of no longer amortizing goodwill resulted in a reduction of $3.0 million in amortization of intangible assets during 2002 as compared with each of 2001 and 2000. The adoption of SFAS 144 did not have a material impact on our financial position, results of operations or cash flows. In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and also clarifies that a guarantor is require to recognize, at the inception for a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. We adopted the guidance provided by FIN 45 at January 1, 2003, and any effect of the adoption of this guidance has been reflected in the interim financial information at March 31, 2003 included elsewhere in this prospectus. General The issuers sold the Original Notes on May 23, 2003 in a transaction exempt from the registration requirements of the Securities Act. The initial purchasers of the Original Notes subsequently resold them to qualified institutional buyers in reliance on Rule 144A under the Securities Act. In connection with the sale of Original Notes to the initial purchasers, the holders of the Original Notes became entitled to the benefits of an A/B exchange registration rights agreement dated May 23, 2003 between the issuers, our parent, our parent's domestic subsidiaries that guaranteed the Original Notes and the initial purchasers (the "Registration Rights Agreement"). Under the Registration Rights Agreement, the issuers became obligated to file a registration statement in connection with an exchange offer within 90 days after the original issue date of the Original Notes (the "Issue Date") and use their reasonable best efforts to cause the exchange offer registration statement to become effective within 150 days after the Issue Date. The exchange offer being made by this prospectus, if consummated within the required time periods, will satisfy the issuers' obligations under the Registration Rights Agreement. This prospectus, together with the letter of transmittal, is being sent to all beneficial holders known to the issuers. Terms of the Exchange Offer Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, the issuers will accept all Original Notes properly tendered and not withdrawn on or prior to the expiration date. The issuers will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Original Notes accepted in the exchange offer. Holders may tender some or all of their Original Notes pursuant to the exchange offer. Based on no-action letters issued by the staff of the SEC to third parties, the issuers believe that holders of the New Notes issued in exchange for Original Notes may offer for resale, resell and otherwise transfer the New Notes, other than any holder that is an affiliate of the issuers within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act. This is true as long as the New Notes are acquired in the ordinary course of the holder's business, the holder has no arrangement or understanding with any person to participate in the distribution of the New Notes and neither the holder nor any other person is engaging in or intends to engage in a distribution of the New Notes. A broker-dealer that acquired Original Notes directly from the issuers cannot exchange the Original Notes in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the New Notes cannot rely on the no-action letters of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Original Notes, where Original Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution" for additional information. The issuers will be deemed to have accepted validly tendered Original Notes when, as and if they have given oral or written notice of the acceptance of those notes to the exchange agent. The exchange agent will act as agent for the tendering holders of Original Notes for the purposes of receiving the New Notes from the issuers and delivering New Notes to those holders. Pursuant to Rule 14e-1(c) of the Exchange Act, the issuers will promptly deliver the New Notes upon consummation of the exchange offer or return the Original Notes if the exchange offer is withdrawn. If any tendered Original Notes are not accepted for exchange because of an invalid tender or the occurrence of the conditions set forth under "—Conditions" without waiver by the issuers, certificates 49 for any of those unaccepted Original Notes will be returned, without expense, to the tendering holder of any of those Original Notes as promptly as practicable after the expiration date. Holders of Original Notes who tender in the exchange offer will not be required to pay brokerage commissions or fees or, in accordance with the instructions in the letter of transmittal, transfer taxes with respect to the exchange of original notes, pursuant to the exchange offer. The issuers will pay all charges and expenses, other than taxes applicable to holders in connection with the exchange offer. See "—Fees and Expenses." Shelf Registration Statement If (1) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the issuers are not permitted to effect the exchange offer; or (2) the exchange offer is not consummated within 180 days of the Issue Date; or (3) in certain circumstances, certain holders of unregistered New Notes so request; or (4) in the case of any holder that participates in the exchange offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as an affiliate of the issuers or within the meaning of the Securities Act), then in each case, the issuers will (x) promptly deliver to the holders and the Trustee written notice thereof, and (y) at our sole expense, (a) as promptly as practicable, file a shelf registration statement covering resales of the notes (the "Shelf Registration Statement") and (b) use their reasonable best efforts to keep effective the Shelf Registration Statement until the earlier of two years after the Issue Date or such time as all of the applicable notes have been sold thereunder. The issuers will, in the event that a Shelf Registration Statement is filed, provide to each holder copies of the prospectus that is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement for the notes has become effective and take certain other actions as are required to permit unrestricted resales of the notes. A holder that sells notes pursuant to the Shelf Registration Statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a holder (including certain indemnification rights and obligations). Notwithstanding anything to the contrary in the Registration Rights Agreement, upon notice to the holders of the notes, the issuers may suspend use of the prospectus included in any Shelf Registration Statement in the event that and for a period of time (a "Blackout Period") not to exceed an aggregate of 60 days in any twelve-month period (1) the issuers' or our parent's board of directors determines, in good faith, that the disclosure of an event, occurrence or other item at such time could reasonably be expected to have a material adverse effect on the business, operations or prospects of our parent and its subsidiaries or (2) the disclosure otherwise relates to a material business transaction which has not been publicly disclosed and the issuers' or our parent's board of directors determines, in good faith, that any such disclosure would jeopardize the success of the transaction or that disclosure of the transaction is prohibited pursuant to the terms thereof. The issuers will, if and when they file the shelf registration statement, provide to each holder of the Notes copies of the prospectus which is a part of the shelf registration statement, notify each holder when the shelf registration statement has become effective and take other actions as are required to permit unrestricted resales of the Notes. A holder that sells Notes pursuant to the shelf registration statement generally must be named as a selling security-holder in the related prospectus and must deliver a prospectus to purchasers. A seller will be subject to civil liability provisions under the Securities Act in connection with these sales. A seller of the Notes also will be bound by applicable provisions of the Registration Rights Agreement, including indemnification obligations. In addition, each holder of Notes must deliver information to be used in connection with the shelf registration 50 statement and provide comments on the shelf registration statement in order to have its Notes included in the shelf registration statement and benefit from the provisions regarding any liquidated damages in the Registration Rights Agreement. Additional Interest If the issuers fail to meet the targets listed in the three paragraphs immediately following this paragraph, then additional interest ("Additional Interest") shall become payable in respect of the notes as follows: 1. if (A) a registration statement on an appropriate registration form with respect to the exchange offer (the "Exchange Offer Registration Statement") is not filed with the SEC on or prior to 90 days after the Issue Date or (B) notwithstanding that the issuers have consummated or will consummate an exchange offer, the issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement is not filed on or prior to the date required by the Registration Rights Agreement, then commencing on the day after either such required filing date, Additional Interest shall accrue on the principal amount of the notes at a rate of 0.50% per annum for the first 90 days immediately following each such filing date, such Additional Interest rate increasing by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or 2. if (A) the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to 150 days after the Issue Date or (B) notwithstanding that the issuers have consummated or will consummate an Exchange Offer, the issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the SEC on or prior to the date required by the Registration Rights Agreement, then, commencing on the day after either such required effective date, Additional Interest shall accrue on the principal amount of the notes at a rate of 0.50% per annum for the first 90 days immediately following such date, such Additional Interest rate increasing by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or 3. if (A) the issuers have not exchanged New Notes for all notes validly tendered in accordance with the terms of the exchange offer on or prior to the 180th day after the Issue Date or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all notes have been disposed of thereunder and other than during any Blackout Period relating to such Shelf Registration), then Additional Interest shall accrue on the principal amount of the notes at a rate of 0.50% per annum for the first 90 days commencing on (x) the 181st day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective, in the case of (B) above, such Additional Interest rate increasing by an additional 0.50% per annum at the beginning of each subsequent 90-day period; provided,however, (x) that the Additional Interest rate on the notes may not accrue under more than one of the foregoing clauses (1) - (3) at any one time and at no time shall the aggregate amount of Additional Interest accruing exceed in the aggregate 1.50% per annum and (y) Additional Interest shall not accrue under clause (3)(B) above during the continuation of a Blackout Period;provided,further,however, that (a) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (1) above), (b) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (2) above), or (c) upon the exchange of New Notes for all notes tendered (in the case of clause (3) (A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (3) (B) above), Additional Interest on the notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. No Additional Interest shall accrue with respect to notes that are not Registrable Notes, as defined in the Registration Rights Agreement. 51 Any amounts of Additional Interest due pursuant to clause (1), (2) or (3) above will be payable in cash on the same original interest payment dates as the notes. The sole remedy available to the holders of the notes will be that described above. Expiration Date; Extensions; Amendment The term "expiration date" means 5:00 p.m., New York City time, on , 2003, which is 20 business days after the commencement of the exchange offer, unless the issuers extend the exchange offer, in which case the term "expiration date" means the latest date to which the exchange offer is extended. In order to extend the expiration date, the issuers will notify the exchange agent of any extension by oral or written notice and will issue a public announcement of the extension, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The issuers reserve the right: The issuers will notify you as promptly as practicable of any delay in acceptance, extension, termination or amendment. If the exchange offer is amended in a manner determined by the issuers to constitute a material change, the issuers will promptly disclose the amendment in a manner intended to inform the holders of the Original Notes of the amendment. Depending upon the significance of the amendment, the issuers may extend the exchange offer if it otherwise would expire during the extension period. Any such extension will be made in compliance with Rule 14d-4(d) of the Exchange Act. Without limiting the manner in which the issuers may choose to publicly announce any extension, amendment or termination of the exchange offer, the issuers will not be obligated to publish, advertise, or otherwise communicate that announcement, other than by making a timely release to an appropriate news agency. Procedures for Tendering To tender in the exchange offer, a holder must: To be validly tendered, the documents must reach the exchange agent by or before 5:00 p.m. New York City time, on the expiration date. Delivery of the Original Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent on or prior to the expiration date. The tender by a holder of Original Notes will constitute an agreement between that holder and the issuers in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. 52 Delivery of all documents must be made to the exchange agent at its address set forth below. Holders may also request their brokers, dealers, commercial banks, trust companies or nominees to effect the tender for those holders. The method of delivery of Original Notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent by or before 5:00 p.m. New York City time, on the expiration date. No letter of transmittal or Original Notes should be sent to the issuers. Only a holder of Original Notes may tender Original Notes in the exchange offer. The term "holder" with respect to the exchange offer means any person in whose name Original Notes are registered on the issuers' books or any other person who has obtained a properly completed bond power from the registered holder. Any beneficial holder whose Original Notes are registered in the name of its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on its behalf. If the beneficial holder wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its Original Notes, either make appropriate arrangements to register ownership of the Original Notes in the holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States referred to as an "eligible institution," unless the Original Notes are tendered: (a) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or (b) for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be by an eligible institution. If the letter of transmittal is signed by a person other than the registered holder of any Original Notes listed therein, those Original Notes must be endorsed or accompanied by appropriate bond powers and a proxy which authorizes that person to tender the Original Notes on behalf of the registered holder, in each case signed as the name of the registered holder or holders appears on the Original Notes. If the letter of transmittal or any Original Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, they should indicate that when signing, and unless waived by the issuers, submit evidence satisfactory to the issuers of their authority to act with the letter of transmittal. All questions as to the validity, form, eligibility, including time of receipt, and withdrawal of the tendered Original Notes will be determined by the issuers in their sole discretion. This determination will be final and binding. The issuers reserve the absolute right to reject any Original Notes not properly tendered or any Original Notes their acceptance of which, in the opinion of counsel for the issuers, would be unlawful. The issuers' interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as the issuers shall determine. None of the issuers, the exchange agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Original Notes, nor shall any of them incur any liability for failure to give notification. Tenders of Original Notes will not be deemed to have been made until irregularities have been cured or waived. Any Original Notes received by the exchange agent that are not properly tendered and as to which the 53 defects or irregularities have not been cured or waived will be returned without cost by the exchange agent to the tendering holders of Original Notes, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In addition, the issuers reserve the right in their sole discretion to: By tendering Original Notes pursuant to the exchange offer, each holder will represent to the issuers that, among other things, Book-Entry Transfer The issuers understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the Original Notes at the depository trust company, or DTC, for the purpose of facilitating the exchange offer, and upon the establishment of those accounts, any financial institution that is a participant in DTC's system may make book-entry delivery of Original Notes by causing DTC to transfer the Original Notes into the exchange agent's account with respect to the Original Notes in accordance with DTC's procedures for transfers. Although delivery of the Original Notes may be effected through book-entry transfer into the exchange agent's account at the DTC, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee, and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to the depository trust company does not constitute delivery to the exchange agent. Guaranteed Delivery Procedures Holders who wish to tender their Original Notes and 54 and the principal amount of Original Notes tendered stating that the tender is being made thereby, and guaranteeing that, within three business days after the expiration date, the letter of transmittal, or facsimile thereof, together with the certificate(s) representing the Original Notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and Withdrawal of Tenders Except as otherwise provided in this prospectus, tenders of Original Notes may be withdrawn at any time by or prior to 5:00 p.m., New York City time, on the expiration date, unless previously accepted for exchange. To withdraw a tender of Original Notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in this prospectus by 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must: All questions as to the validity, form and eligibility, including time of receipt, of withdrawal notices will be determined by the issuers, and their determination will be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no New Notes will be issued with respect to the Original Notes withdrawn unless the Original Notes so withdrawn are validly retendered. Any Original Notes which have been tendered but which are not accepted for exchange will be returned to their holder without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn Original Notes may be retendered by following one of the procedures described above under "Procedures for Tendering" at any time on or prior to the expiration date. Conditions Notwithstanding any other term of the exchange offer, the issuers will not be required to accept for exchange, or exchange, any New Notes for any Original Notes, and may terminate or amend the exchange offer on or before the expiration date, if the exchange offer violates any applicable law or interpretation by the staff of the SEC. If the issuers determine in their reasonable discretion that the foregoing condition exists, they may: 55 If a waiver constitutes a material change to the exchange offer, the issuers will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the holders, and they will extend the exchange offer as required by applicable law. Pursuant to the Registration Rights Agreement, the issuers are required to use their reasonable best efforts to file with the SEC a shelf registration statement with respect to the Original Notes on or prior to the 90th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) of the Registration Rights Agreement, and thereafter use their reasonable best efforts to cause the shelf registration statement declared effective on or prior to the 150th day after the filing date, if: Exchange Agent BNY Midwest Trust Company has been appointed as exchange agent for the exchange offer, and is also the trustee under the indenture under which the New Notes will be issued. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to , addressed as follows: Fees and Expenses The issuers have agreed to bear the expenses of the exchange offer pursuant to the Registration Rights Agreement. The issuers have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the 56 exchange offer. The issuers, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with providing the services. The cash expenses to be incurred in connection with the exchange offer will be paid by the issuers. These expenses include fees and expenses of BNY Midwest Trust Company as exchange agent, accounting and legal fees and printing costs, among others. Accounting Treatment The New Notes will be recorded at the same carrying value as the Original Notes as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by us. The expenses of the exchange offer and the unamortized expenses related to the issuance of the Original Notes will be amortized over the term of the New Notes. Consequences of Failure to Exchange Holders of Original Notes who are eligible to participate in the exchange offer but who do not tender their Original Notes will not have any further registration rights, and their Original Notes will continue to be restricted for transfer. Accordingly, such Original Notes may be resold only: in each case in accordance with any applicable securities laws of any state of the United States. Regulatory Approvals The issuers do not believe that the receipt of any material federal or state regulatory approval will be necessary in connection with the exchange offer, other than the effectiveness of the exchange offer registration statement under the Securities Act. Other Participation in the exchange offer is voluntary and holders of Original Notes should carefully consider whether to accept the terms and condition of this exchange offer. Holders of the Original Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer. 57 We are one of the world's largest designers and manufacturers of exterior accessories for the automotive original equipment manufacturer, or OEM, market and We have long-standing relationships with many of our major customers and have served our two largest customers for more than 10 years. Our OEM customers include BMW, DaimlerChrysler, Fiat, Ford, General Motors, Industry Trends We seek to capitalize on Increasing Exterior Accessory Content Per Vehicle. The dollar content per vehicle of exterior accessory components has been increasing and, we believe, will continue to increase over the next several years. The increase in content per vehicle is being largely driven by (i) the demand for increased vehicle functionality and performance, (ii) the desire by OEM customers to further differentiate their products through the customization of exterior accessories, and (iii) the increasing proliferation of vehicles that have higher accessory content per vehicle such as crossover vehicles. In addition, consumers are demanding vehicles with rack systems and towing systems for activities such as camping, fishing, water sports and cycling. Increased Manufacturing in North America by Transplants. Foreign automobile manufacturers with manufacturing operations in the United States, or transplants, have increased their share of North American light vehicle production from approximately 16% in 1992 to approximately 25% in 2002 and this trend is expected to continue. In recent years, we have been awarded programs from a number of these transplants, including BMW, Mercedes, Nissan and Toyota. We believe that increased levels of manufacturing of light vehicles in North America by transplants and the European Regulatory Standards. Over the past 58 and tested to satisfy these EC regulatory standards. Competitive Strengths Leading Global Market Position. We are one of the Strong Customer Relationships. We are a Tier 1 supplier of Design and Engineering Expertise. We are a leader in the design of rack systems, towing systems and related accessories. We believe that our products possess greater quality, reliability, performance and ease of use than products sold by many of our competitors. We employ approximately 135 engineers and designers and hold more than 150 U.S. and foreign patents. When an OEM is in the process of developing a new model, we are generally approached two to four years prior to the start of the production with a request to supply the required rack system or towing system. We work directly with OEM designers to develop products that satisfy the OEM's functional, durability and styling requirements, simplify vehicle assembly and reduce vehicle cost and weight. We are responsible for many industry innovations including Comprehensive Product Line. Our product portfolio, which is one of 59 America, with over 2,000 SKUs in High Quality, Low Cost Manufacturing Position. We believe that we are one of the highest quality, lowest cost manufacturers of rack systems and towing systems Experienced Management with a Proven Track Record. We are led by an experienced management team and our 5 senior officers have Business Strategy Our objective is to strengthen our position as a leading global supplier of automotive exterior accessories, thereby increasing revenue and cash flow. To accomplish our goal, we intend to pursue the Increase Sales to New and Emphasize New Product Introductions. We continue to seek to expand our business by offering new products that share common customer procurement practices, manufacturing technologies and distribution channels with our existing products. For example, our new exterior accessory products include pickup truck bed rails, running boards and rack and towing accessories. These new products currently account for only a small portion of our revenues, but we believe they possess strong growth prospects. Increase Operating Efficiencies. We continually seek to reduce our cost structure and improve manufacturing efficiency. We have organized our production process to reduce the number of manufacturing functions and the frequency of material handling, which we believe both improves quality and reduces costs. We have also adopted cellular manufacturing to improve scheduling flexibility, productivity and quality while reducing work in process inventories and other 60 example, in late 2002 we increased our towing systems manufacturing capacity in Europe by opening a new manufacturing facility in France and reorganizing our manufacturing facilities in The Netherlands. This increased capacity will allow us to pursue growth opportunities in existing and new geographic areas, such as Pursue Strategic Acquisitions. We have successfully completed and integrated acquisitions to complement our product offerings. We intend to selectively pursue opportunities that are accretive to our cash flow and either increase the market share of our existing products by providing us access to new customers and new geographic markets or enable us to offer complementary products to our customers. Products Our principal product lines are rack systems, towing systems and related accessories. For the twelve months ended March 31, 2003, 47.4% of our net sales were derived from rack systems and accessories and 52.6% were derived from towing systems and accessories. Additionally, over the last few years, we have begun to design and manufacture new complementary products, such as running boards and pickup truck cargo management systems that includes bed cleats and cross rails. These new products share common customer procurement practices, manufacturing technologies and distribution channels with our existing rack systems and towing systems. Rack Systems Fixed Rack Systems. Most of the fixed rack systems Detachable Rack Systems. We also supply a full line of detachable roof rack systems Towing Systems We design and manufacture fixed and detachable towing systems, as well as a line of towing accessories. Our towing system products fit most vehicles commonly used for towing in Europe and 61 North America, with over 2,000 SKUs in our product line. We are the largest supplier of towing systems in the world, with the leading market position in Europe and the second leading position in North America, with approximate market shares of 32% and 16%, respectively. Our towing systems sold in Europe are installed primarily on light vehicles. In Europe, we sell both fixed ball towbars as well as more sophisticated detachable ball systems. Fixed ball towbars are designed to be permanently attached to a vehicle, while detachable ball systems are designed so that the As new vehicles are introduced, we design towing systems to match the specific vehicle design. We have introduced many innovative product We also offer a New Products We continue to seek to expand our business by offering new products that share common customer procurement practices, manufacturing technologies and distribution channels with our existing products. For example, our recently introduced accessory products include pickup truck bed rails, running boards and rack and towing accessories. These new products currently account for only a small portion of our revenues, but we believe they possess strong growth prospects. Customers and Marketing Sales to OEM and aftermarket customers represented Automotive We obtain most of We sell our products to most of the 62 Automotive Aftermarket The
PRO FORMA FINANCIAL DATA
(footnotes on the revolving credit facility and the term loan A facility is variable based on the London Interbank Offered Rate, or LIBOR, plus 3.75%. The interest rate is estimated at March 31, 2003 at 5.39%. A 0.125% increase or decrease in the assumed weighted average interest rate for the term loan facilities would change pro forma interest by $19,000. Debt issuance costs are amortized over the term of the corresponding agreements ranging from 5 to 8 years.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, 2003
(Dollars in thousands) Historical Pro Forma
Adjustments Pro Forma Current assets Cash and cash equivalents $ 1,987 $ 9,266 (1) $ 11,253 Accounts receivable, net 65,105 — 65,105 Inventories 45,925 — 45,925 Deferred income taxes 122 5,956 (2)(3) 6,078 Other current assets 12,181 — 12,181 Total current assets 125,320 15,222 140,542 Property, plant and equipment, net 61,068 — 61,068 Goodwill, net 48,104 91,263 (3) 139,367 Other intangible assets 3,387 5,574 (4) 8,961 Deferred income taxes 2,131 4,380 (2) 6,511 Other non-current assets 1,907 — 1,907 Total assets $ 241,917 $ 116,439 $ 358,356
Current liabilities
Current maturities of long-term debt 21,893 (21,893 )(5) — Accounts payable 40,099 — 40,099 Accrued liabilities 35,020 (7,865 )(2)(3) 27,155 Mandatorily redeemable warrants 5,250 (5,250 )(6) — Total current liabilities 102,262 (35,008 ) 67,254 Non-current liabilities Deferred income taxes 524 — 524 Other non-current liabilities 5,952 (2,003 )(6) 3,949 Existing long-term debt, less current maturities 133,930 (126,702 )(5) 7,228 New revolver and credit loans — 28,500 (5) 28,500 Original Notes — 150,000 (5) 150,000 Total non-current liabilities 140,406 49,795 190,201 Members' equity (751 ) 101,652 (7) 100,901 Total liabilities and members' equity $ 241,917 $ 116,439 $ 358,356
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)page)
15
18
- -------------------------
(1) In October 1996,adjustments were made to cash as a result of the Company acquired Brink. pro forma adjustments: March 31,
2003 Footnote
Reference (Dollars in thousands) Cash before pro forma adjustments $ 1,987 Pro forma cash adjustments: Cash to repay the existing indebtedness (148,595 ) 5 Cash to repay the existing equity (92,626 ) 7 Cash to redeem the existing warrants (5,586 ) 6 Cash to pay transaction costs (14,748 ) (a ) Cash to pay for new financing costs (8,580 ) (b ) Cash to be raised from common equity issuance 99,694 7 Cash to be raised from rollover equity 1,207 7 Cash to be raised from the Original Notes 150,000 5 Cash to be raised from new term loan 18,500 5 Cash to be raised from subordinated promissory notes 10,000 5 Net pro forma adjustment to cash 9,266 Cash after pro forma adjustments $ 11,253 Acquisitionrecall, which amounted to $6,869 and $3,201, respectively, as of March 31, 2003. The acquisition has been accounted for in accordance withusing the purchase method of accounting. However, it is not possible at this time to reasonably estimate the separate amounts attributable to identifiable intangible assets or goodwill since the measurement of these assets requires the expertise of an independent appraiser who has not been engaged at this early stage of the process. Accordingly, the operatingentire amount of the excess of the purchase consideration has currently been allocated to goodwill, but is expected to be allocated between goodwill and other identifiable intangible assets such as brand names, trademarks, and technologies based primarily on the appraiser's valuation of which completion will occur within one year after conclusion of the Transactions. Thus, the final allocation of the purchase price could differ materially from the pro forma allocation reflected herein if materially different fair value information is obtained. In particular, if additional value is granted to certain tangible or definite lived intangible assets, the pro forma amortization expense would be increased. The unaudited pro forma financial statements should be read in conjunction March 31, 2003
Historical Debt Pro Forma
Adjustment March 31, 2003
Pro Forma Debt (Dollars in thousands) Existing AAS debt $ 148,595 $ (148,595 ) $ — Subordinated promissory notes — 10,000 10,000 New revolving credit facility — 7,700 7,700 Existing capital lease 7,228 — 7,228 New term loan — 10,800 10,800 New Notes — 150,000 150,000 Total $ 155,823 $ 29,905 $ 185,728 Amount paid for common stock issued to stockholder (net of subordinated promissory notes) $ 81,419 Fair value of AAS mandatorily redeemable warrants 5,586 Estimated transaction costs 14,647
Total purchase price
$
101,652
The estimated pro forma allocation of the purchase price is as follows:
AAS' historical assets and liabilities $ 2,723 Liabilities assumed by seller, net of tax 7,666 Elimination of AAS' historical goodwill (48,104 ) New goodwill 139,367
Total purchase price
$
101,652
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATABrink are includedoperations and their cash flows for each of the three years in the period ended December 31, 2002 have been derived from our consolidated operatinghistorical financial statements included elsewhere in this prospectus, which have been audited by PricewaterhouseCoopers LLP, independent accountants. The information for AAS and its subsidiaries at December 31, 1999 and 2000 and the results of operations and cash flows for each of the Company subsequent to October 30, 1996.
(2)two years in the period ended December 31, 1999 have been derived from our audited consolidated historical financial statements not included herein. The Companyselected consolidated historical financial data for the three month periods ended March 31, 2002 and 2003 have been derived from our consolidated unaudited historical financial statements which, in the opinion of management, include all adjustments, including usual recurring adjustments, necessary for the fair presentation of that information for such periods. The financial data presented for the interim periods are not necessarily indicative of the results for the full year. The data set forth below should be read in conjunction with our financial statements, the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Unaudited Pro Forma Financial Statements" and notes thereto included elsewhere in this prospectus. Year Ended December 31, Three Months Ended
March 31, 1998 (1) 1999 2000 (2) 2001 2002 2002 2003 (Dollars in thousands) Statement of Operations Data: Net sales $ 292,145 $ 314,142 $ 318,817 $ 314,035 $ 329,782 $ 79,870 $ 85,340 Cost of sales (3) 215,441 227,889 239,090 239,583 250,516 60,954 64,261 Gross profit 76,704 86,253 79,727 74,452 79,266 18,916 21,079 Selling, administrative and product development expenses (3) 50,839 50,258 45,527 44,769 49,309 10,850 12,399 Amortization of intangible assets 3,551 3,245 3,297 3,312 122 7 7 Impairment charge (3) 7,863 — — — — — — Operating income 14,451 32,750 30,903 26,371 29,835 8,059 8,673 Other (income) expense: Interest expense 18,633 17,453 17,950 17,684 15,907 3,957 3,832 Foreign currency (gain) loss (4) (4,995 ) 7,912 5,386 4,948 (8,429 ) 1,244 (3,596 ) Other, net — 1,990 52 743 520 (41 ) 65 Income before cumulative effect of accounting change and income tax 813 5,395 7,515 2,996 21,837 2,899 8,372 Cumulative effect of accounting change for goodwill impairment (5) — — — — (29,207 ) (29,207 ) — Income (loss) before taxes 813 5,395 7,515 2,996 (7,370 ) (26,308 ) 8,372 Provision (benefit) for income taxes (6) 903 417 (278 ) 602 4,252 (368 ) 1,561 Net income (loss) $ (90 ) $ 4,978 $ 7,793 $ 2,394 $ (11,622 ) $ (25,940 ) $ 6,811
Unaudited Pro Forma Tax Provision (7):
Income (loss) before taxes (7,370 ) 8,372 Pro forma provisions (benefit) for income taxes (6,088 ) 2,020 Pro forma net income (loss) $ (1,282 ) $ 6,352
Other Data:
EBITDA (8) $ 38,364 $ 46,539 $ 44,546 $ 40,252 $ 41,892 $ 10,918 $ 11,798 Interest expense. 18,633 17,453 17,950 17,684 15,907 3,957 3,832 Depreciation 10,857 10,418 10,346 10,569 11,299 2,722 2,966 Capital expenditures 9,998 11,775 10,445 7,580 15,354 1,883 2,512 Ratio of earnings to fixed charges (9) 1.04 x 1.29 x 1.36 x 1.15 x 2.16 x 1.62 x 2.71 x
Balance Sheet Data (at end of period):
Total assets $ 258,981 $ 251,213 $ 242,497 $ 228,290 $ 224,155 $ 203,443 $ 241,917 Total debt, including current maturities. 187,524 178,498 175,635 156,649 154,947 153,082 155,823 Members' equity 15,147 10,331 5,896 8,324 (6,388 ) (18,082 ) (751 ) SportRack divisiontowbar segment of BellEllebi S.p.A. ("Ellebi") on JulyJanuary 2, 1997, Nomadic
on July 24, 1997, and Valley on August 5, 1997. The Valley Acquisition1998 and the SportRack International Acquisitionassets of Transfo-Rakzs, Inc. ("Transfo-Rakzs") on February 7, 1998. The Ellebi acquisition and Transfo-Rakzs acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of ValleyEllebi S.p.A. and SportRack InternationalTransfo-Rakzs, Inc. are included in theour consolidated operating results of the Company subsequent to the respective acquisition dates.
(3) Prior to its acquisition byCompanyassets of Titan Industries, Inc. ("Titan") on February 22, 2000 and the assets of Wiswall Hill Corporation ("Barrecrafters") on September 28,5, 2000. The Titan acquisition and Barrecrafters acquisition have been accounted for in accordance with the purchase method of accounting. Accordingly, the operating results of Titan and Barrecrafters are included in our consolidated operating results subsequent to the respective acquisition dates.Predecessor$2.0 million reimbursement from Bell, was a divisionrecorded. During the second half of MascoTech1998, management further reassessed the operations of SportRack Accessories, took actions to restructure its operations, and accordingly, had no outstanding
indebtedness.
recorded restructuring charges totaling $1.9 million. Restructuring charges have been included in cost of sales ($1.1 million) and in selling, administrative and product development expenses ($832,000) in our consolidated statement of operations. All restructuring costs have been incurred as of December 31, 1998. Concurrent with the reassessment of the SportRack Accessories operations, management reviewed the carrying value of goodwill and other intangible assets, determined that future cash flows would not be sufficient to recover recorded amounts and recorded an impairment charge of $7.9 million. Representsincurred in connection with
the Brink Acquisition, which is currentlyof our foreign subsidiaries denominated in U.S. dollars.
currencies other than their functional currency.Predecessor,initial application of this statement resulted in an impairment of goodwill of $29.2 million to write down goodwill related to the Valley acquisition, which was consummated in August 1997. The impairment was due solely to the change in accounting standards and was reported as a divisioncumulative effect of MascoTech, was allocated a portionaccounting change. Under SFAS 142, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which are determined based on the discounted estimated future cash flows of the consolidatedreporting units. As the impairment related to Valley for which taxable income accrued to the individual members, no tax provision, which approximated the division's federal
income tax provisioneffect was recorded for this charge. Additionally, under SFAS 142, goodwill is no longer amortized but is to be tested periodically for impairment. The effect of no longer amortizing goodwill resulted in a reduction of $3.0 million in amortization of intangible assets during 2002 as compared with each of 2001 and 2000. The adoption of SFAS 144 did not have a material impact on a stand alone basis. The Companyour financial position, results of operations or cash flows.the Company and its domestic subsidiaries, except for AAS Holdings, Inc. (a holding company for Brink which is a C corporation), are included in the taxable income of the Company's unitholdersour equity holders and no federal income tax provision is required. The Company'sOur foreign and taxable domestic subsidiaries provide for income taxes on their results of operations.
(6) In connection withindebtedness extinguished as a resultacquisition, certain of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Old
Notes, a prepayment penalty of $1.4 million, unamortized debt discount of
$3.1 million, and unamortized deferred debt issuance costs of $3.2 million
were charged to operations during 1997. The debt extinguishment charges in
1997 were reduced by $365,000 representing theour subsidiaries changed their income tax benefit recognized
by Brink.
(7) status to the equivalent of C corporation. The unaudited pro forma tax provisions for 2002 and the three months ended March 31, 2003 presented on the consolidated statement of operations present our results of operations as if we were a C corporation for the entire period. The pro forma provision for income taxes to change our income tax status to the equivalent of a C corporation was calculated based on enacted tax laws and statutory tax rates applicable to the periods presented. The pro forma provisions for income taxes related to the other pro forma adjustments were calculated at an assumed income tax rate of 35%.presented because it isnot a recognized term under generally accepted as providing useful
information regarding a company's ability to service and/or incur
indebtedness. However, EBITDAaccounting principles (GAAP) and should not be considered in isolation from or as an alternative to net income cash flows from operating activities and
other consolidated income or cash flow statement data preparedfrom operating activites determined in accordance with generally accepted accounting principlesGAAP. Because EBITDA, as determined by us, excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or as a measure of
profitability or liquidity. See "Description of the Notes -- Certain
Definitions" for the definitionsimilarly titled measures used by other companies. The following tablefor purposesand (ii) a reconciliation of the Indenture.
(8) EBITDA, as so calculated, to our cash flow provided by operating activites. Year Ended December 31, Three Months
Ended
March 31, 1998 1999 2000 2001 2002 2002 2003 Net income $ (90 ) $ 4,978 $ 7,793 $ 2,394 $ (11,622 ) $ (25,940 ) $ 6,811 Add (Subtract): Provision (benefit) for income taxes 903 417 (278 ) 602 4,252 (368 ) 1,561 Interest expense, net 18,046 16,831 17,325 17,006 15,000 3,714 3,613 Depreciation and amortization 14,995 14,411 14,268 14,455 12,964 3,102 3,335 Foreign currency (gains) losses (4,995 ) 7,912 5,386 4,948 (8,429 ) 1,244 (3,596 ) Loss (gain) on sale of fixed assets — (10 ) 37 701 365 — 68 Other (income) expense — 2,000 15 146 155 (41 ) (3 ) Impairment charge 9,505 — — — — — — Cumulative effect of accounting change for goodwill impairment — — — — 29,207 29,207 — EBITDA: $ 38,364 $ 46,539 $ 44,546 $ 40,252 $ 41,892 $ 10,918 $ 11,789 — — — — — — —
Add (Subtract):
Benefit (provision) for income taxes (903 ) (417 ) 278 (602 ) (4,252 ) 368 (1,561 ) Interest Expense, net (18,046 ) (16,831 ) (17,325 ) (17,006 ) (15,000 ) (3,714 ) (3,613 ) Other adjustments 289 (349 ) 35 40 90 (120 ) (89 ) Other income expense — (2,000 ) (15 ) (42 ) (155 ) 41 3 Foreign currency gains (losses) 47 (1,615 ) (227 ) 17 239 (612 ) 67 Deferred income tax provision (688 ) (2,433 ) (908 ) (161 ) 1,298 (417 ) 75 Changes in working capital and other assets and liabilities 2,816 2,120 (4,968 ) 5,153 (3,108 ) (1,767 ) (5,036 ) Net cash provided by operating activites: $ 21,879 $ 25,014 $ 21,416 $ 27,651 $ 21,004 $ 4,697 $ 1,635
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCompany's pro forma earnings were insufficient to cover
pro forma fixed charges by $452,000 for the year ended December 31, 1997.
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RISK FACTORS
In addition to the other matters set forth in this Prospectus, the
following factors should be considered carefully by holdersdiscussion of Old Notes before
making a decision to tender their Old Notes in the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement with any person to participate in the distribution of such
New Notes and neither such holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Issuers). The Issuers have agreed that, for a period of 180 days after
the date of this Prospectus, they will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, the ability of any Holder to resell the New Notes is
subject to applicable state securities laws as described in "-- Blue Sky
Restrictions on Resale of New Notes" below.
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at one of the addresses set forth
below under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer for such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedure for book-entry transfer described herein, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the Holder
must comply with the guaranteed delivery procedures described herein. See "The
Exchange Offer."
BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. The Issuers do not currently intend to register
or qualify the resale of the New Notes in any such jurisdictions. However, an
exemption is generally available for sales to registered broker-dealers and
certain institutional buyers. Other exemptions under applicable state securities
laws may also be available.
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LEVERAGE AND LIQUIDITY
As a result of the Transactions, the Company is highly leveraged. On a pro
forma basis, the Company's indebtedness at December 31, 1997 was approximately
$198.0 million. In addition, subject to the restrictions in the Amended and
Restated Credit Agreement and the Indenture, the Company and its subsidiaries
may incur additional indebtedness (including additional Senior Indebtedness)
from time to time to finance acquisitions or capital expenditures or for other
purposes. See "Pro Forma Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of the Credit Facilities" and "Description of the
Notes."
The Company's high degree of leverage may have important consequences for
the Company, including (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be available
on terms favorable to the Company; (ii) a substantial portion of the Company's
cash flow will be used to pay the Company's interest expense and debt
amortization, which will reduce the funds that would otherwise be available to
the Company for its operations and future business opportunities; (iii) a
substantial decrease in net operating cash flows or an increase in expenses of
the Company could make it difficult for the Company to meet its debt service
requirements and force it to modify its operations; (iv) the Company may be more
highly leveraged than its competitors, which may place it at a competitive
disadvantage; and (v) the Company's high degree of leverage may make it more
vulnerable to a downturn in its business or the economy generally. Any inability
of the Company to service its indebtedness or obtain additional financing, as
needed, would have a material adverse effect on the Company.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control
as well as the availability of revolving credit borrowings under the Amended and
Restated Credit Agreement or a successor facility. The Company anticipates that,
based on current and expected levels of operations, its operating cash flow,
together with borrowings under the Amended and Restated Credit Agreement, should
be sufficient to meet its debt service, working capital and capital expenditure
requirements for the foreseeable future, although no assurances can be given in
this regard, including as to the ability to increase revenues or profit margins.
If the Company is unable to service its indebtedness, it will be forced to take
actions such as reducing or delaying acquisitions and/or capital expenditures,
selling assets, restructuring or refinancing its indebtedness (which could
include the Notes), or seeking additional equity capital. There is no assurance
that any of these remedies can be effected on satisfactory terms, if at all,
including, whether, and on what terms, the Company could raise equity capital.
RESTRICTIVE DEBT COVENANTS
The Amended and Restated Credit Agreement and the Indenture contain a
number of significant covenants that, among other things, restrict the ability
of the Company to (i) declare dividends or redeem or repurchase capital stock;
(ii) prepay, redeem or purchase debt, including the Notes; (iii) incur liens;
(iv) make loans and investments; (v) incur additional indebtedness; (vi) amend
or otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) enter
into transactions with affiliates; and (x) alter the business it conducts. The
indebtedness outstanding under the Amended and Restated Credit Agreement is
guaranteed by all of the Company's domestic subsidiaries and is secured by a
first priority lien on substantially all of the properties and assets of the
Company and its respective domestic subsidiaries, now owned or acquired later,
including a pledge of all of the shares of the Company's respective existing and
future domestic subsidiaries, and up to 65% of the shares of the Company's
existing and future foreign subsidiaries which are owned by the Company or one
of its domestic subsidiaries and certain of the tangible and intangible assets
of the Company's existing and future foreign subsidiaries. In addition, under
the Amended and Restated Credit Agreement, the Company is required to comply
with financial covenants with respect to (i) a maximum leverage ratio; (ii) a
minimum fixed charge coverage ratio; (iii) a minimum net worth; (iv) capital
expenditures; and (v) rentals. If the Company were unable to borrow under the
Amended and Restated Credit Agreement due to a default or
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failure to meet certain specified borrowing base prerequisites for borrowing, it
could be left without sufficient liquidity.
SUBORDINATION OF NEW NOTES AND THE GUARANTEES; NON-GUARANTOR SUBSIDIARIES
The New Notes and the Guarantees will be unsecured and subordinated to the
prior payment in full of all Senior Indebtedness of the Company and the
Guarantors, respectively. As of December 31, 1997, on a pro forma basis, the
aggregate outstanding principal amount of all Senior Indebtedness was
approximately $73.4 million. In the event of a bankruptcy, liquidation or
reorganization of the Company, the assets of the Company or the Guarantors will
be available to pay obligations on the New Notes only after all Senior
Indebtedness of the Company or the Guarantors, as the case may be, has been paid
in full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the New Notes. In addition, the Company may not pay principal or
premium, if any, or interest on the New Notes if any Senior Indebtedness is not
paid when due or any other default on any Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its
terms, unless, in either case, such amount has been paid in full or the default
has been cured or waived and such acceleration has been rescinded. In addition,
if any default occurs with respect to certain Senior Indebtedness and certain
other conditions are satisfied, the Company may not make any payments on the New
Notes for a designated period of time. Finally, if any judicial proceeding is
pending with respect to any such default in payment on any Senior Indebtedness,
or other default with respect to certain Senior Indebtedness, or if the maturity
of the New Notes is accelerated because of a default under the Indenture and
such default constitutes a default with respect to any Senior Indebtedness, the
Company may not make any payment on the New Notes.
The New Notes will not be guaranteed by any of the Company's foreign
subsidiaries. See "Description of the Notes." On a pro forma basis,
approximately 35% of the Company's net sales were made by non-Guarantor
subsidiaries in 1997.
INTEREST RATE FLUCTUATIONS
A significant portion of the indebtedness of the Company to be outstanding
following the Offering will bear interest at variable rates. While the Company
may enter interest rate protection agreements to limit its exposure to increases
in such interest rates, such agreements will not eliminate the exposure to
variable rates. Any increase in the interest rates on the Company's indebtedness
will reduce funds available to the Company for its operations and future
business opportunities.
INTEGRATION OF ACQUISITIONS
The Company seeks to grow through acquisitions. No assurance can be given
that the integration of any future acquisitions will be successful or that the
anticipated strategic benefits of any such future acquisitions will be realized.
Acquisitions may involve a number of special risks, including, but not limited
to, adverse short-term effects on the Company's reported operating results,
diversion of management's attention, standardization of accounting systems,
dependence on retaining, hiring and training key personnel, and unanticipated
problems or legal liabilities. The ability of the Company to successfully
implement its acquisition strategy depends on a number of factors, some of which
are beyond the Company's control. There can be no assurance that the Company
will be able to consummate acquisitions in the future on terms acceptable to it.
POTENTIAL RISKS RELATED TO SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures and sells certain of its products in Europe,
Canada and Mexico. In 1997, on a pro forma basis, approximately 35% of the
Company's net sales were derived from operations conducted outside the United
States. Such sales are principally in currencies other than U.S. dollars.
Foreign operations are subject to certain risks that can materially affect the
sales, profits, cash flows and financial position of the Company, such as
currency exchange rate fluctuations, inflation, changes in import duties,
exchange controls and variable political conditions. In particular, currency
exchange rate fluctuations may impact the revenues
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and gross margins of the Company's foreign operations. Moreover, most of the
Company's indebtedness is denominated in U.S. dollars and exchange rate moves
and other factors may affect the amount and availability of dollars to service
such debt. In addition, a highly inflationary economy may also give rise to
increased production costs without correspondingly increased prices, especially
if products are exported to countries with low inflation rates.
OWNERSHIP OF THE COMPANY
CCP and its affiliates in the aggregate own approximately 47.7% of the
Company's issued and outstanding voting securities on a fully diluted basis. In
addition, pursuant to the Members' Agreement (as defined), affiliates of CCP
have the ability to appoint a majority of the members of the Company's Board of
Managers. See "Management -- Members' Agreement." Accordingly, CCP will be able
to exert substantial influence on the direction and future operations of the
Company. See "Security Ownership of Certain Beneficial Owners and Management"
and "Plan of Distribution."
THE OEM SUPPLIER INDUSTRY
The Company competes in the global OEM supplier industry which is
characterized by a small number of OEMs which are able to exert considerable
pressure on OEM suppliers, including the Company. On a pro forma basis, sales to
OEM customers were approximately 65% of the Company's aggregate net sales in
1997. In addition, on a pro forma basis, sales to Chrysler and General Motors
were approximately 27% and 16%, respectively, of the Company's aggregate net
sales in 1997. Sales to these customers consist of a large number of different
parts, tooling and other services, which are sold to separate divisions and
operating groups within each customer's organizations. Although the Company has
purchase orders from such customers, such purchase orders generally provide for
supplying the customer's requirements for a particular model or model year
rather than for manufacturing a specific quantity of products. The loss of
either of such customers or any of such purchase orders, or a significant
decrease in demand for certain models or a group of related models sold by any
of its major customers could have a material adverse effect on the Company. The
failure of the Company to obtain new business for new models or to retain or
increase business on redesigned existing models could adversely affect the
Company. OEM customers are also able to exert considerable pressure on component
and system suppliers to reduce costs, provide integrated systems (as opposed to
just parts), finance tooling, improve quality and provide additional design and
engineering capabilities. There can be no assurance that the additional costs of
increased quality standards, price reductions or additional engineering or
systems integration capabilities required by OEMs will not have a material
adverse effect on the financial condition or results of operations of the
Company. In addition, the Company may not be able to pass on increases in the
cost of raw materials to its OEM customers.
The OEM supplier industry is highly cyclical and, in large part, dependent
upon the overall strength of consumer demand for light trucks and passenger
cars. There can be no assurance that the automotive industry for which the
Company supplies components and systems, will not experience downturns in the
future. An economic recession typically impacts substantially leveraged
companies such as the Company more than similarly situated companies with less
leverage. A decrease in overall consumer demand for motor vehicles in general or
specific types of vehicles could have a material adverse effect on the Company's
financial condition and results of operations.
LABOR RELATIONS
Approximately 150 of the Company's employees in the United States at the
Company's Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 1999. As is common in many European jurisdictions,
substantially all of the Company's employees in Europe are covered by
country-wide collective bargaining agreements. While the Company believes that
its relations with its employees are satisfactory, a dispute between the Company
and its employees could have a material adverse effect on the Company.
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23
Many of the Company's OEM and other Tier 1 supplier customers, and other
suppliers to the Company's customers, are unionized, and work stoppages,
slowdowns or other labor disputes experienced by, and the labor relations
policies of, OEMs and other Tier 1 suppliers could have an adverse effect on the
Company's results of operations.
PURCHASE OF THE NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to purchase all
outstanding New Notes at 101% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase. The source of funds for any such
purchase will be the Company's available cash or cash generated from operations
or other sources, including borrowing, sales of assets, sales of equity or funds
provided by a new controlling person. However, there can be no assurance that
sufficient funds will be available at the time of any Change of Control to make
any required repurchases of New Notes tendered, or that, if applicable,
restrictions in the Amended and Restated Credit Agreement will allow the Company
to make such required repurchases. See "Description of the Notes -- Change of
Control."
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. See "Business -- Competition."
There can be no assurance that the Company's business will not be adversely
affected by increased competition in the markets in which it currently operates
or in markets in which it will operate in the future, or that the Company will
be able to improve or maintain its profit margins. In addition, the Company
principally competes for new business both at the beginning of the development
of new models and upon the redesign of existing models by its major customers.
New model development generally begins two to four years prior to the marketing
of such models to the public.
OEMs have increasingly stressed the need for suppliers with global
capabilities. There can be no assurance that by further expanding into
international markets the Company will be successful either in competing with
other suppliers, domestic or foreign, or in maintaining its relationship with
various OEMs, such that its international operations will be profitable.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various foreign, federal, state and
local environmental laws, and regulations, including, but not limited to, those
governing discharges into the air and water, the storage, handling and disposal
of solid and hazardous wastes, the remediation of soil and groundwater
contaminated by petroleum products or hazardous substances or wastes, and the
health and safety of employees. Compliance with environmental laws, stricter
interpretations of or amendments to such laws, or more vigorous enforcement
policies by regulatory agencies may require material expenditures by the
Company. The nature of the Company's current and former operations and the
history of industrial uses at some of its facilities expose the Company to the
risk of liabilities or claims with respect to environmental and worker health
and safety matters.
In addition, under certain environmental laws, a current or previous owner
or operator of property may be jointly and severally liable for the costs of
investigation, removal or remediation of certain substances on, under or in such
property, without regard to negligence or fault. The presence of, or failure to
remediate properly such substances may adversely affect the ability to sell or
rent such property or to borrow using such property as collateral. In addition,
persons who generate, arrange for the disposal or treatment of, or dispose of
hazardous substances may be jointly and severally liable for the costs of
investigation, remediation or removal of such hazardous substances at or from
the disposal or treatment facility, regardless of whether the such facility is
owned or operated by such person. Responsible parties also may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. See
"Business -- Environmental Regulation."
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LACK OF A PUBLIC MARKET FOR THE NEW NOTES
The New Notes will constitute a new class of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market. The Old Notes are designated for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market. The
Company has been advised by CSI that CSI currently intends to make a market in
the New Notes. CSI is not obligated to do so, however, and any market-making
activities with respect to the New Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act, and may be limited during
the Exchange Offer and the pendency of any Shelf Registration Statement (as
defined). Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of the trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market develops for the New
Notes, future trading prices of the New Notes will depend on many factors,
including among other things, prevailing interest rates, the Company's financial
condition andour results of operations and the market for similar notes. Depending
on those and other factors, the New Notes may trade at a discount from their
principal amount.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuers on September 25, 1997 to the Initial
Purchasers, who resold the Old Notes to qualified institutional investors in
reliance on Rule 144A under the Securities Act. In connection therewith, the
Issuers, the Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement, which provides that (i) the Issuers will file an Exchange
Offer Registration Statement with the Commission within 210 days after the date
of the original issuance of the Old Notes (the "Issue Date"), (ii) the Issuers
will use their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission within 270 days after the Issue Date (the
"Target Effectiveness Date"), (iii) the Issuers will consummate the Exchange
Offer within 300 days after the Issue Date (the "Target Consummation Date") and
(iv) if obligated to file the Shelf Registration Statement (as described below),
the Issuers will use their best efforts to file the Shelf Registration Statement
with the Commission promptly after such filing obligation arises and to cause
the Shelf Registration to become effective by the Commission as promptly as
possible after such obligation arises. Promptly after the effectiveness of the
Registration Statement, the Issuers will offer, pursuant to this Prospectus, to
the Holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of New Notes, to be issued without a restrictive legend
and which may, generally, be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. The term "Holder" with
respect to the Exchange Offer means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
The Issuers have not requested, and do not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties, the Issuers believe that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such New
Notes (other than any such holder that is an "affiliate" of the Issuers within
the meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holder's business, such Holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes and neither such
Holder nor any other such person is engaging in or intends to engage in a
distribution of such New Notes. Because the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer. Any Holder who is an affiliate of the Issuers or who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers). The
Issuers have agreed that, for a period of 180 days after the date of this
Prospectus, they will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
If (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company reasonably
determines in good faith, after consultation with counsel, that it is not
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permitted to effect the Exchange Offer, (ii) the Exchange Offer is not commenced
on or prior to the Target Effectiveness Date, (iii) the Exchange Offer is, for
any reason, not consummated on or prior to the fifth day after the Target
Consummation Date, (iv) any Holder of Private Exchange Securities (as defined)
so requests, or (v) in the case of any Holder that participates in the Exchange
Offer, such Holder does not receive New Notes on the date of the exchange that
may be sold without restriction under state and federal securities laws (the
occurrence of any such event set forth in the foregoing clauses (i) through (v),
a "Shelf Registration Event"), then, in the case of such events, the Company
shall promptly deliver to the Holders and the Trustee notice thereof (the "Shelf
Notice") and thereafter the Issuers shall file an Initial Shelf Registration
Statement (as defined) pursuant to the Registration Rights Agreement.
SHELF REGISTRATION. If a Shelf Registration Event has occurred (and whether
or not an Exchange Offer Registration Statement has been filed with the
Commission or has become effective, or the Exchange Offer has been consummated),
then:
Initial Shelf Registration Statement. The Issuers shall promptly
prepare and file with the Commission a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all
of the Old Notes (the "Initial Shelf Registration Statement"). The Issuers
shall file with the Commission the Initial Shelf Registration Statement on
or prior to the Filing Date. The Initial Shelf Registration Statement shall
be on Form S-1 or another appropriate form, if available, permitting
registration of such Registrable Securities for resale by such holders in
the manner designated by them (including, without limitation, in one or
more underwritten offerings). The Issuers shall not permit any securities
other than the Registrable Securities to be included in the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement (as
defined below). Each of the Issuers shall use their best efforts to cause
the Initial Shelf Registration Statement to be declared effective under the
Securities Act on or prior to the Effectiveness Date, and to keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 24 months from the Closing Date, or
such shorter period ending when (i) all Registrable Securities covered by
the Initial Shelf Registration Statement have been sold in the manner set
forth and as contemplated in the Initial Shelf Registration Statement or
(ii) a Subsequent Shelf Registration Statement covering all of the
Registrable Securities has been declared effective under the Securities Act
(such 24 month or shorter period, the "Effectiveness Period").
Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), each of the Issuers shall use their best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in
any event the Issuers shall within 30 days of such cessation of
effectiveness amend the Shelf Registration Statement in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to
Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, each of the Issuers shall use their best efforts to cause the
Subsequent Shelf Registration Statement to be declared effective as soon as
reasonably practicable after such filing and to keep such Registration
Statement continuously effective until the end of the Effectiveness Period.
As used herein the term "Shelf Registration Statement" means the Initial
Shelf Registration Statement and any Subsequent Shelf Registration
Statement.
Supplements and Amendments. The Issuers shall promptly supplement and
amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement
or by any underwriter of such Registrable Securities.
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ADDITIONAL INTEREST
(a) The Issuers agree to pay, as liquidated damages, additional interest on
the Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect): if either the
Exchange Offer Registration Statement or the Initial Shelf Registration
Statement has not been filed on or prior to the Filing Date (unless, with
respect to the Exchange Offer Registration Statement, a Shelf Registration Event
described in clause (i) of the last paragraph of "-- Purpose and Effect of the
Exchange Offer" shall have occurred prior to the Filing Date), Additional
Interest shall accrue on the Notes over and above the stated interest in an
amount equal to $0.192 per week (or any part thereof) per $1,000 principal
amount of Old Notes:
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the Commission on
or prior to the Effectiveness Date (unless, with respect to the Exchange
Offer Registration Statement, a Shelf Registration Event described in
clause (i) of the last paragraph of "-- Purpose and Effect of the Exchange
Offer" shall have occurred), Additional Interest shall accrue on the Notes
over and above the stated interest in an amount equal to $0.192 per week
(or any part thereof) per $1,000 principal amount of Old Notes; and
(ii) if (A) the Issuers have not exchanged New Notes for all Old Notes
validly tendered and not withdrawn in accordance with the terms of the
Exchange Offer on or prior to the fifth day after the Expiration Date, or
(B) the Exchange Offer Registration Statement ceases to be effective at any
time prior to the Expiration Date, or (C) if applicable, any Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per
week (or any part thereof) per $1,000 principal amount of the Old Notes for
the first 90 days commencing on (x) the sixth day after the Expiration
Date, in the case of (A) above, or (y) the day the Exchange Offer
Registration Statement ceases to be effective in the case of (B) above, or
(z) the day such Shelf Registration Statement ceases to be effective in the
case of (C) above;
provided, however, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement as required hereunder (in the case
of clause (i) of this paragraph), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the Shelf Registration Statement as required
hereunder (in the case of clause (ii) of this paragraph) or (3) upon the
exchange of New Notes for all Old Notes validly tendered and not withdrawn (in
the case of clause (ii)(A) of this paragraph), or upon the effectiveness of the
Exchange Offer Registration Statement which had ceased to remain effective (in
the case of clause (ii)(B) of this paragraph), or upon the effectiveness of the
Shelf Registration Statement which had ceased to remain effective (in the case
of clause (ii)(C) of this paragraph, Additional Interest on the Old Notes as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue (but any accrued amount shall be payable).
Holders of Old Notes will be required to make certain representations to
the Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions set forth
above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all of the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer,
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Holders of Old Notes who were eligible to participate in the Exchange Offer but
who did not tender their Old Notes will not be entitled to certain rights under
the Registration Rights Agreement and such Old Notes will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
Expiration Date. The Issuers will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes have
been registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
the payment of additional interest on the Old Notes under certain circumstances
relating to the Registration Rights Agreement, which provisions will terminate
upon the consummation of the Exchange Offer. The New Notes will evidence the
same debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $125,000,000, aggregate principal amount
of the Old Notes are outstanding. The Issuers have fixed the close of business
on , 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there were
registered Holders of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law (the "DGCL") or the Indenture in
connection with the Exchange Offer. The Issuers intend to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuers will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 unless the Issuers, in their sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled expiration date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "The Exchange Offer -- Conditions" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral notice
(confirmed in writing) or
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written notice of such delay, extension or termination to the Exchange Agent or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Issuers to constitute a material change, the
Issuers will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the Issuers
will extend the Exchange Offer for a period of five to 10 business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five- to 10-business-day period.
Without limiting the manner in which the Issuers may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Issuers shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from April 1, 1998. Interest will be paid
on the Old Notes accepted for exchange to, but not including, April 1, 1998.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Issuers will
constitute a binding agreement between such Holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent on or about , 1998, to all Holders of Old Notes known
to the Issuers and the Exchange Agent.
Only a Holder of the Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents, to
the Exchange Agent prior to 5:00 p.m, New York City time, on the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below. To be tendered effectively,
the Old Notes, Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE
OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable
time.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve
the right to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The interpretation by the Issuers of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Issuers shall determine. Although the Issuers intend to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Issuers, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Issuers
determine are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Issuers, among other
things, that (i) the New Notes acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement with any person to
participate in the distribution of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is engaging in or intends to
engage in a distribution of such New Notes and (iv) neither the Holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated under
the Securities Act, of the Issuers. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Issuers),
may participate in the Exchange Offer but may be deemed an "underwriter" under
the Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of
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this Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes
by causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuers in their sole discretion, which determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange
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Offer and no New Notes will be issued with respect thereto unless the Old Notes
so withdrawn are validly retendered. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Issuers to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Issuers; or
(c) any governmental approval has not been obtained, which approval
the Issuers shall deem necessary for the consummation of the Exchange
Offer.
If the Issuers determine in their sole discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Old Notes (see "-- Withdrawal
of Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Old Notes which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
the Issuers will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and the Issuers
will extend the Exchange Offer for a period of five to 10 business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five- to 10-business-day period.
EXCHANGE AGENT
First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
First Union National Bank
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Administration
Telecopier: (704) 383-7316
30
33
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value less unamortized discount, as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized. The expenses of the Exchange Offer and
the unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the New Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer, as it
will be an even exchange of the Old Notes. The net proceeds to the Company from
the Old Notes were approximately $119.6 million, after deducting the Initial
Purchasers' discounts and fees and expenses of the Offering. The Company used
such net proceeds to (i) repay approximately $90.0 million outstanding under the
Amended and Restated Credit Agreement (the "Credit Agreement Debt"), (ii) repay
approximately $20.0 million of senior subordinated indebtedness (the "Senior
Subordinated Debt") incurred in connection with the Brink Acquisition and to
refinance then existing debt, (iii) repay approximately $6.3 million of
subordinated indebtedness incurred in connection with the Brink Acquisition (the
"Junior Subordinated Guilder Note"), (iv) pay approximately $1.9 of accrued
interest and (v) pay prepayment penalties of $1.4 million on the Senior
Subordinated Debt.
31
34
PRO FORMA CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1997 and, as adjusted to give effect to the 1998 Transactions.
The information set forth belowcondition should be read in conjunction with the "Summary
Consolidated Historical and Pro Forma Financial Data," "Unaudited Pro Forma
Financial Information," "Management Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidatedour financial statements of the Company, and therelated notes thereto, included elsewhere in this Prospectus.
AS OF DECEMBER 31, 1997
--------------------------
AS ADJUSTED
FOR THE 1998
ACTUAL TRANSACTIONS
------ ------------
(IN THOUSANDS)
Cash and cash equivalents(1)........................... $ 27,348 $ 6,589
======== ========
Long-term debt (including current maturities):
Amended and Restated Credit Agreement(2):
Revolving Credit Facility(3)...................... $ 1,900 $ 2,737
Tranche A Term Loan............................... 17,065 17,065
Tranche B Term Loan............................... 15,883 15,883
Acquisition Facility(1)........................... 21,000 21,000
Canadian Credit Agreement(2)(3)......................
Term Note......................................... 13,952 13,952
Revolving Note.................................... 2,790 2,790
Notes (4)............................................ 124,536 124,536
-------- --------
Total long-term debt.............................. 197,126 197,963
Mandatorily redeemable warrants(5)..................... 3,507 3,507
Members' equity........................................ 16,193 16,193
-------- --------
Total capitalization.............................. $216,826 $217,663
======== ========
- -------------------------
(1) On December 31, 1997 the Company borrowed $21.0 million under its
Acquisition Facility, the proceeds of which are included in cash and cash
equivalents. On January 2, 1998 these proceeds were used to make the Ellebi
Acquisition.
(2) See "Description of the Credit Facilities."
(3) The Company has up to $25.0 million available under the Revolving Credit
Facility. Borrowings by SportRack International under the revolving note of
the Canadian Credit Agreement (as defined) are counted against availability
under the Revolving Credit Facility.
(4) The principal amount of the Notes is $125.0 million. The Notes are presented
net of unamortized discount of $464,000.
(5) Represents the value assigned to certain warrants associated with the Senior
Subordinated Debt. The Senior Subordinated Debt was repaid with proceeds
from the Notes. The warrants are being accreted to their redemption value
through periodic charges to members' equity.
32
35
UNAUDITED PRO FORMA FINANCIAL INFORMATIONprospectus. The following unaudited pro forma financial information of the Company is
based on the audited financialdiscussion includes forward-looking statements of the Company, Valley Industries,that involve certain risks and Ellebi S.p.A. included elsewhere in this Prospectus, and the unaudited financial
statements of the Sport Rack division of Bell, Nomadic and Transfo-Rakzs. The
unaudited pro forma statement of operations for the year ended December 31, 1997
gives effect to the Valley Acquisition, the SportRack International Acquisition,
the 1998 Transactions and the Offering as if such transactions had occurred on
January 1, 1997. The pro forma balance sheet as of December 31, 1997 gives
effect to the Ellebi Acquisition and the Transfo-Rakzs Acquisition as if such
transactions had occurred at such date. The Exchange Offer has no effect on the
unaudited pro forma financial information.
The pro forma financial information gives effect to pro forma adjustments
thatuncertainties. See "Forward-Looking Statements." based upon available information and certain assumptions that the
Company believes are reasonable. The Ellebi Acquisition and the Transfo-Rakzs
Acquisition have been accounted for using the purchase method of accounting. The
purchase price in excess of the fair value of net assets acquired for Ellebi and
Transfo-Rakzs has been allocated to goodwill. The pro forma financial
information should be read in conjunction with the historical financial
statements of the Company, Valley Industries, Ellebi S.p.A. and, in each case,
the related notes thereto, included elsewhere in this Prospectus.
The pro forma financial information does not purport to be indicative of
the results that would have been obtained had such transactions been completed
as of the assumed dates and for the periods presented or that may be obtained in
the future.
33
36
ADVANCED ACCESSORY SYSTEMS, LLC
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
ELLEBI
AND
TRANSFO-RAKZS
ACQUISITIONS
AND PRO FORMA
COMPANY ADJUSTMENTS(1) PRO FORMA
------- -------------- ---------
(IN THOUSANDS)
ASSETS
Current assets
Cash................................................... $ 27,348 $(20,759)(2) $ 6,589
Accounts receivable, net............................... 43,523 4,229 47,752
Inventories............................................ 34,408 11,303 45,711
Other current assets................................... 6,469 378 6,847
-------- -------- --------
Total current assets................................ 111,748 (4,849) 106,899
Property and equipment, net.............................. 55,928 7,503 63,431
Goodwill, net............................................ 85,889 4,157 90,046
Intangible assets, net................................... 7,595 -- 7,595
Deferred income taxes and other noncurrent assets........ 4,323 1,080 5,403
-------- -------- --------
Total assets........................................ $265,483 $ 7,891 $273,374
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt................... $ 3,746 $ -- $ 3,746
Accounts payable....................................... 23,479 2,329 25,808
Accrued liabilities.................................... 20,148 2,620 22,768
-------- -------- --------
Total current liabilities........................... 47,373 4,949 52,322
Deferred income taxes.................................... 3,545 830 4,375
Other noncurrent liabilities............................. 1,234 1,275 2,509
Long-term debt, less current maturities.................. 193,380 837(3) 194,217
Mandatorily redeemable warrants.......................... 3,507 -- 3,507
Minority interest........................................ 251 -- 251
Members' equity.......................................... 16,193 -- 16,193
-------- -------- --------
Total liabilities and members' equity............... $265,483 $ 7,891 $273,374
======== ======== ========
See accompanying notes to Unaudited Pro Forma Balance Sheet.
34
37
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(1) Historical balance sheet data of Ellebi and Transfo-Rakzs as of December 31,
1997 have been translated at the closing exchange rate on such date, or
1,686 and 1.43 Italian lira and Canadian dollars, respectively, to one
United States dollar. The balance sheets and the related acquisition
adjustments follow:
HISTORICAL ELLEBI AND
------------------------ ACQUISITION TRANSFO-RAKZS
ELLEBI TRANSFO-RAKZS ADJUSTMENTS(A) ACQUISITIONS
------ ------------- -------------- -------------
(IN THOUSANDS)
ASSETS
Current assets
Cash.............................. $ 6 $ -- $(20,765)(b) $(20,759)
Accounts receivable, net.......... 4,219 10 -- 4,229
Inventories....................... 9,446 127 1,730 11,303
Other current assets.............. 372 6 -- 378
------- ---- -------- --------
Total current assets........... 14,043 143 (19,035) (4,849)
Property and equipment, net......... 2,807 52 4,644 7,503
Goodwill, net....................... -- -- 4,157 4,157
Deferred income taxes and other
assets............................ 143 -- 937 1,080
------- ---- -------- --------
Total assets................... $16,993 $195 $ (9,297) $ 7,891
======= ==== ======== ========
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term
debt........................... $ -- $ -- $ -- $ --
Accounts payable.................. 2,299 30 -- 2,329
Accrued liabilities............... 2,544 26 50(c) 2,620
------- ---- -------- --------
Total current liabilities...... 4,843 56 50 4,949
Deferred income taxes............... -- -- 830 830
Other noncurrent liabilities........ 1,275 -- -- 1,275
Long-term debt, less current
maturities........................ -- -- 837 837
Equity.............................. 10,875 139 (11,014) --
------- ---- -------- --------
Total liabilities and equity... $16,993 $195 $ (9,297) $ 7,891
======= ==== ======== ========
35
38
- -------------------------
(a) Adjustment reflects management's preliminary allocation of purchase
price related to the Ellebi Acquisition and the Transfo-Rakzs
Acquisition in accordance with the purchase method of accounting,
summarized as follows:
ACQUISITION
ELLEBI TRANSFO-RAKZS ADJUSTMENTS
------ ------------- -----------
(IN THOUSANDS)
Purchase price:
Cash consideration...................... $ 20,759 $ 837 $21,596
Estimated fees and expenses............. 365 -- 365
Obligations to sellers.................. 1,000 210 1,210(i)
-------- ------ -------
Total purchase price................. $ 22,124 $1,047 $23,171
======== ====== =======
Allocated as follows:
Historical book value of net assets..... $ 10,875 $ 139 $11,014
Excluded (assets) and liabilities:
Cash................................. (6) -- (6)
Accrued liabilities.................. 1,525 -- 1,525
-------- ------ -------
Historical book value of net assets
acquired............................. 12,394 139 12,533
Estimated increase (decrease):
Inventory............................ 1,730 -- 1,730(ii)
Property and equipment............... 4,644 -- 4,644
Goodwill............................. 3,249 908 4,157
Deferred income taxes and other...... 937 -- 937
Deferred income taxes................ (830) -- (830)
-------- ------ -------
Total..................................... $ 22,124 $1,047 $23,171
======== ====== =======
(i) Represents additional purchase price resulting from an increase in
net assets determined at the closing date.
(ii) The reversal of the increase in inventory is not reflected in the
Unaudited Pro Forma Statement of Operations.
- -------------------------
(b) Adjustment reflects:
(IN THOUSANDS)
--------------
Cash used to purchase Ellebi S.p.A.
assets.............................. $(20,759)
Excluded cash at Ellebi S.p.A......... (6)
--------
$(20,765)
========
(c) Adjustment reflects:
(IN THOUSANDS)
--------------
Estimated fees and expenses........... $ 365
Obligations to sellers................ 1,210
Excluded accrued liabilities.......... (1,525)
--------
$ 50
========
(2) Adjustment represents cash used to finance the Ellebi Acquisition. The
acquisition was financed with the borrowing of $21.0 million under the
Company's Acquisition Facility. The borrowing and related debt issuance
costs of $330,000 are recorded in the Company's balance sheet at December
31, 1997.
(3) Adjustment reflects the Company's borrowings under its U.S. Revolving Credit
Facility used to finance the Transfo-Rakzs Acquisition.
36
39
ADVANCED ACCESSORY SYSTEMS, LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
ADJUSTMENTS
------------------------------------------------
VALLEY
AND ELLEBI
SPORTRACK INITIAL AND
INTERNATIONAL OFFERING OF TRANSFO-RAKZS
COMPANY ACQUISITIONS(1) OLD NOTES(2) ACQUISITIONS(3) PRO FORMA
------- --------------- ------------ --------------- ---------
(IN THOUSANDS)
Net sales.......................... $188,678 $57,991 $ -- $21,820 $268,489
Cost of sales...................... 135,556 45,003 -- 13,614 194,173
-------- ------- ------- ------- --------
Gross profit..................... 53,122 12,988 -- 8,206 74,316
Selling, administrative and product
development expenses............. 31,350 11,169 -- 4,209 46,728
Amortization of intangible
assets........................... 2,336 973 -- 139 3,448
-------- ------- ------- ------- --------
Operating income................. 19,436 846 -- 3,858 24,140
Interest expense................... 12,627 3,570 1,160 2,270 19,627
Foreign currency loss.............. 6,097 -- -- -- 6,097
Other (income) expense, net........ -- 103 -- 22 125
-------- ------- ------- ------- --------
Income (loss) before minority
interest and income taxes..... 712 (2,827) (1,160) 1,566 (1,709)
Provision (benefit) for income
taxes............................ (2,856) (575) -- 870 (2,561)
-------- ------- ------- ------- --------
Income (loss) before minority
interest...................... 3,568 (2,252) (1,160) 696 852
Minority interest.................. 97 -- -- -- 97
-------- ------- ------- ------- --------
Net income (loss)................ $ 3,471 $(2,252) $(1,160) $ 696 $ 755
======== ======= ======= ======= ========
EBITDA............................. $ 27,916 $ 2,928 $ -- $ 5,447 $ 36,291
======== ======= ======= ======= ========
See accompanying notes to Unaudited Pro Forma Statement of Operations.
37
40
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(1) Pro forma adjustments to reflect the operations of Valley for the seven
month period ended August 5, 1997 and SportRack International for the six
month period through July 2, 1997. Subsequent to August 5, 1997, the
operating results of Valley are included in the Company's historical
results. Subsequent to July 2, 1997, the operating results of SportRack
International are included in the Company's historical results.
HISTORICAL
------------------------
SPORTRACK
VALLEY INTERNATIONAL ADJUSTMENTS PRO FORMA
------ ------------- ----------- ---------
(IN THOUSANDS)
Net sales................................... $53,510 $4,481 $ -- $57,991
Cost of sales............................... 41,630 3,225 148(a) 45,003
------- ------ ------- -------
Gross profit.............................. 11,880 1,256 (148) 12,988
Selling, administrative and product
development expenses...................... 9,598 1,571 -- 11,169
Amortization of intangible assets........... -- 171 802(a) 973
------- ------ ------- -------
Operating income (loss)................... 2,282 (486) (950) 846
Interest expense............................ 587 25 2,958(b) 3,570
Foreign currency loss....................... -- -- -- --
Other (income) expense, net................. 125 (22) -- 103
------- ------ ------- -------
Income (loss) before minority interest and
income taxes........................... 1,570 (489) (3,908) (2,827)
Provision (benefit) for income taxes........ (11) -- (564)(c) (575)
------- ------ ------- -------
Income (loss) before minority interest.... 1,581 (489) (3,344) (2,252)
Minority interest........................... -- -- -- --
------- ------ ------- -------
Net income (loss)......................... $ 1,581 $ (489) $(3,344) $(2,252)
======= ====== ======= =======
- -------------------------
(a) Adjustments reflect the estimated increase in depreciation expense
after giving effect to an approximate $2.5 million increase in fair
value over historical cost and differences in useful lives of property
and equipment, amortization expense related to approximately $34.5
million of goodwill (over 30 years) and approximately $3.3 million of
other intangible assets (over 5-10 years) for the Valley Acquisition
and the SportRack International Acquisition. The estimated increases
are as follows:
(IN THOUSANDS)
--------------
Depreciation of property and equipment...................... $148
====
Amortization of goodwill.................................... $660
Amortization of other intangible assets..................... 142
----
Amortization of intangible assets........................... $802
====
38
41
(b) Adjustment reflects the increase in interest expense for borrowings
outstanding under the Tranche B Term Loan and the Canadian Term Note
after completion of the Valley Acquisition and the SportRack
International Acquisition as if the borrowings had been outstanding at
the beginning of the period. Historical and pro forma interest expense
are as follows:
(IN THOUSANDS)
Tranche B Term Loan -- $55.0 million at 8.90% (7 months).... $2,855
Canadian Term Note -- $14.5 million at 7.25% (6 months)..... 523
Amortization of debt issuance costs......................... 192
------
3,570
Elimination of historical interest expense.................. (612)
------
Net increase in interest expense............................ $2,958
======
(c) Adjustment reflects the pro forma income tax benefit of adjustments
made above. No benefit for federal income tax has been included for
Valley because, for federal income tax purposes, Valley's results of
operations accrue to the unitholders.
(2) Adjustment reflects the net impact on interest expense as if the issuance of
the Old Notes had been consummated on January 1, 1997:
(IN THOUSANDS)
Issuance of Old Notes(a) -- $124.5 million at 9.75%......... $ 9,141
Repayment of:
Revolving Credit Facility -- $7.5 million at 6.10%........ (341)
Tranche A Term Loan(b) -- $43.5 million at 8.00%.......... (2,682)
Tranche B Term Loan(b) -- $39.0 million at 8.87%.......... (2,656)
Senior Subordinated Debt(c) -- $16.8 million at 12.50%.... (2,210)
Junior Subordinated Guilder Note -- $6.4 million at
7.00%.................................................. (336)
Amortization of discount and debt issuance cost (over 10
years)(d)................................................. 244
-------
Net increase in interest expense............................ $ 1,160
=======
- -------------------------
(a) The Notes are reflected net of discount of $471,000. Interest is
calculated on the principal amount of $125.0 million.
(b) Includes amortization of debt issuance cost for Tranche A Term Loan and
Tranche B Term Loan of $76,000 and $62,000, respectively.
(c) The Senior Subordinated Debt is reflected net of discount of
approximately $3.2 million and pro forma interest includes $335,000 of
amortization. Interest is calculated on the principal amount of $20.0
million.
(d) Adjustment reflects the amortization of discount and deferred debt
issuance costs associated with the Old Notes as if the Offering had
been consummated as of the beginning of the period. These costs are
amortized over the term of the Old Notes using the effective interest
method.
39
42
(3) Pro forma adjustments to reflect the operations of Ellebi and Transfo-Rakzs
for the year ended December 31, 1997 translated at the average month end
exchange rate for the year, or 1,706 and 1.37 Italian lira and Canadian
dollars, respectively, to one United States dollar. Ellebi was acquired on
January 2, 1998 and Transfo-Rakzs was acquired on February 7, 1998.
HISTORICAL
-----------------------
ELLEBI TRANSFO-RAKZS ADJUSTMENTS PRO FORMA
------ ------------- ----------- ---------
(IN THOUSANDS)
Net sales..................................... $21,322 $498 $ -- $21,820
Cost of sales................................. 12,414 239 961(a) 13,614
------- ---- ------- -------
Gross profit................................ 8,908 259 (961) 8,206
Selling, administrative and product
development expenses........................ 4,096 113 -- 4,209
Amortization of intangible assets............. -- -- 139(a) 139
------- ---- ------- -------
Operating income (loss)..................... 4,812 146 (1,100) 3,858
Interest expense.............................. -- 8 2,262(b) 2,270
Foreign currency loss......................... -- -- -- --
Other (income) expense, net................... 22 -- -- 22
------- ---- ------- -------
Income (loss) before minority interest and
income taxes............................. 4,790 138 (3,362) 1,566
Provision (benefit) for income taxes.......... 2,614 24 (1,768)(c) 870
------- ---- ------- -------
Income (loss) before minority interest...... 2,176 114 (1,594) 696
Minority interest............................. -- -- -- --
------- ---- ------- -------
Net income (loss)........................... $ 2,176 $114 $(1,594) $ 696
======= ==== ======= =======
- -------------------------
(a) Adjustments reflect the estimated increase in depreciation expense
after giving effect to an approximate $4.6 million increase in fair
value over historical cost and differences in useful lives of property
and equipment, amortization expense related to approximately $4.2
million of goodwill (over 30 years) assuming the Ellebi Acquisition
and Transfo-Rakzs Acquisition had been consummated on January 1, 1997.
The estimated increases are as follows:
(IN THOUSANDS)
Depreciation of property and equipment...................... $961
====
Amortization of goodwill.................................... $139
====
(b) Adjustment reflects the increase in interest expense for borrowings
outstanding under the Acquisition Facility and the increase in the
Canadian revolving line of credit note after completion of the Ellebi
Acquisition and the Transfo-Rakzs Acquisition as if the borrowings had
been outstanding at the beginning of the period. Historical and pro
forma interest expense are as follows:
(IN THOUSANDS)
Acquisition Facility -- $21.0 million at 10.25%............. $2,153
Canadian revolving line of credit -- $.8 million at 7.50%... 62
Amortization of debt issuance costs......................... 55
------
2,270
Elimination of historical interest expense.................. (8)
------
Net increase in interest expense............................ $2,262
======
(c) Adjustment reflects the pro forma income tax benefit of adjustments
made above.
40
43
SELECTED HISTORICAL FINANCIAL DATA
The information below presents historical financial data of the MascoTech
Division ("Predecessor") for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 through September 27, 1995 (the period prior to the
acquisition of the net assets of MascoTech Division by the Company). The data as
of and for the years ended December 31, 1993 and 1994 have been derived from the
unaudited financial statements of the MascoTech Division and the data for the
period from January 1, 1995 through September 27, 1995 have been derived from
the audited financial statements included elsewhere in this Prospectus. The data
as of and for the period from September 28, 1995 through December 31, 1995 and
for the years ended December 31, 1996 and 1997 represent consolidated financial
data of the Company subsequent to the acquisition of the MascoTech Division, and
include (i) the operations of Brink subsequent to the Brink Acquisition on
October 30, 1996; (ii) the operations of the SportRack division of Bell and
Nomadic subsequent to the SportRack International Acquisition on July 2, 1997
and July 24, 1997, respectively, (iii) the operations of Valley subsequent to
the Valley Acquisition on August 5, 1997, and have been derived from the audited
financial statements included elsewhere in this Prospectus. The following table
should be read in conjunction with the financial statements of the Company and
notes thereto, "Unaudited Pro Forma Financial Information", and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
PREDECESSOR COMPANY
--------------------------------- --------------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, JANUARY 1 TO SEPTEMBER 28, TO DECEMBER 31,
----------------- SEPTEMBER 27, DECEMBER 31, -------------------
1993 1994 1995 1995 1996(1) 1997(2)
---- ---- ------------- ---------------- ------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $59,081 $60,882 $48,698 $16,299 $ 81,466 $188,678
Cost of sales.......................... 48,369 47,716 38,645 12,458 53,607 135,556
------- ------- ------- ------- -------- --------
Gross profit......................... 10,712 13,166 10,053 3,841 27,859 53,122
Selling, administrative and product
development expenses................. 6,585 7,313 6,107 1,472 13,413 31,350
Amortization of intangible assets...... -- -- -- 546 2,475 2,336
------- ------- ------- ------- -------- --------
Operating income..................... 4,127 5,853 3,946 1,823 11,971 19,436
Other (income) expense
Interest expense(3).................. -- -- -- 975 4,312 12,627
Foreign currency loss(4)............. -- -- -- -- 1,330 6,097
Other, net........................... 665 (105) 65 (22) (80) --
------- ------- ------- ------- -------- --------
Income before minority interest,
extraordinary charge and income
taxes.............................. 3,462 5,958 3,881 870 6,409 712
Provision (benefit) for income
taxes(5)............................. 1,247 2,114 1,324 -- (491) (2,856)
------- ------- ------- ------- -------- --------
Income before minority interest and
extraordinary charge............... 2,215 3,844 2,557 870 6,900 3,568
Minority interest...................... -- -- -- 9 69 97
------- ------- ------- ------- -------- --------
Income before extraordinary
charge............................. 2,215 3,844 2,557 861 6,831 3,471
Extraordinary charge(6)................ -- -- -- -- 1,970 7,416
------- ------- ------- ------- -------- --------
Net income (loss).................... $ 2,215 $ 3,844 $ 2,557 $ 861 $ 4,861 $ (3,945)
======= ======= ======= ======= ======== ========
OTHER DATA:
Cash flows from operating activities... $ 8,683 $ 1,165 $ 3,741 $ 1,390 $ 9,917 $ 6,982
EBITDA(7).............................. 4,890 6,773 4,735 2,651 16,448 27,916
Depreciation........................... 763 920 789 282 2,002 6,144
Capital expenditures................... 2,213 1,392 2,079 491 3,124 7,751
Ratio of EBITDA to interest expense....................................... 2.72x 3.81x 2.21x
Ratio of earnings to fixed charges(8)..................................... 1.89x 2.43x 1.06x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash...................................................................... $ 1,637 $ 2,514 $ 27,348
Working capital........................................................... 3,960 14,368 64,375
Total assets.............................................................. 59,979 148,359 265,483
Total debt, including current maturities.................................. 34,900 93,142 197,126
Mandatorily redeemable warrants........................................... 200 3,498 3,507
Members' equity........................................................... 14,221 18,463 16,193
(footnotes on following page)
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- -------------------------
(1) In October 1996, the Company acquired Brink. The Brink Acquisition has been
accounted for in accordance with the purchase method of accounting.
Accordingly, the operating results of Brink are included in the consolidated
operating results of the Company subsequent to October 30, 1996.
(2) The Company acquired Bell on July 2, 1997, Nomadic on July 24, 1997, and
Valley on August 5, 1997. The SportRack International Acquisition and Valley
Acquisition have been accounted for in accordance with the purchase method
of accounting. Accordingly, the operating results of SportRack International
and Valley are included in the consolidated operating results of the Company
subsequent to the respective acquisition dates.
(3) Prior to its acquisition by the Company on September 28, 1995, the
Predecessor was a division of MascoTech and, accordingly, had no outstanding
indebtedness.
(4) Represents net currency loss on indebtedness, incurred in connection with
the Brink Acquisition, which is currently denominated in U.S. dollars.
(5) The Predecessor, as a division of MascoTech, was allocated a portion of the
consolidated income tax provision, which approximated the division's federal
income tax provision on a stand-alone basis. The Company is a limited
liability corporation and, as such, the earnings of the Company and its
domestic subsidiaries are included in the taxable income of the Company's
unitholders and no federal income tax provision is required. The Company's
foreign subsidiaries provide for income taxes on their results of
operations.
(6) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Old
Notes, a prepayment penalty of $1.4 million, $3.1 million of unamortized
debt discount, and unamortized deferred debt issuance costs of $3.2 million
were charged to operations during 1997. The debt extinguishment charges in
1997 were reduced by $365,000 representing the income tax benefit recognized
by Brink.
(7) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is presented because it is generally accepted as providing useful
information regarding a company's ability to service and/or incur
indebtedness. However, EBITDA should not be considered in isolation from or
as an alternative to net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity. See "Description of the Notes -- Certain
Definitions" for the definition of EBITDA for purposes of the Indenture.
(8) For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before minority interest,
extraordinary charge and income taxes, plus fixed charges. "Fixed charges"
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the component of operating lease rental
expense that management believes is representative of the interest component
of rent expense.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CCP and certain members of the Company's management formed the Company in
September 1995 to make strategic acquisitions of automotive exterior accessory
manufacturers and to integrate those acquisitions into a global enterprise that
would be a preferred supplier to the automotive industry. In September 1995, the
Company, through its SportRack subsidiary, acquired substantially all of the net
assets of the MascoTech Division, a North American supplier of rack systems and
accessories to the automotive OEM market and aftermarket. The MascoTech Division
was a division of MascoTech. For comparative purposes, the financial information
for the year ended December 31, 1995 represents the combination of the results
of operations of the MascoTech Division for the period from January 1, 1995 to
September 27, 1995 together with the results of operations of the Company from
September 28, 1995 to December 31, 1995 (the period subsequent to the
acquisition of the MascoTech Division by the Company). The financial statements
of the MascoTech Division and the Company in the two combined periods are not
comparable in certain respects due to differences between the cost bases of
certain assets held by the Company versus that of the MascoTech Division,
changes in accounting policies at the acquisition date, and certain incremental
costs, such as interest expense, that the Company incurred as a stand-alone
company subsequent to September 27, 1995.
ACQUISITIONS
In October 1996, the Company consummated the Brink Acquisition by acquiring
the outstanding capital stock of Brink B.V., a European supplier of towing
systems to the automotive OEM and aftermarket.
In July 1997, the Company consummated the SportRack International
Acquisition by acquiring from Bell substantially all of the net assets of its
SportRack division, a Canadian supplier of rack systems and accessories to the
automotive aftermarket, and acquiring the capital stock of Nomadic, a Canadian
supplier of rack systems and accessories to the automotive OEM and aftermarket.
In August 1997, the Company consummated the Valley Acquisition by acquiring
substantially all of the net assets of Valley Industries, Inc., a North American
supplier of towing systems to the automotive OEM market and aftermarket.
In each instance, the acquisition was accounted for in accordance with the
purchase method of accounting and the operating results of the acquired company
have been included in the Company's consolidated financial statements since the
date of the respective acquisition.
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SUMMARY RESULTS OF OPERATIONS
The following table presents the major components of the statement of
operations together with percentages of each component as a percentage of net
sales.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995(1) 1996 1997
------- ---- ----
(DOLLARS IN THOUSANDS)
Net sales................................ $64,997 100.0% $81,466 100.0% $188,678 100.0%
Gross profit........................... 13,894 21.4% 27,859 34.2% 53,122 28.2%
Selling, administrative and product
development expenses................... 7,579 11.7% 13,413 16.5% 31,350 16.6%
Amortization of intangible assets........ 546 .8% 2,475 3.0% 2,336 1.2%
Operating income....................... 5,769 8.9% 11,971 14.7% 19,436 10.3%
Interest expense......................... 975 1.5% 4,312 5.3% 12,627 6.7%
Foreign currency loss.................... -- -- 1,330 1.6% 6,097 3.2%
Income before minority interest,
extraordinary charge and income
taxes.................................. 4,751 7.3% 6,409 7.9% 712 .4%
- -------------------------
(1) Represents the combination of the historical results of operations for the
MascoTech Division for the period January 1, 1995 to September 27, 1995
together with the results of operations of the Company from September 28,
1995 to December 31, 1995 (the period subsequent to the acquisition of the
MascoTech Division by the Company).
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales. Net sales for 1997 were $188.7 million, representing an increase
of $107.2 million, or 131.6% over net sales for 1996. The increase was due
primarily to the Valley Acquisition in August 1997 ($37.9 million), the
SportRack International Acquisition in July 1997 ($2.5 million), and the full
year sales of Brink in 1997 as compared to two months in 1996 ($54.8 million).
In addition, sales for SportRack increased $12.0 million because of increased
sales of rack systems to OEM's for installation on new light truck models and
increased OEM production of certain light truck models which use SportRack's
systems. On a pro forma basis, if the net sales of Valley and Sportrack
International were included with those of the Company for 1996 and 1997, and
Brink sales were included with those of the Company for 1996, net sales for 1997
would have been $246.7 million, as compared to net sales of $233.5 million for
1996, an increase of $13.2 million, or 5.7%.
Gross profit. Gross profit for 1997 was $53.1 million, representing an
increase of $25.3 million, or 90.7%, over the gross profit for 1996. This
increase resulted from the increase in net sales offset by a decrease in the
gross margin. Gross profit as a percentage of net sales was 28.2% in 1997
compared to 34.2% in 1996. The decrease in gross margin resulted from a lower
gross margin on sales contributed by Valley and a lower gross margin on sales of
rack systems to the OEM's due to (i) launch costs related to new programs, (ii)
lower margins on certain newly launched programs, and (iii) price givebacks on
certain OEM programs.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1997 were $31.4 million,
representing an increase of $17.9 million, or 133.7% over selling,
administrative and product development expenses for 1996, reflecting the
increase in net sales. Selling, administrative and product development expenses
as a percentage of net sales increased to 16.6% in 1997 from 16.5% in 1996.
Certain selling, administrative and product development expenses are relatively
fixed and do not increase proportionately with sales. The effect of these fixed
expenses has been offset by higher expenses associated with the Company's
European expansion and new corporate headquarters. In addition, selling,
administrative and product development expenses are higher as a percentage of
net sales for Brink, which was acquired in October 1996, and SportRack
International, which was acquired in July 1997, than for the Company.
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47
Operating income. Operating income for 1997 was $19.4 million, an increase
of $7.5 million, or 62.4%, over operating income for 1996. The increase was due
primarily to inclusion of Brink operating results for the full year in 1997 as
compared to two months in 1996 together with the increases from the SportRack
International and Valley Acquisitions in July and August of 1997, respectively.
Operating income as a percentage of net sales decreased to 10.3% in 1997 from
14.7% in 1996 reflecting a decrease in gross margins offset by reduced
amortization of intangible assets as a result of changing the goodwill
amortization period from 15 years to 30 years in 1997.
Interest expense. Interest expense for 1997 was $12.6 million, an increase
of $8.3 million, or 192.8%, over interest expense for 1996. The increase was
primarily due to additional borrowings to finance (i) the Brink Acquisition in
October 1996, (ii) the Sportrack International Acquisition in July 1997, (iii)
the Valley Acquisition in August 1997, and (iv) the effect of the issuance of
the Old Notes, of which a portion of the proceeds were used to repay debt from
the Valley Acquisition and the Brink Acquisition.
Foreign currency loss. Foreign currency loss in 1997 was $6.1 million. The
Company acquired Brink in October 1996 and the related Brink Acquisition
indebtedness is denominated in U.S. dollars. During 1997, the U.S. dollar
strengthened significantly in relation to the Dutch Guilder, the functional
currency of Brink. At December 31, 1996, the exchange rate of the Dutch Guilder
to the U.S. dollar was 1.75:1, whereas at December 31, 1997 the exchange rate
was 2.02:1, or a 15.4% decline in the relative value of the Dutch Guilder.
1996 COMPARED TO 1995
Net sales. Net sales for 1996 were $81.5 million, representing an increase
of $16.5 million, or 25.3% over net sales for 1995. The increase was due to the
Brink Acquisition in October 1996 ($7.6 million) and increased sales of rack
systems to OEM's for installation on new light truck models and increased OEM
production of certain light truck models which use the Company's rack systems.
Gross profit. Gross profit for 1996 was $27.9 million, representing an
increase of $14.0 million, or 100.5% over gross profit for 1995. This increase
resulted from the increase in net sales and an increase in the gross margin.
Gross profit as a percentage of net sales was 34.2% in 1996 compared to 21.4% in
1995. The increase was primarily a result of (i) increased sales of higher
margin rack systems for installation on new light truck models, (ii) expanded
margins on certain rack systems resulting from engineering changes and
manufacturing improvements, and (iii) the effect of higher net sales on fixed
overhead costs.
Selling, administrative and product development costs. Selling,
administrative and product development expenses for 1996 were $13.4 million,
representing an increase of $5.8 million, or 77.0%, over selling, administrative
and product development costs for 1995. Selling, administrative and product
development costs as a percentage of net sales increased to 16.5% in 1996
compared to 11.7% in 1995. These increases resulted primarily from the Brink
Acquisition in October 1996 and increased costs associated with the MascoTech
Division becoming a stand-alone company in September 1995.
Operating income. Operating income for 1996 was $12.0 million, an increase
of $6.2 million, or 107.5%, over operating income for 1995. Operating income as
a percentage of net sales increased to 14.7% in 1996 from 8.9% in 1995 primarily
as a result of higher gross margins partially offset, as a percentage of net
sales, by increased selling, administrative and product development costs and
increased amortization of intangible assets.
Interest expense. Interest expense for 1996 was $4.3 million, an increase
of $3.3 million, or 342.3%, over interest expense for 1995 representing, in
1996, a full year of interest cost associated with the acquisition of the
MascoTech Division in September 1995. The MascoTech Division, as a matter of
policy, was not charged interest on intercompany balances by MascoTech, Inc.
during 1995.
Foreign currency loss. Foreign currency loss in 1996 was $1.3 million. The
Company acquired Brink in October 1996 and the related Brink Acquisition debt
($65.0 million) was denominated in U.S. dollars whereas the functional currency
of Brink is the Dutch Guilder. During 1996, the U.S. dollar strengthened in
relation to the Dutch Guilder, the functional currency of Brink. On October 31,
1996 (the Brink Acquisition date) the
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exchange rate of the Dutch Guilder to the U.S. dollar was 1.70:1, whereas, at
December 31, 1996 the exchange rate was 1.75:1 or a 2.9% decline in the relative
value of the Dutch Guilder.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to service its debt
under the Amended and Restated Credit Agreement, the Canadian Credit Agreement
and the Notes and working capital needs and capital expenditures. The Company's
indebtedness at December 31, 1997 was $197.1 million.
Borrowings under the Amended and Restated Credit Agreement and the Canadian
Credit Agreement bear interest at floating rates which require interest payments
on varying dates depending on the interest rate option selected by the Company.
Under the terms of the Amended and Restated Credit Agreement and the Canadian
Credit Agreement, the Company will be required to make principal payments
totaling approximately $3.7 million in 1998, $4.7 million in 1999, $11.2 million
in 2000, and $11.9 million in 2001. Also under the terms of the Amended and
Restated Credit Agreement, the Company is required to purchase and maintain
interest rate protection with respect to a portion of the term loans for three
years.
The Notes bear interest at 9.75% which is payable semiannually in arrears.
The Company's capital expenditures were $.5 million, $3.1 million, and $7.8
million for the years ended December 31, 1995, 1996, and 1997, respectively. On
a pro forma basis for 1997, capital expenditures were $10.3 million. Capital
expenditures for 1998 are limited to $10.0 million under the Terms of the
Amended and Restated Credit Agreement. The Company estimates that capital
expenditures for 1998 will be primarily for the expansion of capacity,
productivity and process improvements and maintenance. The Company's 1998
capital expenditures are anticipated to include approximately $4.0 million for
replacing and upgrading existing equipment. The Company's ability to make
capital expenditures is subject to restrictions in the Amended and Restated
Credit Agreement. See "Description of the Credit Facilities."
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $8.0 million and $1.1
million, respectively, at December 31, 1997. The European NOLs have no
expiration date and the Canadian NOLs expire primarily in 2004.
The Company expects that its primary sources of cash will be from operating
activities and borrowings under the Revolving Credit Facility. As of December
31, 1997, the Company has $4.7 million borrowed under its U.S. Revolving Credit
Facility and Canadian Revolving Note and has $20.3 million available borrowing
capacity. As part of the Amended and Restated Credit Agreement, Chase and NBD
(as defined) committed to provide the $22.0 million Acquisition Facility to
finance acquisitions. On December 31, 1997, the Company borrowed $21.0 million
under the revolving credit facility and used such proceeds to acquire the net
operating assets of the towbar segment of Ellebi S.p.A. on January 2, 1998.
Future acquisitions, if any, may require additional third party financing and
there can be no assurances that such funds would be available on terms
satisfactory to the Company, if at all.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the Amended and
Restated Credit Agreement or a successor facility. The Company anticipates that,
based on current and expected levels of operations, its operating cash flow,
together with borrowings under the Amended and Restated Credit Agreement, should
be sufficient to meet its debt service, working capital and capital expenditure
requirements for the foreseeable future, although no assurances can be given in
this regard, including as to the ability to increase revenues or profit margins.
If the Company is unable to service its indebtedness, it will be forced to take
actions such as reducing or delaying acquisitions and/or capital expenditures,
selling assets, restructuring or refinancing its indebtedness (which could
include the Notes), or seeking additional equity capital. There is no assurance
that any of these remedies can be effected on satisfactory terms, if at all,
including, whether, and on what terms, the Company could raise equity capital.
See "Forward Looking Statements" and "Risk Factors" for more information that
may effect the Company's results of operations.
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INTERNATIONAL OPERATIONS
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
and, with the Ellebi Acquisition in January 1998, Italy. On a pro forma basis,
net sales from international operations during 1997 were approximately $92.7
million, or 34.5% of the Company's net sales. At December 31, 1997, on a pro
forma basis, assets associated with these operations were approximately 44.8% of
total assets, and the Company had indebtedness denominated in currencies other
than the U.S. dollar of approximately $16.7 million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency.
The Company may periodically use foreign currency forward option contracts
to offset the effects of exchange rate fluctuations on cash flows denominated in
foreign currencies. The balance of these contracts as of December 31, 1997 was
not material, and the Company does not use derivative financial instruments for
trading or speculative purposes.
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BUSINESS
THE COMPANY
The Company is one of the world's largest designers and manufacturers of exterior accessories for the OEM market and suppliersaftermarket. We design and manufacture a wide array of towing andboth rack systems and related accessories for the automotive
original equipment manufacturer ("OEM") market and the automotive aftermarket.
The Company's products include a complete line of towing systems including
accessories such as trailer balls, ball mounts, electrical harnesses, safety
chains and locking hitch pins. The Company'srelated accessories. Our broad offering of rack systems includes fixed and detachable racks and accessories which can be installed on vehicles to carry items such as bicycles, skis, luggage, surfboards, and sailboards. The Company'sOur towing products and accessories include trailer balls, ball mounts, electrical harnesses, safety chains and locking pins. Our products are sold as standard accessories or options for a variety of light vehicles. Year Ended December 31, Three Months Ended March 31, 2000 2001 2002 2002 2003 (Dollars in thousands) Net sales $ 318,817 100.0 % $ 314,035 100.0 % $ 329,782 100.0 % $ 79,870 100.0 % $ 85,340 100.0 % Gross profit 79,727 25.0 74,452 23.7 79,266 24.0 18,916 23.7 21,079 24.7 Selling, administrative and product development expenses 45,527 14.3 44,769 14.3 49,309 15.0 10,850 13.6 12,399 14.5 Amortization of intangible assets 3,297 1.0 3,312 1.1 122 0.0 7 0.0 7 0.0 Operating income 30,903 9.7 26,371 8.4 29,835 9.0 8,059 10.1 8,673 10.2 Interest expense 17,950 5.6 17,684 5.6 15,907 4.8 3,957 5.0 3,832 4.5 Foreign currency loss (gain) 5,386 1.7 4,948 1.6 (8,429 ) (2.6 ) 1,244 1.6 (3,596 ) (4.2 ) Other expense 52 0.0 743 0.2 520 0.2 (41 ) (0.1 ) 65 0.1 Income before cumulative effect of accounting change and income tax 7,515 2.4 2,996 1.0 21,837 6.6 2,899 3.6 8,372 9.8 Cumulative effect of accounting change for goodwill impairment — — — — (29,207 ) (8.9 ) (29,207 ) (36.6 ) — — Income (loss) before income taxes 7,515 2.4 2,996 1.0 (7,370 ) (2.2 ) (26,308 ) (32.9 ) 8,372 9.8 Income tax provision (benefit) (278 ) (0.1 ) 602 0.2 4,252 1.3 (368 ) (0.5 ) 1,561 1.8 Net income (loss) $ 7,793 2.4 % $ 2,394 0.8 % $ (11,622 ) (3.5 )% $ (25,940 ) (32.5 )% $ 6,811 8.0 % 1997,addition, sales to OEMs of approximately $1.5 million, which in turn primarily resulted from sales for new programs launched since the first quarter of 2002 at SportRack and increased sales to OEM customers at Brink. This increase was partially offset by a decrease in OEM sales for Valley.Company
estimates that approximately 49% of its net sales were generated from products
sold for light trucks. The Company is the sole Tier 1 OEM supplier of towing or
rack systems for eight of the top ten light trucks produced in North America,
including the GM C/K Pickup and Blazer, the Chrysler Grand Cherokee (towing
systems and rack systems), T-3000 Pickup and Caravan and the Ford Explorer,
Ranger and Windstar. On a pro forma basis for the year ended December 31, 1997,
the Company's net sales and EBITDATransactions would have been $268.5$185.7 million. We expect to be able to meet our liquidity requirements for the foreseeable future through cash provided by operations and through borrowings available under our revolving credit facility. As of December 31, As of
March 31, 2000 2001 2002 2002 2003 (Dollars in thousands) Working capital $34,791 $23,380 $20,954 $25,955 $23,058 Year Ended December 31, Three Months
Ended
March 31,
2000
2001
2002
2002
2003
(Dollars in thousands) Cash flows provided by operating activities $ 21,416 $ 27,651 $ 21,004 $ 4,697 $ 1,635 Cash flows (used for) investing activities (13,249 ) (7,580 ) (15,354 ) (1,883 ) (2,512 ) Cash flows provided by (used for) financing activities (14,982 ) (20,389 ) (5,526 ) (4,099 ) 233 $36.3$666,000, respectively, and by increases in accounts payable of $6.5 million, accrued liabilities of $3.8 million and the current portion of long term debt of $3.7 million.COMPETITIVE ADVANTAGES
Leading GlobalDistributions to members, representing amounts sufficient to meet the tax liability on our domestic taxable income, which accrues to individual members, were $121,000 for the first quarter of 2003 and $636,000 for the first quarter of 2002. Financing cash flows during the first quarter of 2003 also included net borrowings under our then existing revolving loans of $1.9 million and borrowings under capital leases of $722,000. Total 2003 2004 2005 2006 2007 Thereafter (Dollars in thousands) New revolving credit facility $ 7,700 $ — $ — $ — $ — $ — $ 7,700 New term loan 10,800 540 1,080 1,890 2,970 3,240 1,080 New Notes 150,000 — — — — — 150,000 Subordinated promissory notes 10,000 — — — — — 10,000 Capital lease obligations 7,228 625 728 663 633 599 3,980 $ 185,728 $ 1,165 $ 1,808 $ 2,553 $ 3,603 $ 3,839 $ 172,760 Position.RiskCompanyapplicable margin is a fixed spread based on the floating benchmark rate we select for borrowings and whether such borrowings are under our term loan facility or under our revolving credit facility. A change in interest rates under our credit facilities could have an impact on results of operations. As of March 31, 2003, after giving effect to our pro forma capital structure, a change of 1.0% in the market rate of interest would impact our annual interest expense by $241,000.world's largest
designer, manufacturerperson having deposited the Original Notes to be withdrawn;supplierprincipal amount of towing systemsthe Original Notes or, in the case of Original Notes transferred by book-entry transfer, the name and number of the account at DTC to be credited;
For information by Telephone:
(212) 815-3738By Mail:
The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street—7 East
New York, NY 10286
Attn: Ms. Diane AmorosoBy Hand or Overnight Delivery Service:
The Bank of New York
Corporate Trust Operations
Reorganization Unit
101 Barclay Street—7 East
New York, NY 10286
Attn: Ms. Diane Amoroso
By Facsimile Transmission:
(212) 298-1915
(Telephone Confirmation)
(212) 815-3738suppliersaftermarket. We design and manufacture a wide array of both rack systems. The Company issystems and towing systems and related accessories. We are the largest supplier of towing systems in Europe, the largest supplier of towing
systems to automotive OEMs in North Americaworld and the second largest supplier of
towing systems to the aftermarket in North America. The Company is also one of the two largest suppliers of rack systems soldsystems. Our products are designed and engineered to automotive OEMs in the North
America. The Company has 19 engineering, manufacturingmeet vehicle-specific requirements, while improving vehicle functionality and distribution
facilities strategically located in the United States, Canada, The Netherlands,
Denmark, Germany, the United Kingdom, Sweden, Italy and France. By virtue of its
size and global presence, the Company believes it benefits from several
competitive advantages, including the ability to (i) satisfy local design,
production, quality and timing requirements of global OEMs; (ii) provide
"one-stop shopping" for customers' product and service requirements; (iii)
optimize plant production; (iv) maximize its raw material purchasing power; (v)
spread its selling, administrative and product development expenses over a large
base of net sales; and (vi) develop and maintain state-of-the-art production
facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systemsstyling. We sell our products to most of the OEMs manufacturingproducing vehicles in North America and Europe including Chrysler,and to many of the major aftermarket distributors, installers and retailers. As a Tier 1 supplier to the OEM market, we are generally awarded contracts to supply our products for a given vehicle platform on a sole source basis. For the twelve months ended March 31, 2003, our net sales were $335.3 million.Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat,Kia, Mitsubishi, Nissan, Volkswagen,Opel, SEAT, Skoda, Subaru, Toyota, Volkswagen and Kia. The Company supplies
Chrysler with substantially all its towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the towing and rack
system requirements of General Motors. Tier 1 status and strong customer
relationships are important elements in achieving continued profitable growth
because, as OEMs narrow their supplier bases, well regarded, existing suppliers
have an advantage in gaining new contracts. The evolution of OEM relationships
into strategic partnerships provides a significant advantage to Tier 1 suppliers
with system integration capabilities (such as the Company) in retaining existing
contracts as well as in participating during the design phase for new vehicles,
which is integral to becoming a supplier for such new platforms. The Company is
also a leading supplier of towing and rack systems to automotiveVolvo. Our aftermarket wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp,customers include Ace Hardware, Advance Auto Parts, Balkamp (NAPA Auto Parts), Brezan, Canadian Tire, Coast Distribution System, Discount Auto Parts, Ace HardwareFeuvert, Norauto, and Canadian Tire.
Comprehensive Product Line. The Company continuesU-Haul. Sales to position itself asOEM customers represented 67.7% of our net sales for the twelve months ended March 31, 2003, while the remainder were from sales to customers serving the automotive aftermarket. For the twelve months ended March 31, 2003, 72.5% of our net sales were derived from our North American operations, while the remainder were from European operations. We are headquartered in Sterling Heights, Michigan and have a leading supplier to its customers for a growing rangetotal of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit virtually every light vehicle produced28 facilities located in North America and Europe. The
Company is one of a limited number of European manufacturers with such a broad
product line that also satisfies European Community ("EC") regulatory safety
standards, even though such standards have not yet been adopted by each EC
member country. Competitors whose products do not satisfy such standards face
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substantial design and testing costs to offer a comparable product line that
meets these safety standards. The Company has provided OEMs with fixed rack
systems for approximately half of the light truck models produced in North
America that utilize vehicle-specific fixed racks. The Company's innovative
Mondial(R) product line of detachable rack systems, which consists of only 14
SKUs, is able to fit substantially all the light vehicles produced inboth North America and Europe, while some competitors' comparable product lines consist of more than 200 SKUs. The Company believes that its broad product offerings also
facilitate strategic partnerships with automotive aftermarket wholesalers,
retailers and installers.
Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. For
example, the Company developed a roll formed, aluminum cross rail which substantially reduced the weight of the Chrysler minivan rack at a competitive
cost. Additionally, the Company is responsible for many industry innovations,
including lighter, less obtrusive, round tube towing hitches as well as push
button and pull lever stanchions on fixed rack systems. The Company believes its
design and engineering capabilities provide significant value to its customers
by (i) shortening OEM new product development cycles; (ii) lowering OEM
manufacturing costs; (iii) providing technical expertise; and (iv) permitting
aftermarket customers to maintain lower inventory levels. The Company also
believes that its design innovations have created value for end users by
providing products that23 are durable and easy to install and that enhance vehicle
utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including Chrysler's Gold Pentastar Award, Ford's Q-1 Award,
Toyota's Distinguished Supplier Award and Nissan's Superior Supplier Performance
Award. Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or
QS-9000 certification for ten of its 17 manufacturing and engineering facilities
and is in the process of obtaining certification for the rest of its facilities.
The Company's low cost position is a result of its strict cost controls and
continuous improvement programs designed to enhance productivity. OEMs typically
prefer stable suppliers who can generate productivity gains that can be shared
to reduce OEM costs. The Company's cost controls are closely integrated with its
quality driven manufacturing operations, thereby allowing it to profitably
deliver high quality, easy to install and competitively-priced components on a
just-in-time basis. The Company's focus on low cost manufacturing also provides
benefits when selling products to the less price sensitive aftermarket.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading global
supplier of automotive exterior accessories, thereby increasing revenue and cash
flow. In order to accomplish its goal, the Company intends to pursue the
following strategies.
Increase Global Market Share. The Company intendsits
expanded presence in North America and Europe by marketing products to its
globalseveral important automotive OEM customers. Through its past acquisitions of complementary
product lines, the Company is able to offer an expanded range of products and
services to its extended customer base. The Company also expects to secure new
customers by virtue of its expanded market presence and broad product and
service offerings. The Company believes its continued emphasis on new technology
(both product and process), will resultindustry trends that have benefited us in the development of more innovative,
high margin towingpast and rack system products which it expects to market to its
expanding customer base.
Maintain and Enhance Strong Customer Relationships. The Company intends to
strengthen and expand its relationships with global automotive OEMs and
aftermarket customers by (i) continuing its commitment to innovative design and
development of products during the early stages of vehicle design and redesign;
(ii) building on its position as a low cost supplier of quality accessory
products; (iii) offering new products in existing and new geographic areas by
taking advantage of existing OEM relationships; and (iv) working with
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aftermarket customers to develop new products and marketing strategies. The
Company has recently obtained orders from Mercedes Benz, BMW, SEAT and Chrysler
to supply products for new SUVs.
Increase Operating Efficiencies. The Company believes there are significant
opportunities for improvement in margins and cash flow through intercompany
cooperation among its various acquired business units, including (i) realizing
economies of scale from the combined purchasing power of a larger company; (ii)
achieving production and other operating efficiencies through the implementation
of a "best practices" program; (iii) reducing certain selling, general and
administrative and product development expenses; and (iv) reducing capital and
operating expenditures from coordinated use of manufacturing resources.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward systems suppliers, the Company is focused on making strategic
acquisitions that will enhance its ability to provide integrated systems (such
as a towing or rack system) or otherwise leverage its existing business by
providing additional product, manufacturing and service capabilities. The
Company also intends to pursue acquisitions which will expand its customer base
by providing an entree to new customers, including expansion into selected
geographic areas. The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
INDUSTRY OVERVIEW
In 1996, the North American exterior accessories market for light vehicles
was approximately $3.3 billion. In 1996, in the first year of ownership, North
American consumers spent approximately $1.4 billion on exterior accessories for
their light trucks as compared to approximately $0.8 billion in 1986,
representing a compound annual growth rate of 5.9%. Growth in this market, and
in towing systems and rack systems in particular, resulted in large part from
the increased production and sale of light trucks, which in 1996 accounted for
approximately 46% of total light vehicle production in North America as compared
to 32% in 1986. According to DRI/McGraw-Hill Ward's Global Automotive Group,
production of light trucks in North America and Western Europe has outpaced
overall production in the light vehicle market (ten-year compound annual growth
rate of 1.3% in North America and 1.4% in Western Europe), resulting primarily
from the growth in minivans (ten-year compound annual growth rate of 8.6% in
North America and 30.8% in Western Europe) and SUVs (ten-year compound annual
growth rate of 11.6% in North America and 13.7% in Western Europe), although no
assurance can be given that such production rates of light trucks will continue
or will continue to outpace overall production.
Strong growth in production of light trucks is attributable to several
factors, including (i) the more sizable and comfortable interiors and
aesthetically pleasing modern designs offered by light trucks; (ii) the changing
lifestyle of the population, which is aging and therefore devoting more time to
recreational activities; (iii) the versatile product offerings targeted toward
both the luxury and economy market sectors; (iv) the increasing acceptance of
light truck use for everyday transportation; and (v) the durability and special
performance capabilities (e.g. four-wheel drive) of light trucks.
Automotive OEM and Aftermarket Trends
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it has benefited andwe believe will continue to benefit us. These trends include:following automotive OEM and aftermarket trends:
Consolidation of Supplier Base by OEMs. Since the 1980's, OEMs have
significantly consolidated their supplier base in an effort to reduce their
procurement-related costs, ensuredesire for local content will benefit full service, high quality and accelerate new model
development. As a result, many smaller, poorly capitalized suppliers with limited product lines and engineering and design capabilities have either been
eliminatedNorth American operations, such as suppliers to OEMs or tiered (i.e., they supply other suppliers).
Consequently, larger suppliers with broad product lines, in-house design and
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engineering capabilities and the ability to effectively manage their own
supplier bases, have been able to significantly increase their market share.
The consolidation by OEMs has altered the typical structure of supplier
contracts. Inours.OEMs supplied all design, development and manufacturing
expertise for accessory parts and were responsible for consistency of quality
and reliability of delivery. On newer models, however, there has been a trend
toward involving potential suppliers earlier in the design and development
process to encourage suppliers to share design and development responsibility.
In some cases, sole-source supply contracts which cover the life of a vehicle or
platform are awarded. Both OEMs and suppliers benefit from the consolidation
trend. Suppliers are able to devote the resources necessary for proprietary
product development with the expectation that they willseveral years, most western European countries have the opportunity to
profit on such investment over the multi-year life of a contract. OEMs benefit
from shared manufacturing cost savings attributable to long, multi-year
production runs at high capacity utilization levels.
Emergence ofadopted European Community Safety Standards. Trends within the
European towing systems market result primarily from emerging EC safetyregulatory standards and the corresponding legislative framework. Such standards providethat mandate that a towing system must fit all the vehicle manufacturer's recommended fitting points, must not interfere with the vision of the number plate when not in use and must meet strict testing criteria for durability and safety. These standards have been adopted by The Netherlands, Germany, Sweden, Italy and Scandinavia.
Otherall 15 EC countries and are expected to adoptin the legislation within two years.process of being adopted by various Eastern European countries, including Poland. All of the Company's approximately 2,000our towing systems sold in Europe currently
undergo rigorous safety testing in orderare designedInThe adoption of these regulatory standards, in addition allto customers' demand for increased functionality and pleasing aesthetics is resulting in a shift in consumer preference from fixed towbars to more highly engineered detachable towbars.Company's detachable rooflargest suppliers of rack systems and towing systems to the automotive OEM market and the automotive aftermarket. We believe that we have achieved leading market positions in our core business lines by offering an extensive selection of high quality attractively priced products due to our economies of scale and by focusing on customer satisfaction. We are designed and tested to meet and exceed strict German standards.
Increased Levelsone of Manufacturingthe two largest suppliers of rack systems in North America, by Transplants. As a
resultwith an approximate market share of 50%. In addition, we are the relative cost advantagelargest supplier of producing vehiclestowing systems in the world with the leading market position in Europe and the second leading market position in North America, many transplants have increased their sharewith approximate market shares of North American vehicle production
from approximately 6% in 1986 to approximately 20% in 1996. Industry sources
forecast that this trend will continue. For example, both Mercedes Benz32% and BMW
commenced manufacturing in the U.S. in 1996. In addition, Toyota has announced
plans to build its T-100 pickup truck in Indiana by 1998, Honda has announced
plans to build its Odyssey minivan in North America by 1999,16%, respectively. Our aftermarket products are sold under well-established brand and BMW has
announced plans to build its E-53 SUV in North America by 1999. The Company
believes that increased levelstrade names includingBarrecrafters, Brink, Dycrest Automotive, Nomadic Sport, SportRack andValley. manufacturing of light trucks in North America
by transplants will benefit full service, high quality suppliers with North
American operations such as the Company.
Outsourcing by OEMs. In an effort to facilitate and enhance product design,
reduce costs and simplify manufacturing processes, automotive OEMs are
increasingly outsourcing the manufacture of many components that were previously
manufactured internally. This trend results from independent suppliers being
generally able to design, manufacture and deliver components at a lower cost
than OEMs as a result of (i) their significantly lower direct labor, fringe
benefit and overhead costs; (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs; and
(iii) the economies of scale inherent in product specialization. Independent
suppliers such as the Company have benefited from outsourcing because the
aggregate number, complexity and value of components that they manufacture have
increased dramatically. OEMs, in turn, have benefited because outsourcing has
allowed them to reduce costs and to focus on overall vehicle design and consumer
marketing.
PRODUCTS
The principal product lines of the Company are towing systems and rack systems and accessories. On a pro forma basis in 1997, towing systems
constituted approximately 62% and rack systems and accessories constituted
approximately 38% of the Company's net sales, respectively. The Company believes
it offers a more comprehensive product line than any of its competitors. The
Company has devoted considerable resources to the engineering and designing of
its products and, as a result, considers itself a market leader in the research
and new product development of towing systems and rack systems.
Towing Systems. The Company designs, manufactures and suppliesand/or towing systems to automotivemost of the OEMs and the automotive aftermarket which fit virtually
every light vehicle produced inserving North America and Europe. 51
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InWe believe that we have strong customer relationships that are based on a reputation for high service levels, strong technical support, innovative product development, high quality and competitive pricing. We have developed these relationships over a long period. For example, we have been supplying DaimlerChrysler and General Motors, our two largest customers since 1991 and 1984, respectively, and have been supplying U-Haul and Coast Distributions Systems, our two largest automotive aftermarket customers, since 1994. Our OEM customers have recognized us with numerous achievement awards including DaimlerChrysler's Gold Award, Ford's Q-1 Award, General Motors's Supplier of the aggregate,Year Award, Kia's Preferred Supplier Award and Toyota's Distinguished Supplier Award. We believe that our strong OEM relationships provide us with a significant advantage in retaining existing contracts as well as in participating in the Company supplies over 2,000 differentdesign phase for new vehicles, which is integral to becoming a supplier for new platforms. We estimate that our retention rate for replacement platforms of existing OEM customers was in excess of 71% on average from 2000 through 2002. We believe that our strong customer relationships position us favorably to gain additional business.a complete lineunique detachable towing hitches and push button and pull lever stanchions on fixed rack systems. We believe our design and engineering capabilities provide significant value to our customers by: (i) reducing OEM new product development cycles and preproduction and launch schedules; (ii) lowering OEM manufacturing costs; (iii) providing technical expertise; and (iv) increasing the ability to serve continually changing OEM and aftermarket customer preferences.towing accessories.
The Company'sthe broadest in our industry, consists of vehicle-specific rack systems and towing systems and a wide range of complementary accessory aftermarket products. We supply rack systems to OEMs that are used on 38 vehicle models, as well as rack systems sold in Europe are installed primarily on
passenger cars. The Company's primary product within the European market is the
fixed ball towbar that is specifically designed to be mounted onthrough aftermarket channels for a particular
car model in accordance with the OEM's specified mounting points. The Company
also markets sophisticated detachable ball systems which are popular with ownerssubstantial number of more expensive cars or cars on which the license plate would otherwise be
blocked by a fixed ball towbar. All of the Company'sadditional models. Our towing system products soldfit most vehicles commonly used for towing in Europe currently undergo rigorous safety testingand Northorderour product line. In addition, as new vehicles are introduced, we design towing systems to satisfymatch the specific vehicle design. Furthermore, we have the most extensive towing systems product line that satisfies stringent EC regulatory safety standards. Competitors whose products do not satisfy such standardsWe believe that a competitor would face substantial design and testing costs to offer a comparable product line that meets thethese safety standards.
The Company's sold in North America and Europe. Our low cost position is a result of cost controls and efficiency initiatives designed to enhance productivity and reduce capital expenditures. Our cost controls are installed primarilyclosely integrated with our quality focused manufacturing operations, which we believe allows us to profitably deliver high quality, easy to install and competitively priced components on light trucks. Twoa just-in-time basis. In late 2002, we increased our towing systems manufacturing capacity in Europe by opening a new manufacturing facility in France and reorganizing our manufacturing facilities in The Netherlands. This increased capacity will allow us to pursue growth opportunities in existing and new geographic areas, such as Germany and Eastern Europe. We have achieved ISO-9000 or QS-9000 certification for most of the Company's most innovative product designsour manufacturing and engineering facilities, including all of our OEM manufacturing and engineering facilities.been
the tubular trailer hitch which is lighter in weight, less obtrusivean average of 17 years of industry experience. Our management team has a proven track record of maintaining strong relationships with our existing customers, winning new customers, increasing cross-selling, successfully integrating business lines and stronger than the conventional hitch, and a device which ensures secure
attachment of a towing productintroducing new products to the vehicle. These product innovations have
enabled the Companymarket. Members of our management team own equity and stock options in our company and will be further incentivized by equity compensation awards to improve our operational and financial performance.functionalityfollowing strategies:safety of towing systems
while, at the same time, enhancing the overall appearance of vehicles utilizing
these towing products.
The Company offers a complete line of towing accessories, including trailer
balls, ball mounts, electrical harnesses, safety chainsExisting Customers. We intend to continue to leverage our design and locking hitch pins.
To capitalize on the strong growth trend in light trucks, the Company has
recently expanded itsengineering expertise, high quality, low cost manufacturing capabilities and extensive product line to increase our sales. We have successfully increased our penetration with existing OEM customers by winning new and replacement platforms that were previously supplied by our competitors and by offering new products in existing and new geographic areas. For example, in early 2003, we launched new programs to supply running boards for BMW and Toyota. We also have targeted new aftermarket customers and have recently won a private label contract to manufacture rack systems and accessories for The Coleman Company.products designed
specifically for this market,costs. Forgrille guards, brush guardsGermany and tire
carriers.Eastern Europe. Over the next two years, we also intend to consolidate our UK and Italian manufacturing operations into our new French facility. We believe that this reorganization, which will require minimal additional capital expenditures, will further reduce our fixed cost base and improve our labor and manufacturing efficiencies. The Company designs, manufactures and supplies We supply fixed roof rack systems for individual vehicle models that generally are generally sold to the automotive OEMs for installation at the factory or dealership. These rack
systems typically remain onfactory. They are supplied for a model for the life of its design, which generally ranges from four to six years. The Company has been an industry leader in
developing designs which not onlyOur fixed rack systems are designed to complement the styling themes of a particular vehicle, but alsoas well as to increase the utility and functionality of the rack system. These rack systems are utilized on a large number of light trucks, including BMW X5, Cadillac Escalade, Chevrolet Suburban, Tahoe and Trailblazer, DaimlerChrysler minivans, Dodge Durango, GMC Yukon and Envoy, Jeep Grand Cherokee and Liberty, Mercedes Benz M-Class and Oldsmobile Bravada.sold by the Companywe sell are composed of side rails, which run along both sides of the vehicle's roof, feet which mountroof. In many cases, the side
rails to the vehicle's roof, andrack system also includes cross rails which run between the side rails.
Cross rails, which are attached to the side rails with stanchions that are typically movable and can be used to carry a load. The Company usesWe use advanced materials such as lightweight, high strength plastics and roll formed aluminum to develop durable rack systems that optimizeincrease vehicle performance. Many of these products incorporate innovative features such as push button and pull lever stanchions, which allow easy movement of the cross rails to accommodate various size loads.
Theseare utilized on a large number of light trucks, including
Jeep Grand Cherokee and Cherokee, Chrysler minivans, GM Suburban, Tahoe and
Yukon and Mercedes Benz ML320.
Detachable Rack Systems. The Company designs, manufactures and supplies
detachable roof and rear mount rack systems for distribution in both the automotive and sporting accessory aftermarkets. A detachable rack system typically consists of cross rails which are attached to the roof of a vehicle by removable mounting clips. The Company offers a full line of detachable rack
systems, including the SportRack(R), SnapRack(TM) and Mondial(R) rack systems.
The Company's innovative Mondial(R) product line of detachable rack systems
consists of only 14 SKUs that are able to fit substantially all passenger
vehicles sold in North America and Europe while some competitors' comparable
product lines consist of more than 200 SKUs. In addition, the Mondial(R) line of
detachable rack systems is designed to meetwe design and exceed strict international
performance standards, and is noted for its flexibility, ease of attachment and
minimal SKU requirements.
Rack System Accessories. The Company designs and manufacturesmanufacture lifestyle accessories for distribution in both the automotive and sporting accessory aftermarkets. These accessories typically attach to the Company'sour towing or rack systems and are used for carrying items such as bicycles, skis, luggage, surfboards and sailboards.
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CUSTOMERS AND MARKETING
Management believesCompany's strongtowing ball can be easily removed when not in use. The detachable ball systems are becoming increasingly popular, especially with owners of more expensive cars and diverse industry
relationshipsfor cars on which the license plates would otherwise be blocked by a fixed ball towbar. Our towing systems sold in Europe are baseddesigned to satisfy EC regulatory standards and undergo durability and safety testing in order to comply with these standards. Our towing systems sold in North America primarily are installed on its reputation for high service levels, strong
technical support,light trucks and recreational vehicles.development, high qualitydesigns such as the tubular trailer hitch, which is lighter in weight, less obtrusive and competitive
pricing. Onstronger than the conventional hitch. Many of our product innovations have enabled us to improve the functionality and safety of towing systems while, at the same time, enhancing the overall appearance of vehicles utilizing these towing products.pro forma basis, salesline of towing accessory products that includes carriers for bicycles and other gear, trailer balls, ball mounts, electrical harnesses, safety chains and locking hitch pins.approximately 65%67.7% and 35%32.3% of the Company'sour net sales, respectively, in 1997.
for the twelve months ended March 31, 2003.OEMs. The Company obtainsOEMsitsour new orders through a presourcingsourcing process by which the customer invites one or a few preferred suppliers to manufacturedesign and designmanufacture a component or system that meets certain price, timing, functional and aesthetic parameters. Upon selection at the development stage, the Company andwe typically agree with the customer typically agree to cooperate in developing the product to meet the specified parameters. Upon completion of the development stage and the award of the manufacturing business, the Company
receiveswe receive a purchase order that covers parts to be supplied for a particular car model. SuchThese supply arrangements typically involve annual renewals of the purchase order over the life of the model, which is generally four to six years. In addition, the Company enters into long-term contracts with certain OEM
customers which require the Company to make annual price reductions. The Company
also competesWe compete to supply parts for successor models even though the Companywe may currently supply parts on the predecessor model. Sales to OEMs and Tier 1
suppliers are made directly by the Company'sour internal sales staff of 29
individuals and 23 outside sales representatives.
The Company sells itsautomotive OEMs selling lightproducing vehicles in North America and Europe, including Chrysler,BMW, DaimlerChrysler, Fiat, Ford, General Motors, Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat,Kia, Mitsubishi, Nissan, Volkswagen,Opel, SEAT, Skoda, Subaru, Toyota, Volkswagen and Kia.Volvo. DaimlerChrysler and General Motors are our largest customers. Sales to DaimlerChrysler and General Motors were 22.0% and 25.1%, respectively, of our aggregate net sales for the twelve months ended March 31, 2003.Company supplies Chrysler with
substantially allautomotive aftermarket consists of its towing systemsautoparts retailers and rack systems anddistributors as well as installers of automotive accessories. The Company also supplies approximately 50%largest of the towing systemour aftermarket customers include Ace Hardware, Advance Auto Parts, Balkamp, Brezan, Canadian Tire, Coast Distribution System, Feuvert, Norauto and rack system
requirements of General Motors, for which it has been a supplier for over 20
years. The following chart sets forth information regarding vehicle models on
which the Company's automotive products are used or for which the Company has
been awarded business (including Ellebi, which was acquired on January 2, 1998).
AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
Towing Systems Chrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Grand Cherokee, Plymouth
Voyager, Town & Country, Ram Pick-up, Prowler, Ram Van
Dakota, Wrangler, Durango
General Motors Suburban, Yukon, Tahoe, Astro, Frontera, Corsa, Arena (van)
Safari, CK Pick-up, ML Van, S-10
Blazer, APV Vans, Bravada Jimmy, Geo
Tracker, Blazer, Corsa, Astra
(hatchback), Astra (Sedan), Astra
(Station wagon), Calibra, Vectra
(Hatchback), Vectra (Sedan), Vectra
(Station wagon), Omega (Sedan), Omega
(Station wagon), Campo, Frontera,
Monterey, Zafira
Ford Expedition, Explorer, Ranger, Escort, Explorer
Aerostar Minivan, Mercury Villager,
Windstar Minivan, Navigator, Fiesta,
Escort (all models), Mondeo, Mondeo
(Wagon), Scorpio (Sedan), Scorpio
(Wagon), Maverick, Transit
Renault Laguna (Station wagon), Laguna, Twingo, Laguna, Clio
Megane, Twingo, Espace
Isuzu Rodeo, Trooper
Toyota 4-Runner, Land Cruiser, RAV4, Lexus, Corolla, Lexus LS200, Carina,
646T, 477T, 860T, Corolla, Carina, Carina Wagon, Yaris
Camry, Hi-Lux, Picnic, Previa,
Hi-Ace, Celica
Nissan Pathfinder, Pick-up, Quest, Infiniti Almera, Primera Wagon, Micra,
vehicle, QW Truck, Micra, Sunny, Patrol
Almera, Primera, Maxima, King Cab,
Terrano, Patrol
Mazda 121, MPV, Xedos-9, Xedos-6, 626, 323 626 Wagon, 323
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AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
Towing Systems
(cont.)
Honda Passport PF Van, CRV
Mitsubishi Montero Spacestar, Challenger
FIAT Almost all models
Alpha Romeo Almost all models
Lancia Almost all models
Subaru Outback 79V
Range Rover Range Rover, Land Rover
Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
(Station wagon), 850 (Sedan), 850
(Station wagon)
SAAB 9000 series, 900 series 900 series, 9000 series, 9000
station wagon, small car 9-3,
small car 9-5, small station wagon
Peugeot 106, 306, 406 (Sedan), 406 (Station 206 Sport, 306 Break
wagon), 406 (Coupe), 605, 806, J5
(Van), Boxer (Van)
Suzuki Wagon R. Grand Vitara
Daihatsu Sirion, More, Charade
SEAT Toledo
Skoda SK240
Volkswagen Gold Combi, Vento
Daewoo LD100
Rack Systems Chrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Grand Cherokee, Caravan,
Voyager, Town & Country, Durango Voyager, Town & Country, Neon PT,
BW 72
General Motors Suburban, Yukon, Tahoe, Astro, Safari Suburban, Yukon, Tahoe, Jimmy,
Blazer, Bravada
Honda Accord
Mitsubishi Montero
Mercedes ML320
Subaru Outback, Impreza, Legacy
KIA Sportage
SEAT Vario GP99
Opel Astra
BMW E-53 (SUV)
- -------------------------
(a) Represents models for which the Company produced products in 1997.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. See "Risk Factors -- The OEM Supplier
Industry." There can be no assurance that any of these vehicles will be
produced or that the Company will generate certain revenues under these
awards even if the models are produced.
Automotive Aftermarket. The Company sells itsU-Haul. We sell our products directly into the automotive aftermarket through a number of channels, including wholesalers, retailers and installers, through itsour internal sales force and outsidethrough third party sales representatives. The largest of the Company's aftermarket customers include
U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System,
Discount Auto Parts, Ace Hardware and Canadian Tire. The Company believes that
it has established a reputation as a highly reliable aftermarket supplier able
to meet its customers' requirements for on-time deliveries while minimizing the
carrying levels of inventory. For example, the Company began supplying towing
systems to U-Haul (the largest installer of towing systems
Our sales in the United States)automotive aftermarket are seasonal. Historically, the highest sales have been in 1994 and for the second quarter of each year, ended December 31, 1997, supplied approximately 50% of
U-Haul's towing system requirements. The Company believes aftermarket customers
such as U-Haul represent opportunities to cross-sell existing products such as
rack systems and accessories.
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MANUFACTURING PROCESS
The Company's manufacturing operations are directed toward achieving
ongoing quality improvements, reducing manufacturing and overhead costs,
realizing efficiencies and adding flexibility. The manufacturing operations
utilizedfollowed by the Company include metal cutting, bending, cold forming, roll
forming, stamping, welding, plastic injection molding, painting, assemblyfirst quarter.
Product Design, Development and packaging. The Company performs most manufacturing operations in-house but
outsources certain processes depending on the capabilities and capacities of
individual plants and cost considerations. For example, while some of the
Company's towing systems manufacturing facilities have painting capabilities,
the Company has chosen to outsource the painting of its rack systems.
The Company develops new tooling used in the manufacture of its products.
Once a customer accepts such tooling, the tooling becomes the property of the
customer and the Company is reimbursed by the customer for the cost of the
tooling, or in certain instances, recovers all or a portion of such costs
through incremental increases in unit selling prices.
In some cases, the Company has also developed special machinery to meet its
particular needs. For example, the hardwareTesting
We believe that accompanies certain towing
systems is selected automatically by special equipment and is then weighed and
transferred into the final package without human intervention. The Company has
developed specialized, computer operated machinery to enable it to efficiently
perform this operation. The Company has organized its production process to
minimize the number of manufacturing functions and the frequency of material
handling, thereby improving quality and reducing costs. In addition, the Company
uses cellular manufacturing which improves scheduling flexibility, productivity
and quality while reducing work in process and costs.
The Company has established quality procedures at each of its facilities
and strives to manufacture the highest quality product possible. The Company has
achieved ISO-9000 or QS-9000 certification for ten of its seventeen
manufacturing and engineering facilities and is in the process of obtaining
certification for the rest of its facilities. The Company has received numerous
quality and performance awards from its OEM customers, including Chrysler's Gold
Pentastar Award, Ford Q-1 Award, Toyota's Distinguished Supplier Award and the
Nissan Superior Supplier Performance Award.
PRODUCT DESIGN, DEVELOPMENT AND TESTING
The Company believes that it iswe are a leader in the design of towing systems, and rack systems and accessories. The Company believes it offersaccessories and that our products that
possess greaterhave a reputation for quality, reliability and performance than the products sold by
many of its competitors. The 84 members of the Company'sperformance. Our in-house engineering and design staff possess strongconsists of approximately 135 technical skills. The Company currently holdspersonnel. We hold more than 150 U.S. and foreign patents and hashave numerous patent applications pending. The
expiration of such patents are not expectedIn addition, we hold various trademarks. No single patent or trademark is material to have a material adverse effectour operations.
We spent approximately $8.5 million on the Company's operations.
On a pro forma basis, the Company spent $6.9 million onengineering, research and development in 1997. The Company works closely with OEMs to constantly improve
design and manufacturing technology and product functionality.2002. When an OEM is in the process of developing a new model, which is usually two to four years in advance of the model's introduction, it typically approaches an established or
incumbenta supplier with a request to supply the required towing system or rack system. The Company is typically contacted two to four years prior to the start
of production of the new model. The Company'sOur product development engineers then work closely with the OEM to develop a product that satisfies the OEM's aesthetic and functional requirements. ThisWe believe that this relationship also provides the
Companyus with a competitive advantage in the aftermarket because, the Companyin many cases, we already possessespossess the knowledge to create a systemaccessories compatible with new model vehicles prior to release.
The Company has
We have extensive testing capabilities, which enable itus to test and certify itsour products. The Company subjects itsWe have purchased or developed specialized testing equipment for use specifically in our testing laboratories. We subject our products to tests which it
believeswe believe are more demanding than conditions which wouldthat occur during normal use.
The Company has specialized equipment which it has purchased or developed
We test our towing products for use in its testing laboratories.
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Since May 1994, six European countries enacted the newcompliance with EC regulatory standards which require that towing systems undergo significant safety testing
prior to gaining approval for sale. This safety testing requires that a towing
system be extensively tested for fatigue and includes subjecting a towing system
to upwards of two million high load pulses. The Company does its testingrequirements in itsour own laboratory under the control of an independent institute that is authorized by the EC to approve the towing systems for sale. TheOur quality assurance system is regularly audited by anthis independent institute and by theour automotive OEMs
themselves. The Company hasOEM customers. We have continually been awarded the highest distinction of achievement by the independent institute.
RAW MATERIALS
The principal
Manufacturing Process
Our manufacturing operations are directed toward achieving ongoing quality improvements, reducing manufacturing and overhead costs, realizing efficiencies and adding flexibility. We have organized our production process to reduce the number of manufacturing functions and the frequency of material handling, which we believe has resulted in quality improvements and has reduced costs. In addition, we use cellular manufacturing, which improves scheduling flexibility, productivity and quality, while reducing work in process and costs.
Our manufacturing operations involve metal cutting, bending, cold forming, roll forming, stamping, welding, plastic injection molding, painting, assembly and packaging. We perform most manufacturing operations in-house, but outsource certain processes depending on the capabilities and capacities of individual plants, as well as cost considerations. For example, while some of our towing systems manufacturing facilities have painting capabilities, we have chosen to outsource the painting of our rack systems.
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We have established quality procedures at each of our facilities and strive to manufacture high quality products. We have achieved ISO-9000 or QS-9000 certification for most of our manufacturing and engineering facilities, including all of our OEM manufacturing and engineering facilities, and are in the process of obtaining certification for some of our other facilities. We have received numerous quality and performance awards from our OEM customers, including DaimlerChrysler's Gold Award, Ford's Q-1 Award, General Motors' Supplier of the Year Award, Kia's Preferred Supplier Award and Toyota's Distinguished Supplier Award.
Raw Materials
Numerous raw materialmaterials are used in the Company's products is steel,manufacture of our products. Steel, which is purchased in sheets, rolls, bars or tubes, and represents approximately 50%resin accounted for the most significant components of the Company'sour raw material costs. The Companycosts in 2002. We also purchasespurchase significant amounts of aluminum and plastics. The Company hasWe have various suppliers globally and hasare not had difficulties in procuringdependent on any one supplier or small group of suppliers for any of our raw materials nor does it expect to have any
problems in the future. The Company ismaterials. We are committed to supplier development and long-term supplier relationships. However, most of the Company'sour raw material demands are for commodities and, as such, can be purchased on the open market on an as needed basis. The Company selectsWe select among available suppliers by comparing cost, consistent quality and timely delivery, as well as compliance with QS-9000 and ISO-9000 standards.
The Company customarily obtains its supplies through individual purchase
orders. In some instances, the Company will enter into short-term contracts with
its suppliers which generally run one year or less. However, in the Company's
sole outsourcing relationship, it has signed a long-term supply agreement which
terminates in 2004 with one of its painting suppliers, Crown Group, Inc.
("Crown"), under which Crown opened a state-of-the-art paint line in a facility
adjacent to the Company's Port Huron facility.
COMPETITION
The Company's
Competition
Our industry is highly competitive. AAlthough we are one of the world's largest suppliers of rack and towing systems, a large number of actual or
potential competitors exist, some of which are larger than the Companyus and have substantially greater resources than the Company.we do. In the rack systems and accessories market, our competitors include Graber Products, JAC Holding, Thule International, Yakima Products and several smaller competitors. In the towing systems market, we compete with Bosal, Draw-Tite, Reese, The Company competesOris Group, Westfalia, Production Stamping and numerous smaller competitors.
We compete primarily on the basis of product quality, cost, timely delivery, customer service, engineering and design capabilities and new product innovation in both the OEM market and the automotive aftermarket. The Company believesWe believe that, as OEMs continue to strive to reduce new model development cost and time, innovation and design and engineering capabilities will become even more important as a basis for distinguishing competitors. The Company believes it has an outstanding
reputationWe believe we have leading capabilities in both of these areas.
In the automotive aftermarket, the Company
believeswe believe that itsour wide range of product applicationsproducts is a competitive advantage. For example, the Company haswe have developed towing systems to fit substantially all
thealmost every light vehicles producedvehicle used for towing in North America and Europe. The Company believes
itsWe believe our competitive advantage in the aftermarket is enhanced by itsour close relationship with OEMs, allowing the Companyus access to automobile design at an earlier time than itsmany of our competitors.
In the towing systems market, the Company competes with Draw-Tite Inc. and
Reese Products Inc.,
Environmental Regulation
Our operations, both of which are subsidiaries of TriMas Corp., Bosal
Holding B.V., The Oris Group, Production Stamping Inc. and numerous smaller
competitors.
In the rack systems and accessories market, the Company's competitors
include JAC Holding Corp., Thule, which is a wholly-owned subsidiary of Eldon AB
(a Swedish company), Yakima Products Inc., Barrecrafters, Graber Products Inc.
and several smaller competitors.
EMPLOYEES
At December 31, 1997, the Company had approximately 1,600 employees of whom
approximately 1,100 are hourly employees and approximately 500 are salaried
personnel. Approximately 150 of the Company's employees in the United States at
the Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 1999. As is common in many European jurisdictions,
substantially all of the Company's employees inand throughout Europe, are
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covered by country-wide collective bargaining agreements. The Company believes
that its relations with its employees are good.
FACILITIES
The Company's executive offices are located in approximately 14,550 square
feet of leased space in Sterling Heights, Michigan. The Company has 19
engineering, manufacturing and distribution facilities with a total of
approximately 1,973,350 square feet of space. The Company believes that
substantially all of its property and equipment is in good condition and that it
has sufficient capacity to meet its current and projected manufacturing and
distribution needs.
The Company's facilities are as follows:
SQUARE OWNED/ LEASE
LOCATION FUNCTION FEET LEASED EXPIRATION**
-------- -------- ------ ------ ------------
North America
Shelby Township, Michigan* Manufacturing 42,800 Owned --
Port Huron, Michigan* Manufacturing 200,000 Owned --
Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003
Mt. Clemens, Michigan Warehousing 25,000 Leased 1998
Lodi, California Administration, manufacturing and 150,000 Owned --
engineering
Auburn Hills, Michigan Warehousing 49,000 Leased 2006
Madison Heights, Michigan* Administration and manufacturing 90,000 Leased 2002
Madison Heights, Michigan* Engineering 18,000 Leased 2002
Granby, Quebec Administration, manufacturing and 62,000 Leased 2001
warehousing
Bromptonville, Quebec Manufacturing 2,000 Leased 1999
Europe
Sandhausen, Germany Administration and engineering 5,000 Leased Month to Month
Staphorst, The Netherlands* Administration, manufacturing, 405,000 Owned --
warehousing and engineering
Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned --
Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned --
Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned --
Vanersborg, Sweden* Manufacturing, warehousing and 160,000 Leased 2004
engineering
Reims, France Manufacturing and warehousing 115,000 Owned --
Reggio Emilia, Italy Administration, manufacturing, 170,000 Leased 2003
warehousing and engineering
Reggio Emilia, Italy Manufacturing and warehousing 110,000 Leased 2003
- -------------------------
* QS 9000 and/or ISO 9000 certification.
** Gives effect to all renewal options.
ENVIRONMENTAL REGULATION
The Company's operations are subject to foreign, federal, state and local environmental laws and regulations that limit the discharges into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of certain materials, substances and wastes. In many jurisdictions, thesewastes and require cleanup of contaminated soil and groundwater. These laws are often complex, change frequently and have tended to become stronger over time.
In jurisdictions such as the United States, such obligations, including but not limited to those under the Comprehensive Environmental Response, Compensation & Liability Act,
("CERCLA") may be joint and several and may apply to conditions at properties presently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which waste or other contamination
64
attributable to an entity or its predecessors have been sent or otherwise come to be located. The Company believesThese laws may also impose liability for personal injury, property damage to natural resources due to the presence of, or exposure to, hazardous substances. In addition, many of these laws provide for substantial fines, orders (including orders to cease operations) and criminal sanctions for violations. All of our operations and properties must comply with these laws and, in some cases, we are required to obtain and maintain permits in connection with our operations and activities. Although we believe that its operationswe are in substantialmaterial compliance with these permits and the termsapplicable environmental laws, it is difficult to predict the future development of allsuch laws and regulations or their impact on our business or results of operations.
We have incurred and expect to incur costs for our operations to comply with the requirements under applicable environmental laws, and these costs could increase in the future. While these costs have not been significant, we cannot guarantee they will not be material in the future. We anticipate that standards under environmental laws and regulations as currently interpreted. In addition,will continue to the best of the Company's knowledge,
theretighten.
There are no existing or potential environmental claims against us. We are conducting remediation at our facility located in Port Huron, Michigan which arises out of historical facility operations prior to our operation or ownership. We are entitled to indemnification for the Company norcosts associated with this remediation by Metaldyne Corporation. While we do not expect to incur independent costs associated with this matter, there can be no assurance that all costs will be covered by indemnification. Soil and groundwater contamination attributable to solvents has the Company received any notification or have any current investigation
regarding, the disposal, release,been identified in areas near our manufacturing facility in Lodi, California. The city of Lodi has initiated action to identify sources and remedial options, as well as to require responsible parties to pay for related costs and damages. No claim has been made or threatened release at any location of any
hazardous substance generated or transported by the Company.against us. However, the
Companywe cannot predict with any certaintyguarantee that it
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60we will not in the future incur liability under environmental laws and regulations with respect to contamination ofat this or other sites currently or formerly owned or operated by the Companyus (including contamination caused by prior owners and operators of such sites), or the off-site disposal of hazardous substances. While historicallyWe are in the Company has not hadprocess of obtaining insurance coverage for some environmental liabilities for certain of our U.S. and foreign based facilities, subject to make significant capital
expenditures for environmental compliance,certain time and dollar limits and exceptions and exclusions under the Company cannot predict withpolicy which may operate to preclude or afford only partial coverage of any certainty its future capital expenditures for environmental compliance because
of continually changing compliance standards and technology. Future events, such
as changes in existing environmentalliability. See "Risk Factors—Environmental laws and regulations or unknown
contaminationmay impose risks and costs on us."
Employees
At March 31, 2003, we had approximately 2,300 employees, of sites owned or operatedwhom approximately 1,200 are hourly employees and approximately 1,100 are salaried personnel. Approximately 170 of our employees in the United States at the Port Huron, Michigan facility are represented by the CompanyTeamsters Union. Collective bargaining agreements with the Teamsters Union affecting these employees are in place until April 2004. As is common in many European jurisdictions, substantially all of our approximately 850 employees in Europe are covered by country-wide collective bargaining agreements. We believe that our relations with our employees are good.
Facilities
Our executive offices are located in 14,550 square feet of leased space in Sterling Heights, Michigan. We have 28 facilities with approximately 2.2 million square feet of space. We believe that substantially all of our property and equipment is in good condition, subject to normal wear and tear and that it has sufficient capacity to meet our current and projected manufacturing and distribution needs.
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Our facilities are as follows:
| Location | Principal Functions | Square Feet | Owned/Leased | Lease Expiration** | ||||
|---|---|---|---|---|---|---|---|---|
| North America | ||||||||
| Shelby Township, Michigan* | Manufacturing | 74,800 | Owned | — | ||||
| Shelby Township, Michigan* | Manufacturing | 13,000 | Leased | 2008 | ||||
| Port Huron, Michigan* | Manufacturing | 216,000 | Owned | — | ||||
| Sterling Heights, Michigan* | Administration and engineering | 14,550 | Leased | 2003 | ||||
| Sterling Heights, Michigan* | Manufacturing | 58,000 | Leased | 2006 | ||||
| Madison Heights, Michigan* | Administration and manufacturing | 90,000 | Leased | 2004 | ||||
| Madison Heights, Michigan* | Engineering and manufacturing | 18,000 | Leased | 2004 | ||||
| Williston, Vermont | Warehousing | 10,000 | Leased | 2006 | ||||
| Wyandotte, Michigan | Manufacturing | 5,000 | Leased | 2004 | ||||
| Lodi, California | Administration, engineering and manufacturing | 150,000 | Owned | — | ||||
| Lodi, California | Warehousing | 77,760 | Leased | 2005 | ||||
| Grove City, Ohio | Warehousing | 70,644 | Leased | 2006 | ||||
| Dallas, Texas | Warehousing | 23,800 | Leased | 2005 | ||||
| Granby, Quebec | Administration, manufacturing and warehousing | 103,924 | Leased | 2003 | ||||
| Bromptonville, Quebec | Manufacturing | 5,000 | Leased | Month to Month | ||||
| Hamer Bay, Ontario* | Manufacturing | 15,000 | Owned | — | ||||
| Barrie, Ontario | Manufacturing and warehousing | 5,200 | Leased | Month to Month | ||||
Europe | ||||||||
| Sandhausen, Germany* | Administration and engineering | 5,000 | Leased | Month to Month | ||||
| Barcelona, Spain | Manufacturing | 6,200 | Leased | 2004 | ||||
| Bakov and Jizerou, Czech Republic* | Manufacturing | 34,000 | Leased | Month to Month | ||||
| Staphorst, The Netherlands* | Administration, engineering manufacturing, and warehousing | 405,000 | Owned | — | ||||
| Hoogeveen, The Netherlands* | Manufacturing | 185,000 | Owned | — | ||||
| Fensmark, Denmark* | Manufacturing and warehousing | 95,000 | Owned | — | ||||
| Nuneaton, United Kingdom* | Manufacturing and warehousing | 75,000 | Owned | — | ||||
| Vanersborg, Sweden* | Manufacturing and warehousing | 160,000 | Leased | 2006 | ||||
| Wolsztyn, Poland | Warehousing | 5,000 | Leased | Month to Month | ||||
| Reims, France | Manufacturing and warehousing | 151,000 | Leased | 2015 | ||||
| St. Victoria di Gualtieri, Italy | Administration, engineering, manufacturing and warehousing | 170,000 | Leased | 2008 |
- *
- At these facilities, we have QS 9000 and/or ISO 9000 certification.
- **
- Gives effect to all renewal options.
Legal Proceedings
In February 1996, we commenced an action against Douglas and Andrew Gibbs, two of our former employees, alleging breach of contract under the terms of an October 1992 purchase agreement and employment agreements with our predecessor. The individuals then filed a counterclaim against us alleging breach of contract under these same agreements. On May 7, 1999, a jury in the United States District Court for the Eastern District of Michigan reached a verdict against AAS and awarded the individuals approximately $3.8 million in damages, plus attorneys' fees and pre- and post-judgment interest, which as of March 31, 2003 approximated $3.1 million. During the first three months of 2003 and during 2002, we increased our estimated accrual for this matter by $150,000 and $600,000, respectively, which charges are included in interest expense. We are currently pursuing an appeal of this judgment in the Sixth Circuit Court of Appeals.
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In connection with the acquisition, CHAAS Holdings and its affiliates (including contamination
causedus) are entitled to indemnification from the sellers, without regard to any threshold, cap or time limitation, for any losses incurred in connection with the pending Gibbs litigation. To secure this appeal, prior to closing of the acquisition, AAS issued a letter of credit in the amount of $8.3 million for the benefit of the Gibbs. At the closing of the acquisition, the sellers deposited with the financial institution that issued the letter of credit $9.0 million in cash in a separate escrow account to cash collateralize the letter of credit and to secure the sellers' obligations to pay all losses incurred by prior ownersAAS and operatorsits affiliates in connection with the Gibbs litigation. The sellers control any further proceedings relating to the Gibbs litigation, subject to certain exceptions.
In addition to the above, from time to time, we are subject to routine legal proceedings incidental to the operation of such sites), may give riseour business. The outcome of any threatened or pending proceedings is not expected to additional
compliance costs which could have a material adverse effect on the Company's
financial condition. Furthermore, actions by foreign, federal, state and local
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect the demand for its products. Additionally,
the Company does not currently have any insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future. See
"Risk Factors -- Environmental Matters."
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
it is not presently a party to any litigation the outcome of which would have a
material adverse effect on itsour financial condition or operating results, based on our current understanding of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
the relevant facts.
MANAGEMENT
BOARD OF MANAGERS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth certain information regarding the namesmembers of the board of managers or board of directors, as applicable, for each of AAS and agesAAS Capital Corporation, the issuers of eachthe New Notes, and our parent. In addition, the table sets forth information regarding the executive officers of the issuers and certain of our other senior officers. Each of the individuals that currently serveshas served as a member (each, a "Board Member") of the Company'sapplicable board of managers (the "Boardor board of Managers"), executivedirectors and/or as an officer, and
other significant employee ofas the Company.
case may be, since the dates indicated below in their biographical data.
| Name | Age | Position | ||
|---|---|---|---|---|
| Terence C. Seikel | 46 | President and Chief Executive Officer of | ||
| Richard E. Borghi | 56 | President and Chief | ||
| Gerrit de | 39 | General Manager and Chief Executive Officer of | ||
| Bryan A. Fletcher | 43 | President and Chief Operating Officer of | ||
| Barry G. Steele | 32 | Chief Financial Officer of AAS; Director and Chief Executive Officer of AAS Capital Corporation | ||
| John K. Castle | 62 | Member of our parent's Board of Managers | ||
| Marcel Fournier | 48 | Member of our parent's Board of Managers | ||
| William M. | 29 | Member of |
AAS is a direct wholly-owned subsidiary of our parent and AAS Capital Corporation is an indirect wholly-owned subsidiary of AAS.
Terence C. Seikel has served in the automotive industry for 36 years and has
been Chairman of the Board of Managers of the Company since its formation in
September 1995. He served in various assignments at
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General Motors from 1956 to 1992, including President of GM Canada from 1978 to
1980. He was a member of the Board of Directors of General Motors from 1981 to
1992 and Chief Financial Officer of General Motors from 1981 to 1988. Mr. Smith
is a director of The Minnesota Mining and Manufacturing Corporation ("3M") and
TransPro, Inc. ("TransPro"), a supplier of automotive components.
Marshall D. Gladchun has served in the automotive industry for 2418 years and has been President and Chief Executive Officer and a member of the Company and SportRackboard of managers of AAS since September 1995. From 1986 to 1995, he held various senior management
positions with MascoTech, and was President and Chief Operating Officer of the
MascoTech Division at the time of its acquisition by the Company.
Roger T. Morgan has served in the automotive industry for 35 years and has
been President and Chief Executive Officer of Valley since June 1990. Prior to
joining Valley, he worked for General Motors for 12 years and Rockwell
International Automotive Group as Vice President -- Operations for 14 years.
Gerrit de Graaf has been General Manager and Chief Executive Officer of
Brink since November 1996. From 1989 to 1996,April 1999. Mr. de Graaf worked for Philips
Medical Systems as a consultant and most recently as Philips' Marketing Manager
in the United States.
Terence C. Seikel has also been on the board of managers of our parent since May 2003. From January 1996 until April 1999, Mr. Seikel served in the automotive industry for 14 years and
has beenas Vice President of Finance and Administration and Chief Financial Officer of the Company since January 1996.AAS and SportRack. From 1985 to 1996, Mr. Seikel was employed by Larizza Industries, a publicly held supplier of interior trim to the automotive industry, in various capacities including Chief Financial Officer.
Richard E. Borghi has served in the automotive industry for 3034 years and has been President and Chief Operating Officer of SportRack since April 1999. From 1995 until April 1999, Mr. Borghi served as Executive Vice President of Operations and Chief Operating Officer of SportRack since 1995.SportRack. From 1988 to 1995, Mr. Borghi held various senior management positions with MascoTech Inc., and was the Executive Vice President of Operations of the MascoTech DivisionAccessories division at the time of its acquisition by AAS.
Gerrit de Graaf joined Brink in 1996 as Managing Director and Chief Executive Officer. From 1989 to 1996, he worked with Philips Medical Systems; the Company.
Jean M. Maynardlast two years as Marketing Manager in the United States. From 1989 to 1992, he worked as a consultant in the forecasting, logistics and human resource management fields. Mr. De Graaf holds a Master Degree in Mechanical Engineering from the University of Delft and a Master Degree in Industrial Engineering from the University of Eindhoven. He also holds an MBA Degree from the University of Antwerp affiliated with the Kellog Institute of the Northwestern University of Chicago.
Bryan A. Fletcher has served in the automotive industry for 1813 years and has been President of SportRack International or its predecessor since prior to
1992.
J. Wim Rengelink has served in the automotive industry for 11 years and has
been Managing Director of Brink since 1995. From 1988 to 1995 he worked in
Brink's internal audit department.
Gary K. Houston has served in the automotive industry for 24 years and has
been Vice President of OEM OperationsChief Operating Officer of Valley Aftermarket (a division of Valley) since 1995.July 2000. From 1991 to 1995 he
was Vice President of Manufacturing of Valley. Prior thereto,until July 2000, Mr. Houston worked
for Rockwell International for 18 years, most recentlyFletcher served as a manufacturing
manager.
Bryan A. Fletcher has served in the automotive industry for 9 years and has
been Vice President of Aftermarket Operations of Valley since 1991.
Donald J. Hofmann, Jr.Valley.
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Barry G. Steele has been a Board Member, Vice PresidentChief Financial Officer of AAS since April 2002 and
Secretary of the Company since October 1995. Mr. Hofmann has been a General
Partner of CCP since 1992.
Barry Banducci has been a Board Member of the Company since October 1995.
Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior
thereto, Mr. Banducci served in various capacities at Equion Corporation, a
supplier of automotive components, from 1983 to 1995, including President,the Board, Chief Executive Officer, Secretary and Vice Chairman.Treasurer of AAS Capital Corporation since December 2002. Prior to that Mr. BanducciSteele served as Corporate Controller of AAS from June 1999 until March 2002 and as Treasurer from July 2001 until March 2002. From September 1997 until June 1999, Mr. Steele served as Manager of Financial Reporting of AAS. From 1993 to September 1997, Mr. Steele was employed by Price Waterhouse LLP.
John K. Castle has been on the board of managers of our parent since May 2003. Mr. Castle is Chairman and Chief Executive Officer of Castle Harlan. Immediately prior to forming Castle Harlan in 1986, Mr. Castle was President and Chief Executive Officer of Donaldson, Lufkin, & Jenrette, Inc., one of the nation's leading investment banking firms. At that time, he also served as a director of TransPro and
Aristotle Corporation.
Gerard J. Brink has been a Board Memberthe Equitable Life Assurance Society of the Company since October 1996.U.S. Mr. Brink was General ManagerCastle is a board member of Brink from 1965Adobe Air Holdings, Inc., American Achievement Corporation, Wilshire Restaurant Group, Inc., Morton's Restaurant Group, Inc. and various private equity companies. Mr. Castle has also been elected to 1996.
BOARD MEMBER COMPENSATION
The Board Members do not currently receive compensationserve three, five-year terms as a trustee of the Massachusetts Institute of Technology. He has served for their service
ontwenty-two years as a trustee of New York Medical College, including eleven of those years as Chairman of the Board. He is a member of the Board of Managers or any committee thereof but are reimbursedthe Whitehead Institute for their
out-of-pocket expenses.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
TheBiomedical Research, and was Founding Chairman of the Whitehead Board of ManagersAssociates. He is also a member of The New York Presbyterian Hospital Board of Trustees, the University Visiting Committee for The Harvard Business School and Chairman of the Columbia-Presbyterian Health Sciences Advisory Council. Mr. Castle received his bachelors degree from the Massachusetts Institute of Technology, his MBA as a Baker Scholar with High Distinction from Harvard, and an Honorary Doctorate of Humane Letters from New York Medical College.
Marcel Fournier has an Audit Committee consistingbeen on the board of Messrs. Banduccimanagers of our parent since May 2003. Mr. Fournier is a Managing Director of Castle Harlan. He is also a board member of APEI Holdings Corporation and Brink,Gravograph New Hermes Holding LLC. Prior to joining Castle Harlan in December 1995, Mr. Fournier held various positions, including Managing Director, at the investment banking group of Lepercq, de Neuflize & Co., Inc. from 1981 to 1995. From 1979 to 1981, Mr. Fournier was Assistant Director of the United States office of the agency of the French Prime Minister. Mr. Fournier received his M.B.A. from the University of Chicago in 1979, his Masters in Economics from the Université de la Sorbonne and a degree in Civil Engineering from the École Speciale des Travaux Publics.
William M. Pruellage has been on the board of managers of our parent since May 2003. Mr. Pruellage is a Vice President of Castle Harlan. Mr. Pruellage is also a board member of Universal Compression, Inc., American Achievement Corporation, Verdugt Holdings, LLC. and Wilshire Restaurant Group, Inc. Prior to joining Castle Harlan in July 1997, Mr. Pruellage worked in the Mergers and Acquisitions group of Merrill Lynch & Co., where he assisted clients in strategic planning and corporate mergers.
Summary Compensation Committee consisting of Messrs. Hofmann and Smith.
The Audit Committee reviews the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's 1995 Option
Plan.
COMPENSATION OF EXECUTIVE OFFICERSTable
The following table sets forth information concerningregarding the compensation for
1997 forduring 2000, 2001 and 2002 of our chief executive officer and each of our four other most highly compensated executive officers serving in that capacity at the end of 2002. AAS Capital Corporation, an issuer of the New Notes, is an
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indirect wholly-owned subsidiary of AAS with nominal assets and which conducts no business or operations. Mr. Steele is the chief executive officer of the CompanyAAS Capital Corporation and the four next most
highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
its sole director.
| Annual Compensation | Compensation Awards | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other Annual Compensation ($) | ||||||||||||||
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Long-Term Compensation Awards | Securities Underlying Options (#) | All Other Compensation ($) | ||||||||
| Terence C. Seikel President and Chief Executive Officer of | 2002 2001 2000 | 265,000 265,000 265,000 | 175,000 115,000 175,000 | — — — | — — — | — — — | 4,506 5,100 5,100 | |||||||
Barry G. Steele Chief Financial Officer of | 2002 2001 2000 | 134,105 106,950 95,270 | 42,000 20,000 20,000 | — — — | — — — | — — — | 4,013 2,506 3,120 | |||||||
Richard E. President and Chief Operating Officer of SportRack | 2002 2001 2000 | 306,419 324,964 279,798 | 125,000 105,000 125,000 | — — — | — — — | — — — | 4,494 2,100 4,439 | |||||||
Gerrit de Graaf General Manager and Chief Executive Officer of Brink | 2002 2001 2000 | 165,168 151,577 154,000 | 38,899 41,250 65,000 | — — — | — — — | — — — | — — — | |||||||
Bryan Fletcher President and Chief Operating Officer of Valley Aftermarket | 2002 2001 2000 | 151,316 142,000 132,664 | 50,000 57,200 40,500 | — — — | — — — | — — 50 | 400 400 400 | |||||||
Compensation of Directors
The board members of AAS, AAS Capital Corporation and our parent do not receive compensation for their service in that capacity. We intend at some future date to December 31, 1997
OPTION GRANTS IN 1997elect non-employee board members and to pay them customary compensation.
Compensation Committee Interlocks and Insider Participation
Other than (i) Mr. Seikel who is an executive officer and on the board of managers of AAS and is also on our parent's board of managers and (ii) Mr. Steele who is an executive officer of AAS and is the sole director and an executive officer of AAS Capital Corporation, there are no compensation committee interlocks (i.e., no executive officer of either issuer or our parent serves as a member of the board or the compensation committee of another entity which has an executive officer serving on the board of either issuer or our parent or on the compensation committee of and such entity).
Employment Agreements
General
Messrs. Seikel, Borghi and Fletcher have employment agreements with CHAAS Holdings that extend until April 15, 2004, subject to automatic renewal providing that one year always remains on the term, unless employment is terminated as discussed below. Their agreements provide for an annual base salary of $260,000 for each of Mr. Seikel and Mr. Borghi and $155,000 for Mr. Fletcher, an annual bonus in a range of 50% to 70% of base salary for Mr. Seikel and a range of 30% to 50% of base salary for Messrs. Borghi and Fletcher, in all cases, subject to the achievement of performance goals established by the board of managers of CHAAS Holdings. In addition, each of Messrs. Seikel, Borghi and Fletcher shall be entitled to participate in all benefit plans offered to other senior executive officers. CHAAS Holdings has agreed to cause one or more of its subsidiaries to satisfy any payment
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obligations under these employment agreements to the extent that it does not have sufficient funds to do so.
Mr. de Graaf has an employment agreement with Brink. His agreement provides for an annual base salary of NLG 170,000 and an annual bonus in a range of 30% to 50% of base salary, subject to the achievement of performance goals. In addition, Mr. de Graaf is entitled to participate in customary benefit plans.
Termination Provisions
If any of Messrs. Seikel, Borghi or Fletcher is terminated without "cause" or terminates his employment with "employee good reason," in each case, as these terms are defined in the employment agreements, he will receive his base salary until the end of the term (in the case of a without cause termination) or for twelve months (in the case of a with employee good reason termination), a pro rata portion of his annual bonus and reimbursements of continuation health insurance premiums until the earlier of twelve months after termination of employment and the day on which he is included in another employer's insurance program.
In the event of a termination without cause or with employee good reason before October 15, 2003, the periods set forth above shall be increased by six months.
If Mr. de Graaf is terminated for a reason other than "cause," as defined in his employment agreement, he is entitled to receive a payment in an amount derived by the following formula: (50% + years of service x 20%) × (annual salary + holiday allowance + bonus), with a maximum of one-year's annual salary + holiday allowance + bonus.
Vesting Unit Repurchase Agreements
At the closing of the acquisition, five of our employees purchased an aggregate of approximately 3.33% of CHAAS Holdings' outstanding common units. In connection with these purchases, each of the employees entered into a separate vesting unit repurchase agreement with CHAAS Holdings that governs the rights, vesting and repurchase of these units. Each vesting unit repurchase agreement provides that all common units are initially unvested and have no rights attached to them, including, without limitation, any rights to distributions, allocations of income or losses, voting or otherwise, except to the extent such unvested units become vested units in accordance with the vesting unit repurchase agreement. CHAAS Holdings has agreed to cause one or more of its subsidiaries to satisfy any payment obligations under the vesting unit repurchase agreements to the extent that it does not have sufficient funds to do so.
One-third of the common units vest on each of the first, second and third anniversaries of the first day of the month immediately following the employee's purchase of the units, subject to the Castle Harlan Group achieving an assumed annualized internal rate of return of 30% on its total equity investment in CHAAS Holdings and its subsidiaries. The Castle Harlan Group's internal rate of return is determined as of the end of the twelve month period ended on the last day of the fiscal quarter immediately preceding each such anniversary by calculating the proceeds the Castle Harlan Group would receive in a hypothetical sale of CHAAS Holdings, assuming CHAAS Holdings was valued at an amount equal to 5.65 times the consolidated EBITDA of CHAAS Holdings and its subsidiaries, adjusted for certain non-recurring items, as of the end of such twelve month period and after making appropriate adjustments for cash and indebtedness of CHAAS Holdings and its subsidiaries and other specified items described in the vesting unit repurchase agreement.
The agreement also provides that if there is a change in control (as defined in the vesting unit repurchase agreement) prior to April 15, 2006, the total number of common units that have not yet vested would be accelerated, subject to the Castle Harlan Group achieving a 30% annualized internal
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rate of return on its total equity investment in CHAAS Holdings and its subsidiaries based on the proceeds the Castle Harlan Group actually receives in the change in control. Any common units that have not vested on or before April 15, 2006, whether on an annual basis or upon a change in control, will never become vested under the unit vesting repurchase agreement.
Upon a termination of an employee's employment, CHAAS Holdings has the right, but not the obligation, to repurchase within 60 days of the date of termination (i) the unvested common units at the cost initially paid by the employee for such units, without interest, and (ii) the vested units at fair market value, determined in the same manner that vesting is determined as described above. If termination of an employee's employment is for "cause" (as defined in the vesting unit repurchase agreements) or without "employee good reason" (as defined in the vesting unit repurchase agreements), then all common units are deemed to be unvested. CHAAS Holdings is obligated to repurchase any unvested units upon consummation of a change in control at the cost initially paid by the employee for such units, without interest.
Rollover Securities Purchase Agreement
In connection with the acquisition, class A units and options to purchase class A units consisting of approximately 1.5% of the equity interests of AAS previously held by three of our employees were cancelled and CHAAS Holdings issued common and preferred units and new options to acquire common and preferred equity interests in CHAAS Holdings, all of which were fully vested upon issuance. CHAAS Holdings has entered into a rollover securities repurchase agreement with each of these employees governing the repurchase of the new common and preferred units and options to purchase such units. CHAAS Holdings has agreed to cause one or more of its subsidiaries to satisfy any payment obligations under the rollover securities purchase agreements to the extent that it does not have sufficient funds to do so.
Upon a termination of an employee's employment for "cause" (as defined in the rollover securities repurchase agreements), CHAAS Holdings has the right, but not the obligation, to repurchase (i) the common units at the lesser of (x) the cost paid by the employee for such common units and (y) the fair market value (determined in the same manner fair market value is determined under the vesting unit repurchase agreements described above), less, in the case of options being repurchased, the exercise price for such common units and (ii) the preferred units at the liquidation value of such preferred units, assuming CHAAS Holdings was liquidated on the relevant determination date, less, in the case of options, the exercise price for such preferred units.
Upon a termination of an employee's employment for any reason other than "cause," CHAAS Holdings has the right, but not the obligation, to repurchase (i) the common units at the fair market value (determined in the same manner fair market value is determined under the vesting unit repurchase agreements described above), less, in the case of options being repurchased, the exercise price for such common units and (ii) the preferred units at the liquidation value of such preferred units, assuming CHAAS Holdings was liquidated on the relevant determination date, less, in the case of options, the exercise price for such preferred units.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 9, 2003, CHAAS Holdings' outstanding capitalization consisted of approximately 51,699 common units and approximately 945,535 preferred units. AAS is a direct wholly-owned subsidiary of our parent and AAS Capital Corporation is an indirect wholly-owned subsidiary of both our parent and AAS. As of June 9, 2003, our parent's outstanding capitalization consisted of 100 units all of which were owned by CHAAS Holdings.
The following table sets forth information with respect to stock options
pursuantthe beneficial ownership of CHAAS Holdings' units as of May 20, 2003 by:
- •
- each person who is known by us to
the 1995 Option Plan granted to the namedbeneficially own 5% or more of CHAAS Holdings' outstanding units; - •
- each of our parent's managers; and
- •
- each of our executive officers
of the Company during 1997. All options were granted at an exercise price equal to the fair market value per share of Common Stock on the date of grant.INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE ----------------------------------------------------- AT ASSUMED ANNUAL RATES NUMBER OF OF STOCK PRICE SECURITIES PERCENT OF TOTAL EXERCISE APPRECIATION FOR OPTION UNDERLYING OPTIONS GRANTED OR BASE TERM($)(1) OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -------------------------- NAME GRANTED(#) 1997(%) ($/SH) DATE 5% 10% ---- ---------- ---------------- -------- ---------- -- ---F. Alan Smith....................... -- -- -- -- -- -- Marshall D. Gladchun................ -- -- -- -- -- -- Terence C. Seikel................... -- -- -- -- -- -- Roger T. Morgan..................... 178 47.1 5,610 8/5/12 $1,077,000 $3,173,000 Richard E. Borghi................... -- -- -- -- -- --- ------------------------- (1) Potential realizable value is based on the assumption that the price of the Company's common stock appreciates at the annual rate shown, compounded annually, from the date of grant until the end of the 15-year option term. The values are calculated in accordance with rules promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future common stock price appreciation. 6063 EMPLOYMENT AGREEMENTS Each of Marshall D. Gladchun, Roger T. Morgan, Terence C. Seikel, Richard E. Borghi and Gerrit de Graaf has entered into an employment agreement (collectively, the "Employment Agreements") with the Company. Mr. Gladchun's Employment Agreement provides for an annual base salary of $277,304, subject to increases at the sole discretion of the Board of Managers, a bonusnamed in therangeSummary Compensation Table and all of50-70% of his base salary,our parent's managers anda one-time bonus of $400,000 on the earlier of (i) September 20, 2002, (ii) his termination date, and (iii) a sale of the Company (any such bonus an "Ending Bonus"). Mr. Morgan's Employment Agreement provides for an annual base salary of $250,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 50% to 70% of his base salary. Mr. Seikel's Employment Agreement provides for an annual base salary of $165,000 and a bonus in the range of 30-50% of his base salary. Mr. Borghi's Employment Agreement provides for an annual base salary of $161,200, subject to increases at the sole discretion of the Board of Managers, a bonus in the range of 30-50% of his base salary, and an Ending Bonus of $100,000. Mr. de Graaf's Employment Agreement provides for an annual base salary of NLG 170,000, subject to increases at the sole discretion of the Board of Managers, and a bonus in the range of 30% to 50% of his base salary. The Employment Agreements also provide for twelve months of severance pay to the executive officer in the event such officer is terminated without cause (as defined in the Employment Agreement.) The Employment Agreements expire at various times between June 30, 2000 and December 31, 2000 (except that Gerrit de Graaf's Employment Agreement may be terminated by either party upon three month's prior written notice) but automatically extend for successive two-year terms unless terminated by the Company upon 30 days notice prior to the expiration of the current term. Each Employment Agreement prohibits the executive officer from disclosing non-public information about the Company. The Employment Agreements also require theour executive officersto assign to the Company any designs, inventions and other related items and intellectual property rights developed or acquired by the executive officer during the term of his employment. In addition, foras aperiod of five years after termination of employment (two years if the termination is without cause)group.
To our knowledge, each executive officer has agreed, in his respective Employment
Agreement, not to (i) engage in any Competitive Business (as defined in the
Employment Agreements), (ii) interfere with or disrupt any relationship between
the Company and its customers, suppliers and employees and (iii) induce any
employee of the Company to terminate his or her employment with the Company or
engage in any Competitive Business.
CONSULTING AGREEMENTS
F. Alan Smith and Barry Banducci have each entered into consulting
agreements (the "Consulting Agreements") with the Company dated as of September
28, 1995. Mr. Smith's Consulting Agreement provides for an annual consulting fee
of $150,000 subject to increases at the sole discretion of the Board of
Managers, and a performance based bonus in the range of 30-50% of the annual
consulting fee. Mr. Banducci's Consulting Agreement provides for an annual
consulting fee of $50,000. The initial term of the Consulting Agreements expired
on March 28, 1997. The Consulting Agreements automatically extend for successive
six-month periods unless terminated by the Company upon 30 days notice prior to
the expiration of the then current term. The Consulting Agreements prohibit
Messrs. Smith and Banducci from disclosing non-public information about the
Company.
MEMBERS' AGREEMENT
Pursuant to the Second Amended and Restated Members' Agreement dated as of
August 5, 1997 (the "Members' Agreement") among the Company and certain of the holders of outstanding units (the "Units") of the Company, affiliates of CCP
have the ability to appoint a majority of the members of the Company's Board of
Managers.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1998, the outstanding membership interests of the Company
consisted of 16,271 Units. The following table sets forth certain information
regarding the beneficial ownership of the Units by (i) each person known by the
Company to own more than 5% of the Units, (ii) each named director, (iii) each
named executive officer and (iv) all of the Company's directors and executive
officers treated as a group. To the knowledge of the Company, each of such
holders of Unitslisted below has sole voting and investment power as to the Unitsunits owned unless otherwise noted.
PERCENTAGE
NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2)
------------------- ----------- ------------
CB Capital Investors, L.P.(3)......................... 10,111 60.28%
380 Madison Avenue, 12th Floor
New York, New York 10017
MascoTech, Inc........................................ 1,500 9.22
275 Rex Boulevard
Auburn Hills, Michigan 48326
Celerity Partners..................................... 1,500 9.22
c/o Mark Benham
300 Sand Hill Road
Building 4, Suite 230
Menlo Park, California 94025
F. Alan Smith(4)...................................... 429 2.62
Marshall D. Gladchun(5)............................... 915 5.48
Roger T. Morgan....................................... 89 0.55
c/o Valley Industries, LLC
32501 Dequindre
Madison Heights, Michigan 48071
Terence C. Seikel(6).................................. 360 2.19
Richard E. Borghi(7).................................. 366 2.23
Barry Banducci(8)..................................... 357 2.18
59 Old Quarry Road
Guildford, Connecticut 06437
Gerard J. Brink....................................... 410 2.52
Lijsterbeslaan 10
B-2950 Kapellen
Belgium
All directors and executive officers as a group (9
persons)............................................ 2,926 16.96
- -------------------------
(1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC,
12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313.
(2)
| Name and Address of Beneficial Owner (1) | Number of Common Units | Percentage of Total Common Units (%) | Number of Preferred Units | Percentage of Total Preferred Units (%) | ||||
|---|---|---|---|---|---|---|---|---|
| Advanced Accessory Acquisitions, LLC (2) | 49,750.00 | 96.23 | 945,250.00 | 99.97 | ||||
| John K. Castle (3) | 51,698.00 | 100.00 | 945,250.00 | 99.97 | ||||
| Marcel Fournier | — | — | — | — | ||||
| William M. Pruellage | — | — | — | — | ||||
| Terence C. Seikel | 805.65 | 1.56 | — | — | ||||
| Richard E. Borghi | 483.39 | * | — | — | ||||
| Gerrit de Graaf | 322.26 | * | — | — | ||||
| Bryan A. Fletcher | 161.13 | * | — | — | ||||
| Barry Steele | 161.13 | * | — | — | ||||
| All managers and executive officers as a group (8 persons, including those listed above) | 51,698.58 | (4) | 99.97 | 945,535.44 | (4) | 99.97 |
- *
- Denotes beneficial ownership of less than 1% of the class of units. Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the Units. UnitsCommission. No units subject to options or warrantscurrently exercisable or exercisable within 60 days of March 15, 1998are deemed outstanding for purposes of computing the percentage ownership of the person holding such options or warrantsbutsince they do not vest (other than upon a change in control) within 60 days from June 9, 2003. See "—Vesting Unit Repurchase Agreements." - (1)
- Addresses are provided only for persons beneficially owning more than 5% of the class of units. The address for each such holder of units is c/o Castle Harlan, Inc., 150 East 58th Street, New York, New York 10155.
- (2)
- CHP IV is the direct parent of AAA, and as such may be deemed to be a beneficial owner of the units owned by AAA.
- (3)
- John K. Castle, a member of our parent's board of managers, is the controlling stockholder of Castle Harlan Partners IV, G.P., Inc., the general partner of the general partner of CHP IV, the direct parent of AAA, and as such may be deemed to be a beneficial owner of the units owned by AAA and its affiliates. In addition, this amount includes 1,933 common units for which Mr. Castle may direct the voting pursuant to voting trust agreements under which Mr. Castle acts as voting trustee for the individuals named below Mr. Castle's name on the table. Furthermore, Mr. Castle may direct the voting pursuant to a voting trust agreement under which Mr. Castle acts as voting trustee for approximately 15 common units held by a non-executive officer that are not
deemed outstandingreflected on this table. Mr. Castle disclaims beneficial ownership of all units referred to in this paragraph in excess of his proportionate partnership share of CHP IV. - (4)
- Includes approximately 15 common units and approximately 285 preferred units held by a non-executive officer.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
At the closing of the acquisition, we entered into a management agreement with Castle Harlan, pursuant to which Castle Harlan agreed to provide business and organizational strategy, financial and investment management, advisory, merchant and investment banking services to us upon the terms and conditions set forth in the management agreement. As compensation for purposes of
computing thethose services, we agreed to pay Castle Harlan an annual fee equal to a percentage of their equity investment by the Castle Harlan Group and on terms as set forth in the management agreement. The current amount of the annual fee being charged by Castle Harlan is approximately $3 million. The agreement is for an initial term expiring December 31, 2008, renewable automatically from year to year thereafter unless one of the parties gives notice of its desire to terminate within 90 days before the expiration of the initial term or any subsequent one-year renewal thereof. We have agreed to indemnify Castle Harlan against liabilities, costs, charges and expenses relating to its performance of its duties, other person.
(3) CB Capital Investors, L.P.than such of the foregoing resulting from Castle Harlan's gross negligence or willful misconduct. Payment of the management fee to Castle Harlan is an affiliate of CCP. Includes 501 Units subject to warrants exercisable within 60 days.
(4) Includes 129 Units subjectthe terms of our senior credit facilities.
Certain Equity Arrangements
Certain members of our executive management team either own, or have options to options exercisable within 60 days. 300 Unitsacquire, equity in CHAAS Holdings, the direct parent of our parent. See "Management—Vesting Unit Repurchase Agreements and Rollover Securities Purchase Agreement."
Bridge Financing
In connection with the acquisition, on April 15, 2003, Valley and SportRack issued a convertible senior subordinated bridge note in favor of AAA. On May 23, 2003, we fully repaid all principal and accrued interest on the bridge note with a portion of the proceeds from the issuance of the Original Notes. The subordinated promissory notes were guaranteed on a subordinated basis by CHAAS Holdings and all of its domestic subsidiaries other than the issuers and our parent. The initial principal amount of the bridge note was $55.0 million. The interest rate on the bridge note was 12%, which was capitalized and added to the outstanding principal.
Pre-Acquisition Relationships
The relationships discussed below are owned byincluded solely to comply with the disclosure requirements of the Commission applicable to this exchange offer.
Prior to the consummation of the acquisition, F. Alan Smith Family Limited Partnership.
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(5) Includes 415 Units subject to options exercisable within 60 days.
(6) Includes 160 Units subject to options exercisable within 60 days.
(7) Includes 166 Units subject to options exercisable within 60 days.
(8) Includes 107 Units subject to options exercisable within 60 days. All Units
are owned by theand Barry Banducci, Family, LLC.
LIMITED LIABILITY COMPANY AGREEMENT
The Company, Valley and SportRack are each limited liability companies
organized under the Delaware Limited Liability Company Act (the "LLC Act").
Valley's equity securities are held 99% by the Company and 1% by SportRack.
SportRack's equity securities are held 99% by the Company and 1% by CB Capital
Investors, L.P. ("CBC"), an affiliate of CCP. The Company controls the policies
and operations of Valley and SportRack. The Company's operations are governed by
a Second Amended and Restated Operating Agreement (the "LLC Agreement") among
the Company, CBC, certainboth former members of AAS' board of managers, entered into consulting agreements with AAS dated as of September 28, 2001. The consulting agreements each provided for an annual consulting fee of $50,000. Following the Company's managementtermination date and the investors
defined therein (each a "Member" and collectively the "Members"). The LLC
Agreement governs the relative rights and duties of the Members.
Units. The Company is authorized to issue up to 25,000 Class A Units and up
to 2,000 Class B Units. As of March 15, 1998, 16,271 Class A Units are issued
and outstanding, 4,200 Class A Units have been duly reserved for issuance to
employees, directors and independent consultants and contractors of the Company
or any subsidiary thereof pursuant to the 1995 Option Plan of the Company, and
no Class B Units have been issued or reserved for issuance.
Management. The Board of Managers of the Company consists of up to 11
members as designated pursuant to the Members Agreement. The Board of Managers
is selected by a majority of the Members holding Class A units (each a "Class A
Member"). Under the Members Agreement, CBC is entitled at all times to hold a
seat on the Board of Managers and has the ability to appoint a majority of the
Members of the Board of Managers. A majority of the Chase Members (as defined in
the Members Agreement) may hold a seat on the Board of Managers through their
representative. Any Board Member of the Company may be removed without cause by
the vote of a majority of the Class A Members so long as the Membersconsultant continued to serve on the board of managers of AAS, the consultant was entitled to appoint such Board Member have consented.
If a vacancy on the Boardreceive an annual board fee of Managers is not filled by a majorityno less than 10% of the Class A Members within 60 days after such vacancy occurs such vacancy may be
filledaggregate purchase price for all units of AAS previously acquired by him, which during the 2002 calendar year totaled $30,000 for Mr. Smith and $25,000 for Mr. Banducci. The consulting agreements prohibited Messrs. Smith and Banducci from disclosing non-public information about AAS. In conjunction with the acquisition, these consulting agreements were terminated. Messrs. Smith and Banducci are no longer affiliated with our company.
Prior to the acquisition, Donald J. Hoffman, one of AAS' former managers and a votesenior advisor of the majority of the Board Members then in office or, if
none, by a vote of all Members.
Distributions. Both the Amended and Restated Credit Agreement and the
Indenture generally limit the Company's ability to make cash distributions to
Members other than distributions to cover the income tax liabilities of the
Members. Specifically, within 90 days of the end of each fiscal year, the
Company will distribute to each Member an amount (if any) equal to 44% of the
excess of Net Profits over Net Losses (each as defined in the LLC Agreement) to
such Member's capital account less any distributions previously made in that
year.
Restriction on Transfer. No Member may transfer its interest without having
obtained the prior written consent of a majority of the Board Members who hold
in the aggregate more than 50% of the profits and capital interest of the
Company, which consent may be withheld in their sole discretion.
Dissolution. The Company will be dissolved upon the earliest to occur of
(a) December 31, 2025; (b) the determination of the Board of Managers and a
majority of Class A Members to dissolve the Company; or (c) the occurrence of an
event of withdrawal of a Board Member or any other dissolution event under
Section 18-801 of the LLC Act. An event of withdrawal of any Member will not
dissolve the Company if within 90 days of such event the business of the Company
is continued by a majority of its remaining Members.
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CERTAIN TRANSACTIONS
Chase Securities Inc. ("CSI"), The Chase Manhattan Bank ("Chase"), The
Chase Manhattan Bank of Canada ("Chase Canada") and CCP are affiliates of CB
Capital Investors, L.P., which owns approximately 47.7% of the Company's issued
and outstanding voting securities on a fully diluted basis and the 1.0% minority
interest in SportRack. CSI acted as an Initial Purchasersellers in connection with the Offering, for which itacquisition, had affiliations with some of AAS' former equity holders. In addition, certain affiliated entities served as agent banks and lenders under our then existing U.S.
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and Canadian credit facilities and received customary fees. Chasecertain related fees in connection therewith. Mr. Hoffman is agent bank and a lenderno longer affiliated with our company.
Prior to the Company under the Amended and Restated Credit Agreement and has received
customary fees and reimbursementacquisition, affiliates of expenses in such capacities. Chase Canada is
agent bank and a lenderJ.P. Morgan Partners (23A SBIC), LLC, our majority equity holder prior to the Company under the Canadian Credit Agreement and
has received customary fees and reimbursement of expenses in such capacities.
Chase received its proportionate share, $6.0 million, of the repayment by the
Company of $90.0 million under the Amended and Restated Credit Agreement from
the proceeds of the Offering. An affiliate of CCP and CSI held a portion of the
Senior Subordinated Debt and received its proportionate share, $10.7 million,
including prepayment penalties of $700,000, of the repayment by the Company of
such debt from the proceeds of the Offering. As a result of the Offering, such
affiliate was relieved of its obligation to provide up to an additional $20.0
million of senior subordinated debt financing. In addition, an affiliate of CSI
and CCP purchased a portion of the Old Notes in connection with the Offering and
will not be participating in the Exchange Offer. Donald J. Hofmann, Jr., a
general partner of CCP, is a member of the Board of Managers of the Company. In
addition, CSI, Chase and their affiliates participateacquisition, participated on a regular basis in various investment banking and commercial banking transactions for the CompanyAAS and itsour affiliates. The Company is a party to the Consulting Agreements with F. Alan Smith, the
ChairmanNeither J.P. Morgan Partners (23A SBIC), LLC nor any such affiliates currently own any of the Company, and Barry Banducci, a Board Member of the Company. See
"Management -- Consulting Agreements."our equity.
Other
In connection with the acquisition of the MascoTech DivisionAccessories division of MascoTech, Inc. by AAS in September 1995, AAS loaned Mr. Borghi, the Company, the Company loaned Messrs. GladchunPresident and Borghi $400,000Chief Operating Officer of SportRack and a manager of AAS, $100,000
respectively, to enable themhim to make theirhis initial equity investments in the
Company.AAS. The loans bear interest at 6.2% and mature in September 2002.
DESCRIPTION OF THE CREDIT FACILITIES
CANADIAN CREDIT AGREEMENT
To finance the SportRack International Acquisition and provide working
capital financing in Canada, Chase Canada, First Chicago NBD Bank, Canada, and
Bank of Nova Scotia (collectively, the "Canadian Lenders") have provided to
SportRack International a C$20 million (approximately $14.5 million) term loan and a C$4.0 million (approximately $2.8 million) working capital revolving
credit facility under a First Amended and Restated Credit Agreement dated as of
March 19, 1998 (the "Canadian Credit Agreement"). The Canadian Credit Agreement
is scheduled to mature on October 31, 2003 and the term loan portion amortizes
in quarterly installments. The Canadian Credit Agreement is guaranteed by the
Company and SportRack and is secured by a pledge of 100% of the stock and assets
of SportRack International. The guarantees of the Company and SportRack are
secured by substantially the same collateral that secures the obligations of
those companies under the Amended and Restated Credit Agreement described below.
The interest margins under the Canadian Credit Agreement are comparable to those
under the Revolving Credit Facility and the Tranche A Term Loan described below.
AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the Valley Acquisition, the Company entered into the
Second Amended and Restated Credit Agreement, dated as of August 5, 1997 (as
amended, the "Amended and Restated Credit Agreement"), with certain of its
subsidiaries, the lenders party thereto, Chase as Co-Administrative Agent and
Syndication Agent and First Chicago NBD Bank ("NBD") as Administrative Agent,
Documentation Agent and Collateral Agent. The Amended and Restated Credit
Agreement amended the Company's existing credit agreement and provided for (i) a
Tranche A Term Loan in the aggregate principal amount of $65 million (the
"Tranche A Term Loan"), (ii) a Tranch B Term Loan in the aggregate principal
amount of $55 million (the
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"Tranche B Term Loan" and together with the Tranche A Term Loan, collectively,
the "Term Loan Facilities") and (iii) a revolving credit facility in the
aggregate principal amount of $25 million (the "Revolving Credit Facility"),
which includes a $2 million swing line sub facility and a $10 million letter of
credit sub facility. Borrowings by SportRack International under the revolving
credit facility of the Canadian Credit Agreement count against availability
under the Revolving Credit Facility. The outstanding principal amounts of the
Tranche A Term Loan and the Tranche B Term Loan were reduced to $17.5 million
and $16.0 million through prepayments from the proceeds of the sale of the Old
Notes. Subsequent to the sale of the Old Notes, the Amended and Restated Credit
Agreement was further amended to provide a $22 million acquisition facility to
finance future acquisitions (the "Acquisition Facility"). The Tranche A Term
Loan, the Tranche B Term Loan, the Revolving Credit Facility and the Acquisition
Facility are referred to collectively as the "Domestic Facilities".
The following information relating to the Amended and Restated Credit
Agreement is qualified in its entirety by reference to the complete text of the
documents entered into in connection therewith. The following is a description
of the general terms of the Amended and Restated Credit Agreement:
Use of Proceeds; Maturity. The proceeds of the Term Loan Facilities were
used to finance the Valley Acquisition and to refinance existing debt. The
proceeds of the Revolving Credit Facility were used to refinance existing debt,
pay fees and expenses of the Valley Acquisition and for general corporate
purposes. The proceeds of a $21.0 million borrowing under the Acquisition
Facility were used to finance the acquisition of the assets of Ellebi. Prior to
December 31, 1999 the Acquisition Facility may be repaid and reborrowed to
finance future acquisitions. The Term Loan Facilities have maturity schedules as
follows: (i) the Tranche A Term Loan matures on October 30, 2003 and amortizes
in quarterly installments; and (ii) the Tranche B Term Loan matures on October
30, 2004 and amortizes in quarterly installments. The Revolving Credit Facility
matures on October 30, 2003. The Acquisition Facility matures on October 30,
2003 and amortizes in quarterly installments commencing on December 31, 1999.
Revolving Credit Facility. The availability of the commitments under the
Revolving Credit Facility is subject to a borrowing base which generally equals
specified percentages of the then Eligible Receivables or Eligible Inventory
(each as defined in the Amended and Restated Credit Agreement) of the Company
and certain of its Subsidiaries. As of December 31, 1997, $20.3 million of
commitments under the Revolving Credit Facility is available to the Company.
Prepayments; Reduction of Commitments. The Term Loan Facilities are
required to be prepaid with (i) 100% of the net proceeds of any sale or issuance
of equity or any incurrence of indebtedness for borrowed money, subject to
certain exceptions; (ii) 100% of the net proceeds of any sale or other
disposition of any material assets, except for the sale of inventory in the
ordinary course of business, subject to certain exceptions; and (iii) 50% of
excess cash flow for each fiscal year. Such mandatory prepayments are applied
pro rata between the Tranche A Term Loans and the Tranche B Term Loans and, in
each case, in the inverse order of maturity. Any Tranche B Term Loan lender may
decline any mandatory prepayment prescribed in subsections (i) through (iii)
above, in which case the amounts declined are applied as a mandatory prepayment
pro rata to the Term Loan A Lenders in the inverse order of maturity.
Interest. The Domestic Facilities bear interest at a rate per annum, at the
option of the Company, equal to the adjusted eurocurrency base rate (the
"Eurocurrency Base Rate") or the rate which is equal to the higher of (i) NBD's
prime rate and (ii) the federal funds rate plus 1/2 of 1% ("ABR"), in each case
plus an applicable margin based on the leverage ratio from time to time in
effect. The applicable margins range from .50% to 1.75% for ABR Revolving Credit
Facility advances and Tranche A Term Loans and from 1.00% to 2.25% for ABR
Tranche B Term Loans. For Revolving Credit Facility advances and Tranche A Term
Loans bearing interest based on the Eurocurrency Base Rate, the applicable
margins range from 1.50% to 2.75%. For Tranche B Term Loans bearingbore interest at the Eurocurrency Base Rate, the applicable margins range from 2.00% to 3.25%.rate of 6.2% per annum and was due on demand. The rates for letter of credit fees are the same as the applicable margins for
Eurocurrency Revolving Credit advances.
65
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Collateral and Guarantees. The Domestic Facilities are guaranteed by the
Company and substantially all of its existing U.S. subsidiaries. The Domestic
Facilities are secured by a first priority lien on (i) all of the capital stock
(or partnership or other membership interest) of the Company, SportRack and each
of the material direct and indirect U.S. subsidiaries of the Company and 65% of
the capital stock of first tier non-U.S. subsidiaries and (ii) substantially all
tangible and intangible assets of the Company and each material direct and
indirect U.S. subsidiary. With respect to certain of the loans made to non-U.S.
subsidiaries, it is currently contemplated that all of the capital stock of
certain non-U.S. subsidiaries and, to the extent permitted by applicable law,
liens on the receivables and inventory of certain of the non-U.S. subsidiaries
and mortgage liens of certain real estate owned by Brink will be pledged to
secure the loans to Brink. The collateral also securesloan, together with interest rate swaps,
currency or other hedge obligations owning to any lender.
Covenants. The Amended and Restated Credit Agreement contains covenants
restricting the ability of the Company and its subsidiaries to, among other
things, (i) declare dividends or redeem or repurchase capital stock; (ii)
prepay, redeem or purchase debt; (iii) incur liens; (iv) make loans and
investments; (v) issue additional debt; (vi) amend or otherwise alter debt and
other material agreements; (vii) engage in mergers, acquisitions and asset
sales; (viii) engage in transactions with affiliates; and (ix) alter the
business it conducts. The Company has also provided certain customary
indemnification of the Agents, lenders and their respective agents and is
required to comply with financial covenants with respect to (i) maximum leverage
ratio; (ii) minimum fixed charge coverage ratio; (iii) a minimum net worth; and
(iv) capital expenditures; and (v) rentals. The Company must also comply with
certain customary affirmative covenants.
Events of Default. Events of default under the Amended and Restated Credit
Agreement include but are not limited to (i) the Company's failure to pay
principal when due or interest within three business days of the date when due;
(ii) the Company's breach of certain covenants, representations or warranties
contained in the loan documents; (iii) customary cross-default provisions; (iv)
events of bankruptcy, insolvency or dissolution of the Company or its
subsidiaries; (v) the levy of certain judgements against the Company, its
subsidiaries, or their assets; (vi) the actual or asserted invalidity of
security documents or guarantees of the Company or its subsidiaries; (vii) a
Change of Control (as defined in the Amended and Restated Credit Agreement) of
the Company; (viii) the occurrence of certain ERISA events; (ix) the
subordination provisions evidencing subordinated debt shall cease to be valid oraccrued thereon, was repaid in full force and effect.
DESCRIPTION OF THE NOTES
The Old Notes were, and the New Notes will be, issued under an Indenture
(the "Indenture") among the Company, Capital Corp., the Guarantors and First
Union National Bank, as trustee (the "Trustee"). The terms of the New Notes are
identical in all respects to the Old Notes, except that the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain provisions providing for the
payment of liquidated damages under certain circumstances relating to the
Registration Rights Agreement, which provisions will terminate upon the consummation of the Exchange Offer.acquisition.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of certain provisions of the Indentureinstruments evidencing our material indebtedness does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the Trust Indenture Actprovisions of 1939, as
amended (the "Trust Indenture Act"the agreements, including the definitions of certain terms therein that are not otherwise defined in this prospectus.
Senior Secured Credit Facilities
In connection with the acquisition, on April 15, 2003, Valley, SportRack and Brink (collectively, the "borrowers"), entered into a $145.0 million senior secured credit facility with various financial institutions as lenders. The credit facility consisted of a revolving credit facility, a term loan A facility and a term loan B facility, each with a separate component denominated in U.S. dollars and in euros. On May 23, 2003, we used a portion of the proceeds from the issuance of the Original Notes to (i) repay the U.S. term loan A, (ii) repay the U.S. term loan B and (iii) repay a portion of the European term loan B, together with interest accrued thereon. All applicable dollar amounts in this paragraph are based on a euro to dollar conversion rate of 1.08 U.S. dollars to 1.0 euro. See "Use of Proceeds."
On May 23, 2003, we amended and restated our existing credit facility (as amended and restated, our "amended credit facility" or the "credit facilities"). The following summarizes our amended credit facility to reflect the terms that are now in place.
The Facilities. Our amended credit facility consists of (i) a revolving credit facility comprised of (a) a $35.0 million U.S. dollar revolving credit facility and (b) a €15.0 million European revolving credit facility and (ii) a €10.0 European term loan facility. Our U.S. revolving credit facility contains a $5.0 million letter of credit subfacility and our European revolving credit facility contains a €2.0 million letter of credit subfacility.
Availability. Availability under our U.S. revolving credit facility is limited to the lesser of (i) $35.0 million and (ii) the borrowing base amount, in each case, less the sum of (a) the U.S. revolving loans then outstanding (including letters of credit) and (b) reserves required by the agent. The borrowing base amount of our U.S. revolving credit facility is defined as the amount equal to (A) 85.0% of the net amount of eligible accounts receivable of the U.S. borrowers and their U.S. subsidiariesplus (b) 60.0% of the value of the eligible inventory owned by and in the possession of the U.S. borrowers or any of their U.S. subsidiaries and located in the United States of America.
Availability under our European revolving credit facility is limited to the lesser of (i) €15.0 million and (ii) the borrowing base amount, in each case, less the sum of (a) the European revolving loans then outstanding (including letters of credit) and (b) reserves required by the agent. The borrowing base amount of our European revolving credit facility is defined as the amount equal to (A) 85.0% of the net amount of eligible accounts receivable of the European borrower and its subsidiaries organized under the laws of England, The Netherlands, Sweden and Italyplus (b) 60% of the value of the eligible inventory owned by, and in the possession of the European borrower or any of its subsidiaries organized under the laws of England and The Netherlands and located in either England or The Netherlands.
Maturity. Our revolving credit facility and European term loan facility matures on May 23, 2008. Notwithstanding the foregoing, the European revolving credit facility and the European term loan facility is due and payable upon the expiration or termination of the U.S. revolving credit facility, if earlier.
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Amortization. The European term loan is repayable in quarterly installments beginning with the second quarter after May 23, 2003 as follows:
| Quarter | Amount | |
|---|---|---|
| 2-4 | €250,000 | |
| 5-8 | 250,000 | |
| 9-12 | 500,000 | |
| 13-16 | 750,000 | |
| 17-19 | 750,000 | |
| 20 | 1,000,000 |
Guaranties and Security. The European revolving credit facility and European term loan facility are secured by a first priority security interest in substantially all of the assets of, and guaranteed by, CHAAS Holdings and our parent and its domestic and foreign subsidiaries, and the U.S. revolving credit facility is secured by a first priority security interest in (a) substantially all of the assets of, and guaranteed by, CHAAS Holdings and our parent and its domestic subsidiaries and (b) 65% of the stock of our first-tier foreign subsidiaries.
Interest. Borrowings under our amended credit facility may be made as index rate loans or LIBOR rate loans at our election. The "index rate" means a floating rate of interest per annum equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "base rate on corporate loans posted by at least 75% of the nation's 30 largest banks" or (ii) the Federal Funds rate plus 50 basis points per annum. The interest rates payable under our amended credit facility are based upon the index rate or LIBOR rate, depending on the type of loan we choose, plus an applicable margin. The applicable margins for both U.S. and European borrowings are as follows:
| Borrowing Type | Applicable Margin | ||
|---|---|---|---|
| Index Rate Revolving Credit Facility Loan | 2.25 | % | |
| LIBOR Rate Revolving Credit Facility Loan | 3.75 | % | |
| Index Rate Term Loan | 2.25 | % | |
| LIBOR Rate Term Loan | 3.75 | % |
Interest is calculated on the basis of a 360-day year and will be payable monthly for index rate loans and at the end of each interest period for LIBOR loans (but not less frequently than quarterly).
Fees. Our amended credit facility contains certain customary fees, including letter of credit fees and an unused facility fee for our revolving credit facility based upon non-use of available funds.
Covenants. Our amended credit facility contains various covenants, customary for similar credit facilities, that limit the activities of the borrowers, CHAAS Holdings, our parent and their respective subsidiaries, including, but not limited to covenants pertaining to:
- •
- mergers and sales of assets outside the ordinary course of business;
- •
- use of proceeds;
- •
- granting of liens;
- •
- incurrence of indebtedness;
- •
- restricted payments;
- •
- voluntary prepayment of indebtedness, including the notes to be issued hereunder;
- •
- payment of dividends;
- •
- business activities;
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- •
- investments and acquisitions;
- •
- transactions with affiliates;
- •
- certain restrictions affecting subsidiaries;
- •
- fundamental changes; and
- •
- amendments or modifications to instruments governing certain indebtedness.
The amended credit facility also requires our parent to achieve and maintain certain financial covenants, ratios and tests on a consolidated basis including a minimum fixed charge coverage ratio, a minimum interest coverage ratio and a maximum senior secured indebtedness to EBITDA ratio.
Events of Default. Our amended credit facility contains customary events of default, including, without limitation:
- •
- non-payment of principal, interest or fees;
- •
- violation of certain covenants;
- •
- change of control;
- •
- certain bankruptcy related events;
- •
- inaccuracy of representations and warranties in any material respect; and
- •
- cross defaults with certain other indebtedness and agreements, including, without limitation, the indenture governing the notes.
Subordinated Promissory Notes
Upon the closing of the acquisition, subordinated promissory notes in an aggregate principal amount of $10.0 million were issued to the sellers by Valley and SportRack. Interest on the subordinated promissory notes accrues at a rate of 12% per annum until maturity. Accrued interest is not payable in cash but is capitalized and added to principal. The maturity date on the subordinated promissory notes will be no earlier than 91 days subsequent to the maturity date of the New Notes, subject to certain exceptions. Under the securities purchase agreement, CHAAS Holdings has agreed to add as guarantors of the subordinated promissory notes any guarantors of the New Notes. Accordingly, the subordinated promissory notes are currently guaranteed on a subordinated basis by CHAAS Holdings and all of its domestic subsidiaries.
In the event the Castle Harlan Group receives proceeds from certain sales of equity interests in or assets of CHAAS Holdings, or from certain sales of our assets or equity interests that do not otherwise constitute a change in control, Valley and SportRack have agreed to prepay to the sellers a percentage of the then outstanding principal amount of the subordinated promissory notes, plus accrued and unpaid interest thereon, equal to the percentage of the value of the equity interests sold by the Castle Harlan Group in each such transaction. Subject to the subordination provisions of the subordinated promissory notes, Valley and SportRack may prepay the principal of and interest on the subordinated promissory notes at any time, in whole or in part, without penalty or premium. CHAAS Holdings has agreed not to permit a change in control unless proper provisions have been made to repay the subordinated promissory notes in accordance with the terms of our senior indebtedness.
The subordinated promissory notes and the related guarantees are subordinate in right of payment to the prior payment in full of the indebtedness which we refer to as "senior debt." Senior debt shall not include any indebtedness which, by its terms, is pari passu with, or subordinated in right of payment to, the subordinated promissory notes.
Until the senior debt is paid in full, no payment of principal or interest may be made on the subordinated promissory notes except (i) principal and accrued and unpaid interest on or after the final
78
maturity date of the subordinated promissory notes; (ii) payment of interest in kind; (iii) to a limited extent, by way of set-off against obligations of the holders of the subordinated notes to CHAAS Holdings and its affiliates under the securities purchase agreement and (iv) under other limited circumstances concerning the application of Dutch securities laws relating to certain holders of the notes who are Dutch residents, as more fully described in the subordinated promissory notes;provided,however, that no payments in connection with clauses (i) and (iv) shall be made if (x) an event of default under any senior debt has occurred and is continuing at the time of such payment or would result from such payment or (y) the agent(s) for the holders of any senior debt has delivered to the holders of the subordinated promissory notes notice that an event of default has occurred and is continuing and (A) 180 days has not elapsed from the final maturity date of the subordinated promissory notes and (B) the event of default described in the notice has not been remedied or waived. The subordinated promissory notes contain customary "standstill" provisions prohibiting the holders of the subordinated promissory notes from taking any action to enforce their rights under the subordinated promissory notes, other than to enforce their rights to payments of principal and accrued and unpaid interest as described in clause (iv) above.
Upon the occurrence of an event of default under the subordinated promissory notes, the holders of the subordinated promissory notes may declare the entire unpaid principal amount on the subordinated promissory notes, together with all accrued and unpaid interest thereon, to be due and payable, but may only enforce their rights following a "standstill," as described in the immediately preceding paragraph. An event of default under the subordinated promissory notes includes, among other things, failure to pay principal or interest when due, failure to comply with covenants in the subordinated promissory notes following notice and an opportunity to cure, the acceleration of certain of our material indebtedness prior to its stated maturity and certain events of bankruptcy, liquidation or insolvency.
An event of default also will occur if CHAAS Holdings fails, after notice and an opportunity to cure, to comply with its covenants in the securities purchase agreement (i) to prohibit any obligor or guarantor under the subordinated promissory notes from incurring, assuming, guaranteeing or suffering to exist any indebtedness that is both subordinated and junior in right of payment to the most junior of our senior debt at the time of the acquisition and senior in right of payment to the subordinated promissory notes, (ii) to prohibit redemptions or repurchases of the equity interests of CHAAS Holdings, other than repurchases of interests held by CHAAS Holdings or any of its subsidiaries' employees, unless CHAAS Holdings causes a percentage of the amounts outstanding under the subordinated promissory notes to be repaid that is equal to the percentage of the issued and outstanding equity interests of CHAAS Holdings that were so redeemed or repurchased, (iii) to prohibit transactions between CHAAS Holdings or any of its subsidiaries, on the one hand, and any of their affiliates, on the other hand, on a non-arms' length basis, subject to certain exceptions described in the securities purchase agreement and (iv) to prohibit the payment of any management, advisory or other similar fee to any member of the Castle Harlan Group at any time when principal or interest on the subordinated promissory notes has not been paid timely.
Capital Leases
During 2002, we borrowed €5.70 million under a €6.85 million 12 year capital lease for a new manufacturing plant in France. The remaining €872,000 available under the lease was borrowed by us in the first quarter of 2003. Repayments under the lease are due in 48 equal quarterly installments of €143,000 plus interest and commenced on March 31, 2003. Interest accrues at a fixed rate of 5.21% on half of the outstanding loan balance and accrues on the remaining outstanding loan balance at an adjustable rate, which is determined each quarter by reference to the three month EURIBOR rate plus a margin of 0.85%.
We also have entered into various other capital lease arrangements for certain machinery and equipment. These leases generally require monthly payments of principal and interest and have terms from three to five years. At March 31, 2003, the present value of the remaining payments outstanding under these other capital leases totaled $281,006.
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Advanced Accessory Systems, LLC (the "Company") and AAS Capital Corporation, as joint and several obligors (each an "Issuer" and together, the "Issuers"), issued the Original Notes on May 23, 2003 and will issue the New Notes under an indenture (the "Indenture"), dated as of May 23, 2003, among themselves, CHAAS Acquisitions, LLC ("Holdings"), the initial Subsidiary Guarantors and BNY Midwest Trust Company, as Trustee (the "Trustee"). AAS Capital Corporation is a wholly-owned subsidiary of the Company with nominal assets which conducts no operations. The terms of the New Notes are identical in all material respects to the terms of the Original Notes, except for the transfer restrictions and registration rights relating to the Original Notes.
The following description is a summary of the material provisions of the Indenture. It does not include all of the provisions of the Indenture includingnor does it restate the definitionsIndenture in its entirety. We urge you to read the Indenture because it defines your rights. The terms of certain terms thereinthe Notes include those stated in the Indenture and those terms
made a part of the Indenture by reference to the Trust Indenture Act of 1939, as in
effect on the dateamended (the "TIA"). A copy of the Indenture. TheIndenture may be obtained from the Company or the Initial Purchasers. You can find definitions of certain capitalized terms used in this Description of the following summary are set forth belowNew Notes under "Certainthe subheading "—Certain Definitions." References to the "Notes" in this "Descriptionsection of the prospectus refers to both the "Original Notes" section to "the
Company" mean only Advanced Accessory Systems, LLC and not any of its
Subsidiaries.
GENERALthe "New Notes."
The New Notes are joint and severalwill be senior unsecured obligations of the CompanyIssuers, rankingpari passuin right of payment with all other senior unsecured obligations of the Issuers. The New Notes will be effectively subordinated to all existing and Capital
Corp.future secured debt of the Issuers and the Guarantors to the extent of the assets securing such debt. All of the Obligations under the Credit Agreement are secured by substantially all of the assets of CHAAS Holdings and its Subsidiaries. After giving effect to the Transactions, at March 31, 2003, the aggregate amount of secured debt outstanding would have been approximately $25.7 million.
The Issuers will issue the New Notes are issued only in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. The Trustee will initially act as Paying Agent and Registrar for the New Notes. The New Notes may be presented for registration or transfer and exchange at the offices of $1,000. The Issuers have
appointed the Trustee to serve as registrar and paying agent underRegistrar, which initially will be the Indenture
at its offices at 40 Broad Street, 5th Floor, Suite 550,Trustee's corporate trust office in New York New York
10004.City. No service charge will be made for any registration 66
69
of transfer or exchange or redemption of New Notes, but the Notes, except forIssuers may require payment in certain circumstances of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. RANKINGThe Issuers may change any Paying Agent and Registrar without notice to holders of the Notes (the "
Principal, Maturity and Interest
The Notes rank junior to, and subordinatewill mature on June 15, 2011. $150.0 million in right of payment to, all
existing and future Senior Indebtedness of the Issuers, pari passu in right of
payment with all senior subordinated Indebtedness of the Issuers and senior in
right of payment to all Subordinated Indebtedness of the Issuers. At December
31, 1997, on a pro forma basis after giving effect to the 1998 Transactions the
Company would have had approximately $74.3 million of Senior Indebtedness
outstanding (exclusive of unused commitments). All debt incurred under the
Credit Facilities will be Senior Indebtedness of the Company, will be guaranteed
by each of the Guarantors on a senior basis and will be secured by substantially
all of the assets of the Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes are limited to $125,000,000 aggregate principal amount and will
matureof the Notes were issued on October 1, 2007.the Issue Date. Additional Notes may be issued from time to time, subject to the limitations set forth under the subheading "—Certain Covenants—Limitation on Incurrence of Additional Indebtedness." Interest on the Notes accrues at athe rate of 9 3/4%10 3/4% per annum and is payable semiannually in cash semi-annually in arrears on each April 1June 15 and October 1,December 15 commencing on October 1, 1998,December 15, 2003, to the holders of record of Notespersons who are registered Holders at the close of business on March 15the June 1 and September 15,December 1, respectively, immediately preceding suchthe applicable interest payment date. Interest on the Notes accrues from the most recent
interest payment date to which interest has been paid or, if no interest has been paid, from April 1, 1998.the Issue Date. Interest will beis computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
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The Notes are not entitled to the benefit of any mandatory sinking fund.
Redemption
Optional Redemption. Except as described below, the Notes are not redeemable at the option ofbefore June 15, 2007. Thereafter, the Issuers may on any one or more occasions redeem the Notes at their option, in whole or in part, at any time on or after October 1, 2002,upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as a percentagepercentages of the principal amount)amount thereof) if redeemed during the twelve-month period commencing on June 15 of the year set forth below, plusbelow:
| Year | Percentage | ||
|---|---|---|---|
| 2007 | 105.375 | % | |
| 2008 | 102.688 | % | |
| 2009 and thereafter | 100.000 | % |
In addition, the Issuers must pay accrued and unpaid interest, thereon, if any, on the Notes redeemed to the applicable redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
beginning on October 1 of the years indicated below:
Optional Redemption Upon Public Equity Offerings. At any time, andor from time to time, on or prior to October 1,
2000,June 15, 2006, the Issuers may, redeem in the aggregate up to 35% of the originally issued
aggregate principal amount of the Notes withat their option, use the net cash proceeds of one or more Public Equity Offerings by(as defined below) to redeem up to 35% of the Companyprincipal amount of the Notes issued under the Indenture at a redemption price in cash equal
to 109.750%of 110.750% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); redemption;provided however, that that:
- (1)
- at least 65% of the
aggregateprincipal amount of Notes issued under theNotes originally issued must remainIndenture remains outstanding immediately aftergiving effect toeach such redemption; and - (2)
- the Issuers make each such redemption
(excluding any Notes held by the Company or any of its Affiliates). Notice of any such redemption must be given within 60not more than 90 days after thedateconsummation of theclosingrelated Public Equity Offering.
"Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of Holdings or any other holding company of Holdings or the Issuers pursuant to a registration statement filed with the Commission in accordance with the Securities Act;providedHoldings or any other such entity contributes to the capital of the relevantIssuers the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price (plus accrued and unpaid interest to the redemption date) of the Company.
SELECTION AND NOTICE OF REDEMPTIONNotes to be redeemed pursuant to the preceding paragraph.
Selection and Notice of Redemption
In the event that the Issuers choose to redeem at any time less than all of the Notes, are to be redeemed at any time
pursuant to an optional redemption, selection of suchthe Notes for redemption will be made by the Trustee either
- (1)
- in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are
listedlisted; or, - (2)
- if
the Notessuch notes are not then listed on a national securities exchange, on apro ratabasis, by lot or by such method as the6770Trustee shall deem fair andappropriate; provided, however, that noappropriate.
No Notes of a principal amount of $1,000 or less shall be redeemed in part; provided further,
however, that ifpart. If a partial redemption is made with the net cash proceeds of a Public Equity Offering, by the Company, selection ofTrustee will select the Notes or portions
thereof for redemption shall be made by the Trustee only on apro ratabasis or on as nearly apro ratabasis as is practicable (subject to the procedures of
The Depository Trust Company)DTC procedures), unless such method is otherwise prohibited. Notice of redemption shallwill be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption
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date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company hasIssuers have deposited with the paying agent for the
NotesPaying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
Guarantees
The paymentNotes are unconditionally guaranteed by all Domestic Restricted Subsidiaries of Holdings (other than the principal of, premium, if any, and interestIssuers) existing on the Issue Date and thereafter all acquired or created Material Domestic Restricted Subsidiaries. The Guarantors jointly and severally guarantee the Issuers' Obligations under the Indenture and the Notes is subordinatedon a senior unsecured basis (the "Guarantees"). Each Guarantee ranks senior in right of payment to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Issuers of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from the trust described under "Satisfaction and Discharge of Indenture;
Defeasance" (a "Defeasance Trust Payment")), upon any dissolution or winding-up
or total liquidation or reorganization of the Issuers, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness then due shall first be paid in full in cash before the
Holders of the Notes or the Trustee on behalf of such Holders shall be entitled
to receive any payment by the Issuers of the principal of, premium, if any, or
interest on the Notes, or any payment by the Issuers to acquire any of the Notes
for cash, property or securities, or any distribution by the Issuers with
respect to the Notes of any cash, property or securities (excluding any payment
or distribution of Permitted Junior Securities and excluding any Defeasance
Trust Payment). Before any payment may be made by, or on behalf of, the Issuers
of the principal of, premium, if any, or interest on the Notes upon any such
dissolution or winding-up or total liquidation or reorganization, or in
bankruptcy, insolvency or receivership any payment or distribution of assets or
securities of the Issuers of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment), to which the Holders of the Notes
or the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Issuers or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness (pro
rata to such holders on the basissubordinated debt of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee or
trustees or agent or agents under any agreement or indenture pursuant to which
any of such Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior
Indebtedness then due in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Issuers of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may, in accordance
with the terms of the agreement or other instrument under which such Designated
Senior Indebtedness was created, be immediately accelerated,
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71
and upon receipt by the Trustee of written notice (a "Payment Blockage Notice")
from the holder or holders of such Designated Senior Indebtedness or the trustee
or agent acting on behalf of the holders of such Designated Senior Indebtedness,
then, unless and until such event of default has been cured or waived or has
ceased to exist or such Designated Senior Indebtedness has been discharged or
repaid in full in cash or the benefits of these provisions have been waived by
the holders of such Designated Senior Indebtedness, no direct or indirect
payment (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment) will be made by or on behalf of the
Issuers of principal of, premium, if any, or interest on the Notes, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or the
Notes to the contrary, (x) in no event will a Payment Blockage Period extend
beyond 179 days from the date the Payment Blockage Notice in respect thereof was
given, (y) there shall be a period of at least 181 consecutive days in each
360-day period when no Payment Blockage Period is in effect and (z) not more
than one Payment Blockage Period may be commenced with respect to the Notes
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Issuers, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Issuers may be
unable to meet fully their obligations with respect to the Notes.
As of March 31, 1998 the United States/Canadian Credit Facility is the only
outstanding Senior Indebtedness. Subject to the restrictions set forth in the
Indenture, in the future the Company may issue additional Senior Indebtedness to
refinance existing Indebtedness or for other corporate purposes.
GUARANTEES OF THE NOTES
The Indenture provides that each of the Guarantors unconditionally
guarantees on a joint and several basis (the "Guarantees") all of the Issuers'
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. The Guarantees are
general unsecured obligations of the Guarantors.Guarantor. The obligations of each Guarantor under its Guarantee is subordinated and junior in right of payment to
the prior payment in full of all existing and future Guarantor Senior
Indebtedness of such Guarantor substantially to the same extent as the Notes are
subordinated to all existing and future Senior Indebtedness of the Company. The
Guarantors also guarantee all obligations under the Credit Facilities, and each
Guarantor has granted a security interest in all or substantially all of its
assets to secure the obligations under the Credit Facilities. The obligations of
each Guarantor are limited as necessary to prevent the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collectionsGuarantee from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under Federal or stateapplicable law. Each
The Guarantee of a Subsidiary Guarantor that makes a payment or distribution under a Guarantee shallwill be entitled to a contribution from each other Guarantor in a pro rata amount, basedautomatically and unconditionally released without any action on the net assetspart of each Guarantor determined in accordance with GAAP.
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72
The Indenture provides that the Company shall cause each Restricted
Subsidiary issuing a Guarantee after the Issue Date pursuant to "Certain
Covenants -- Limitation on Guarantees by Restricted Subsidiaries" to (i) execute
and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory toor the Trustee pursuant to which such Restricted Subsidiary shall
become a party to the Indenture and thereby unconditionally guarantee allHolders of the Issuers' Obligations under the Notes and the Indenture on the terms set forth
therein and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary (which opinion may be subject to
customary assumptions and qualifications). Thereafter, such Restricted
Subsidiary shall (unless released(1) in accordanceconnection with the terms of this
Indenture) be a Guarantor for all purposes of the Indenture.
Each Guarantee is a continuing guarantee and will (a) remain in full force
and effect until payment in full of all of the obligations covered thereby, (b)
be binding upon each Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns.
The Indenture provides that if the Notes are defeased in accordance with
the terms of the Indenture, or if, subject to the requirements of the first
paragraph under "-- Certain Covenants -- Merger, Sale of Assets, etc." all or
substantially all of the assets of any Guarantor or all of the Equity Interests
of any Guarantor are sold (including by issuance or otherwise) by the Company in
a transaction constituting an Asset Sale, and if (x) the Net Cash Proceeds from
such Asset Sale are used in accordance with the covenant described under
"Certain Covenants-Disposition of Proceeds of Asset Sales" or (y) the Company
delivers to the Trustee an Officers' Certificate to the effect that the Net Cash
Proceeds from such Asset Sale shall be used in accordance with the covenant
described under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
and within the time limits specified by such covenant, then such Guarantor (in
the event of a sale or other disposition of all of the Equity Interests of such
Guarantor) or the corporation acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor)
shall be released and dischargedthat Subsidiary Guarantor (including, without limitation, by way of its Guarantee obligations in respect of the
Indenturemerger or consolidation), if Holdings and the Notes. In addition, if no DefaultIssuers apply the Net Cash Proceeds of that sale or Event of Default has
occurred and is continuing, upon the release of the guarantees of any Guarantor
of amounts outstanding under the Credit Facilities, the Guarantee of such
Guarantor shall be automatically released.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Designation of Unrestricted Subsidiaries" below shall upon
such Designation be released and discharged of its Guarantee obligations in
respect of the Indenture and the Notes and any Unrestricted Subsidiary whose
Designation is revoked pursuant to "Designation of Unrestricted Subsidiaries"
below will be required to become a Guarantorother disposition in accordance with the procedure
describedapplicable provisions of the Indenture; or (2) in connection with any sale of all of the Capital Stock of that Subsidiary Guarantor, if Holdings and the Issuers apply the Net Cash Proceeds of that sale in accordance with the applicable provisions of the Indenture; (3) if Holdings designates that Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; or (4) upon the payment in full of the Notes.
In addition, concurrently with any Legal Defeasance or Covenant Defeasance, the Guarantors shall be released from all of their Obligations under their respective applicable Guarantees.
Separate financial statements of the Guarantors are not included herein because such Guarantors are jointly and severally liable with respect to the Issuers' obligations pursuant to the Notes.
Holdings Guarantee
The obligations of the Issuers under the Notes are unconditionally guaranteed (the "Holdings Guarantee") on a senior unsecured basis by Holdings. The Holdings Guarantee is senior in right of payment to all subordinated debt of Holdings to the same extent that the Notes are senior to subordinated debt of the Issuers. Since Holdings is currently a holding company with no significant operations, the Holdings Guarantee may provide little, if any, additional credit support for the Notes, and investors should not rely on the Holdings Guarantee in evaluating an investment in the third preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
FollowingNotes.
Change of Control
The Indenture provides that upon the occurrence of a Change of Control, each Holder will have the right to require that the Issuers purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of such
occurrence beingpurchase.
Within 30 days following the "Changedate upon which a Change of Control Date"),occurs, the CompanyIssuers must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall notifygovern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Issuers, a Depositary, if appointed by the Issuers, or the Paying Agent at the address specified in the
82
notice prior to the close of business on the third business day prior to the Change of Control Payment Date.
The Issuers will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuers and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the Issuers will have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. In the event the Issuers are required to purchase outstanding Notes pursuant to a Change of Control Offer, the Issuers expect that they would seek third party financing to the extent they do not have available funds to meet their purchase obligations. However, there can be no assurance that the Issuers would be able to obtain such financing.
The Credit Agreement as in effect on the Issue Date restricts the purchase of Notes by the Issuers prior to their maturity and, upon a Change of Control, all amounts outstanding under the Credit Agreement may, at the option of the lenders thereunder, become due and payable. There can be no assurance that in the event of a Change in Control the Issuers will be able to obtain the necessary consents from the lenders under the Credit Agreement to consummate a Change in Control Offer. The failure of the Issuers to make or consummate the Change in Control Offer or pay the applicable Change of Control purchase price when due would result in an Event of Default and would give the Trustee and the Holders of the Notes the rights described under "Events of such occurrence in the manner prescribed by the
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date)Default".
If a Change of Control occurs which also constitutes an event of default
under the Credit Facilities, the lenders under the Credit Facilities would be
entitled to exercise the remedies available to a secured lender under applicable
law and pursuant to the terms of the Credit Facilities. Accordingly, any claims
of such lenders with respect to the assets of the Issuers will be prior to any
claim of the Holders of the Notes with respect to such assets.
Neither the Board of ManagersDirectors of the CompanyHoldings or either Issuer nor the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the CompanyHoldings and its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on their property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of Holdings or the Company, whether favored or opposed by the management of Holdings or the Company. Consummation of
70
73 any such transaction in certain circumstances may require redemption or repurchase of the Notes, and there can be no assurance that the CompanyIssuers or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of Holdings, the Company or any of its Restrictedtheir Subsidiaries by the
management of the Company.their management. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders of Notes protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction.
The Companydefinition of "Change of Control" in the Indenture is limited in scope. The provisions of the Indenture may not afford Holders the right to require the Issuers to repurchase such Notes in the event of a highly leveraged transaction or certain transactions with Holdings' or the Issuers' management or its Affiliates, including a reorganization, restructuring, merger or similar transaction involving Holdings or the Issuers (including, in certain circumstances, an acquisition of Holdings or the Issuers by management or their Affiliates) that may adversely affect Holders, if such transaction is not a transaction defined as a Change of Control. See "Certain Definitions" below for the definition of "Change of Control."
One of the events that constitutes a Change of Control under the Indenture is the disposition of "all or substantially all" of Holdings' assets under certain circumstances. This term has not been interpreted under New York law (which is the governing law of the Indenture) to represent a specific quantitative test. As a consequence, in the event Holders elect to require the Issuers to purchase the
83
Notes and the Issuers elect to contest such election, there can be no assurance as to how a court interpreting New York law would interpret the phrase in many circumstances.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the CompanyIssuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof.
Except as described above with respect to a Change of Control,
Certain Covenants
The Indenture contains, among others, the Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTSfollowing covenants:
Limitation on Incurrence of Additional Indebtedness. The Company shall (a) Holdings will not, and shallwill not cause or permit any of its Restricted SubsidiarySubsidiaries to, directly or indirectly, Incurcreate, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness);provided, however,that Holdings, either Issuer or any Restricted Subsidiary of Holdings that is or, upon such incurrence, becomes a Subsidiary Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness), except for Permitted
Indebtedness; provided, however,that the Company and any Domestic Restricted Subsidiary of Holdings that is not or will not, upon such incurrence, become a Subsidiary Guarantor may Incurincur Acquired Indebtedness, in each case, if aton the timedate of and immediatelythe incurrence of such Indebtedness, after giving pro forma effect to such Incurrence of Indebtednessthe incurrence thereof and the application of the proceeds therefrom,thereof, the Consolidated Fixed Charge Coverage Ratio would beof Holdings is greater than 2.02.00 to 1.0 if thesuch Indebtedness is Incurredincurred on or prior to December 31, 1999 andMay 23, 2005 or 2.25 to 1.0 if thesuch Indebtedness is Incurred thereafter; and provided further, that
any Foreignincurred thereafter.
For purposes of determining compliance with this covenant, (i) Acquired Indebtedness shall be deemed to have been incurred by Holdings or one of its Restricted Subsidiaries, as the case may be, at the time an acquired Person becomes such a Restricted Subsidiary (or is merged into Holdings or such a Restricted Subsidiary) or at the time of the acquisition of assets, as the case may be, and (ii) the maximum amount of Indebtedness that Holdings and its Restricted Subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in accordance with "--the exchange rates of currencies.
- (b)
- Holdings will not, and will not permit either Issuer or any Subsidiary Guarantor to, directly or indirectly, incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated in right of payment to any other Indebtedness of Holdings or such Issuer or Subsidiary Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinate to the Notes or the applicable Guarantee, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of Holdings or such Issuer or Subsidiary Guarantor, as the case may be.
Limitation on Foreign Indebtedness" below.
Limitation on Foreign Indebtedness. The Company shallRestricted Payments. Holdings will not, and will not cause or permit any Foreignof its Restricted Subsidiary of the CompanySubsidiaries to, directly or indirectly,
Incur
- (1)
- declare or pay any
Indebtedness (including Acquired Indebtedness)dividend or make any distribution on or in respect of shares of Capital Stock of Holdings or any Restricted Subsidiary to holders of such Capital Stock, other than (a) dividends or distributions payable in Qualified Capital Stock of Holdings and (b) in the case of a Restricted Subsidiary, dividends or distributions payable (i) in Qualified Capital Stock of such Restricted Subsidiary and (ii) to Holdings and to any other Restricted Subsidiary andpro ratadividends or distributions payable to minority stockholders of such Restricted Subsidiary;
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- (2)
- purchase, redeem or otherwise acquire or retire for value any Capital Stock of Holdings or any Restricted Subsidiary, other than such Capital Stock held by Holdings or any Restricted Subsidiary;
- (3)
- make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness or make any cash interest payment with respect to the subordinated promissory notes issued pursuant to the Securities Purchase Agreement; or
- (4)
- make any Investment (other than Permitted
IndebtednessInvestments)
(each of the foregoing actions set forth in clauses (a) through (m) of(1), (2), (3) and (4) being referred to as a "Restricted Payment"), if at the definition thereof
unless (i) the Indebtedness is Incurred, denominated and payable in U.S. dollars
or the local currencies of the jurisdictions of the operations of the Foreign
Restricted Subsidiary Incurring such Indebtedness or of the business or the
location of assets being acquired with the proceedstime of such Indebtedness;
provided, however, that any Indebtedness permitted to be Incurred in a Western
European currency pursuant to this clause (i) may be Incurred in such Western
European currencyRestricted Payment or any other Western European currency, (ii)immediately after giving effect thereto,
- (i)
- a Default or an Event of Default shall have occurred and be continuing;
- (ii)
- Holdings is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; or
- (iii)
- the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the
IncurrenceIssue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of Holdings) shall exceed the sum (the "Restricted Payments Basket") of- (u)
- 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of Holdings earned from the Issue Date and ending the date of such proposed Restricted Payment (the "Reference Date") (treating such period as a single accounting period);plus
- (v)
- 100% of the aggregate net cash proceeds and 100% of the fair market value of property other than cash received by Holdings from any Person (other than a Restricted Subsidiary of Holdings) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of Holdings (but excluding (1) any debt security that is convertible into, or exchangeable for, Qualified Capital Stock and (2) any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under the subheading "Redemption—Optional Redemption Upon Public Equity Offerings");plus
- (w)
- without duplication of any amounts included in clause (iii)(v) above, 100% of the aggregate net cash proceeds of any equity contribution received by Holdings from a holder of Holdings' Capital Stock subsequent to the Issue Date and on or prior to the Reference Date (excluding any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under the subheading "Redemption—Optional Redemption Upon Public Equity Offerings");plus
- (x)
- 100% of the aggregate net cash proceeds received by Holdings or any of its Restricted Subsidiaries from any Person (other than a Restricted Subsidiary of Holdings) from the issuance and sale (subsequent to the Issue Date) of Indebtedness (including Disqualified Capital Stock) that has been converted into or exchanged for Qualified Capital Stock of Holdings, together with the aggregate cash received by Holdings at the time of such conversion or exchange and the
receiptamount of any accrued interest then outstanding on any such Indebtedness that is not paid in cash;plus - (y)
- without duplication, the sum of
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- (1)
- the aggregate amount paid in cash or Cash Equivalents to Holdings or any Restricted Subsidiary of Holdings on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments;
- (2)
- the net cash proceeds received by Holdings or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Restricted Subsidiary of Holdings); and
- (3)
- upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;
provided, however,that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date;plus
- (z)
- $7.5 million.
Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit
- (1)
- the payment of any dividend or other distribution or redemption within 60 days after the date of declaration of such dividend or call for redemption if such payment would have been permitted on the date of declaration or call for redemption;
- (2)
- the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of Holdings or any Restricted Subsidiary of Holdings, either (i) solely in exchange for shares of Qualified Capital Stock of Holdings or (ii) through the application of
thenet proceedstherefrom, (A) if, asof aresult of the Incurrence of such Indebtedness, suchsubstantially concurrent sale for cash (other than to a Restricted Subsidiarywill be or become subject to any restriction or limitation onof Holdings) of shares of Qualified Capital Stock of Holdings; - (3)
- the payment of
dividendsprincipal, the repurchase, retirement, redemption or other repayment of any Subordinated Indebtedness either (i) solely in exchange for shares of Qualified Capital Stock of Holdings, or (ii) through themakingapplication ofother distributions, (I) the rationet proceeds ofForeign EBITDAa substantially concurrent sale for cash (other than toForeign Interest Expense (determined onapro forma basis for the last four fiscal quarters for which financial statements are available at the dateRestricted Subsidiary ofdetermination) is greater than 3.0 to 1.0 and (II) the Company's Consolidated Coverage Ratio (determined on a pro forma basis for the last four fiscal quartersHoldings) ofthe Company for which financial statements are available at the date(a) shares ofdetermination) is greater than 2.0 to 1.0Qualified Capital Stock of Holdings or (b) ifthe Indebtedness is Incurred prior to December 31, 1999 and 2.25 to 1.0 if the Indebtedness is Incurred thereafter and (B) in any other case, the Company's Consolidated Coverage Ratio (determined on a pro forma basis for the last four fiscal quarters of the Company for which financial statements are available at the date of determination) is greater than 2.0 to 1.0 if the Indebtedness is Incurred prior to December 31, 1999 and 2.25 to 1.0 if the Indebtedness is Incurred thereafter, and (iii)no Default or Event of Default shall have occurred and be continuing,at the time or as a consequence of the Incurrence of such Indebtedness. 7174 Limitation on Senior Subordinated Indebtedness. The Company shall not, directly or indirectly, Incur any Indebtedness that by its terms would expressly rank senior in right of payment to the Notes and subordinate in right of payment to any other Indebtedness of the Company. The Company shall not permit any Guarantor to, and no Guarantor shall, directly or indirectly, Incur any Indebtedness that by its terms would expressly rank senior in right of payment to the Guarantee of such Guarantor and subordinate in right of payment to any Indebtedness of such Guarantor. Limitation on Restricted Payments. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or any other distribution on any Equity Interests of the Company or any Restricted Subsidiary or make any payment or distribution to the direct or indirect holders (in their capacities as such) of Equity Interests of the Company or any Restricted Subsidiary (other than any dividends, distributions and payments made to the Company or any Restricted Subsidiary (and, in the case of SportRack, concurrent like dividends, distributions and payments made to the holder of the 1% minority interest in SportRack) and dividends or distributions payable to any Person solely in Qualified Equity Interests of the Company or in options, warrants or other rights to purchase Qualified Equity Interests of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Restricted Subsidiary (other than any such Equity Interests owned by the Company or any Restricted Subsidiary); (iii) make any Investment in any Person (other than Permitted Investments); or (iv) designate any Subsidiary of the Company as an "Unrestricted Subsidiary" under the Indenture (a "Designation"); provided, however, that the Designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed to include the Designation of all of the Subsidiaries of such Subsidiary. (any such payment or any other action (other than any exception thereto) described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless (a)Refinancing Indebtedness; - (4)
- if no Default or Event of Default shall have occurred and be continuing,
at the time of or immediately after giving effect to such Restricted Payment; (b) immediately after giving effect to such Restricted Payment, the Company would be able to Incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the "Limitation on Indebtedness" covenant above; and (c) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after the Issue Date does not exceed an amount equal to the sum of (1) 50% of cumulative Consolidated Net Income determined for the period (taken as one period) from the beginning of the first fiscal quarter commencing on the Issue Date and ending on the last day of the most recent fiscal quarter immediately preceding the date of such Restricted Payment for which consolidated financial information of the Company is available (or if such cumulative Consolidated Net Income shall be a loss, minus 100% of such loss), plus (2) 100% of the aggregate net cash proceeds received by the Company either (x) as capital contributions to the Company after the Issue Date or (y) from the issue and sale (other than to a Restricted Subsidiary) of its Qualified Equity Interests after the Issue Date (excluding the net proceeds from any issuance and sale of Qualified Equity Interests financed, directly or indirectly, using funds borrowed from the Company or any Restricted Subsidiary until and to the extent such borrowing is repaid), plus (3) the principal amount (or accreted amount (determined in accordance with GAAP), if less) of any Indebtedness of the Company or any Restricted Subsidiary Incurred after the Issue Date which has been converted into or exchanged for Qualified Equity Interests of the Company (minus the amount of any cash or property distributed by the Company or any Restricted Subsidiary upon such conversion or exchange), plus (4) so long as the Designation thereof was treated asa Restricted Paymentmade afterto pay for theIssue Date, with respect torepurchase of Capital Stock of Holdings or anyUnrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in 7275 accordance with "DesignationofUnrestricted Subsidiaries" below, the Company's proportionate interest in an amount equal to the Fair Market Value of such Subsidiary, plus (5) in the case of the dispositionits direct orrepayment of any Investment constituting a Restricted Payment made after the Issue Date (including the sale of an Unrestricted Subsidiary)indirect parent corporations ordividends, distributions or interest payments received in cash, an amount equal to 100% of the net cash proceeds received by the Company or its Restricted Subsidiaries therefrom. The foregoing provisions will not prevent (i) the payment of any dividend or distribution on, or redemption of, Equity Interests within 60 days after the date of declaration of such dividend or distribution or the giving of formal notice of such redemption, if at the date of such declaration or giving of such formal notice such payment or redemption would comply with the provisions of the Indenture; (ii) the purchase, redemption, retirement or other acquisition of any Equity Interests of the Company or its Restricted Subsidiaries that are not owned by the Company or its Restricted Subsidiaries in exchange for, or out of the net cash proceeds of the substantially concurrent issue and sale (other than to a Restricted Subsidiary) of, Qualified Equity Interests of the Company; provided, however, that any such net cash proceeds and the value of any Qualified Equity Interests issued in exchange for such retired Equity Interests are excludedlimited liability companies fromclause (c)(2) of the preceding paragraph (and were not included therein at any time) and are not used to redeem the Notes pursuant to "-- Optional Redemption" above; (iii) the purchase, redemption or other acquisition for value of Equity Interests of the Company (other than Disqualified Capital Stock) or options on such Equity Interests held bydirectors, officers or employees or former directors, officers or employees(orof Holdings or any of its Subsidiaries or their authorized representatives, estates or beneficiariesunder their estates)upon the death, disabilityretirementor termination of employment of suchcurrentemployees, orformer officerstermination of their seat on the Board of Directors of Holdings, oremployeespursuant to the terms of any agreement under which such Capital Stock was issued in anemployee benefit planaggregate amount not to exceed in any fiscal year $2.0 million - (5)
- the repurchase, redemption or other repayment of any Subordinated Indebtedness in the event of a change of control in accordance with provisions similar to the "Change of Control" covenant described herein;providedthat, prior to such repurchase, redemption or other repayment, the Issuers have made the Change of Control Offer as provided in such covenant with respect to the Notes and prior to or concurrently with such redemption or other repayment have repurchased all Notes validly tendered for payment in connection with such Change of Control Offer;
86
- (6)
- the payment or distribution, to dissenting holders of Capital Stock pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of Holdings or any
other agreement pursuant to which such sharesofcapital stock or options were issued or pursuant to a severance, buy-sell or right of first refusal agreement with such current or former officer or employee; provided, however, that the aggregate cash consideration paid, or distributions made, pursuant to this clause (iii) does not exceed $5.0 million; (iv) Investments constitutingits RestrictedPayments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with "-- Disposition of Proceeds of Asset Sales" below; (v)Subsidiaries; - (7)
- Permitted Tax Distributions;
(vi)and - (8)
- the declaration or payment of dividends on the
Company'sCommon Stock of Holdings followingthe firstany Public Equity Offering ofthe Company'ssuch Common Stockafter the Issue Date,of up to 6% per annum of the net cash proceeds received bythe CompanyHoldings insuch public offering; and (vii) the purchase, redemption, retirement or other acquisition prior to June 30, 1999 ofall Public EquityInterests of the Company from unaffiliated third parties; provided, however, that the aggregate cash consideration paid pursuant to this clause (vii) does not exceed $7.5 million; provided, however, that in the case of each of clauses (ii), (iii), (iv), (vi) and (vii) no Default or Event of Default shall have occurred and be continuing or would arise therefrom.Offerings.
In determining the aggregate amount of Restricted Payments permissible under this
covenant,made subsequent to the Issue Date in accordance with clause (iii) of the second preceding paragraph, amounts expended pursuant to clauses (i)(1), (iii)(4), (iv)(5), (vi)(6) and (vii)(8) of the immediately preceding paragraph shall be included asin such calculation. No issuance and sale of Qualified Capital Stock pursuant to clause (2) or (3) of the immediately preceding paragraph shall increase the Restricted Payments.
ThePayments Basket, except to the extent the proceeds thereof exceed the amounts used to effect the transactions described therein.
For the purposes of determining compliance with this "Limitation on Restricted Payments" covenant, the amount, if other than in cash, of any non-cashproperty referred to in clause (iii)(v) above or of any Restricted Payment shall be deemed to be equal todetermined in good faith by the Fair Market Value thereof at the dateBoard of the makingDirectors of such Restricted Payment.
In determining the amount of any Restricted Payment made under clause (iv) of
the first paragraph of this covenant, the amount of such Restricted Payment (the
"Designation Amount")Holdings, whose determination shall be equal to the Fair Market Value of the Company's
proportionate interest in such Subsidiary on such date. Any such Designation
shall beconclusive and evidenced by a Board Resolution.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shallAsset Sales. (A) Holdings will not, and shallwill not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, or make any Investment in, the Company or
any other Restricted Subsidiary or (c) transfer any of its properties or assets
to the Company or any other Restricted Subsidiaries except for such
encumbrances or restrictions existing under or by reason of (i) the Credit
Facilities, or any other agreement of the Company or the Restricted Subsidiaries
outstanding on the Issue Date, in each case as in effect on the Issue Date, and
any amendments, restatements, renewals,
73
76
replacements or refinancings thereof; provided, however, that any such
amendment, restatement, renewal, replacement or refinancing is no more
restrictive in the aggregate with respect to, such encumbrances or restrictions
than those contained in the agreement being amended, restated, reviewed,
replaced or refinanced; (ii) applicable law; (iii) any instrument governing
Indebtedness or Equity Interests ofconsummate an Acquired Person acquired by the Company
or any Restricted Subsidiary as in effect at the time of such acquisition
(except to the extent such Indebtedness was Incurred by such Acquired Person in
connection with, as a result of or in anticipation or contemplation of such
acquisition); provided, however, that such encumbrances and restrictions are not
applicable to the Company or any Restricted Subsidiary, or the properties or
assets of the Company or any Restricted Subsidiary, other than the Acquired
Person; (iv) customary non-assignment provisions in contracts or leases entered
into in the ordinary course of business and consistent with past practices; (v)
Purchase Money Indebtedness for property acquired in the ordinary course of
business that only imposes encumbrances and restrictions on the property so
acquired; (vi) any agreement for the sale or disposition of the Equity Interests
or assets of any Restricted Subsidiary; provided, however, that such
encumbrances and restrictions described in this clause (vi) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with Disposition of Proceeds of Asset Sales"
below to the extent applicable thereto; (vii) secured Indebtedness otherwise
permitted to be incurred pursuant to the covenants described under "Limitation
on Indebtedness" and "Limitation on Liens" that limit the right of the debtor to
dispose of the assets securing such Indebtedness; (viii) customary provisions in
joint venture agreements and other similar agreements entered into in the
ordinary course of business; (ix) an agreement governing Indebtedness incurred
to refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clauses (i) through (viii) above; provided, however,
that the provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less restrictive in the aggregate than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clauses; (x) an agreement governing Senior Indebtedness permitted to be
incurred pursuant to the "Limitation on Indebtedness" covenant; provided,
however, that the provisions relating to such encumbrance or restriction
contained in such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Managers of the Company in its
reasonable and good faith judgment than the provisions contained in the Amended
and Restated Credit Agreement as in effect on the Issue Date; or (xi) the
Indenture.
Designation of Unrestricted Subsidiaries. The Company shall not and shall
not cause or permit any Restricted Subsidiary at any time to (x) provide credit
support for, subject any of its property or assets (other than the Equity
Interests of any Unrestricted Subsidiary) to the satisfaction of, or guarantee,
any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except for any non-recourse
guarantee given solely to support the pledge by the Company or any Restricted
Subsidiary of the capital stock of any Unrestricted Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, be permitted to be Incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Managers of the Company, delivered to the Trustee certifying compliance
with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets
74
77
now owned or hereafter acquired, or any proceeds therefrom or any income or
profits therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made, in the case of the Company, to secure the Notes and
all other amounts due under the Indenture, and in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's
Guarantee of the Notes and all other amounts due under the Indenture, equally
and ratably with such Indebtedness (or, in the event that such Indebtedness is
subordinated in right of payment to the Notes or such Restricted Subsidiary's
Guarantee, prior to such Indebtedness) with a Lien on the same properties and
assets securing such Indebtedness for so long as such Indebtedness is secured by
such Lien, except for (i) Liens securing Senior Indebtedness and Guarantor
Senior Indebtedness and (ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale unless (i)
- (1)
- Holdings or the
Company or suchapplicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to theFair Market Valuefair market value of the assets sold or otherwise disposedof and (ii)of; - (2)
- at least 75% of the consideration received by Holdings or the Restricted Subsidiary, as the case may be, from such
consideration consistsAsset Sale shall be in the form of(A)cash or CashEquivalents;Equivalents and is received at the time of such disposition;providedhowever,that (a) the amount of(x)any Indebtedness or other liabilities(as shown on the Company's or such Restricted Subsidiary's most recent balance sheet)ofthe CompanyHoldings or any such Restricted Subsidiary (other than liabilities that are by their terms subordinated to theNotes)Notes or any Guarantee thereof) that are assumed by the transferee of any such assets and(y)(b) the fair market value of any marketable securities, currencies, notes or other obligations received bythe CompanyHoldings or any such Restricted Subsidiaryfromin exchange for any suchtransfereeassets that areimmediatelypromptly convertedbyinto cash or Cash Equivalents within 180 days after theCompany orconsummation of suchRestricted Subsidiary into cashAsset Sale (to the extent of the cash received) shall be deemed to be cash forthepurposes of thisclause (A),provision; and - (3)
- upon the consummation of an Asset Sale, Holdings shall, subject to paragraph (B) below, apply, or
(B)cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either- (a)
- to repay or prepay any Indebtedness under the Credit Agreement and, in the case of any such Indebtedness under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility;
- (b)
- to make an Investment in properties and
capitalassets that replace the properties and assets that were the subject of such Asset Sale or in properties andcapitalassets that will be used, or Capital Stock of a Person engaged, in aRelatedPermitted Business ("ReplacementAssets"Assets");provided, however, that if such propertyand/orassets subject to such - (c)
- a combination of prepayment and investment permitted by the foregoing clauses (3)(a) and (3)(b).
87
- (B)
- On the 366th day after an Asset Sale
were directly owned by the Company or a Guarantor,(a "Net Proceeds Offer Trigger Date"), suchReplacement Assets shall also be directly owned by the Company or a Guarantor. Theaggregate amount ofany Indebtedness (other than any Subordinated Indebtedness)Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) ofthe Company or any Restricted Subsidiary that is actually assumed by the transferee in such Asset Sale and from which the Company and the Restricted Subsidiaries are fully and unconditionally releasedparagraph (A) above (each a "Net Proceeds Offer Amount") shall bedeemed to be cash for purposes of determining the percentage of cash consideration receivedapplied bythe Company or the Restricted Subsidiaries. The CompanyHoldings or such Restricted Subsidiaryasto allow thecase may be, may (i) applyIssuers to make an offer to purchase (the "Net Proceeds Offer") to all Holders and, to theNet Cash Proceedsextent required by the terms of anyAsset Sale within 180 days of receipt thereofPari Passu Indebtedness, an offer torepay Senior Indebtedness and permanently reduce any related commitment, or (ii) make an Investment in Replacement Assets; provided, however, that such Investment occurs or the Company or a Restricted Subsidiary enters into contractual commitmentspurchase tomake such Investment, subject only to customary conditions (other than the obtaining of financing), on or prior to the 180th day following the receiptall holders of such Pari Passu Indebtedness, on a date (the "NetCashProceedsand Net Cash Proceeds contractually committed are so applied within 270Offer Payment Date") not less than 30 nor more than 45 days following thereceiptapplicable Net Proceeds Offer Trigger Date, from all Holders (and holders of any suchNet Cash Proceeds. To the extent all or partPari Passu Indebtedness) on apro ratabasis, that amount of Notes (and Pari Passu Indebtedness) equal to the NetCashProceedsof any Asset Sale are not applied as described in clause (i) or (ii) of the immediately preceding paragraph within the time periods set forth therein (the "Net Proceeds Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after such Net Proceeds Utilization Date, make anOfferto Purchase all outstanding Notes up to a maximum principal amount (expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash Proceeds,Amount at apurchasepricein cashequal to 100% of the principal amountthereof,of the Notes (and Pari Passu Indebtedness) to be purchased, plus accrued and unpaid interest thereon, if any, to thePurchase Date; provided, however, thatdate of purchase. - (C)
- If at any time any non-cash consideration received by Holdings or any Restricted Subsidiary of Holdings, as the
Offer to Purchasecase may be,deferredin connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. - (D)
- The Issuers may defer the Net Proceeds Offer until there
areis an aggregateUnutilizedunutilized NetCashProceeds Offer Amount equal to or in excess of$5$10.0 millionatresulting from one or more Asset Sales (at which time, the entireamount of such Unutilizedunutilized NetCashProceeds Offer Amount, and not just the amount in excess of$5$10.0 million, shall be applied as required pursuant to thisparagraph. Withcovenant). - (E)
- In the event of the transfer of substantially all (but not all) of the property and assets of Holdings and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "—Merger, Consolidation and Sale of Assets", which transaction does not constitute a Change of Control, the successor corporation shall be deemed to have sold the properties and assets of Holdings and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to
any Offer to Purchase effected pursuant to this covenant, amongsuch deemed sale as if it were an Asset Sale. In addition, theNotes, to the extent the aggregate principal amountfair market value ofNotes tendered pursuant tosuchOffer to Purchase exceeds the Unutilized Net Cash Proceedsproperties and assets of Holdings or its Restricted Subsidiaries deemed to beapplied to the repurchase thereof, such Notessold shall bepurchased pro rata based on the aggregate principal amount of such Notes tendered by each Holder. To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes tendered by the Holders of the Notes pursuantdeemed tosuch Offer to Purchase, the Company may retain and utilize any portion of the Unutilized Net Cash Proceeds not 7578 applied to repurchase the Notes for any purpose consistent with the other terms of the Indenture and such Unutilized Net Cash Proceeds shall no longerbecounted in determining the available amount of UnutilizedNet Cash Proceeds for purposes of this covenant. - (F)
- With respect to any Permitted Sale and Leaseback Transaction, (1) the reference to "365 days" in clause (A)(3) above shall mean "545 days" and (2) the reference to the "366th day" in paragraph (B) above shall mean the "546th day."
- (G)
- To the extent that the aggregate value of Notes tendered pursuant to such Net Proceeds Offer is less than the Net Proceeds Offer Amount, Holdings may use the remaining amounts for general corporate purposes. Upon completion of such Net Proceeds Offer, the Net Proceeds Offer Amount will be reset to zero.
- (H)
- Notwithstanding paragraphs (A) and (B) of this covenant, Holdings and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent that
- (1)
- the consideration for such Asset Sale constitutes Replacement Assets; and
- (2)
- such Asset Sale is for fair market value;providedthat any cash or Cash Equivalents received by Holdings or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of paragraphs (A) and (B) of this covenant.
- (I)
- Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall
88
comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes and holders of Pari Passu Indebtedness properly tender such Indebtedness in an amount exceeding the Net Proceeds Offer Amount, the tendered Notes and Pari Passu Indebtedness will be purchased on apro ratabasis based on the aggregate amounts of Notes and Pari Passu Indebtedness tendered (and the Trustee shall select the tendered Notes of tendering Holders on apro ratabasis based on the amount of Notes tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law.
- (J)
- The
CompanyIssuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulationsthereunderto the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant toan Offer to Purchase.a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture,the CompanyHoldings shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof.Each Holder shall be entitled to tender all or any portion of the Notes owned by such Holder pursuant to the Offer to Purchase, subject to the requirement that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount
Limitation on Dividend and subject to any proration among tendering
Holders as described above.
Merger, Sale of Assets, etc. The Indenture provides that neither of the
Issuers may consolidate with or merge with or into any other entity and the
Company shallOther Payment Restrictions Affecting Restricted Subsidiaries. Holdings will not, and shallwill not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any such Restricted Subsidiary of Holdings to
- (1)
- pay dividends or make any other distributions on or in respect of its Capital Stock owned by Holdings or any Restricted Subsidiary of Holdings;
- (2)
- make loans or advances to
sell, convey, assign,Holdings or any Restricted Subsidiary of Holdings that owns Capital Stock of such Restricted Subsidiary of Holdings or pay any Indebtedness or other obligation owed to Holdings or any other Restricted Subsidiary of Holdings that owns Capital Stock of such Restricted Subsidiary of Holdings; or - (3)
- transfer any of its property or assets to Holdings or any other Restricted Subsidiary of Holdings that owns Capital Stock of such Restricted Subsidiary of Holdings,
except for such encumbrances or restrictions existing under or by reason of
- (a)
- applicable law;
- (b)
- the Indenture, the Notes and the Guarantees;
- (c)
- the Credit Agreement and the loan and security documents relating thereto;
- (d)
- in the case of clause (3) above, (A) agreements or instruments that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of Holdings, or any Restricted Subsidiary not otherwise
disposeprohibited by the Indenture or (C) provisions arising or agreed to in the ordinary course of business, not relating to any Indebtedness, that do not, individually or in the aggregate, detract from the value of property or assets of Holdings or any of its Restricted Subsidiaries in any manner material to Holdings or any of its Restricted Subsidiaries; - (e)
- any agreement or instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired;
- (f)
- agreements or instruments existing on the Issue Date to the extent and in the manner such encumbrances and restrictions are in effect on the Issue Date;
89
- (g)
- an agreement that has been entered into for the sale or disposition of all or substantially all of the
Company'sCapital Stock of, or property and assets of, any Restricted Subsidiary of Holdings or provisions with respect to the disposition or distribution of assets or property in joint venture agreements or other similar agreements or arrangements entered into in the ordinary course of business; - (h)
- provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any class of Capital Stock of a Person other than on apro ratabasis;
- (i)
- provisions in agreements or instruments relating to Purchase Money Indebtedness or Capitalized Lease Obligations incurred in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant that impose restrictions of the nature described in clause (3) above on the property acquired;
- (j)
- restrictions on cash or other deposits imposed by customers under contracts or other arrangements entered into or agreed to in the ordinary course of business;
- (k)
- restrictions on the ability of any Foreign Restricted Subsidiary to make dividends or other distributions resulting from the operation of reasonable financial covenants contained in documentation governing Indebtedness of such Subsidiary permitted under the Indenture;
- (l)
- restrictions in other Indebtedness incurred in compliance with the covenant described under "—Limitation on Incurrence of Additional Indebtedness;"providedthat such restrictions, taken as a whole, are, in the good faith judgment of Holdings' Board of Directors, no more materially restrictive with respect to such encumbrances and restrictions than those contained in the existing agreements referenced in clauses (b), (c) and (f) above;
- (m)
- restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien; or
- (n)
- an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (b), (e), (f), (i), (k) or (l) above;provided, however,that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Issuers in any material respect as determined by the Board of Directors of Holdings in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (b), (e), (f), (i), (k) or (l).
Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent Holdings or any of its Restricted Subsidiaries from creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the "Limitation on Liens" covenant.
Limitation on Preferred Stock of Restricted Subsidiaries. Holdings will not permit any of its Restricted Subsidiaries that are not Issuers or Subsidiary Guarantors to issue any Preferred Stock (other than to Holdings or to a Wholly Owned Restricted Subsidiary of Holdings) or permit any Person (other than Holdings or a Wholly Owned Restricted Subsidiary of Holdings) to own any Preferred Stock of any Restricted Subsidiary of Holdings that is not an Issuer or a Subsidiary Guarantor.
Limitation on Liens. Holdings will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens (other than Permitted Liens) of any kind against or upon any property or assets of Holdings or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless
90
- (1)
- in the case of Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and
- (2)
- in all other cases, the Notes are equally and ratably secured by a Lien on such property, assets, proceeds, income or profit.
In the event that all Liens, the existence of any of which gives rise to a Lien securing the Notes pursuant to the provisions of this covenant, cease to exist, the Lien securing the Notes required by this covenant shall automatically be released and the Restricted Subsidiaries' propertiesTrustee shall execute appropriate documentation.
Merger, Consolidation and assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) to any entitySale of Assets. None of Holdings or either Issuer will, in a single transaction or series of related transactions, unless: (i) either (x)consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of Holdings to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the assets of Holdings or the Company (determined on a consolidated basis for Holdings or the Company, as the case may be) whether as an entirety or substantially as an entirety to any Person unless
- (1)
- either
- (a)
- Holdings or the Company, as the case may be, shall be the
Surviving Personsurviving or(y)continuing Person; or - (b)
- the
SurvivingPerson (if other than Holdings or the Company) formed by such consolidation or into which Holdings or the Company, as the case may be, is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of Holdings or the Company, as the case may be, and its Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") - (x)
- shall be a corporation or a partnership or a limited liability company, in each case, organized and validly existing under the laws of the United States
of Americaor any State thereof or the District ofColumbia or, if any such Restricted Subsidiary was a Foreign Restricted Subsidiary, under the laws of the United States of America or any state thereof or the District of Columbia or the jurisdiction under which such Foreign Restricted Subsidiary was organized,Columbia; and - (y)
- shall
in any such case,expressly assume, byasupplemental indenture (in form and substance reasonably satisfactory to the Trustee in all respects), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes or the Obligations under the Holdings Guarantee, as the case may be, and the performanceand observanceof every covenant of the Notes, the Indenture, the Holdings Guarantee (in the case of Holdings) and the Registration Rights Agreement on the part of Holdings or the Company, as the case may be, to be performed orobserved onobserved;providedthat at any time thepartCompany or its successor is a partnership or a limited liability company, there shall be a co-issuer of theCompany; (ii) immediately thereafter, no DefaultNotes that is a corporation;
- (2)
- except in the case of a consolidation or
Eventmerger ofDefault shall have occurred andHoldings or the Company, as the case may be,continuing; and (iii)with or into a Wholly Owned Restricted Subsidiary of Holdings, or a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of Holdings or the Company, as the case may be, to a Wholly Owned Restricted Subsidiary of Holdings, immediately after giving effect toanysuch transactioninvolvingand theIncurrenceassumption contemplated bythe Company or any Restricted Subsidiary, directly or indirectly, of additional Indebtedness (and treatingclause (1)(b)(y) above (including giving effect to any Indebtednessnot previously an obligation of the Company(including Acquired Indebtedness) incurred orany Restricted Subsidiaryanticipated to be incurred in connection with oras a result of such transaction as having been Incurred at the timein respect of such transaction), Holdings or such Surviving Entity, as theSurviving Person could Incurcase may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)underpursuant to theConsolidated Coverage Ratio"—Limitation on Incurrence of Additional Indebtedness" covenant; - (3)
- immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including, without limitation, giving effect to any Indebtedness (including Acquired Indebtedness) incurred and any Lien granted in connection with or in
91
- (4)
- Holdings or
part of its properties and assets tothe Company orany Restricted Subsidiarythe Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture isa Guarantor.required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied.
respect of the first paragraphtransaction), no Default or Event of "Limitation on
Indebtedness" covenant described above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge intoDefault shall have occurred or transfer allbe continuing; and
For purposes of the foregoing, (i) the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties andor assets of one or more Restricted Subsidiaries of Holdings or the Equity InterestCompany, as the case may be, the Capital Stock of which constitutes all or substantially all of the properties and assets of Holdings or the Company, as the case may be, shall be deemed to be the transfer of all or substantially all of the properties and assets of Holdings or the Company.
No Guarantor (other than a Guarantor whoseCompany, as the case may be, and (ii) Holdings or the Company, as the case may be, if surviving, will be automatically discharged from all of its Obligations under the Indenture and the Notes or the Holdings Guarantee, is toas applicable, so long as the requirements set forth above are satisfied.
The Indenture will provide that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of Holdings or the Company, as the case may be, released in accordance with the terms of its Guarantee and the Indenture as providedforegoing, in the
third paragraph under "Guarantees of the Notes" above) shall consolidate with or
merge with or into another Person, whether or not such Person is affiliated with
such Guarantor and whether or not such Guarantor is the Surviving Person, unless
(i) the Surviving Person (if other than such Guarantor) is a corporation or
limited liability company organized and validly existing under the laws of the
United States, any State thereofwhich Holdings or the District of Columbia; (ii) the Surviving
Person (if other than such Guarantor) expressly assumes by a supplemental
indenture all the obligations of such Guarantor under its Guarantee of the Notes
and the performance and observance of every covenant of the
76
79
Indenture and the Registration Right Agreement to be performed or observed by
such Guarantor; (iii) at the time of and immediately after such Disposition, no
Default or Event of Default shall have occurred and be continuing; and (iv)
immediately after giving effect to any such transaction involving the Incurrence
by such Guarantor, directly or indirectly, of additional Indebtedness (and
treating any Indebtedness not previously an obligation of such Guarantor in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Company, could Incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
Consolidated Coverage Ratio of the first paragraph of the "Limitation of
Indebtedness" covenant described above; provided, however, that this paragraph
shall not be a condition to a merger or consolidation of a Guarantor if such
merger or consolidation only involves the Company and/or one or more other
Guarantors.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person andcontinuing corporation, the Surviving Person is to assume allEntity formed by such consolidation or into which Holdings or the Obligations of the Company,
under the Notes, the Indenture and the Registration Rights Agreement or of such
Guarantor under its Guarantee, the Indenture and the Registration Rights
Agreement, as the case may be, pursuantis merged or to a supplemental indenture,which such Surviving Personconveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the CompanyHoldings or such Guarantor, as the case may be, and the Company, as the case may be, shall be discharged from its Obligations under the Indenture and the Notes or the Holdings Guarantee, as applicable, with the same effect as if such Surviving Entity had been named as such.
Each Subsidiary Guarantor shall(other than any Subsidiary Guarantor whose Guarantee is to be discharged from its
Obligations underreleased in accordance with the terms of the Guarantee and the Indenture and its Guarantee.
Transactionsin connection with Affiliates. The Company shallany transaction complying with the provisions of "—Limitation on Asset Sales") will not, and shallHoldings will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than Holdings, the Company or any other Subsidiary Guarantor unless
- (1)
- the entity formed by or surviving any such consolidation or merger (if other than Holdings, the Company or the Subsidiary Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia;
- (2)
- such entity assumes by supplemental indenture all of the obligations of the Subsidiary Guarantor under its Guarantee, the Indenture and the Registration Rights Agreement;
- (3)
- immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and
- (4)
- immediately after giving effect to such transaction and the use of any net proceeds therefrom on apro formabasis, Holdings could satisfy the provisions of clause (2) of the first paragraph of this covenant.
Any merger or consolidation, or sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the property or assets, (a) of the Company or a Subsidiary Guarantor with and into Holdings or the Company (with Holdings or the Company, as the case may be, being the surviving entity) or another Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary of Holdings or (b) of Holdings with an Affiliate incorporated solely for the purpose of reincorporating
92
Holdings in another jurisdiction in the United States or any state thereof or the District of Columbia, need only comply with clause (4) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. Holdings will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, conduct any
business or enter into or permit to exist any transaction (oror series of related transactions)transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of their respectiveits Affiliates (including, without
limitation, any Unrestricted Subsidiary) or any officer, director or employee of
the Company or any Subsidiary (each an "Affiliate Transaction""Affiliate Transaction"), unless (i) suchother than (x) Affiliate Transaction isTransactions permitted under the third paragraph of this covenant and (y) Affiliate Transactions on terms whichthat are no less favorable tothan those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of Holdings or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $2.5 million shall be approved by the CompanyBoard of Directors of Holdings or such Restricted Subsidiary, as the case may be, than couldsuch approval to be available inevidenced by a comparable transaction with an unaffiliated third party and (ii) ifBoard Resolution stating that such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value in excess
of $1.0 million, such Affiliate Transaction is in writing and a majority of the
disinterested members of the Board of Managers of the Company shall have
approved such Affiliate Transaction andDirectors has determined that such Affiliate
Transactiontransaction complies with the foregoing provisions. In addition,If Holdings or any Restricted Subsidiary of Holdings enters into an Affiliate Transaction involving(or a series of related Affiliate Transactions related to a common plan) that involves an aggregate paymentsfair market value of more than $10.0 million, Holdings or other consideration havingsuch Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a Fair
Market Value in excess of $5.0 million will also require a writtenfavorable opinion from
an Independent Financial Advisor (filed withas to the Trustee) stating that the termsfairness of such Affiliate Transaction are fair,transaction or series of related transactions to Holdings or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, toissued by an Independent Financial Advisor and file the Company orsame with the Restricted Subsidiary involved in such Affiliate Transaction, as
the case may be.
Notwithstanding the foregoing, theTrustee.
The restrictions set forth in the first paragraph of this covenant shall not apply to (i) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries; (ii)
- (1)
- reasonable fees and compensation paid to and indemnity and reimbursement provided on behalf of, officers, directors, employees or consultants
or agentsofthe CompanyHoldings or any Restricted Subsidiary ofthe CompanyHoldings as determined in good faith bythe Company'sHoldings' Board ofManagers; (iii)Directors or senior management; - (2)
- transactions exclusively between or among Holdings and any
transactions undertakenof its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries; - (3)
- any agreement (other than the Management Agreement) as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any
contractual obligationsamendment thereto) inexistence onany replacement agreement thereto so long as any such amendment or replacement agreement is not materially more disadvantageous to theIssue Date (asHolders, taken as a whole, in any material respect than the original agreement as in effect on the IssueDate); (iv)Date; - (4)
- the payment to Castle Harlan, Inc. of management fees pursuant to and in accordance with the Management Agreement not to exceed the amount per year specified in the Management Agreement;providedthat, in the event the full amount thereof is not paid in any year, the deficiency may cumulate; andprovidedthat no Default or Event of Default shall have occurred and be continuing at the time of payment, may be paid together with the then current management fee for such subsequent year;
- (5)
- Restricted Payments
madepermitted by the Indenture; - (6)
- any employment, stock option, stock repurchase, employee benefit, compensation, business expense reimbursement, severance, termination or other employment-related agreements, arrangements or plans entered into by Holdings or any of its Restricted Subsidiaries in
compliance with "Limitation onthe ordinary course of business; - (7)
- loans or advances to employees or directors in the ordinary course of business of Holdings or any of its Restricted
Payments" above; (v) the provision by Persons who may be deemed Affiliates or stockholders of the Company of investment banking, commercial banking, trust, lending or financing, investment, underwriting, placement agent, financial advisory or similar servicesSubsidiaries to theCompanyextent permitted under the Indenture;
93
- (8)
- any payments or other transactions pursuant to any tax-sharing agreement between Holdings and any other Person with which it files a consolidated tax return or with which Holdings is part of a consolidated group for tax purposes;
- (9)
- any Affiliate Transaction which constitutes a Permitted Investment;
- (10)
- any transaction on arm's length terms with non-Affiliates that become Affiliates as a result of such transaction;
- (11)
- the issuance of Qualified Capital Stock of Holdings or any of its Restricted Subsidiaries;
(vi) reasonableandcustomary loans to employees of the Company and its Subsidiaries which are approved by the Board of Managers of the Company in good faith; and (vii) - (12)
- transactions with customers,
clients,suppliers or purchasers or sellers of goods or servicesin each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture,which are fair tothe Company orHoldings and its Restricted Subsidiariesin the reasonable determination ofas determined by the Board ofManagersDirectors ofthe CompanyHoldings.
Additional Subsidiary Guarantees. If Holdings or the senior management thereof,any of its Restricted Subsidiaries transfers or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
77
80
Limitation on the Salecauses to be transferred, in one transaction or Issuancea series of Equity Interests of Restricted
Subsidiaries. The Company shall not sellrelated transactions, any Equity Interest of aproperty to any Material Domestic Restricted Subsidiary andthat is not an Issuer or a Subsidiary Guarantor, or if Holdings or any of its Restricted Subsidiaries shall not causeorganize, acquire or permit anyotherwise invest in another Material Domestic Restricted Subsidiary, directlythen such transferee or indirectly, to issueacquired or sell or have outstanding any Equity Interests, except:
(i)other Restricted Subsidiary shall execute and deliver to the Company orTrustee a Wholly Owned Restricted Subsidiary; or (ii) if,
immediately after giving effectsupplemental indenture in form reasonably satisfactory to such issuance or sale,the Trustee pursuant to which such Restricted Subsidiary would no longer constitute a Restricted Subsidiary. Notwithstandingshall unconditionally guarantee all of the foregoing,Issuers' obligations under the Company is permitted to sell allNotes and the Equity Interests of aIndenture on the terms set forth in the Indenture. Thereafter, such Restricted Subsidiary as long as the Company is in compliance with the termsshall be a Subsidiary Guarantor for all purposes of the covenants described under "DispositionIndenture.
Conduct of Proceeds of Asset Sales"Business. Holdings and if
applicable, "Merger, Sale of Assets, etc." above.
Guarantees byits Restricted Subsidiaries.Subsidiaries will not engage in any businesses which is not a Permitted Business.
Reports to Holders. The Indenture provides that, whether or not required by the Company will not create or acquire, nor cause or permit anyrules and regulations of the Restricted
Subsidiaries, directly or indirectly,Commission, so long as any Notes are outstanding and prior to create or acquire, any Subsidiary other
than (A) an Unrestricted Subsidiary in accordance with the other terms of the
Indenture, (B) a Foreign Restricted Subsidiary or (C) a Domestic Restricted
Subsidiary that, simultaneously with such creation or acquisition, executes and
delivers a supplemental indentureHoldings being subject to the Indenture pursuant to which it will
become a Guarantor under the Indenture in accordance with "Guaranteesreporting requirements of the
Notes" above.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a)13 or 15(d) of the Exchange Act, or any successor provision
thereto,Holdings will deliver to the Company shall fileTrustee, within the time periods specified in the Commission's rule and regulations,
- (1)
- all quarterly and annual financial information that would be required to be contained in a filing with the
SEC (if permitted by SEC practiceCommission on Forms 10-Q andapplicable law and regulations) the annual reports, quarterly reports and other documents which the Issuers would have been10-K if Holdings were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of Holdings and its consolidated Subsidiaries and, withthe SEC pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the SEC on or priorrespect to therespective dates (the "Required Filing Dates")annual financial statements only, a report thereon bywhich the CompanyHoldings' certified independent accountants; and - (2)
- all current reports that would
have been required so to file such documents if the Company were so subject. The Company shall also in any event (a) within 15 days of each Required Filing Date (whether or not permitted orbe required to be filed with theSEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as their names and addresses appear in the Note register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company isCommission on Form 8-K if Holdings were required to file such reports, in each case within the time periods specified in the Commission's rules and regulations.
In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the Commission, Holdings will file a copy of all such information and reports with the SEC pursuant toCommission for public availability within the preceding
sentence, or, iftime periods specified in the Commission's rules and regulations (unless the Commission will not accept such filing is not so permitted, information and data of a similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Issuers with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder.filing). In addition, Holdings has agreed that, for so long as any Notes remain outstanding, and prior to the later of the consummation of the Exchange Offer and
the filing of the Initial Shelf Registration Statement, if required, the Companyit will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and,Act.
Payments for Consent. Neither Holdings nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any beneficial holder of
Notes, if not obtainable from the SEC, information of the type that would be
filed with the SEC pursuant to the foregoing provisions, upon the requestHolder of any such holder.
EVENTS OF DEFAULT
The occurrenceNotes for or as an inducement to any consent, waiver or amendment of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whetherterms or not prohibited by the provisions of the Indenture described under "Subordinationor the Notes unless such consideration is offered to be paid or is paid to all
94
Holders of the Notes" above); (b)Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Events of Default
The following events are defined in the Indenture as "Events of Default":
- (1)
- the failure to pay
anyinterest on any Note whendue, which failure continues for 30 days or more (whether or not prohibited bytheprovisions of the Indenture described under "Subordination of the Notes" above); (c) default in the payment of principal of or interest on any Note required to be purchased pursuant to any Offer to Purchase required by the Indenture whensame becomes due and payableorand the default continues for a period of 30 days; - (2)
- the failure to pay
onthePurchase Date the Purchase Price forprincipal of any Note,validlywhen such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant toanya Change of Control Offerto Purchase (whetherornot prohibiteda Net Proceeds Offer); - (3)
- a default by
the provisionseither of theIndenture described under "SubordinationIssuers or any Guarantor in the observance or performance ofthe Notes" above); (d) failure to performany other covenant or agreement contained in the Indenture which default continues for a period of 45 days after the Companyunder the Indentureorin the Notes or of the Guarantors under the Indenture or in the Guarantees which failure continues for 30 days or more aftersuch Guarantor receives written noticetospecifying theCompany bydefault (and demanding that such default be remedied and stating that such notice is a "Notice of Default") from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); - (4)
- the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of Holdings or any Restricted Subsidiary of Holdings (other than a Foreign Restricted Subsidiary that is not a Significant Subsidiary), or the acceleration of the final stated maturity of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together with the
outstanding Notes; (e)principal amount of any other such Indebtedness in default for failure to pay principal at final maturity ordefaults under the terms ofwhich has been accelerated, aggregates $10.0 million or more at any time and such failure shall not have been cured or waived within 30 days thereof; - (5)
- one or more
instruments evidencingjudgments (not covered by insurance as to which the carrier has assumed the defense orsecuring Indebtednessacknowledged coverage) in an aggregate amount in excess ofthe Company$10.0 million shall have been rendered against Holdings or any of its Restricted Subsidiarieshaving an outstanding principal amount of $5.0 million or more individually or in the aggregate(other than a Foreign Restricted Subsidiary thathas resulted in the acceleration of the payment of such Indebtedness or failure by the 7881 Company or any of its Restricted Subsidiaries to pay principal when due at the stated maturity of any such Indebtednessis not a Significant Subsidiary) and suchdefault or defaultsjudgments shallhave continued after any applicable grace period and shall not have been cured or waived; (f) the rendering of a final judgment or judgments (not subject to appeal) against the Company or any of its Restricted Subsidiaries in an amount of $5.0 million or more (net of any amounts covered by insurance) which remainsremain undischarged, unpaid or unstayed for a period of 60 consecutive days afterthe date on which the right to appeal has expired; (g)such judgment or judgments become final and non-appealable; - (6)
- certain events of bankruptcy
insolvency or reorganizationaffecting Holdings, the Company or any Significant Subsidiary ofits Significant Restricted Subsidiaries;Holdings; or(h) other than as provided in or pursuant to any - (7)
- the Holdings Guarantee or
the Indenture,any Guarantee of a SignificantRestrictedSubsidiary of Holdings ceases to be in full force and effect or is declared to be null and void and unenforceable or is found to be invalid or Holdings or any Subsidiary Guarantor that is a Significant Subsidiary of Holdings denies its liability in writingits liabilityunder its Guarantee(other(in each case, other thanby reason of a release of such Guarantor from its Guaranteein accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause (6) above with respect to Holdings or the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued and unpaid interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration", and the same shall become immediately due and payable. If an Event of Default specified in clause (6) above with respect to Holdings or the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shallipso factobecome and be
95
immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Notes may rescind and cancel such declaration and its consequences
- (1)
- if the rescission would not conflict with any judgment or decree; and
- (2)
- if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration.
No such rescission shall affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any existing or past Default or Event of Default under the Indenture, and such Guarantee).its consequences, except (other than as provided in the immediately preceding paragraph) a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will beis under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, of Notes, unless such Holders shall have offered to the Trustee reasonable indemnity.indemnity reasonably satisfactory to it. Subject to suchall provisions for the indemnification of the Trustee,Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on suchthe Trustee.
If
Under the Indenture, the Issuers are required to provide an Event of Default with respectofficers' certificate to the Notes (other than an Event of
Default with respect to the Company described in clause (g) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and,promptly upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary will become immediately
due and payable. If an Event of Default specified in clause (g) of the preceding
paragraph with respect to the Company occurs under the Indenture, the Notes will
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrenceofficer obtaining knowledge of any Default or Event of Default with respect to(providedthat the Notes
outstanding, give the HoldersIssuers shall provide such certification at least annually whether or not any officer knows of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of aany Default or an Event of Default in payment with respect
to the Notes or aDefault) that has occurred and, if applicable, describe such Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holdersstatus thereof.
No Personal Liability of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such requestDirectors, Managers, Officers, Employees, Members and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any,Stockholders
No past, present or interest on such Note on or after the
respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Issuers of certain of their obligations under the
Indenture and as to any default in such performance.
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82
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MEMBERS,
MANAGERS AND STOCKHOLDERS
Nofuture director, manager, officer, employee, incorporator (or Person forming any limited liability company), agent, member manager or stockholder of eitheror Affiliate of the Issuers, or any of their Affiliates, as such, shall have any liability for any obligations of either of the Issuers or any of their
Affiliates under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. No past, present or future director, manager, officer, employee, incorporator (or Person forming any limited liability company), agent, member or stockholder or Affiliate of any of the Guarantors, as such, shall have any liability for any obligations of the Guarantors under the Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holderHolder of Notes and Guarantees by accepting a Note and a Guarantee waives and releases all such liability.liabilities. The waiver and release are part of the consideration for issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCENotes and the Guarantees. Such waiver may not be effective to waive liabilities under the federal securities law and it is the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The CompanyIssuers may, at itstheir option and at any time, elect to have itstheir obligations and the obligations of the Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"Defeasance"). Such Legal Defeasance means that the CompanyIssuers shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i)
- (1)
- the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are
due, (ii)due;
96
- (2)
- the
Company'sIssuers' obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency forpayments, (iii)payments; - (3)
- the rights, powers, trust, duties and immunities of the Trustee and the
Company'sIssuers' obligations in connectiontherewiththerewith; and(iv) - (4)
- the Legal Defeasance provisions of the Indenture.
In addition, the CompanyIssuers may, at itstheir option and at any time, elect to have their obligations and the obligations of the CompanyGuarantors released with respect to certain covenants that are described in the Indenture (including all of the covenants described in this "Description of the Notes" section) ("Covenant Defeasance"Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not
including(excluding only certain non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an EventEvents of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
- (1)
- the
CompanyIssuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callableUnited States Government Obligations,U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by the Issuers, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be;(ii) - (2)
- in the case of Legal Defeasance, the
CompanyIssuers shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that(A)- (a)
- the
Company hasIssuers have received from, or there has been published by, the Internal Revenue Service arulingruling; or(B) - (b)
- since the date of the Indenture, there has been a change in the applicable federal income tax law,
- (3)
- in the case of Covenant Defeasance, the
CompanyIssuers shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;(iv) - (4)
- no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or
insofar as EventsEvent of Defaultfrom bankruptcy or insolvency events are concerned, atarising in connection with the borrowing of funds to fund such deposit and the grant of anytime in the period ending on the 91st day after the date of deposit; (v)Lien securing such borrowing); - (5)
- such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture (other than a Default or Event of Default arising in connection with the borrowing of funds to fund such deposit and the grant of any Lien securing such borrowing) or any other material agreement or instrument to which
the CompanyHoldings or any of its Subsidiaries is a party or by whichthe CompanyHoldings or any of its Subsidiaries is bound;(vi)
in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii)
97
- (6)
- the
CompanyIssuers shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by theCompanyIssuers with the intent of preferring the Holders over any other creditors of theCompanyIssuers or with the intent of defeating, hindering, delaying or defrauding any other creditors of theCompanyIssuers or others;(vii) - (7)
- the
CompanyIssuers shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance8083or the Covenant Defeasance have been complied with;(viii)and - (8)
- the
CompanyIssuers shall have delivered to the Trustee an opinion of counsel to the effect that,(A) the trust funds will not be subject to any rights of holders of Senior Indebtedness, including, without limitation, those arising under the Indenture, and (B)assuming no intervening bankruptcy of theCompanyIssuers between the date of deposit and the 91st day following the date ofthedeposit and that no Holder is an insider of either of theCompany,Issuers, after the 91st day following the date ofthedeposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rightsgenerally; and (ix) certain other customary conditions precedent are satisfied.generally.
Notwithstanding the foregoing, the opinion of counsel required by clause (ii)(2) above with respect to a Legal Defeasance need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (x)(1) have become due and payable (y)or (2) will become due and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGEIssuers.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect (except as to surviving rights ofor registration orof transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i)
- (1)
- either
- (a)
- all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the
CompanyIssuers and thereafter repaid to theCompanyIssuers or discharged from such trust) have been delivered to the Trustee forcancellationcancellation; or - (b)
- all Notes not theretofore delivered to the Trustee for cancellation (1) have become due and payable or (2) will become due and payable within one year, or are to be called for redemption within one year, under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuers, and the
Company hasIssuers have irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from theCompanyIssuers directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;(ii)
- (2)
- the
Company hasIssuers have paid all other sums payable under the Indenture by theCompany;Issuers; and(iii) - (3)
- the
Company hasIssuers have delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with.GOVERNING LAW The Indenture, the Notes and the Guarantees are governed by the laws
98
Modification of the State of New York without regardIndenture
From time to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made bytime, the Issuers, the Guarantors and the Trustee, without the consent of the Holders, may amend, waive or otherwise modify provisions of the Indenture, the Notes and the Guarantees for certain specified purposes, including (a) providing for the issuance of additional Notes in accordance with the terms of the Indenture and curing ambiguities, defects or inconsistencies so long as such changes do not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect, (b) providing for uncertificated Notes in addition to or in place of certificated Notes, (c) providing for the assumption of the Issuers' or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation or sale of all or substantially all of such entity's assets; or (d) complying with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. Other amendments, waivers and other modifications of provisions of the Indenture may be made with the consent of the Issuers and the Holders of a majority in aggregate principal amount of the then outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); provided,
however, that no such modification or amendment toissued under the Indenture, may,except that, without the consent of theeach Holder of each Note affected thereby, (a) change the maturity
of the principal ofno such amendment, waiver or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of the Notes; (b) other modification may
- (1)
- reduce the principal amount
(or the premium)ofany such Note; (c)Notes at maturity whose Holders must consent to an amendment; - (2)
- reduce the rate of or
extendchange or have the effect of changing the time for payment of interest, including defaulted interest, on anysuch Note; (d)Notes; - (3)
- reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the
placedate on which any Notes may be subject to redemption orcurrencyreduce the redemption price therefor; - (4)
- make any Notes payable in money other than that stated in the Notes;
- (5)
- make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of
(or premium) orand interest onanysuchNote; (e) modify any provisionsHolder's Note or Notes on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders ofthe Indenture relating to the waiver of past defaults (other than to add sections of the Indenture or the Notes subject thereto) or the right of the Holdersa majority in principal amount of Notes toinstitute suit forwaive Defaults or Events of Default; - (6)
- after the
enforcementIssuers' obligation to purchase Notes arises thereunder, amend, change or modify in any material respect the obligation ofany payment onthe Issuers to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or, after suchNoteChange of Control has occurred or such Asset Sale has been consummated, modify anyGuarantee in respect thereof or the modification and amendment provisionsof theIndenture and the Notes (other than to add sections of the Indentureprovisions orthe Notes which may not be amended, supplementeddefinitions with respect thereto; - (7)
- modify or
waived without the consent of each Holder affected); (f) reduce the percentage of the principal amount of outstanding Notes necessary for amendment to or waiver of compliance withchange any provision of the Indenture or theNotes or for waiver of any Default in respect thereof; 8184 (g) waive a default inrelated definitions affecting thepayment of principal of, interest on, or redemption payment with respect to, the Notes (except a rescission of accelerationranking of the Notesby the Holders thereof as provided in the Indenture and a waiver of the payment default that resulted from such acceleration); (h) modify the rankingorpriority ofanyNote or theGuaranteein respect thereof of any Guarantor or modify the definition of Senior Indebtedness or Guarantor Senior Indebtedness or amend or modify the subordination provisions of the Indenture in any manner adverse to the Holders of the Notes; (i) modify the provisions of any covenant (or the related definitions) in the Indenture requiring the Company to make an Offer to Purchasein a mannermaterially adverse towhich adversely affects theHoldersHolders; or - (8)
- release Holdings or any Subsidiary Guarantor that is a Significant Subsidiary of
Notes affected thereby otherwise than in accordance with the Indenture; or (j) release any GuarantorHoldings from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with theIndenture. The Holders of a majority in aggregate principal amountterms of theoutstandingIndenture.
Governing Law
The Indenture provides that it, the Notes on behalf of all Holders of Notes, may waive compliance by the Issuers and the GuarantorsGuarantees are governed by, and should be construed in accordance with, certain restrictive provisionsthe laws of the Indenture. SubjectState of New York but without giving effect to certain rightsapplicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby.
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The Trustee as provided in the
The Indenture the Holders of a
majority in aggregate principal amount of the Notes, on behalf of all Holders,
may waive any past default under the Indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the Notes),provides that, except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any Notes tendered pursuant to an Offer to
Purchase, or a default in respect of a provision that under the Indenture cannot
be modified or amended without the consent of the Holder of each Note that is
affected.
THE TRUSTEE
Except during the continuance of aan Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of aan Event of Default, the Trustee will exercise such rights and powers vested in it underby the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such
person'shis or her own affairs.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference thereinTIA contain certain limitations on the rights of the Trustee, should it become a creditor of either of the Issuers, any Guarantor or any other obligor
upon the Notes, to obtain paymentpayments of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. TheSubject to the TIA, the Trustee is permitted to engage in other transactions with the
Issuers or an Affiliate of the Issuers; transactions;provided however, that if itthe Trustee acquires any conflicting interest (as definedas described in the Indenture or in the Trust Indenture
Act),TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Certain Definitions
Set forth below areis a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for athe full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness"
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b)any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of Holdings or is mergedat the time it merges or consolidatedconsolidates with or into the CompanyHoldings or any of its Restricted Subsidiary.
"Acquired Person"Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of Holdings or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person which merges withwho directly or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
82
85
"Acquisition Facility" means a credit facility entered into by the Company
andindirectly through one or more commercial banksintermediaries controls, or other lenders pursuant to which the Company
and/or its Restricted Subsidiaries may incur Indebtedness for the purpose of
financing one or more acquisitions of assets or equity securities of any Related
Business and paying related fees and expenses.
"Affiliate" of any specified person means any other Person directly or
indirectly controlling oris controlled by, or is under direct or indirect common control with, such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling,The term ""controlled by"
and "under common control with"), as used with respect to any Person, shall meanmeans the possession, directly or indirectly, of the power to direct or cause the direction of the management orand policies of sucha Person, whether through the ownership of voting securities, by agreementcontract or otherwise.
"Asset Sale"otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. A Person shall not be deemed an "Affiliate" of Holdings or any of its Restricted Subsidiaries solely as a result of such Person being a joint venture partner of Holdings or any of its Subsidiaries.
"Asset Acquisition" means (1) an Investment by Holdings or any Restricted Subsidiary of Holdings in any other Person pursuant to which such Person shall become a Restricted Subsidiary of Holdings or any Restricted Subsidiary of Holdings, or shall be merged with or into Holdings or any Restricted Subsidiary of Holdings, or (2) the acquisition by Holdings or any Restricted Subsidiary of Holdings of the assets of any Person (other than a Restricted Subsidiary of Holdings) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (that has(other than operating leases entered into in the effectordinary course of a disposition)business), assignment or other dispositiontransfer for value by Holdings or any of its Restricted Subsidiaries (including without
limitation, any merger, consolidation or sale-leaseback transaction)Sale and Leaseback Transaction) to any Person other than the CompanyHoldings or a Wholly Owned Restricted Subsidiary of Holdings of (1) any Capital Stock of any Restricted Subsidiary of Holdings; or (2) any other property or assets of Holdings or any Restricted Subsidiary of Holdings other than in onethe ordinary course of business;provided,however, that asset sales or other dispositions shall not include (a) a transaction or a series of related transactions for which Holdings or its Restricted Subsidiaries receive aggregate consideration of (i) any Equity Interestless than $2,500,000; (b) the sale, lease, conveyance, disposition or other transfer of any Restricted Subsidiary (other than directors' qualifying shares, to the
extent mandated by applicable law); (ii) any assets of the Companyall or any
Restricted Subsidiary which constitute substantially all of an operating unitthe assets (determined on a consolidated basis) of Holdings or
line of business of the Company, oras the case may be, as permitted
100
under the "Merger, Consolidation and Sale of Assets" covenant; (c) any Restricted Subsidiary;Payment permitted by the "Limitation on Restricted Payments" covenants or (iii) anythat constitutes a Permitted Investment; (d) sales or other propertydispositions of inventory, receivables or asset of the Company or any Restricted Subsidiary outside ofother current assets in the ordinary course of business (includingbusiness; (e) a Permitted Lien; (f) a sale or other disposition or abandonment of damaged, worn-out or obsolete property; (g) the receiptgood faith surrender or waiver of proceeds paid on accountcontract rights or the settlement, release or surrender of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "Certain Covenants -- Merger, Sale of
Assets, etc." above and the creationclaims of any Lien not prohibited by "Certain
Covenants -- Limitation on Liens" above; (b) saleskind; and (h) the sale or other disposal of property or equipment that
has become worn out, obsoleteassets pursuant to the exercise of remedies pursuant to the Credit Agreement or damagedother security documents relating to any Indebtedness permitted under the Indenture.
"Board of Directors" means, as to any Person, the board of directors or otherwise unsuitable for use in
connection with the businesssimilar governing body of the Companysuch Person or any Restricted Subsidiary, as the
case may be; (c) any transaction consummated in compliance with "Certain
Covenants -- Limitation on Restricted Payments" above; and (d) any transfers of
properties and assets to the Company, between the Company and Wholly Owned
Restricted Subsidiaries that are Guarantors or between Wholly Owned Restricted
Subsidiaries. In addition, solely for purposes of "Certain
Covenants -- Disposition of Proceeds of Asset Sales" above, any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $1.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value (discounted according
to GAAP at the cost of indebtedness implied in the lease) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
"Board Resolution"duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted resolution ofby the Board of ManagersDirectors of such Person or a duly authorized
committeeand to be in full force and effect on the date of such Boardcertification, and delivered to the Trustee.
"Borrowing Base" means, as of Managers.
"Capitalized Lease Obligation" means, atany date, an amount equal to the time any determination thereofsum of
- (1)
- 85% of the aggregate book value of all accounts receivable of Holdings and its Domestic Restricted Subsidiaries; plus
- (2)
- 60% of the aggregate book value of all inventory owned by Holdings and its Domestic Restricted Subsidiaries,
all calculated on a consolidated basis and in accordance with GAAP.
To the extent that information is not available as to be made, the amount of the liability in respectaccounts receivable or inventory as of a capitalspecific date, Holdings shall use the most recent available information for purposes of calculating the Borrowing Base.
"Capital Stock" means
- (1)
- with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing; and
- (2)
- with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person, and all options, warrants or other rights to purchase or acquire any of the foregoing.
"Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that would at such time beare required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized on the balance sheetamount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means: (a) securities
"Cash Equivalents" means
- (1)
- marketable direct obligations issued by, or
directly and fullyunconditionally guaranteedor insuredby, theU.S. governmentUnited States Government, the United Kingdom or The Netherlands or issued by any agencyor instrumentalitythereof and backed by thegovernment of Canada or the government of any memberfull faith and credit of theEuropean Union,United States, the United Kingdom or The Netherlands, as applicable, in each casehaving maturities of not more thanmaturing within one year from the date ofacquisition; (b) domestic and Eurocurrency certificates of deposit, time deposits and base rate certificates of deposit with maturities of six months or less from the date ofacquisitionbankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any commercial bank incorporated under the laws of the United States, any state thereof, the District of Columbia or its branches or agencies or under the laws of Canada or the laws of any member of the European Union and having capital and surplus in excess of $250 million and whose long-term debt is rated at least "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the 8386 Act); (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (a) and (b) above entered into with any financial institution meeting the qualifications specified in clause (b) above; (d) commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"), respectively, and in each case maturing within six months after the date of acquisition; (e)thereof; - (2)
- marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state, the United Kingdom or The Netherlands or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at
101
- (3)
- commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's;
(f) - (4)
- certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia, the United Kingdom or The Netherlands or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million;
- (5)
- repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; and
- (6)
- investments in money market funds which invest substantially all their assets in securities of the types described in clauses
(a)(1) through(e) above; and (g) in the case(5) above.
the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Group, a division of the McGraw-Hill Companies ("S&P") or Moody's Investors Service, Inc. ("Moody's");
"Change of any
Foreign Restricted Subsidiary, Investments: (i) in direct obligations of the
sovereign nation (or any agency thereof) in which such Foreign Restricted
Subsidiary is organized and is conducting business or in obligations fully and
unconditionally guaranteed by such sovereign nation (or any agency thereof) or
(ii) of the type and maturity described in clauses (a) and (b) above of foreign
obligors, which Investments or obligors (of the parents of such obligors) have
ratings described in such clauses or equivalent ratings from comparable foreign
rating agencies.
"Change of Control"Control" means the occurrence of anyone or more of the following events
(whether
- (1)
- any sale, lease, exchange or
not approvedother transfer other than a Lien permitted by theBoardIndenture or by way ofManagersconsolidation or merger (in one transaction or a series ofthe Company): (i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 35% of the total voting power of the then outstanding Voting Equity Interests of the Company; (ii) the Company consolidates with, or merges with or into, another Person (other than a Wholly Owned Restricted Subsidiary) or the Company or any of its Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposesrelated transactions) of all or substantially all of the assets ofthe CompanyHoldings and its Subsidiaries,(determined ontaken as aconsolidated basis)whole, to any Person(other than the Companyorany Wholly Owned Restricted Subsidiary), other than any such transaction where immediately after such transaction the Person orgroup of related Personsthat "beneficially owned" (as defined in Rules 13d-3 and 13d-5 underfor purposes of Section 13(d) of the Exchange Actexcept that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has(a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with theright to acquire, whether such right is exercisable immediately or only after the passage of time) immediately prior to such transaction, directly or indirectly, a majorityprovisions of thetotal voting powerIndenture) other than to the Permitted Holders; - (2)
- the approval by the holders of
the then outstanding Voting Equity InterestsCapital Stock of Holdings or the Company, as the case may be,"beneficially own" (as so determined),of any plan or proposal for the liquidation or dissolution of Holdings or the Company, as the case may be (whether or not otherwise in compliance with the provisions of the Indenture); - (3)
- any Person or Group (other than the Permitted Holders and any entity formed for the purpose of owning Capital Stock of Holdings) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of Holdings or the Company;
- (4)
- the replacement of a majority of the
total voting powerBoard of Directors of Holdings over a two-year period from thethen outstanding Voting Equity Interestsdirectors who constituted the Board ofthe surviving or transferee Person; (iii) during any periodDirectors oftwo consecutive years, individuals whoHoldings at the beginning of such period,constituted the Board of Managers of the Company (together with any new directors whose election byand suchBoard of Managers or whose nomination for election by the members of the Company wasreplacement, shall not have been approved by a vote of at least a majority of thedirectorsBoard ofthe CompanyDirectors of Holdings then still in office who either wereeither directorsmembers of such Board of Directors at the beginning of such period or whose election or nomination for election by Holdings' shareholders as a member of such Board of Directors was previously soapproved) ceaseapproved; or - (5)
- the occurrence of any event or series of events that results in a "Change of Control" under the subordinated promissory notes issued pursuant to the Securities Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock.
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"Company" means Advanced Accessory Systems, LLC, a limited liability company organized under the laws of the State of Delaware.
"Consolidated EBITDA" means, with respect to any Person, for any reason period, the sum (without duplication) of
- (1)
- Consolidated Net Income; and
- (2)
- to
constitutethe extent Consolidated Net Income has been reduced thereby,- (a)
- all income taxes of such Person and its Restricted Subsidiaries, or Permitted Tax Distributions made by such Person, paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business);
- (b)
- Consolidated Interest Expense; and
- (c)
- Consolidated Non-cash Chargesless any non-cash items increasing Consolidated Net Income for such period,
all as determined on a majority of the Board of Managers of the Company thenconsolidated basis for such Person and its Restricted Subsidiaries in office; or (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which compliesaccordance with the
provisions described under "--Merger, Sale of Assets, etc.GAAP.
"Consolidated Fixed Charge Coverage Ratio" "Consolidated Coverage Ratio" as ofmeans, with respect to any date of determination meansPerson, the ratio of (i) the aggregate amount of Consolidated EBITDA forof such Person during the four quarter
period of the most recent four consecutivefull fiscal quarters (the "Four Quarter Period") ending prior to the date of such determination (the "Four Quarter Period") to (ii) Consolidated
Fixed Charges for such Four Quarter Period; provided, however, that (1) if the
Company or any Restricted Subsidiary has incurred any Indebtedness since the
beginning of such Four Quarter Period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA andfor which financial statements are available (the "Transaction Date") to Consolidated Fixed Charges of such Person for suchthe Four Quarter PeriodPeriod. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on apro forma basis for the period of such calculation to
- (1)
- the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries, or the issuance, redemption, repurchase or other repayment of any Preferred Stock by such Person or any of its Restricted Subsidiaries (and, in each case, the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness,
as if suchor any issuance, redemption, repurchase or other repayment of any Preferred Stock (and, in each case, the application of the proceeds thereof), other than the incurrence or repayment of Indebtednesshad been Incurred onin thefirstordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day ofsuchthe Four Quarter Period and on or prior to the8487 discharge of any other Indebtedness repaid, repurchased or otherwise discharged with the proceeds of such new IndebtednessTransaction Date, as if suchdischarge hadincurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day ofsuchthe Four QuarterPeriod,Period; and - (2)
if since - any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the
beginningneed to make such calculation as a result of suchFour Quarter Period the CompanyPerson or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiaryshall have made any Asset Sale described in clauses (i) or (ii)as a result of thedefinition thereof, theAsset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDAfor such Four Quarter Period shall be reduced by an amount equal to(including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under theConsolidated EBITDA (if positive) directlyExchange Act) attributable to the assetsthatwhich are the subject ofsuchthe AssetSale for suchAcquisition or asset sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period orincreased by an amount equalat any time subsequent to theConsolidated EBITDA (if negative) directly attributable thereto for suchlast day of the Four Quarter Period andConsolidated Fixed Charges for such Four Quarter Period shall be reduced by an amount equalon or prior to theConsolidated Fixed Charges directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Sale for such Four Quarter Period (or, if the Equity Interests of any Restricted Subsidiary are sold, the Consolidated Fixed Charges for such Four Quarter Period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such Four Quarter Period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Consolidated EBITDA and Consolidated Fixed Charges for such Four Quarter Period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness)Transaction Date, as if suchInvestmentasset sale oracquisitionother disposition or Asset Acquisition
103
(including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of suchthe Four Quarter PeriodPeriod.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio,"
- (1)
- interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and
(4) if since the beginning of such Four Quarter Period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such Four Quarter Period) shall have made any Asset Sale or any Investment or acquisition of assets that would have required an adjustment pursuantwhich will continue toclause (2) or (3) above if made by the Company or a Restricted Subsidiary during such Four Quarter Period, Consolidated EBITDA and Consolidated Fixed Charges for such Four Quarter Periodbe so determined thereafter shall becalculated after giving pro forma effect thereto as if such Asset Sale, Investment or acquisition of assets occurred on, with respectdeemed toany Investment or acquisition, the first day of such Four Quarter Period and, with respect to any Asset Sale, the day priorhave accrued at a fixed rate per annum equal to thefirst dayrate of interest on suchFour Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Fixed Charges associated with anyIndebtednessIncurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company in accordance with Regulation S-X under the Securities Act asin effect on theIssue Date. If any Indebtedness bears a floating rate of interestTransaction Date; andis being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any agreement under which Interest Rate Protection Obligations are outstanding applicable to such Indebtedness if such agreement under which such Interest Rate Protection Obligations are outstanding has a remaining term as at the date of determination in excess of 12 months); provided, however, that the Consolidated Fixed Charges of the Company attributable to - (2)
- notwithstanding clause (1) above, interest on
anyIndebtednessIncurred under a revolving credit facility computeddetermined on apro formafluctuating basis,shall be computed based upon the average daily balance of such Indebtedness during the Four Quarter Period. "Consolidated EBITDA" means, for any period, the Consolidated Net Income for such period, plus the followingto the extentdeducted in calculatingsuchConsolidated Net Income: (i) Consolidated Income Tax Expense for such period; (ii) Consolidated Interest Expense for such period; and (iii) Consolidated Non-cash Charges for such period less (A) all non-cash items increasing Consolidated Net Income for such period and (B) all cash payments during such periodinterest is covered by agreements relating tonon-cash charges that were added back in determiningInterest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.
"Consolidated EBITDA in any prior period.
"Consolidated Fixed Charges"Charges" means, with respect to any Person for any period, the sum, without duplication, of (i)
- (1)
- Consolidated Interest
Expense and (ii)Expense; plus - (2)
- the product of (x) the amount of all
dividendsdividend payments on any series of PreferredEquity Interest (other than Qualified Equity Interests)Stock of such Person and, to the extent permitted under the Indenture, its Restricted Subsidiaries(other than dividendspaidsolelyinQualified Equity Interests) paid, accrued or 8588 scheduled to be paid or accruedcash during such period to any Person other than such Person or any of its Restricted Subsidiaries times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal."Consolidated Income Tax Expense"
"Consolidated Interest Expense" means, with respect to the Companyany Person for any period, the provision for federal, state, localsum of, without duplication,
- (1)
- the aggregate of the interest expense of such Person and
foreign income taxes payable by the Company and theits Restricted Subsidiaries for such periodas determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to the Company for any period, without duplication, the sum of (i) the interest expense of the Company and the Restricted Subsidiaries for such period asdetermined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount and amortization or write-off of deferred financingcosts,costs; (b) the netcost or benefitcosts under InterestRate Protection Obligations (including any amortization of discounts),Swap Obligations; (c) all capitalized interest; and (d) the interest portion of any deferred paymentobligation, (d) all commissions, discountsobligation; andother fees and charges owed with respect to letters of credit and bankers' acceptance financing, (e) all capitalized interest and all accrued interest, (f) non-cash interest expense and (g) interest on Indebtedness of another Person that is guaranteed by the Company or any Restricted Subsidiary actually paid by the Company or any Restricted Subsidiary and (ii) - (2)
- the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by
the Companysuch Person andtheits Restricted Subsidiaries during such period as determined on a consolidated basis in accordance withGAAP. "ConsolidatedGAAP;
provided that there shall be excluded therefrom any non-cash amortization or write-off of fees and expenses incurred in connection with the offering of the Notes.
"Consolidated Net Income"Income" means, with respect to any Person, for any period, the consolidatedaggregate net income (loss)(or loss) of the Companysuch Person and theits Restricted Subsidiaries; Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP;provided however, that there shall not be includedexcluded therefrom (without duplication)
- (1)
- after-tax gains or losses from Asset Sales (without regard to the $2,500,000 limitation set forth in
such Consolidated Net Income: (i) anythe definition thereof) or abandonments or reserves relating thereto; - (2)
- extraordinary gains and extraordinary losses;
- (3)
- gains and losses due solely to fluctuations in currency values and the related tax effects according to GAAP;
104
- (4)
- the net income
(loss)or loss of any Personif such person is not a Subsidiary, except (A)acquired prior to theextent of cash actually distributed by such Person during such period to the Company ordate it becomes a Restricted Subsidiaryasof the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, it being understood,however, that, in the case of adividendRestricted Subsidiary of Holdings, the income orother distribution and (B) the Company's equity in a netloss ofanysuch Person(other than an Unrestricted Subsidiary)for such periodshallmay be included in determiningsuchthe ConsolidatedNet Income; (ii) any net income (loss)Fixed Charge Coverage Ratio ofany person acquired byHoldings as a result of theCompany or a Restricted Subsidiary in a poolingoperation ofinterests transaction for any period prior toclause (2) of thedatefirst paragraph of the definition of suchacquisition; (iii) anyterm; - (5)
- for the purposes of the "Limitation on Restricted Payments" covenant only, the net income (but not loss) of any Restricted Subsidiary
if such(other than a Foreign RestrictedSubsidiary is subjectSubsidiary) of the referent Person torestrictions, directly or indirectly, onthepaymentextent that the declaration of dividends orthe making ofsimilar distributions bysuchthat Restricted Subsidiarydirectlyof that income is restricted by a contract, operation of law orindirectly, to the Companyotherwise, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by suchrestrictions; (iv) any gain or loss realized uponRestricted Subsidiary; - (6)
- the
sale or other dispositionnet income of anyassetPerson, other than a Restricted Subsidiary of theCompanyreferent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a RestrictedSubsidiaries (including pursuant to any sale/leaseback transaction) outsideSubsidiary of theordinary course of business (including, without limitation, on or with respect to Investments) and there shall not be included dividends, distributions or interest thereon; (v) any extraordinary gain or loss and any foreign currency gains or losses; (vi) the cumulative effect of a change in accounting principles after the Issue Date; and (vii)referent Person by such Person; - (7)
- any restoration to income of any contingency reserve,
of an extraordinary, non-recurring or unusual nature,except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the IssueDate. "ConsolidatedDate; - (8)
- income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and
- (9)
- in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets.
In addition, Consolidated Net Income shall be reduced by the amount of any Permitted Tax Distribution.
"Consolidated Non-cash Charges"Charges" means, with respect to any Person, for any period, the sum of (A)aggregate depreciation, (B) amortization and (C) other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding for
purposes of clause (C) only,any such chargescharge which requirerequires an accrual of or a reserve for cash charges or payments for any future periodperiod).
"Consolidated Tangible Assets" means the total consolidated assets, less goodwill and excluding
minority interest).
"Credit Facilities"intangibles, of Holdings and its Restricted Subsidiaries, as shown on the most recent balance sheet of Holdings prepared in accordance with GAAP.
"Credit Agreement" means (i) the Second Amended and Restated Credit Agreement dated on or about the Issue Date, among certain subsidiaries of Holdings as of August 5, 1997, among the Company, the Subsidiaries of
the Company identified on the signature pages thereofborrowers, Holdings and any Restricted
Subsidiary that is later added thereto,certain other subsidiaries and affiliates as guarantors, the lenders named therein, NBD Bank, as
Administrative Agent and Documentation and Collateral Agent, and The Chase
Manhattan Bank, as Co-Administrative Agent and Syndication Agent, (ii) the
Credit Agreement, dated as of July 2, 1997, among Advanced Accessory Systems
Canada Inc., First Chicago NBD Bank, Canada, as Agent, First Chicago NBD Bank,
Canada and The Chase Manhattan Bank of Canada,party thereto in their capacities as lenders and/or agents thereunder, together with the documents related thereto (including, without limitation, any instruments, guarantee agreements and the guarantors
identified on the signature pages thereof and (iii) an Acquisition Facility,pledge and/or security documents), in each case as such documents may be amended (including, without limitation, any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any deferrals,
86
89
renewals, extensions, replacements, refinancingsagreement extending the maturity of, refinancing, replacing or refundings thereof,otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder (amendments, modificationsadding Subsidiaries of Holdings as additional borrowers or supplements theretoguarantors thereunder) all or any portion of the Indebtedness
105
under such agreement or any successor or replacement agreement and any agreement providing
therefor, whether by or with the same or any other agent, lender creditor, group of
lenders or group of creditors, and including related notes, guarantee and note
agreements and other instruments and agreements executed in connection
therewith.
"Currency Agreement"lenders.
"Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protectarrangement.
"Default" means an event or condition the Company or any Restricted Subsidiaryoccurrence of the Company against fluctuations in
currency values.
"Default" means any event thatwhich is, or with the passagelapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness"
"Disqualified Capital Stock" means (a)that portion of any Indebtedness outstanding
under the Credit Facilities and (b) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $25.0 million, if
the instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity InterestCapital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event (other than an event which would constitute a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control), in wholeControl or in part,to the extent such Capital Stock is only so redeemable or exchangeable into IndebtednessQualified Capital Stock) on or prior to the final maturity date of the Notes.
"Domestic" with respectNotes,provided that any Capital Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the stated maturity of the Notes shall not constitute Disqualified Capital Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in "Limitation on Asset Sales" and "Change of Control" covenants and such Capital Stock specifically provides that such Person will not repurchase or redeem any Person shall meansuch stock pursuant to such provision prior to the Issuers' repurchase of such Notes as are required to be repurchased pursuant to such covenants.
"Domestic Restricted Subsidiary" means a Person whose
jurisdictionRestricted Subsidiary incorporated or otherwise organized or existing under the laws of incorporation or formation is the United States, any state thereof or any territory or possession of the District of Columbia.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act"United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Management Holder" means each of F. Alan Smith, Marshall D.
Gladchun, Roger T. Morgan, Terence C. Seikel, Richard E. Borghi, Barry Banducci
and Gerard J. Brink.
"Fair Market Value"or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price (after
taking into account any liabilities relating to such assets) which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whichwhom is under anyundue pressure or compulsion to complete the transaction; provided, however, that thetransaction. Fair Market
Value of any such asset or assetsmarket value shall be determined conclusively by the Board of ManagersDirectors of the CompanyHoldings acting reasonably and in good faith and, if such value exceeds $5.0 million, shall be evidenced by resolutionsa Board Resolution of the Board of ManagersDirectors of the CompanyHoldings delivered to the Trustee.
"Foreign EBITDA" means, for any period, the aggregate of the Consolidated
EBITDA of each of the Company's
"Foreign Restricted Subsidiaries.
"Foreign Interest Expense"Subsidiary" means for any period, the aggregate of the
Consolidated Interest Expense of each of the Company's Foreign Restricted
Subsidiaries.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary of Holdings other than a Domestic Restricted Subsidiary.
87
90
"GAAP"
"Foreign Restricted Subsidiary Borrowing Base" means, atas of any date, an amount equal to the sum of
- (1)
- 85% of
determination,the aggregate book value of all accounts receivable of the Foreign Restricted Subsidiaries; plus - (2)
- 60% of the aggregate book value of all inventory owned by the Foreign Restricted Subsidiaries,
all calculated on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in effectthe opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
106
such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"Guarantee"in effect from time to time.
"Guarantee" means as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means the guarantee of the Notes by each Guarantor undera Guarantor.
"Guarantors" means Holdings and the Indenture.
"Guarantor"Subsidiary Guarantors.
"Holdings" means (i) each Domestic Subsidiary of the Company existing on
the Issue Date and (ii) each other Domestic Restricted Subsidiary, formed,
created or acquired before or after the Issue Date, required to become a
Guarantor after the Issue Date.
"Guarantor Senior Indebtedness"CHAAS Acquisitions, LLC.
"Indebtedness" means with respect to any Guarantor, at
any date, (a) Person, without duplication,
- (1)
- all Obligations of such
Guarantor under the Credit Facilities; (b) all Interest Rate Protection Obligations of such Guarantor; (c) all Obligations of such Guarantor under letters of credit; and (d) all other Indebtedness of such Guarantor, including principal, premium, if any, and interest (including Post-Petition Interest) on such Indebtedness unless the instrument under which such Indebtedness of such Guarantor is Incurred expressly provides that such Indebtedness is not senior or superior in right of payment to such Guarantor's Guarantee of the Notes, and all renewals, extensions, modifications, amendments or refinancings thereof. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not include (a) to the extent that it may constitute Indebtedness, any Obligation for federal, state, local or other taxes; (b) any Indebtedness among or between such Guarantor and any Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries; (c) to the extent that it may constitute Indebtedness, any Obligation in respect of any trade payable Incurred for the purchase of goods or materials, or for services obtained, in the ordinary course of business; (d) Indebtedness evidenced by such Guarantor's Guarantee of the Notes; (e) Indebtedness of such Guarantor that is expressly subordinate or junior in right of payment to any other Indebtedness of such Guarantor; (f) to the extent that it may constitute Indebtedness, any obligation owing under leases (other than Capitalized Lease Obligations) or management agreements; and (g) any obligation that by operation of law is subordinate to any general unsecured obligations of such Guarantor. "Holders" means the registered holders of the Notes. "Income Tax Liabilities" means with respect to any member or, in the event such member is a flow-through entity, such direct or indirect owner or owners of such member as is or are subject to income taxes on income of the Company or any of its Restricted Subsidiaries that are limited liability companies for any calendar year, an amount determined by multiplying (a) such Person's allocable share of all taxable income and gains of such limited liability company by (b) forty four percent (44%). "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the foregoing). Indebtedness of any Acquired Person or any of its Subsidiaries existing at the time such Acquired Person becomes a Restricted Subsidiary (or is merged into or consolidated with the Company or any Restricted Subsidiary), whether or not such Indebtedness was Incurred in connection with, as a result of, or in contemplation of, such Acquired Person becoming a Restricted Subsidiary (or being merged into or consolidated with the Company or any Restricted Subsidiary), shall be deemed Incurred at the time any such Acquired Person becomes a Restricted Subsidiary or merges into or consolidates with the Company or any Restricted Subsidiary. "Indebtedness" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) every obligation of suchPerson for8891 money borrowed; (b) every obligationborrowed money; - (2)
- all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(c) every reimbursement obligation - (3)
- all Capitalized Lease Obligations of such
Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of suchPerson;(d) every obligation - (4)
- all Obligations of such Person issued or assumed as the deferred purchase price of property or services and all Obligations under any conditional sale or title retention agreement (but excluding any such Obligations that constitute trade accounts payable
incurred in the ordinary course of businessandpayable in accordance with industry practices, orother accrued liabilities arising in the ordinary course ofbusiness)business that are not overdue by 120 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted);(e) every Capital Lease Obligation - (5)
- all Obligations of such
Person; (f) every net obligation under Interest Rate Protection ObligationsPerson for the reimbursement of any obligor on any letter of credit, banker's acceptance or similaragreementscredit transaction, but excluding Obligations with respect to letters of credit (including trade letters of credit) to the extent such Obligations are cash collateralized orCurrency Agreementssuch letters of credit secure Obligations (other than Obligations described in clauses (1), (2) and (3) above) entered into in the ordinary course of business of suchPerson; (g) Attributable Indebtedness; (h) every obligationPerson and such letters of credit are not drawn upon or, if drawn upon, to the extent any such drawing is reimbursed no later than three Business Days following receipt by such Person of a demand for reimbursement; - (6)
- guarantees and other contingent obligations in respect of Indebtedness of other Persons of the type referred to in clauses
(a)(1) through(g)(5) above and clause (8) below; - (7)
- all Obligations of
anotherany other Person of the type referred to in clauses (1) through (6) which are secured by any Lien on any property or asset of such Person, thepaymentamount ofwhich, in either case,such Obligation being deemed to be the lesser of the fair market value of such property or asset and the amount of the Obligation so secured; - (8)
- all net Obligations under Currency Agreements and Interest Swap Agreements of such Person; and
- (9)
- all Disqualified Capital Stock issued by such Person
has guaranteedwith the amount of Indebtedness represented by such Disqualified Capital Stock being equal to its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or is responsible or liable
for, directly or indirectly, as obligor, guarantor or otherwise;measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and (i) any and
all deferrals, renewals, extensions and refundingsin good faith by the Board of or amendments,
modifications or supplements to, any liabilityDirectors of the kind described in anyissuer of the preceding clauses (a) through (h) above.such Disqualified Capital Stock. The amount of Indebtedness (i) shall not include
obligations of any Person (x) arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business, provided
that such obligations are extinguished within five Business Days of their
incurrence, (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices and (z) under stand-by letters of credit to the extent collateralized
by cash or Cash Equivalents; (ii) which provides that an amount less than the
principal amount thereofat any date shall be due upon any declaration of acceleration
thereof shall be deemed to be incurred orthe outstanding in an amount equal to the
accreted value thereofbalance at thesuch date of determination; (iii) shall includeall unconditional Obligations as described above and, with respect to contingent Obligations, the liquidation preference andmaximum liability upon the occurrence of the contingency giving rise to
107
the Obligation;provided that the amount outstanding at any mandatory redemption payment obligations in
respecttime of any Disqualified Equity InterestsIndebtedness issued with original issue discount is the original issue price of the Company or any Restricted
Subsidiary; and (iv) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, incurred in the ordinary course of business.
"Independentsuch Indebtedness.
"Independent Financial Advisor"Advisor" means a nationally recognized, accounting,
appraisal or investment banking firm or consultant (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of the Board of ManagersDirectors of the Company,Holdings, is otherwise independent and qualified to perform the task for which it is to be engaged.
"Insolvency or Liquidation Proceeding"
"Initial Purchasers" means with respectDeutsche Bank Securities Inc. and Credit Suisse First Boston LLC.
"Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, any liquidation, dissolutionwhereby, directly or winding up ofindirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or any bankruptcy,
reorganization, insolvency, receivershipa fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the suma floating rate of any cash interest
and any Additional Interest (as defined under "Registration Rights" below) on the Notes.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i)same notional amount and shall include, without limitation, interest rate swapswaps, caps, floors, collars and similar agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protectin each case determined as if such Person against fluctuations
in interest rates.
"Investment"agreement were terminated on the date such obligations were being determined for purposes of the Indenture.
"Investment" means, with respect to any Person, any direct or indirect loan advance, guarantee or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of transfersany transfer of cash or other property or assets to others or paymentsany payment for property or services for the account or use of others,others), or otherwise), orany purchase or acquisition by such Person of capital stock,any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. For
purposes"Investment" shall exclude extensions of trade credit by Holdings and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of Holdings or such Restricted Subsidiary, as the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. In determining the
amount of any Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer, as determined in
89
92
good faith by the Board of Managers (or comparable body) of the Person making
such transfer.case may be. If the CompanyHoldings or any Restricted Subsidiary of Holdings sells or otherwise disposes of any Voting Equity InterestsCapital Stock of any direct or indirect Restricted Subsidiary of Holdings such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Voting Equity Interests of such Restricted Subsidiary the Companyis no longer a Restricted Subsidiary of Holdings, Holdings shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of Voting Equity Intereststhe Common Stock of such
former Restricted Subsidiary not sold or disposed of.
"Issue Date"of or, with respect to any Restricted Subsidiary of Holdings acquired or created after the Issue Date, if less, the value of the Investment when made by Holdings and its Restricted Subsidiaries in the portion of such Restricted Subsidiary represented by such Common Stock.
"Issue Date" means the date of original issue dateissuance of the Notes.
"Lien"
"Lien" means any lien, mortgage, charge,deed of trust, pledge, security interest, hypothecation,
assignment for securitycharge or encumbrance of any kind (including any conditional sale or capital lease or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest).
"Maturity Date"
"Management Agreement" means the date, which is set forthmanagement agreement dated as of April 15, 2003 among Holdings, the Subsidiaries of Holdings listed therein and Castle Harlan, Inc., as in effect on the faceIssue Date.
"Material Domestic Restricted Subsidiary" means a Domestic Restricted Subsidiary of the
Notes, on which the Notes will mature.
"NetHoldings having total assets with a book value in excess of $500,000.
"Net Cash Proceeds"Proceeds" means, with respect to any Asset Sale, the aggregate proceeds in the form of cash or Cash Equivalents received by the Company or any Restricted Subsidiaryincluding payments in respect of any Asset Sale, including alldeferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received uponby Holdings or any sale, liquidation or other exchange of proceeds ofits Restricted Subsidiaries from such Asset Sales received in a
form other than cash or Cash Equivalents,Sale net of (a) the direct costs
- (1)
- reasonable out-of-pocket commissions, expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales
commissions)commissions andanyseverance and relocationexpenses incurred as a result thereof; (b)costs and expenses); - (2)
- net taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements); (c) amounts required to be applied to theof such Asset Sale;
108
- (3)
- repayment of Indebtedness that is secured by
a Lien ontheassetproperty or assets thatwereare the subject of such Asset Sale(including payments madeor that is required by applicable law toobtain or avoidbe repaid out of theneed for the consent of any holderproceeds of suchIndebtedness); (d)Asset Sale; - (4)
- amounts
deemed, in good faith, appropriate by the Board of Managers of the Companyrequired to be paid to any Person (other than Holdings or any of its Restricted Subsidiaries) owning a beneficial interest in the assets which are subject to the Asset Sale; and - (5)
- appropriate amounts to be provided by Holdings or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such
assets which areAsset Sale and retained by Holdings or any Restricted Subsidiary, as thesubject ofcase may be, after such AssetSale;Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such AssetSale,Sale.
"Obligations" means all as reflected in an officers' certificate
delivered to the Trustee (provided that the amount of any such reserves shall be
deemed to constitute Net Cash Proceeds at the time such reserves shall have been
reversed or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minorityobligations for principal, premium, interest, in such Restricted
Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations,reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.
"Offer
"Pari Passu Indebtedness" means any Indebtedness of either Issuer or any Guarantor that rankspari passu in right of payment with the Notes or the Guarantee of such Guarantor, as applicable.
"Permitted Business" means any business that is the same, similar, reasonably related, complementary or incidental to Purchase"the business in which Holdings or any of its Restricted Subsidiaries is engaged on the Issue Date.
"Permitted Holders" means a written offer (the "Offer") sent(1) Castle Harlan Partners IV, L.P. and any Person controlling, controlled by, or on
behalfunder common control with, and any account controlled or managed by or under common control or management with Castle Harlan Partners IV, L.P. and (2) Castle Harlan Inc. and employees, management and directors of, and Persons owning accounts managed or advised by, any of the Company by first-class mail, postage prepaid, toforegoing and their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each holder at
his address appearing inof the register forfollowing:
- (1)
- Indebtedness under the Notes issued on the
date of the Offer offering to purchase up to the principal amount of Notes specified in such Offer at the purchase price specified in such Offer (as determinedIssue Date and Guarantees thereof; - (2)
- Indebtedness incurred pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase, which shall be not less than 30 days nor more than 60 days after the date of such Offer, and a settlement date (the "Purchase Date") for purchase of Notes to occur no later than five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall also contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase (which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to the Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), (ii) a 9093 description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Offer to Purchase), (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (iv) any other information required by applicable law to be included therein). The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of the Indenture requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount; (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender all or any portion of a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that each Holder will be entitled to withdraw all or any portion of any Notes tendered by such Holder if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of the Note such Holder tendered, the certificate number of the Note such Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 principal amount or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Note is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holder" means each of (i) CCP and its affiliates, (ii) the Existing Management Holders and (iii) any corporation, a majority of the outstanding Voting Equity Interests of which are owned, directly or indirectly, by persons listed in clauses (i) and (ii) of this definition, and no more than 35% of the outstanding Voting Equity Interests of which are beneficially owned, directly or indirectly, by any Person (other than Permitted Holders) or group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-15d(b)(1) under the Exchange Act. 9194 "Permitted Indebtedness" means the following, each of which shall be given independent effect: (a) Indebtedness under the Notes; (b) Indebtedness of the Company or any Restricted Subsidiary Incurred under theCreditFacilitiesAgreement in an aggregate principal amount at anyonetime outstanding not to exceed the greater of(i) $25.0(a) $60.0 million and(ii)(b) the sum of85% of(A) $10.0 million and (B) thetotal book value of accounts receivable and 50% ofBorrowing Base plus an amount not exceeding thetotal book value of inventory, in each case as reflected on the Company's most recent consolidated financial statements prepared in accordance with GAAP; (c) Indebtedness of any Restricted Subsidiary owed to and held by the Company or any other Restricted Subsidiary, and Indebtedness of the Company owed to and held by any Restricted Subsidiary which is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under any Senior Indebtedness, the Indenture and the Notes; provided, however, that an Incurrenceaggregate amount of Indebtedness that is permitted to be incurred, but has notpermittedbeen incurred, under clauses (10), (11), (12) and (17) of this definition; - (3)
- other Indebtedness of Holdings and its Restricted Subsidiaries outstanding on the Issue Date reduced by
this clause (c) shall be deemed to have occurred upon (i) any sale or other dispositionthe amount of anyIndebtednessscheduled amortization payments or mandatory prepayments, in each case, when actually paid, or permanent reductions thereon; - (4)
- Interest Swap Obligations of
the CompanyHoldings or any Restricted Subsidiaryreferred to in this clause (c) to a Person (other than the Company or a Restricted Subsidiary), (ii) any sale or other dispositionofEquity Interests of any Restricted Subsidiary which holdsHoldings covering Indebtedness ofthe CompanyHoldings oranotherany of its RestrictedSubsidiary suchSubsidiaries;provided,however, that suchRestricted Subsidiary ceases to be a Subsidiary and (iii) the Designation of a Restricted Subsidiary that holds Indebtedness of the Company or any other Restricted Subsidiary as an Unrestricted Subsidiary; (d) the Guarantees and guarantees by any Guarantor of Indebtedness of the Company or its Restricted Subsidiaries and the guarantees by the Company of Indebtedness of the Restricted Subsidiaries; provided, however, that if such guarantee is of Subordinated Indebtedness, then the Guarantee of such Guarantor or the Company's obligations under the Notes, as the case may be; shall be senior to such Guarantor's or the Company's, as the case may be, guarantee of such Subordinated Indebtedness; (e)InterestRate ProtectionSwap Obligationsrelating to Indebtedness of the Company (which Indebtedness (i) bears interest at fluctuating interest rates and (ii) is otherwise permitted to be Incurred under the "Limitation on Indebtedness" covenant); provided, however, that (i) such Interest Rate Protection Obligations have beenare entered intofor bona fide business purposes and not for speculation and (ii) the notional principal amount of such Interest Rate Protection Obligations, at the time of the incurrence thereof, does not exceed the principal amount of the Indebtednesstowhich such Interest Rate Protection Obligations relate; (f) Purchase Money Indebtedness and Capitalized Lease Obligations which, at the time of the incurrence thereof, do not, in the aggregate with all such other Indebtedness incurred pursuant to this clause (f), exceed 5.0% of the total assets of the Companyprotect Holdings and its Restricted Subsidiarieson a consolidated basis determined consistent with the Company's most recent balance sheet preparedfrom fluctuations inaccordance with GAAP at any one time outstanding; (g)interest rates; - (5)
- Indebtedness under Currency Agreements;provided
however,that (x) in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase theprincipal amount ofIndebtedness ofthe CompanyHoldings and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payablethereunder; (h)thereunder and (y) such Currency Agreements are designed to protect Holdings or any Restricted Subsidiary of Holdings against fluctuations in currency values;
109
- (6)
- Indebtedness of a Restricted Subsidiary of Holdings to Holdings or to a Restricted Subsidiary of Holdings for so long as such Indebtedness is held by Holdings or a Restricted Subsidiary of Holdings or the
Company and itsholder of a Permitted Lien thereon, in each case subject to no Lien held by a Person other than Holdings or a RestrictedSubsidiaries outstanding onSubsidiary of Holdings or theIssue Date, reducedholder of a Permitted Lien thereon;provided that if as of any date any Person other than Holdings or a Restricted Subsidiary of Holdings or the holder of a Permitted Lien thereof owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (6) by theamountissuer of such Indebtedness; - (7)
- Indebtedness of Holdings to a Restricted Subsidiary of Holdings for so long as such Indebtedness is held by a Restricted Subsidiary of Holdings and subject to no Lien, other than a Permitted Lien;provided that (a) any Indebtedness of Holdings to any Restricted Subsidiary of Holdings that is not a Guarantor is unsecured and subordinated, pursuant to a written agreement, to Holdings' obligations under the Indenture and the Notes and (b) if as of any
scheduled amortization paymentsdate any Person other than a Restricted Subsidiary of Holdings ormandatory prepayments when actually paidthe holder of a Permitted Lien thereon owns orpermanent reductions thereof; (i)holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (7) by Holdings; - (8)
- Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;provided,however, that such Indebtedness is extinguished within five business days of incurrence;
- (9)
- Indebtedness of
the CompanyHoldings or any of its Restricted Subsidiariesrepresented by lettersin respect ofcredit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security forperformance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similarrequirementsobligations and bank overdrafts (and letters of credit in respect thereof) incurred in the ordinary course of business; - (10)
- Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of Holdings and its Restricted Subsidiaries incurred in the ordinary course of business
in an amountnot to exceed$3.0the greater of (a) $10.0 millioninand (b) 5% of Consolidated Tangible Assets (reduced by the aggregateat any time outstanding; 9295 (j) Indebtedness arising from agreementsamount ofthe Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price or similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees ofadditional Indebtedness incurred under clause (2) hereof in reliance on this clause (10)); - (11)
- Indebtedness consisting of guarantees by
any Person acquiring allHoldings or anyportionofsuch business, assets or Subsidiary for the purpose of financing such acquisition; provided, however, that (i) such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary of the Company (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time it is received and without giving effect to any subsequent changes in value) actually received by the Company andits Restricted Subsidiariesin connection with such disposition; (k) Obligations in respectofperformance and surety bonds and completion guarantees provided byIndebtedness permitted to be incurred under theCompany or any Restricted Subsidiary of the Company in the ordinary course of business; (l)Indenture; - (12)
- Indebtedness of
the Company or anyHoldings' Foreign RestrictedSubsidiary Incurred under an Acquisition FacilitySubsidiaries inan aggregate principal amount at any one time outstanding not to exceed $22.0 million, reduced by any required permanent repayments (which are accompanied by corresponding permanent commitment reduction thereunder); (m) Indebtedness to the extent representing a replacement, renewal, defeasance, refinancing or extension (collectively, a "refinancing") of outstanding Indebtedness Incurred in compliance with the "Limitation on Indebtedness" covenant or clauses (a), (h) or (l) of this definition; provided, however, that (i) any such refinancing shall not exceed the sum of the principal amount (or accreted amount (determined in accordance with GAAP), if less) of the Indebtedness being refinanced, plus the amount of accrued interest thereon, plus the amount of any reasonably determined prepayment premium necessary to accomplish such refinancing and such reasonable fees and expenses incurred in connection therewith, (ii) Indebtedness representing a refinancing of Indebtedness other than Senior Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced; and (iii) Indebtedness that is pari passu with the Notes may only be refinanced with Indebtedness that is made pari passu with or subordinate in right of payment to the Notes and Subordinated Indebtedness may only be refinanced with Subordinated Indebtedness; and (n) in addition to the items referred to in clauses (a) through (m) above, Indebtedness of the Company (including any Indebtedness under the Credit Facilities that utilizes this clause (m)) havingan aggregate principal amount not to exceed the greater of (a) $45.0 million and (b) the Foreign Restricted Subsidiary Borrowing Base (reduced by the aggregate amount of additional Indebtedness incurred under clause (2) hereof in reliance on this clause (12)); - (13)
- Refinancing Indebtedness;
- (14)
- Indebtedness of Holdings or any of its Restricted Subsidiaries consisting of guarantees, indemnities or other obligations in respect of purchase price adjustments in connection with the acquisition or disposition of property or assets;
- (15)
- Indebtedness of Holdings or any of its Restricted Subsidiaries to the extent the net proceeds thereof are promptly used to redeem the Notes in full or deposited to defease or discharge the Notes, in each case in accordance with the Indenture;
- (16)
- Indebtedness of Holdings and its Restricted Subsidiaries consisting of Capitalized Lease Obligations not exceeding $10.0 million at any one time
outstanding. "Permitted Investments"outstanding and incurred in
110
- (17)
- additional Indebtedness of Holdings and its Restricted Subsidiaries in an aggregate principal amount not to exceed $15.0 million at any one time outstanding (reduced by the aggregate amount of additional Indebtedness incurred under clause (2) hereof in reliance on this clause (17)).
connection with one or more Permitted Sale and Leaseback Transactions involving one or more properties that are owned on the Issue Date by one or more such Restricted Subsidiaries and that are located in Staphorst, The Netherlands, Hoogeveen, The Netherlands, and Fensmark, Denmark; and
For purposes of determining compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (17) above or is entitled to be incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions of such covenant, the Issuers shall, in their sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with such covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of the "Limitations on Incurrence of Additional Indebtedness" covenant.
"Permitted Investments" means (a)
- (1)
- Investments by Holdings or any Restricted Subsidiary of Holdings in any Person that is or will become immediately after such Investment a Restricted Subsidiary of Holdings or that will merge or consolidate into Holdings or a Restricted Subsidiary of Holdings;
- (2)
- Investments in Holdings by any Restricted Subsidiary of Holdings;provided that any Indebtedness evidencing such Investment and held by a Restricted Subsidiary of Holdings that is not a Subsidiary Guarantor is unsecured and subordinated, pursuant to a written agreement, to Holdings' obligations under its Guarantee and the Indenture;
- (3)
- Investments in cash and Cash Equivalents;
(b) Investments in prepaid expenses, negotiable instruments held for collection - (4)
- loans and
lease, utility and workers' compensation, performance and other similar deposits; (c) Interest Rate Protection Obligations and Currency Agreements; (d) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers, in each case arising in the ordinary course of business; (e) Investments in the Company and Investments in Restricted Subsidiaries or Persons that, as a result of or in connection with any such Investment, become Restricted Subsidiaries or are merged with or into or consolidated with the Company or another Restricted Subsidiary; (f) Investments paid for in Qualified Equity Interests of the Company; (g) loans oradvances to directors, employees and officersor employeesofthe CompanyHoldings and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposesof the Company and its Restricted Subsidiaries (including, but not limited to, travel and moving expenses)not in excess of$1$3.0 millionin the aggregateat any one time outstanding;(h) - (5)
- Currency Agreements and Interest Swap Obligations entered into in the ordinary course of Holdings' or its Restricted Subsidiaries' businesses and not for speculative purposes and otherwise in compliance with the Indenture;
- (6)
- additional Investments having an aggregate fair market value at any time outstanding not to exceed $12.5 million;
- (7)
- Investments in
Replacement Assetssecurities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers or in good faith settlement of delinquent obligations of such trade creditors or customers; - (8)
- Investments made by Holdings or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant;
(i) - (9)
- Investments existing on the Issue Date;
111
- (10)
- any acquisition of
a Personassets solely in exchange for the issuance of Qualified Capital Stock of Holdings or any of itsSubsidiaries existing at the time such Person becomes aRestrictedSubsidiary of the Company or at the time such Person merges or consolidates with the CompanySubsidiaries; - (11)
- Investments made by Holdings or any of its Restricted Subsidiaries
in either case in compliancewith the proceeds of a substantially concurrent offering of Qualified Capital Stock of Holdings or any other holding company of Holdings or the Issuers (which proceeds of any such offering of Qualified Capital Stock shall not have been, and shall not be, included in the calculation of the Restricted Payments Basket, except to the extent the proceeds thereof exceed the amounts used to effect such Investments); - (12)
- Investments represented by guarantees that are otherwise permitted under the Indenture;
provided that such Investments were not made by such Personand - (13)
- advances to suppliers and customers in
connection 9396 with,the ordinary course of business.
"Permitted Liens" means the following types of Liens:
- (1)
- Liens existing on the Issue Date;
- (2)
- Liens securing the Notes and the Guarantees;
- (3)
- Liens securing Indebtedness under the Credit Agreement permitted to be incurred pursuant to clause (2) of the definition of "Permitted Indebtedness;"
- (4)
- Liens in favor of Holdings or
in anticipation or contemplation of, such Person becoming aany Restricted Subsidiary of Holdings; - (5)
- Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under the
Company or such merger or consolidation;Indenture and(j) Investments (including, without limitation,which has been incurred in accordance with theform of joint ventures with unaffiliated third parties) in Related Businesses not in excess of $10 million in the aggregate at any one time outstanding. "Permitted Junior Securities" means any securitiesprovisions of theCompany or any other PersonIndenture;provided,however, that such Liens (i) taken as a whole are(i) equity securities without special covenants or (ii) debt securities expressly subordinated in right of payment to all Senior Indebtedness that may at the time be outstanding, to substantially the same extent as, or to a greater extent than, the Notes are subordinated as provided in the Indenture, in any event pursuant to a court order so providing and as to which (a) the rate of interest on such securities shall not exceed the effective rate of interest on the Notes on the date of the Indenture, (b) such securities shall not be entitledno less favorable to thebenefits of covenants or defaults materiallyHolders and are not morebeneficialfavorable to theholders of such securities than those in effectlienholders with respect to such Liens than theNotes on the dateLiens in respect of theIndentureIndebtedness being Refinanced; and(c) such securities shall not provide for amortization (including sinking fund and mandatory prepayment provisions) commencing prior to the date six months following the final scheduled maturity date of the Senior Indebtedness (as modified by the plan of reorganization of readjustment pursuant to which such securities are issued). "Permitted Liens" means (a) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such merger or consolidation and(ii) do notsecureextend to or cover any property or assets ofthe CompanyHoldings or any of its RestrictedSubsidiary other thanSubsidiaries not securing theproperty or assets subject to the Liens prior to such merger or consolidation; (b) Liens imposed by law such as carriers', warehousemen's, mechanics', suppliers', materialmen's, landlords' and repairmen's Liens and other similar Liens arising in the ordinary course of business which secure payment of obligations not more than 30 days past due or which are being contested in good faith and by appropriate proceedings; (c) Liens existing on the Issue Date; (d) Liens securing only the Notes or the Guarantees; (e) Liens in favor of the Company or any Restricted Subsidiary; (f)Indebtedness so Refinanced; - (6)
- Liens for taxes, assessments or governmental charges or claims
that areeither (a) notyetdelinquent orthat are(b) being contested in good faith by appropriateproceedings; provided, however, that anyproceedings and as to which Holdings or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; - (7)
- statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required
in conformity withby GAAP shall have been madetherefor; (g) easements, reservation of rights of way, restrictions (including, but not limited to, zoning and building restrictions) and other similar easements, licenses, restrictions on the use of properties,in respect thereof; - (8)
- Liens incurred or
minor imperfections of title thatdeposits made in theaggregate are not material in amount and do not in any case materially detract from the properties subject thereto or interfere with theordinaryconductcourse ofthebusinessof the Company and the Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notesin connection withcontracts, bids, sales or tenders or expropriation proceedings, or to secureworkers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of businessconsistent with past practicesin connection therewith,surety, appeal andor to secure the performancebonds, costsoflitigation when required by law and public andtenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); - (9)
- Liens arising by reward of any judgment, decree or
obligations under franchise arrangements entered intoorder of any court but not giving rise to an Event of Default so long as such Liens are adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired;
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- (10)
- survey exceptions, easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary
courseconduct ofbusiness; (i) Liens securing Indebtedness consisting of Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used inthe business ofthe CompanyHoldings ortheany of its RestrictedSubsidiaries, or repairs, additions or improvements to such assets, provided, however, that (I) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, addition or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (II) such Liens do not extend to any other assets of the Company or the Restricted Subsidiaries (and, in the case of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (III) the Incurrence of such Indebtedness is permitted by "Certain Covenants -- Limitation on Indebtedness" above and (IV) such Liens attach within 120 days of such purchase, construction, installation, repair, addition or improvement; (j) any interest or title of a lessor under any Capitalized Lease Obligation; provided, however, that such Liens do not extend to any property or assets which are not leased property subject to such Capitalized Lease Obligation; (k)Subsidiaries; - (11)
- Liens upon specific items of inventory or other goods and proceeds of Holdings or any
Personof its Restricted Subsidiaries securing such Person's obligations in respect of bankers'9497acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;(l) - (12)
- Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof;
(m) - (13)
- Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of
the CompanyHoldings or any of its Restricted Subsidiaries, including rights of offset and set-off;(n) - (14)
- Liens securing Interest Swap Obligations
and Currency Agreementswhich Interest Swap Obligations relate to Indebtedness that is otherwise permitted pursuant to clause (4) of the definition of "Permitted Indebtedness"; - (15)
- Liens securing Capitalized Lease Obligations and
agreements are otherwisePurchase Money Indebtedness permitted to be incurred under the Indenture;(o)provided,however, that in the case of Capitalized Lease Obligations, such Liensby reason of judgments, attachmentsdo not extend to any property ordecreeassets which are nototherwise resulting in an Event of Default; (p)leased property subject to such Capitalized Lease Obligations; - (16)
- Liens securing Indebtedness under Currency Agreements permitted to be incurred pursuant to clause (5) of
non-Guarantorthe definition of "Permitted Indebtedness"; - (17)
- Liens securing Acquired Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant;provided that
- (a)
- such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by Holdings or a Restricted Subsidiary of Holdings and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by Holdings or a Restricted Subsidiary of Holdings; and
- (b)
- such Liens do not extend to or cover any property or assets of Holdings or of any of its Restricted Subsidiaries
Incurredother than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of Holdings or a Restricted Subsidiary of Holdings and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by Holdings or a Restricted Subsidiary of Holdings;
- (18)
- Liens securing Indebtedness incurred pursuant to clause (12), (14) (but in
compliancethe case of clause (14) such Liens shall only be on the assets that are the subject of the transaction permitted by clause (14)), (15), (16) or (17) of the definition of "Permitted Indebtedness"; - (19)
- any provision for the retention of title to an asset by the vendor or transferor of such asset, which asset is acquired by Holdings or any Restricted Subsidiary of Holdings in a transaction entered into in the ordinary course of business of Holdings or such Restricted Subsidiary;
- (20)
- Liens incurred in the ordinary course of business of Holdings or any Restricted Subsidiary of Holdings with respect to Obligations that do not exceed $10.0 million at any one time outstanding and that (a) are not incurred in connection with the
Indenture;borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business)
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- (21)
- Liens arising from filing Uniform Commercial Code financing statements regarding leases;
- (22)
- Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods;
- (23)
- deposits made in the ordinary course of business to secure liability to insurance carriers;
- (24)
- rights of a licensor of intellectual property;
- (25)
- leases, subleases, licenses and sublicenses granted to others that do not materially interfere with the ordinary course of business of Holdings and its Restricted Subsidiaries;
- (26)
- banker's Liens, rights of setoff and similar Liens with respect to cash and Cash Equivalents on deposit in one or more bank accounts in the ordinary course of business;
- (27)
- any
refinancings, renewals, extensions, modificationsinterest orreplacements (collectively, "refinancing") (or successive refinancings),title of a lessor in the property subject to any capitalized lease or operating lease; - (28)
- Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, a Restricted Subsidiary of Holdings,provided that such Liens do not (a) extend to or cover any property or assets of Holdings or any of its Restricted Subsidiaries other than the property or assets acquired or (b) secure Indebtedness (including Acquired Indebtedness); and
- (29)
- any extension, renewal or replacement, in whole or in part, of any
Indebtedness secured by Liens referred toLien described in clause (1), (15) or (17) of theclauses abovedefinition of "Permitted Liens";provided that any such extension, renewal or replacement is no more restrictive in any material respect that the Lien solong as such Lienextended, renewed or replaced and does not extend to anyotheradditional property(other than improvements thereto). "Person"or assets.
and (q) (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by Holdings or such Restricted Subsidiary;
"Permitted Sale and Leaseback Transaction" means any individual, corporation, partnership, joint venture,
association, joint-stock company,Sale and Leaseback Transaction entered into by any Restricted Subsidiary of Holdings with respect to any facility (including, without limitation, any manufacturing, engineering, warehousing or administration facility), owned or leased by such Restricted Subsidiary on the Issue Date.
"Permitted Tax Distributions" means the payment of any dividend or distribution to the direct or indirect beneficial owners of shares of Capital Stock of Holdings in an amount not to exceed the then maximum federal, state and local income tax liabilities arising from income of Holdings and attributable to them solely as a result of Holdings (and any intermediate entity through which the holder owns such shares) being a limited liability company, partnership or similar entity for federal income tax purposes.
"Person" means an individual, partnership, corporation, limited liability partnership, trust,company, unincorporated organization or governmenttrust, or anya governmental agency or political subdivision thereof.
"Post-Petition Interest"
"Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions,redemptions or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements filed on Form S-8).
"Purchaseliquidation.
"Purchase Money Indebtedness"Indebtedness" means Indebtedness of Holdings and its Restricted Subsidiaries incurred in the Company or any
Restricted Subsidiary Incurrednormal course of business for the purpose of financing all or any part of the purchase price, or the cost of design, development, installation, construction or improvement, of property or equipment;provided,however, that (1) the amount of such Indebtedness shall not exceed such purchase price or cost and (2) such Indebtedness shall not be secured by any property; provided, however,asset other than the specified asset being financed or, in the case of real property or fixtures, including additions and improvements, the real property to which such asset is attached.
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"Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease, replace or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Holdings or any Restricted Subsidiary of Holdings of Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant (other than pursuant to clauses (2), (4), (5), (6), (7), (8), (9), (10), (11), (12), (14), (15), (16) or (17) of the definition of Permitted Indebtedness), in each case, other than Refinancing Indebtedness incurred to Refinance all of the Notes, that does not
- (1)
- result in an increase in the aggregate principal amount of
suchIndebtednessdoes not exceed the lesser of the fair market valueof suchproperty or such purchase price or cost, including any refinancing of such Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereofPerson as of the date ofrefinancing. "Qualified Equity Interest"such proposed Refinancing (plus accrued interest on the Indebtedness being Refinanced plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable fees and expenses incurred by Holdings and its Restricted Subsidiaries in connection with such Refinancing); or - (2)
- create Indebtedness with (a) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; or (b) a final maturity earlier than the final maturity of the Indebtedness being Refinanced;provided that (x) if such Indebtedness being Refinanced is Indebtedness solely of Holdings, then such Refinancing Indebtedness shall be Indebtedness solely of Holdings and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the registration rights agreement dated as of the Issue Date among Holdings, the Issuers, the Subsidiary Guarantors and the Initial Purchasers.
"Restricted Subsidiary" of any Person means any Equity Interest inSubsidiary of such Person other than any Disqualified Equity Interest.
"Related Business"which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any business related, ancillarydirect or complementary
(as determined in good faith by the Board of Managers) to the business of the
Company and the Restricted Subsidiaries on the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Managers of the Company, by a resolution of the
Board of Managers of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Managers of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Sale and Lease-Back Transaction" means anyindirect arrangement with any Person or to which any such Person is a party, providing for the leasing to Holdings or a Restricted Subsidiary of Holdings of any property, whether owned by the CompanyHoldings or any Restricted Subsidiary of Holdings at the Company of any realIssue Date or tangible personal Property,later acquired, which
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property has been or is to be sold or transferred by the CompanyHoldings or such Restricted Subsidiary to such Person in contemplationor to any other Person from whom funds have been or are to be advanced by such Person on the security of such leasing.
"SEC"Property.
"Securities Act" means the Securities and Exchange Commission.
"Senior Indebtedness"Act of 1933, as amended, or any successor statute or statutes thereto.
"Securities Purchase Agreement" means at any date, (a) all Obligations under the Credit Facilities; (b) all Interest Rate Protection Obligations of the Company;
(c) all Obligations of the Company under letters of credit; and (d) all other
Indebtedness of the Company, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company is Incurred expressly provides that
such Indebtedness is not senior or superior in right of payment to the Notes,
and all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for Federal, state,
local or other taxes; (b) any IndebtednessSecurities Purchase Agreement dated April 15, 2003, among or betweenHoldings, the Company and any
Subsidiaryeach of the Company; (c)seller parties listed on the signature pages thereto, as such agreement may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to the extenttime;provided that it may constituteany Indebtedness incurred pursuant to such amendment or modification shall not result in any Obligation in respectpayments of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) Indebtedness evidenced by the Notes; (e) Indebtedness of the
Company that is expressly subordinate or junior in right of paymentprincipal thereunder prior to any other
Indebtedness ofscheduled final maturity, scheduled repayment or scheduled sinking fund payment thereunder as in effect on the Company; (f) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; and (g) any obligation that by operation
of law is subordinateIssue Date.
"Significant Subsidiary", with respect to any general unsecured obligations of the Company.
"Significant Restricted Subsidiary"Person, means at any date of determination,
(a)(1) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of the
Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% ofPerson that satisfies the consolidated assets of the Company and the
Restricted Subsidiaries, all ascriteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act as such Regulation is in effect on the consolidated financial
statements of the CompanyIssue Date and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b)(2) any Restricted Subsidiary which,of such Person that, when aggregated with all other Restricted Subsidiaries of
115
such Person that are not otherwise Significant Restricted Subsidiaries and as to which any event described in clause (h) of "Events(6) under "—Events of Default" above has occurred and is continuing, would constitute a Significant Restricted Subsidiary under clause (a)(1) of this definition.
"Stated Maturity"
"Subordinated Indebtedness" means when used with respect to any Note or any
installmentIndebtedness of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
"Subordinated Indebtedness" means, with respect toHoldings, the Issuers or any Subsidiary Guarantor any Indebtedness of the Issuersthat is subordinated or such Guarantor, as the case may
be, which is expressly subordinatedjunior in right of payment to the Notes or such Guarantor's Guarantee, as the case may be.
"Subsidiary" means,
"Subsidiary", with respect to any Person, (a) means
- (1)
- any corporation of which the outstanding
Voting Equity InterestsCapital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or(b)one or more Subsidiaries of such Person (or any combination thereof); or - (2)
- any other Person of which at least a majority of
Voting Equity Interests arethe voting interest under ordinary circumstances is at the time, directly or indirectly, owned by suchfirst named Person. "Surviving Person"Person or one or more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantor" means (1) each of Holdings' Domestic Restricted Subsidiaries (other than the Issuers) as of the Issue Date; and (2) each of Holdings' Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a Subsidiary Guarantor;provided that any Person constituting a Subsidiary Guarantor as described above shall cease to constitute a Subsidiary Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture.
"Unrestricted Subsidiary" of any Person means
- (1)
- any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and
- (2)
- any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (other than any Issuer) (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, Holdings or any other Restricted Subsidiary of Holdings that is not a Subsidiary of the Subsidiary to be so designated;provided that
- (1)
- Holdings certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant; and
- (2)
- each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any
Person involved in or that makes any Disposition, the Person formed by or surviving such Disposition or the PersonIndebtedness pursuant to whichsuch Disposition is made. "Tax Distribution" means, asthe lender has recourse to any of thetimeassets ofdetermination thereof, any distribution by the Company andHoldings or any of its Restricted Subsidiaries.
For purposes of making the determination of whether any such designation of a Subsidiary as an Unrestricted Subsidiary complies with the "Limitation on Restricted Payments" covenant, the portion of the fair market value of the net assets of such Subsidiary of Holdings at the time that such Subsidiary is designated as an Unrestricted Subsidiary that is represented by the interest of Holdings and its Restricted Subsidiaries that are
limited liability companies to their respective members (orin such Subsidiary, in each case if
such member is a flow-through entity, such direct or indirect owner or owners of
such member as is or are subject to income taxes on income of such limited
liability company) which (i) with respect to quarterly estimated tax payments
duedetermined in each calendar year shall be equal to twenty-five percent (25%) of the
relevant member's Income Tax Liabilities for such calendar year as estimated in
writinggood faith by the chief financial officerBoard of the Company and (ii) with respect to
tax payments to be made with income tax returns filed for a full calendar yearDirectors of Holdings or, with respect to adjustments to such returns imposed byany Restricted Subsidiary acquired or created after the Internal Revenue
Service or other taxing authority, shall be equal to the Income Tax Liabilities
of such member for such calendar year minus the aggregate amount distributed to
such member for such calendar year as provided in clause (i) above. In the
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event the amount determined under clause (ii) is negative amount,Issue Date, if less, the amount of any distributions to the relevant membervalue of the Investment in the succeeding calendar year (or, if
necessary, any subsequent calendar years)such Subsidiary when made, shall be reduced bydeemed to be an Investment. Such designation will be permitted only if such negative
amount.
"United States Government Obligations" means direct non-callable
obligationsInvestment would be permitted at such time under the "Limitation on Restricted Payments" covenant.
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The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if
- (1)
- immediately after giving effect to such designation, Holdings is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the
United States"Limitation on Incurrence ofAmerica for the paymentAdditional Indebtedness" covenant; and - (2)
- immediately before and immediately after giving effect to such designation, no Default or Event of
which the full faithDefault shall have occurred andcredit of the United States is pledged. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to the "Designation of Unrestricted Subsidiaries" covenant.be continuing.
Any such designation mayby the Board of Directors shall be revokedevidenced to the Trustee by promptly filing with the Trustee a resolutioncopy of the Board of ManagersResolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions.
Holdings may not designate either of the Company delivered to the Trustee, subject to the provisions of such covenant.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Managers or other governing body of such
corporation or Person.
"WeightedIssuers as an Unrestricted Subsidiary.
"Weighted Average Life to Maturity"Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) thatwhich will elapse between such date and the making of such payment, by (b)payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly Owned Subsidiary of such Person which at the thentime of determination is a Restricted Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person of which all the outstanding aggregate principalsecurities which confer on the holders thereof the right to elect directors or their functional equivalents (other than in the case of a foreign Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Indebtedness.
"Western Europe" means,Person or any Wholly Owned Subsidiary of such Person.
MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
General
The following is a general discussion of the material United States federal income tax considerations relating to the exchange of Original Notes for New Notes and the ownership and disposition of the New Notes by an initial beneficial owner of the Original Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations, and judicial decisions and administrative interpretations thereunder, as of the date hereof, all of which are subject to change, possibly with retroactive effect, or are subject to different interpretations. We cannot assure you that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax considerations described below. We have not obtained and do not intend to obtain, a ruling from the IRS or an opinion of counsel with respect to any jurisdictional matter, anythe United States federal tax considerations resulting from the exchange of Original Notes for New Notes or from holding or disposing of the twelve current member statesNew Notes. Reference to "Notes" in this section of the European Community and Switzerland,
Norway, Sweden, Finland, Austriaprospectus refers to both the "Original Notes" and the Czech Republic (and "Western European"
shall have"New Notes."
In this discussion, we do not purport to address all tax considerations that may be important to a meaning correlativeparticular holder in light of the holder's circumstances, or to certain categories of investors (such as financial institutions, insurance companies, tax-exempt organizations, dealers in securities, persons who hold notes through partnerships or other pass-through entities, U.S. expatriates, or persons who hold the Notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction) that may be subject to special rules. This discussion is limited to initial holders who purchased the Original Notes for cash at the initial offering at the original offering price and who hold the Original Notes, and will hold the New Notes, as capital assets. This discussion also does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS TO YOU OF THE EXCHANGE OF ORIGINAL NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS OR ANY TAX TREATY.
U.S. Holders
As used herein, the term "U.S. holder" means a beneficial owner of a Note that is for United States federal income tax purposes:
(1) a citizen or resident of the United States;
(2) a corporation or an entity treated as a corporation for federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof;
(3) an estate, the income of which is subject to United States federal income taxation regardless of its source; or
(4) a trust that either is subject to the foregoing).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiaryprimary supervision of a court within the United States and which at least 99.0% of the outstanding Voting Equity Interests (other than
qualifying shares or other Equity Interests owned by directors or other members
of any comparable governing body) of which are owned, directly or indirectly, by
the Company and/orhas one or more Wholly Owned Restricted Subsidiaries.
PLAN OF DISTRIBUTION
BasedUnited States persons with authority to control all substantial decisions, or has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.
As used herein, the term "non-U.S. holder" means a beneficial owner of a Note that is not a U.S. holder or a partnership.
118
Payments of Interest
Interest on interpretations byan Original Note or a New Note will generally be includible in your gross income as ordinary interest income in accordance with your usual method of accounting for tax purposes.
Exchange Pursuant to Exercise of Registration Rights
Neither an exchange of an Original Note for a New Note nor the stafffiling of a registration statement with respect to the Commission set forth in
no-action letters issued to third parties, the Issuers believe thatresale of the New Notes issued pursuantshould be a taxable event to you, and you should not recognize any taxable gain or loss or any interest income as a result of such exchange or such filing. We are obligated to pay Additional Interest on the Notes to you under certain circumstances described under "Exchange Offer; Registration Rights." We intend to take the position that such payments should be treated for tax purposes as additional interest, although we cannot assure you that the IRS will not propose a different method of taxing the Additional Interest payments.
Payments Upon Registration Default
Because the Notes provide for the payment of Additional Interest, they could be subject to certain rules relating to debt instruments that provide for one or more contingent payments, referred to as the "Contingent Payment Regulations." Under the Contingent Payment Regulations, however, a payment is not a contingent payment merely because of a contingency that, as of the issue date, is "remote." We intend to take the position that, for purposes of the Contingent Payment Regulations, the payment of Additional Interest is a "remote" contingency as of the issue date. Accordingly, the Contingent Payment Regulations should not apply to the Exchange OfferNotes unless payments are actually made.
If payments of Additional Interest are actually made, then they likely would be includible in exchangeyour gross income in the taxable year in which such payments were actually made, regardless of the tax accounting method you use. If such payments were actually made the Notes would probably be treated as reissued for Oldpurposes of applying the original issue discount rules under the Code and the Treasury Regulations.
Our position for purposes of the Contingent Payment Regulations that the payment of such Additional Interest is a remote contingency as of the issue date is binding on you for U.S. federal income tax purposes unless you disclose in the proper manner to the IRS that you are taking a different position.
Optional Redemption
The Notes may be offeredredeemed prior to their stated maturity at the option of the issuers or at the option of the holders under certain circumstances. We do not believe that either the issuers' or the holders' ability to redeem or cause the redemption of the Notes prior to the stated maturity thereof would affect the yield of the Notes for resale, resold and otherwise transferredU.S. federal income tax purposes.
Sale, Exchange or Redemption of the Notes
Upon the disposition of a Note by any holder thereofsale, exchange or redemption (other than any such holder that is an "affiliate"exchange pursuant to this exchange offer), you will generally recognize gain or loss equal to the difference between (i) the amount realized on the disposition (other than amounts attributable to accrued but unpaid interest) and (ii) your adjusted federal income tax basis in the Note. Your adjusted federal income tax basis in a Note generally will equal the cost of the IssuersNote.
Any gain or loss you recognize on a disposition of a Note will generally constitute capital gain or loss and will be long-term capital gain or loss if you have held the Note for longer than one year. Non-corporate taxpayers are generally subject to a maximum regular federal income tax rate of 20% on net long-term capital gains. The deductibility of capital losses is subject to certain limitations.
119
Backup Withholding and Information Reporting
Under the Code, you may be subject, under certain circumstances, to information reporting and/or backup withholding with respect to cash payments in respect of the Notes. This withholding applies only if you (i) fail to furnish your social security number or other taxpayer identification number ("TIN") within a reasonable time after a request therefor, (ii) furnish an incorrect TIN, (iii) are notified by the IRS that you failed to report interest or dividends properly, or (iv) fail, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is your correct number and that you are not subject to backup withholding. The backup withholding tax rate equals the fourth lowest rate of tax applicable under section 1(c) of the Code. That rate is currently 28%. Any amount withheld from a payment under the backup withholding rules is allowable as credit against your United States federal income tax liability (and may entitle you to a refund), provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and certain financial institutions. You should consult your tax advisor as to your qualification for exemption from backup withholding and the procedure for obtaining such exemption.
Non-U.S. Holders
U.S. Federal Withholding Tax
The 30% U.S. federal withholding tax will not apply to any payment of principal or interest on the Notes provided that:
- •
- you do not actually (or constructively) own 10% or more of the total combined voting power of all classes of our voting stock within the meaning of
Rule 405 promulgated undertheSecurities Act) without compliance withCode and theregistration and prospectus delivery provisionsTreasury Regulations; - •
- you are not a controlled foreign corporation that is related, directly or indirectly, to us through stock ownership;
- •
- you are not a bank whose receipt of interest on the
Securities Act, provided that such NewNotesare acquiredis pursuant to a loan agreement entered into in the ordinary course ofsuch holder's business, such holder has no arrangementbusiness; and - •
- you have fulfilled the statement requirements set forth in section 871(h) or section 881(c) of the Code, as discussed below.
The statement requirements referred to above will be fulfilled if you certify on IRS Form W-8BEN or other successor form, under penalties of perjury, that you are not a United States person and provide your name and address, and (i) you file IRS Form W-8BEN or other successor form with any person to participatethe withholding agent or (ii) in the distributioncase of a Note held on your behalf by a securities clearing organization, bank or other financial institution holding customers' securities in the ordinary course of its trade or business, the financial institution files with the withholding agent a statement that it has received the IRS Form W-8BEN or other successor form from the holder and furnishes the withholding agent with a copy thereof; provided that a foreign financial institution will fulfill the certification requirement by filing IRS Form W-8IMY if it has entered into an agreement with the IRS to be treated as a qualified intermediary. You should consult your tax advisor regarding possible additional reporting requirements.
If you cannot satisfy the requirements described above, payments of principal and interest made to you will be subject to the 30% U.S. federal withholding tax, unless you provide us with a properly executed (1) IRS Form W-8BEN (or successor form) claiming an exemption from (or a reduction of) withholding under the benefit of a tax treaty or (2) IRS Form W-8ECI (or successor form) stating that payments on the Note are not subject to withholding tax because such New Notes and neither such holder norpayments are effectively connected with your conduct of a trade or business in the United States, as discussed below.
The 30% U.S. federal withholding tax will generally not apply to any suchgain that you realize on the sale, exchange, or other person is engaging in or intends to engage in a distribution of such New Notes.
Accordingly, any holder who is an affiliatedisposition of the Issuers or any holder using
the Exchange Offer to participate in a distribution of the New NotesNotes.
120
U.S. Federal Estate Tax
Your estate will not be ablesubject to relyU.S. federal estate tax on such interpretationsNotes beneficially owned by you at the stafftime of your death, provided that (1) you do not own, actually or constructively, 10% or more of the total combined voting power of all classes of our voting stock (within the meaning of the Code and the Treasury Regulations) and (2) interest on those Notes would not have been, if received at the time of your death, effectively connected with the conduct by you of a trade or business in the United States.
U.S. Federal Income Tax
If you are engaged in a trade or business in the United States and interest on the Notes is effectively connected with the conduct of that trade or business and, if a tax treaty applies, is attributable to a permanent establishment in the United States, you will be subject to U.S. federal income tax on the interest on a net income basis in the same manner as if you were a U.S. person as defined under the Code. In that case, you would not be subject to the Commission30% U.S. federal withholding tax. See "U.S. Holders" above. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of your earnings and must
complyprofits for the taxable year that are effectively connected with the registrationconduct by you of a trade or business in the United States. For this purpose, interest on Notes will be included in earnings and prospectus delivery requirementsprofits if so effectively connected.
Any gain realized on the sale, exchange, or redemption of Notes generally will not be subject to U.S. federal income tax unless:
- •
- that gain is effectively connected with the
Securities Actconduct of a trade or business inconnectionthe United States by you and, if a tax treaty applies, is attributable to a permanent establishment in the United States; - •
- you are an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or
- •
- you are subject to tax under tax laws applicable to certain U.S. expatriates.
Information Reporting and Backup Withholding
In general, you will not be subject to information reporting and backup withholding with respect to payments that we make to you provided that we do not have actual knowledge that you are a U.S. person and we have received from you the statement described above under "U.S. Federal Withholding Tax."
Under current Treasury Regulations, payments on the sale, exchange or other disposition of a Note made to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, if the broker is (i) a United States person, (ii) a controlled foreign corporation for United States federal income tax purposes, (iii) a foreign person 50% or more of whose gross income is effectively connected with a resale transaction. NotwithstandingUnited States trade or business for a specified three-year period, or (iv) a foreign partnership with certain connections to the foregoing,United States, then information reporting will be required unless the broker has in its records documentary evidence that the beneficial owner is not a United States person and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Backup withholding may apply to any payment that the broker is required to report if the broker has actual knowledge that the payee is a United States person. Payments to or through the United States office of a broker will be subject to backup withholding and information reporting unless the beneficial owner certifies, under penalties of perjury, that it is not a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the IRS.
121
A broker-dealer that is the holder of Original Notes that were acquired for the account of that broker-dealer as a result of market-making or other trading activities, other than Original Notes acquired directly from the issuers or any of their affiliates, may exchange those Original Notes for New Notes pursuant to the exchange offer. This is true so long as each broker-dealer that receives New Notes for its own account pursuant toin exchange for Original Notes, where the Exchange Offer must acknowledgeOriginal Notes were acquired by the broker-dealer as a result of market-marking or other trading activities, acknowledges that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus,prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resaleresales of New Notes received in exchange for OldOriginal Notes where such Oldthe Original Notes were acquired as a result of market-making activities orfor other trading activities (other than Old Notes acquired directly
from the Issuers.)activities. The Issuersissuers have agreed that for a period of 180 days from
the date of this Prospectus, itthey will make this Prospectus,prospectus, as it may be amended or supplemented from time to time, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1998 (90 days fromresale, except that the dateperiod may be suspended for a period if the issuers' and our parent's board of this Prospectus), all dealersdirectors or managers, as applicable, determine, upon the advice of counsel, that the amended or supplemented prospectus would require disclosure of confidential information or interfere with any of our financing, acquisition, reorganization or other material transactions. All broker-dealers effecting transactions in the New Notes may be required to deliver a prospectus.
97
100
The Issuersissuers will not receive any proceeds from any sale of New Notes by broker-dealers.broker-dealers or any other holder of New Notes. New Notes received by broker-dealers for their own account pursuant toin the Exchange Offerexchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of the resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissionscommisions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offerexchange offer and any broker-dealerbroker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any suchthose persons may be deemeddeemd to be underwriting compensation under the Securities Act. The Letterletter of Transmittaltransmittal states that by acknowledging that it will deliver and by delivering a prospectus, as required, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date of this Prospectus, the Issuers will
send a reasonable number of additional copies of this Prospectus and any
amendment or supplement
The issuers have agreed to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Issuers will pay all the expenses incident to the Exchange Offer (which shall not includeexchange offer and to their performance of, or compliance with, the expensesregistration rights agreement (other than the commissions or concessions of any holder in connection with resalesbrokers or dealers) and will idemnify the holders of the New Notes). The Issuers have agreed
to indemnify the Initial Purchasers andNotes (including any broker-dealers participating in the
Exchange Offerbroker-dealers) against certainsome liabilities, including liabilities under the Securities Act.
This Prospectus has been prepared for use in connection with
Whether the Exchange
Offer and may be used by CSI in connection with offers and sales related to
market-making transactions in the Notes. CSI may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. The Company will not receive any of the
proceeds of such sales. CSI has no obligation to make a market in the Notes and
may discontinue its market-making activities at any time without notice, at its
sole discretion. The Company has agreed to indemnify CSI against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments which CSI might be required to make in respect thereof.
For a description of certain relationships between the Company and CSI and
its affiliates, see "Certain Transactions."
LEGAL MATTERS
The validity of theNew Notes offered hereby will be the binding obligations of the issuers will be passed upon for the
Issuersthem by O'Sullivan GraevSchulte Roth & Karabell,Zabel LLP, New York, New York.
EXPERTS
The financial statements of the Predecessor for the period from January 1,
1995 through September 27, 1995, included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The
Our consolidated financial statements of the Company as of and for the
period from September 28, 1995 throughat December 31, 19952002 and as2001, and the results of operations and for the
years ended December 31, 1996 and 1997, included in this Prospectus, have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Brink B.V. as of and for the year
ended December 31, 1995 and as of and for the period from January 1, 1996
through October 30, 1996, included in this Prospectus have been so included in
reliance on the report of Coopers & Lybrand N.V., independent accountants, given
on the authority of said firm as experts in auditing and accounting.
98
101
The financial statements of Valley Industries, Inc. as of and for the
period from December 29, 1996 through August 5, 1997, included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Valley Industries, Inc. at December 28, 1996
and December 31, 1995, andcash flows for each of twothe three years in the period ended December 28, 1996, appearing31, 2002 included in this Prospectus and Registration Statementprospectus have been audited by Ernst & YoungPricewaterhouseCoopers LLP, independent auditors,accountants, as set forthstated in their report thereon appearing elsewhere herein, and areherein.
122
We have filed with the SEC a registration statement on Form S-4 under the Securities Act with respect to our offering of the New Notes. This prospectus does not contain all the information included in reliance upon such
report given upon the authorityregistration statement and the exhibits and schedules thereto. You will find additional information about us and the New Notes in the registration statement. The registration statement and the exhibits and schedules thereto may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Juduciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such firm as experts in accounting and
auditing.
The financial statementsthis material may also be obtained from the Public Reference Section of the towbar segmentSecurities and Exchange Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. You may obtain information on the operation of Ellebi S.p.A. as of and
for the years ended December 31, 1995, 1996 and 1997, includedPublic Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a site on the World Wide Web (http://www.sec.gov) that contains information regarding registrants, including the issuers, that file electronically with the SEC. Statements made in this Prospectus, have been so included in reliance onprospectus about legal documents may not necessarily be complete and you should read the report of AXIS S.r.l.,
independent accountants, given ondocuments which are filed as exhibits to the authority of said firm as experts in
auditing and accounting.
99
102
registration statement otherwise filed with the SEC.
123
ADVANCED ACCESSORY SYSTEMS, LLC
INDEX TO FINANCIAL STATEMENTS
| Page | ||
|---|---|---|
| Advanced Accessory Systems, LLC | ||
Report of Independent | F-2 | |
Consolidated Balance and | F-3 | |
Consolidated Statements of | F-4 | |
Consolidated Statements of Cash | F-5 | |
Consolidated Statements of Changes in | F-6 | |
Notes to Consolidated Financial | F-7 |
F-1 103
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the consolidated financial statements listed in the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
members' equityindex present fairly, in all material respects, the financial position of Advanced Accessory Systems, LLC (formerly AAS Holdings, LLC) and its subsidiaries (the "Company") at December 31, 19962002 and 19972001, and the results of their operations and their cash flows for each of the three years in the period from September 28, 1995
through December 31, 1995 and for the years ended December 31, 1996 and 1997,2002 in conformity with accounting principles generally accepted accounting principles.in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted auditing standardsin the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Bloomfield Hills, Michigan
March 15, 1998
F-2
104
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the accompanying statements of income, of cash flows and of
changes in divisional equity of MascoTech Accessories (the "Predecessor"), a
division of MascoTech, Inc. present fairly, in all material respects, the
results of its operations and its cash flows for the period fromopinion.
On January 1, 1995
through September 27, 1995,2002, the Company adopted the provisions of Statement of Financial Accounting Standard No. 142, "Goodwill and Intangible assets", which changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in conformity with generally accepted accounting
principles. These financial statements are the responsibilityan impairment of the
Predecessor's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our auditgoodwill of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.$29.2 million. The Predecessorimpairment was a division of MascoTech, Inc. and, as disclosed in Note
5due solely to the financial statements, had extensive transactionschange in accounting standards, and relationships with
affiliated entities. Becausewas reported as a cumulative effect of these relationships, the terms of these
transactions may differ from those that would result from transactions among
wholly unrelated parties.
As discussed inaccounting change (See Note 1 on September"New accounting pronouncements").
PricewaterhouseCoopers LLP
Detroit, Michigan
February 28, 1995, certain of the net assets of
the Predecessor were purchased by Advanced Accessory Systems, LLC (formerly AAS
Holdings, LLC). The accompanying financial statements for the period from
January 1, 1995 through September 27, 1995 do not give effect to the purchase
transaction.
Price Waterhouse LLP
Bloomfield Hills, Michigan
August 25, 1997
F-3
105
2003
F-2
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
1996 1997
---- ----
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT UNIT-RELATED DATA)
ASSETS
Current assets
Cash...................................................... $ 2,514 $ 27,348
Accounts receivable, less reserves of $605 and $1,699,
respectively........................................... 18,807 43,523
Inventories............................................... 20,652 34,408
Other current assets...................................... 4,083 6,469
-------- --------
Total current assets................................. 46,056 111,748
Property and equipment, net................................. 41,828 55,928
Goodwill, net............................................... 56,799 85,889
Intangible assets, net...................................... 2,635 7,595
Deferred income taxes....................................... 856 3,626
Other noncurrent assets..................................... 185 697
-------- --------
$148,359 $265,483
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 5,500 $ 3,746
Accounts payable.......................................... 13,668 23,479
Accrued liabilities....................................... 11,228 18,815
Deferred income taxes..................................... 1,292 1,333
-------- --------
Total current liabilities............................ 31,688 47,373
-------- --------
Noncurrent liabilities
Deferred income taxes..................................... 4,613 3,545
Other noncurrent liabilities.............................. 2,271 1,234
Long-term debt, less current maturities................... 87,642 193,380
-------- --------
Total noncurrent liabilities......................... 94,526 198,159
-------- --------
Commitments and contingencies (Note 10)
Mandatorily redeemable warrants............................. 3,498 3,507
-------- --------
Minority interest........................................... 184 251
-------- --------
Members' equity
Class A Units 25,000 authorized, 15,369 and 16,271 issued
at December 31, 1996 and 1997, respectively............ 17,922 22,912
Class B Units, 2,000 units authorized, no Units issued at
December 31, 1996 and 1997............................. -- --
Currency translation adjustment........................... (89) (490)
Retained earnings (deficit)............................... 630 (6,229)
-------- --------
18,463 16,193
-------- --------
$148,359 $265,483
======== ========
(Dollar amounts in thousands)
| | March 31, | December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2001 | |||||||||
| | (unaudited) | | | |||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash | $ | 1,987 | $ | 2,653 | $ | 2,139 | ||||||
| Accounts receivable, less reserves of $1,729, $1,857 and $1,788, respectively | 65,105 | 51,526 | 44,790 | |||||||||
| Inventories | 45,925 | 40,682 | 39,432 | |||||||||
| Deferred income taxes | 122 | 109 | 1,643 | |||||||||
| Other current assets | 12,181 | 13,370 | 4,133 | |||||||||
| Total current assets | 125,320 | 108,340 | 92,137 | |||||||||
| Property and equipment, net | 61,068 | 60,572 | 54,404 | |||||||||
| Goodwill, net | 48,104 | 47,308 | 73,394 | |||||||||
| Other intangible assets, net | 3,387 | 3,635 | 4,685 | |||||||||
| Deferred income taxes | 2,131 | 1,981 | 1,932 | |||||||||
| Other noncurrent assets | 1,907 | 2,319 | 1,738 | |||||||||
| $ | 241,917 | $ | 224,155 | $ | 228,290 | |||||||
| LIABILITIES AND MEMBERS' EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Current maturities of long-term debt | $ | 21,893 | $ | 18,215 | $ | 11,023 | ||||||
| Accounts payable | 40,099 | 33,159 | 29,051 | |||||||||
| Accrued liabilities | 35,020 | 30,762 | 23,553 | |||||||||
| Mandatorily redeemable warrants | 5,250 | 5,250 | 5,130 | |||||||||
| Total current liabilities | 102,262 | 87,386 | 68,757 | |||||||||
| Noncurrent liabilities | ||||||||||||
| Deferred income taxes | 524 | 629 | 828 | |||||||||
| Other noncurrent liabilities | 5,952 | 5,796 | 4,755 | |||||||||
| Long-term debt, less current maturities | 133,930 | 136,732 | 145,626 | |||||||||
| Total noncurrent liabilities | 140,406 | 143,157 | 151,209 | |||||||||
| Commitments and contingencies (Note 11) | ||||||||||||
| Members' equity | ||||||||||||
| Class A Units 25,000 authorized, 9,226 and 9,236 issued at December 31, 2002 and 2001, respectively | 7,348 | 7,348 | 7,348 | |||||||||
| Class A-1 Units 25,000 authorized, 5,133 issued at December 31, 2002 and 2001, respectively | 4,117 | 4,117 | 4,117 | |||||||||
| Class B Units, 2,000 authorized, no Units issued at December 31, 2002 and 2001, respectively | — | — | — | |||||||||
| Other comprehensive income (loss) | (967 | ) | 85 | (181 | ) | |||||||
| Accumulated deficit | (11,249 | ) | (17,938 | ) | (2,960 | ) | ||||||
| (751 | ) | (6,388 | ) | 8,324 | ||||||||
| $ | 241,917 | $ | 224,155 | $ | 228,290 | |||||||
See accompanying notes to consolidated financial statements.
F-4
106
F-3
ADVANCED ACCESSORY SYSTEMS, INC.
LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR COMPANY
------------------ ---------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
JANUARY 1, 1995 SEPTEMBER 28, 1995 DECEMBER 31,
THROUGH THROUGH ------------------
SEPTEMBER 27, 1995 DECEMBER 31 1995 1996 1997
------------------ ------------------ ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................ $48,698 $16,299 $81,466 $188,678
Cost of sales............................ 38,645 12,458 53,607 135,556
------- ------- ------- --------
Gross profit........................... 10,053 3,841 27,859 53,122
Selling, administrative and product
development expenses................... 6,107 1,472 13,413 31,350
Amortization of intangible assets........ -- 546 2,475 2,336
------- ------- ------- --------
Operating income....................... 3,946 1,823 11,971 19,436
------- ------- ------- --------
Other (income) expense
Interest expense....................... -- 975 4,312 12,627
Foreign currency loss.................. -- -- 1,330 6,097
Other (income) expense................. 65 (22) (80) --
------- ------- ------- --------
Income before minority interest,
extraordinary charge and income
taxes.................................. 3,881 870 6,409 712
Provision (benefit) for income taxes..... 1,324 -- (491) (2,856)
------- ------- ------- --------
Income before minority interest and
extraordinary charge................... 2,557 870 6,900 3,568
Minority interest........................ -- 9 69 97
Extraordinary charge resulting from debt
extinguishment......................... -- -- 1,970 7,416
------- ------- ------- --------
Net income (loss)........................ $ 2,557 $ 861 $ 4,861 $ (3,945)
======= ======= ======= ========
(Dollar amounts in thousands)
| | Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2002 | 2001 | 2000 | ||||||||||||
| | (unaudited) | | | | |||||||||||||
| Net sales | $ | 85,340 | $ | 79,870 | $ | 329,782 | $ | 314,035 | $ | 318,817 | |||||||
| Cost of sales | 64,261 | 60,954 | 250,516 | 239,583 | 239,090 | ||||||||||||
| Gross profit | 21,079 | 18,916 | 79,266 | 74,452 | 79,727 | ||||||||||||
| Selling, administrative and product development expenses | 12,399 | 10,850 | 49,309 | 44,769 | 45,527 | ||||||||||||
| Amortization of intangible assets | 7 | 7 | 122 | 3,312 | 3,297 | ||||||||||||
| Operating income | 8,673 | 8,059 | 29,835 | 26,371 | 30,903 | ||||||||||||
| Other expense | |||||||||||||||||
| Interest expense | 3,832 | 3,957 | 15,907 | 17,684 | 17,950 | ||||||||||||
| Foreign currency (gain) loss | (3,596 | ) | 1,244 | (8,429 | ) | 4,948 | 5,386 | ||||||||||
| Other expense | 65 | (41 | ) | 520 | 743 | 52 | |||||||||||
| Income before cumulative effect of accounting change and income taxes | 8,372 | 2,899 | 21,837 | 2,996 | 7,515 | ||||||||||||
| Cumulative effect of accounting change for goodwill impairment | — | (29,207 | ) | (29,207 | ) | — | — | ||||||||||
| Income (loss) before income taxes | 8,372 | (26,308 | ) | (7,370 | ) | 2,996 | 7,515 | ||||||||||
| Provision (benefit) for income taxes | 1,561 | (368 | ) | 4,252 | 602 | (278 | ) | ||||||||||
| Net income (loss) | $ | 6,811 | $ | (25,940 | ) | $ | (11,622 | ) | $ | 2,394 | $ | 7,793 | |||||
| Pro forma tax provision (unaudited): | |||||||||||||||||
| Net income (loss) | $ | 6,811 | $ | (11,622 | ) | ||||||||||||
| Pro forma tax provision (benefit) | 459 | (10,340 | ) | ||||||||||||||
| Pro forma net income (loss) | $ | 6,352 | $ | (1,282 | ) | ||||||||||||
See accompanying notes to consolidated financial statements.
F-5
107
F-4
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR COMPANY
------------- ------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, SEPTEMBER 28, YEAR ENDED
1995 THROUGH 1995 THROUGH DECEMBER 31,
SEPTEMBER 27, DECEMBER 31, --------------------
1995 1995 1996 1997
------------- ------------- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................. $ 2,557 $ 861 $ 4,861 $ (3,945)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization................ 789 890 4,689 9,360
Deferred taxes............................... -- -- (363) (3,146)
Foreign currency loss........................ -- -- 1,118 5,500
Loss on disposal of assets................... -- -- 10 --
Extraordinary charge resulting from debt
extinguishment............................ -- -- 1,970 7,416
Changes in assets and liabilities
Accounts receivable....................... 947 488 (118) (8,661)
Inventories............................... 133 412 (3,736) 582
Other current assets...................... (569) (193) (1,742) 378
Other noncurrent assets................... (13) -- (67) (482)
Accounts payable.......................... 467 (1,679) 1,995 (2,719)
Accrued liabilities....................... (653) 484 3,144 2,819
Other noncurrent liabilities.............. 83 118 (1,913) (217)
Minority interest in consolidated
subsidiaries............................ -- 9 69 97
------- -------- -------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES........................... 3,741 1,390 9,917 6,982
------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of machinery and equipment......... (2,079) (491) (3,124) (7,751)
Amount due from sellers of Valley Industries,
Inc.......................................... -- -- -- (1,150)
Acquisition of subsidiaries, net of cash
acquired..................................... -- (46,047) (54,339) (70,832)
------- -------- -------- ---------
NET CASH USED FOR INVESTING
ACTIVITIES........................... (2,079) (46,538) (57,463) (79,733)
------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt................. -- 30,800 88,842 215,050
Proceeds from issuance of warrants............. -- 200 3,498 --
Increase in revolving loan..................... -- 4,100 4,300 504
Extinguishment of warrants..................... -- -- (1,600) --
Repayment of debt.............................. -- -- (44,628) (113,248)
Divisional activity............................ (1,666) -- -- --
Debt issuance costs............................ -- (1,815) (2,643) (7,280)
Issuance of membership units................... -- 13,500 4,562 4,999
Distributions to members....................... -- -- (3,726) (2,945)
------- -------- -------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES................. (1,666) 46,785 48,605 97,080
------- -------- -------- ---------
Effect of exchange rate changes................ -- -- (182) 505
Net increase (decrease) in cash................ (4) 1,637 877 24,834
Cash at beginning of period.................... 7 -- 1,637 2,514
------- -------- -------- ---------
Cash at end of period.......................... $ 3 $ 1,637 $ 2,514 $ 27,348
======= ======== ======== =========
Cash paid for interest......................... $ -- $ 746 $ 4,215 $ 8,302
======= ======== ======== =========
Cash paid for income taxes..................... $ -- $ -- $ -- $ 581
======= ======== ======== =========
(Dollar amounts in thousands)
| | Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2002 | 2001 | 2000 | ||||||||||||||
| | (unaudited) | | | | |||||||||||||||
| Cash flows provided by (used for) operating activities | |||||||||||||||||||
| Net (loss) income | $ | 6,811 | $ | (25,940 | ) | $ | (11,622 | ) | $ | 2,394 | $ | 7,793 | |||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities | |||||||||||||||||||
| Depreciation and amortization | 3,246 | 2,982 | 13,054 | 14,599 | 14,304 | ||||||||||||||
| Cumulative effect of accounting change for goodwill impairment | — | 29,207 | 29,207 | — | — | ||||||||||||||
| Deferred taxes | 75 | (417 | ) | 1,298 | (161 | ) | (908 | ) | |||||||||||
| Foreign currency (gain) loss | (3,529 | ) | 632 | (8,190 | ) | 4,965 | 5,159 | ||||||||||||
| Loss on disposal of assets | 68 | — | 365 | 701 | 37 | ||||||||||||||
| Changes in assets and liabilities net of acquisitions: | |||||||||||||||||||
| Accounts receivable | (12,815 | ) | (9,393 | ) | (4,411 | ) | (2,645 | ) | 3,425 | ||||||||||
| Inventories | (4,195 | ) | 1,959 | 1,954 | 1,427 | (4,055 | ) | ||||||||||||
| Other current assets | 1,346 | (425 | ) | (8,530 | ) | 2,771 | (1,546 | ) | |||||||||||
| Other noncurrent assets | 319 | 79 | (996 | ) | 685 | (346 | ) | ||||||||||||
| Accounts payable | 6,476 | 4,390 | 2,533 | 4,084 | (199 | ) | |||||||||||||
| Accrued liabilities | 3,833 | 1,547 | 6,210 | (950 | ) | (763 | ) | ||||||||||||
| Other noncurrent liabilities | — | 76 | 132 | (219 | ) | (1,485 | ) | ||||||||||||
| Net cash provided by operating activities | 1,635 | 4,697 | 21,004 | 27,651 | 21,416 | ||||||||||||||
| Cash flows provided by (used for) investing activities | |||||||||||||||||||
| Acquisition of machinery and equipment | (2,512 | ) | (1,883 | ) | (15,354 | ) | (7,580 | ) | (10,445 | ) | |||||||||
| Acquisition of subsidiaries, net of cash acquired | — | — | — | — | (2,804 | ) | |||||||||||||
| Net cash used for investing activities | (2,512 | ) | (1,883 | ) | (15,354 | ) | (7,580 | ) | (13,249 | ) | |||||||||
| Cash flows provided by (used for) financing activities | |||||||||||||||||||
| Increase (decrease) in revolving loan | 1,850 | (2 | ) | 5,572 | (8,341 | ) | 11,343 | ||||||||||||
| Repayment of debt | (2,218 | ) | (3,461 | ) | (13,379 | ) | (11,706 | ) | (13,878 | ) | |||||||||
| Collections of membership notes receivable | — | — | — | 59 | 65 | ||||||||||||||
| Borrowing of debt | 722 | — | 5,637 | 400 | — | ||||||||||||||
| Repurchase of membership units | — | — | — | — | (6,422 | ) | |||||||||||||
| Distributions to members | (121 | ) | (636 | ) | (3,356 | ) | (801 | ) | (6,090 | ) | |||||||||
| Net cash used for financing activities | 233 | (4,099 | ) | (5,526 | ) | (20,389 | ) | (14,982 | ) | ||||||||||
| Effect of exchange rate changes | (22 | ) | 470 | 390 | (858 | ) | 1,412 | ||||||||||||
| Net increase (decrease) in cash | (666 | ) | (815 | ) | 514 | (1,176 | ) | (5,403 | ) | ||||||||||
| Cash at beginning of period | 2,653 | 2,139 | 2,139 | 3,315 | 8,718 | ||||||||||||||
| Cash at end of period | $ | 1,987 | $ | 1,324 | $ | 2,653 | $ | 2,139 | $ | 3,315 | |||||||||
| Cash paid for interest | $ | 471 | $ | 516 | $ | 14,395 | $ | 16,304 | $ | 17,032 | |||||||||
| Cash paid for income taxes | $ | 22 | $ | — | $ | 362 | $ | 845 | $ | 1,763 | |||||||||
See accompanying notes to consolidated financial statements.
F-6
108
F-5
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN DIVISIONAL AND MEMBERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
PREDECESSOR
-----------
DIVISIONAL
EQUITY
----------
Balance at January 1, 1995.................................. $14,903
Net income for the period from January 1, 1995 through
September 27, 1995........................................ 2,557
Divisional activity......................................... (1,666)
-------
Balance at September 27, 1995............................... $15,794
=======
- --------------------------------------------------------------------------------
COMPANY
------------------------------------------------
CURRENCY RETAINED TOTAL
MEMBERS' TRANSLATION EARNINGS MEMBERS'
CAPITAL ADJUSTMENT (DEFICIT) EQUITY
-------- ----------- --------- --------
Sale of membership interest on September 28, 1995..... $13,860 $ -- $ -- $13,860
Notes receivable for unit purchase.................... (500) -- -- (500)
------- ----- ------- -------
13,360 -- -- 13,360
Net income for the period from September 28, 1995
through December 31, 1995........................... -- -- 861 861
------- ----- ------- -------
Balance at December 31, 1995.......................... 13,360 -- 861 14,221
Issuance of additional units.......................... 4,562 -- -- 4,562
Accretion of membership warrants...................... -- -- (1,400) (1,400)
Distributions to members, net of minority interest.... -- -- (3,692) (3,692)
Currency translation adjustment....................... -- (89) -- (89)
Net income for 1996................................... -- -- 4,861 4,861
------- ----- ------- -------
Balance at December 31, 1996.......................... 17,922 (89) 630 18,463
Issuance of additional units.......................... 4,999 -- -- 4,999
Accretion of membership warrants...................... (9) -- -- (9)
Distributions to members, net of minority interest.... -- -- (2,914) (2,914)
Currency translation adjustment....................... -- (401) -- (401)
Net (loss) for 1997................................... -- -- (3,945) (3,945)
------- ----- ------- -------
Balance at December 31, 1997.......................... $22,912 $(490) $(6,229) $16,193
======= ===== ======= =======
(Dollar amounts in thousands)
| | Members' capital | Other comprehensive income (loss) | Retained earnings (deficit) | Total members' equity | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at December 31, 1999 | $ | 18,083 | $ | (1,496 | ) | $ | (6,256 | ) | $ | 10,331 | |||||
Notes receivable for unit purchase | 65 | — | — | 65 | |||||||||||
| Repurchase of membership units | (6,422 | ) | — | — | (6,422 | ) | |||||||||
| Accretion of membership warrants | (200 | ) | — | — | (200 | ) | |||||||||
| Distributions to members | — | — | (6,090 | ) | (6,090 | ) | |||||||||
| Comprehensive income: | |||||||||||||||
| Currency translation adjustment | — | 419 | — | ||||||||||||
| Net income for 2000 | — | — | 7,793 | ||||||||||||
| Total comprehensive income | 8,212 | ||||||||||||||
| Balance at December 31, 2000 | $ | 11,526 | $ | (1,077 | ) | $ | (4,553 | ) | $ | 5,896 | |||||
Notes receivable for unit purchase | 59 | — | — | 59 | |||||||||||
| Accretion of membership warrants | (120 | ) | — | — | (120 | ) | |||||||||
| Distributions to members | — | — | (801 | ) | (801 | ) | |||||||||
| Comprehensive income: | |||||||||||||||
| Minimum pension liability adjustment | — | (285 | ) | — | |||||||||||
| Currency translation adjustment | — | 1,181 | — | ||||||||||||
| Net income for 2001 | — | — | 2,394 | ||||||||||||
| Total comprehensive income | 3,290 | ||||||||||||||
| Balance at December 31, 2001 | $ | 11,465 | $ | (181 | ) | $ | (2,960 | ) | $ | 8,324 | |||||
Distributions to members | — | — | (3,356 | ) | (3,356 | ) | |||||||||
| Comprehensive income: | |||||||||||||||
| Minimum pension liability adjustment | — | (565 | ) | — | |||||||||||
| Currency translation adjustment | — | 831 | — | ||||||||||||
| Net loss for 2002 | — | — | (11,622 | ) | |||||||||||
| Total comprehensive income | (11,356 | ) | |||||||||||||
| Balance at December 31, 2002 | $ | 11,465 | $ | 85 | $ | (17,938 | ) | $ | (6,388 | ) | |||||
| Distributions to members (unaudited) | — | — | (122 | ) | (122 | ) | |||||||||
| Comprehensive income (unaudited): | |||||||||||||||
| Currency translation adjustment | — | (1,052 | ) | — | |||||||||||
| Net income for the first three months ended March 31, 2003 | — | — | 6,811 | ||||||||||||
| Total comprehensive income (unaudited) | 5,759 | ||||||||||||||
| Balance at March 31, 2003 (unaudited) | $ | 11,465 | $ | (967 | ) | $ | (11,249 | ) | $ | (751 | ) | ||||
See accompanying notes to consolidated financial statements.
F-7
109
F-6
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
(Dollar amounts in thousands, except unit related data)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIESSummary of Operations and Significant Accounting Policies
Business activities
Advanced Accessory Systems, LLC (formerly AAS Holdings, LLC) (the "Company") is engaged in the design, manufacture and supply ofsupplies towing and rack systems and related accessories for the automotive original equipment manufacturer ("OEM") market and the automotive aftermarket. The Company's business commenced on September 28, 1995, with the acquisition1995. The Company's products include a comprehensive line of certaintowing systems and rack systems including accessories. The Company's towing systems products include fixed and detachable towing hitches and accessories such as trailer balls, ball mounts, electrical harnesses, safety chains and locking hitch pins. The Company's broad offering of the net assetsrack systems includes fixed and detachable racks and accessories which can be installed on vehicles to carry items such as bicycles, skis, luggage, surfboards and sailboards. The Company's products are sold as standard accessories or options for a variety of MascoTech Accessories (the "Predecessor"), a divisionlight vehicles.
Principles of MascoTech, Inc.,
through the Company's majority-owned subsidiary, SportRack, LLC. As described in
Note 2, in October 1996 the Company acquired Brink B.V. and in July and August
of 1997 acquired the SportRack division of Bell Sports Corporation, Nomadic
Sports, Inc. and Valley Industries, Inc.
The Company has two significant customers in the automotive OEM industry.
Sales to these customers represented 62% and 22%, for the period from January 1,
1995 through September 27, 1995 for the Predecessor; 72% and 22% for the period
from September 28, 1995 through December 31, 1995, 60% and 21% for the year
ended December 31, 1996 and 29% and 13% for the year ended December 31, 1997 for
the Company. Accounts receivable from these customers represented 57% and 24% of
the Company's trade accounts receivable at December 31, 1996, and 33% and 8% at
December 31, 1997, respectively.
Although the Company is directly affected by the economic well being of the
industries and customers referred to above, management does not believe
significant credit risk exists at December 31, 1997. Consistent with industry
practice, the Company does not require collateral to reduce such credit risk.
BASIS OF PRESENTATION
The financial statements for the period from January 1, 1995 through
September 27, 1995 are those of the Predecessor.
The consolidated financial statements as of December 31, 1996 and 1997, for
the period from September 28, 1995 through December 31, 1995 and for the years
ended December 31, 1996 and 1997 are those of the Company and its subsidiaries.
The financial statements of the Company and the Predecessor are not comparable
in certain respects due to differences between the cost bases of certain assets
held by the Company versus that of the Predecessor, resulting in increased
depreciation and amortization charges subsequent to September 27, 1995, changes
in accounting policies and the recording of certain liabilities at the date of
acquisition in connection with the purchase of the Predecessor by the Company,
as well as the Company's acquisitions as discussed further in Note 2.
F-8
110
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PRINCIPLES OF CONSOLIDATIONconsolidation
The Company includes the accounts of the following:
| SportRack, | 100% owned by Advanced Accessory Systems, LLC | |
| SportRack Automotive, | A German corporation, 100% owned by SportRack, LLC | |
| SportRack | A Canadian corporation, 90% owned by the Advanced Accessory Systems, LLC and 10% owned by SportRack, LLC | |
| ValTek, LLC | 100% owned by SportRack, LLC | |
| AAS Holdings, | 100% owned by Advanced Accessory Systems, LLC | |
| Brink International | A Dutch corporation, 100% owned by AAS Holdings, Inc. | |
| Valley Industries, | 100% owned by Advanced Accessory Systems, LLC | |
| AAS Capital Corporation | 100% owned by Advanced Accessory Systems, LLC |
All intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue recognition
Revenue and related cost of goods sold are recognized upon shipment of the product to the customer. Sales allowances, discounts, rebates and other adjustments are recorded or accrued in the period of the sale.
SIGNIFICANT ESTIMATES
F-7
Significant 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 fiscal period. Actual results could differ from those estimates.
CHANGE IN ESTIMATE
On a periodic basis, the Company reviews the estimated useful lives of its
long-lived assets. In connection with the Company's most recent review, the
Company determined that the remaining period of benefit relating to its goodwill
from the SportRack, LLC and Brink acquisitions was 29 years. Based upon the
Company's assessment of the period of benefit as well as the amortization
periods utilized by other companies operating within the automotive industry,
the Company began amortizing the unamortized value of its goodwill at January 1,
1997 over a remaining 29 year period. The changes in the amortization period
resulted in a decrease in amortization expense of approximately $2,080 for
During the year ended December 31, 1997.
FINANCIAL INSTRUMENTS2000, management decreased an estimated liability related to a contingent obligation to one of its customers. The reduction resulted in a benefit to the Company of approximately $1,900 which was included in selling, administrative and product development expenses.
Financial instruments
Financial instruments at December 31, 19962002 and 1997,2001, including cash, accounts receivable and accounts payable, are recorded at cost, which approximates fair value due to the short-term maturities of these assets and liabilities. The carrying value of the obligations under the bank agreements are considered to approximate fair value as the agreements provide for interest rate revisions based on changes in prevailing market rates or were entered into at rates that approximate market rates at December 31, 19962002 and 1997.2001. The fair value of the Notes (as defined below) as of December 31, 2002 and 2001 was approximately $118,750 and $103,750 respectively, based upon quoted prices in the market in which the Notes are traded.
The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the F-9
111
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
London Interbank Offered Rate (LIBOR). The Company useswill use derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions.
CASH EQUIVALENTS
Cash equivalents
For purposes of the statement of cash flows, the Company considers all highly-liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents.
CURRENCY TRANSLATION
Currency translation
The functional currency for the Company's foreign subsidiaries is the applicable local currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance sheet date; translation adjustments are reported as a separate component of members' equity. Revenues, expenses and cash flows for foreign subsidiaries are translated at average exchange rates during the period; foreign currency transaction gains and losses are included in current earnings. The accompanying consolidated statement of operations for the years ended December 31, 19962002, 2001 and 19972000 includes net currency (gains) and losses of $1,330$(8,429), $4,948 and $6,097$5,386, respectively, relating primarily to debt denominated in U.S. Dollars at Brink International B.V., which isand SportRack Accessories, Inc. whose functional currencies are the European Euro and Canadian Dollar, respectively. At December 31, 2002, U.S. Dollar denominated in U.S. dollars.
INVENTORIESdebt recorded at Brink includes
F-8
intercompany debt and substantially all outstanding term notes under the Company's Second Amended and Restated Credit Agreement.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out (FIFO) method. Inventories are periodically reviewed and reserves established for excess and obsolete items.
CUSTOMER TOOLING
Tooling
The Company incurs costs related to develop new tooling used in the manufacture of products sold to OEM's. In certain instances,OEMs. Tooling costs that are reimbursed by customers as the tooling becomesis completed are included in other current assets. All other customer owned tooling costs, which totaled $302 and $1,111 at December 31, 2002 and 2001, respectively, are included in other noncurrent assets and amortized over the expected product life, generally three to six years. Company owned tooling is included in property and equipment and depreciated over its expected useful life, generally three to five years. Management periodically evaluates the recoverability of the OEM and the Company is reimbursed by the OEM for the cost of the tooling or in certain instances, recovers all or a portion of such costs, through
incremental increases in unit selling prices. Management makes periodic
estimates of the total costs to be incurred for customer tooling projectsbased on estimated future cash flows, and makes provisions for tooling costs whichthat will not be recovered, if any, when such amounts are known. Customer tooling in-process is included in other current
assets in the accompanying consolidated balance sheets.
PROPERTY AND EQUIPMENTknown and incurred.
Property and equipment
Property and equipment is stated at acquisition cost, which reflects the fair market value of assets acquired at the acquisition date for all subsidiaries. Property and equipment purchased other than through the acquisitions described in Note 2 is stated at cost. Expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation expense, which was $11,299, $10,569 and $10,445 for the years ended December 31, 2002, 2001 and 2000, respectively, is computed using the straight-line method over the following estimated useful lives:
| Years | ||
|---|---|---|
| Buildings and | 5-50 | |
| Machinery, equipment and | 2-10 | |
| Furniture and | 5-7 |
Goodwill, Long-Lived Assets and other intangible assets
Goodwill of $56,799$47,308 and $85,889 (net of accumulated amortization of $3,021
and $5,251)$73,394 at December 31, 19962002 and 1997,2001, respectively, represents the costs in excess of net assets acquired and, until December 31, 2001, was amortized using the straight line method over 15 yearsperiods of up to 30 years. Beginning in 1996. Due2002, goodwill is no longer amortized, but is tested at least annually for impairment. During 2002 Goodwill decreased by $29,207 for an impairment charge resulting of the application of a new accounting standard and increased by $3,121 due to athe effects of the change in accounting estimate,foreign currency rates of the Company began
amortizing goodwill over a remaining 29 year period in 1997.
Debt issuance costsfunctional currencies of $2,635 and $6,467, net of accumulated amortization
atthe Company's foreign subsidiaries between December 31, 19962002 and 1997, respectively, are amortized over the terms of the
loan agreements, which are six to ten years. Debt issuance cost amortization of
$60, $212 and $551 for 1995, 1996 and 1997, respectively, has been included in
interest expense.
IMPAIRMENT OF LONG-LIVED ASSETS2001. See "New Accounting Pronouncements" below.
F-9
The Company accounts for long-lived assets in accordance with Statementevaluates the potential impairment of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assetsgoodwill on an ongoing basis and for Long-Lived Assets to Be Disposed Of". This Statement
requires thatreviews long-lived assets and certain identifiable intangibles to be held
and used by the company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the impairment of long-lived assets by comparing the undiscounted future net cash flows to be generated by the assets to their carrying value. Management believes that thereImpairment losses are no impairmentsthen measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Debt issuance costs net of accumulated amortization of $3,254 and $4,093 at December 31, 19962002 and 1997.
INCOME TAXES2001, respectively, are amortized over the terms of the loan agreements, which are six to ten years. Debt issuance cost amortization of $906, $677 and $625 for 2002, 2001 and 2000, respectively, has been included in interest expense.
Income taxes
The Company and certain of its domestic subsidiaries have elected to be taxed as limited liability companies for federal income tax purposes. As a result of this election, the Company's domestic taxable income accrues to the individual members. Distributions are made to the members in amounts sufficient to meet the tax liability on the Company's domestic taxable income accruing to the individual members. No distributions were made in the period from September
28, 1995 through December 31, 1995. Distributions to members net of minority
interest, of $3,692$3,356, $801 and $2,914$6,090 were made during 19962002, 2001 and 1997,2000, respectively.
Certain of the Company's domestic subsidiaries and foreign subsidiaries are subject to income taxes in their respective jurisdictions. Income tax provisions for these entities are based on the U.S. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are provided for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such entities' assets and liabilities. Deferred tax assets are reduced by a valuation allowance for tax benefits that are not expected to be realized. The Company does not provide for U.S. income taxes or foreign withholding taxes on the undistributed earnings of foreign subsidiaries because of management's intent to permanently reinvest in such operations.
The Company and certain subsidiaries are subject to taxes, including Michigan Single Business Tax and Canadian capital tax, which are based primarily on factors other than income. As such, these amounts are included in selling, administrative and product development expenses in the accompanying consolidated statements of income.operations. Deferred taxes related to Michigan Single Business Tax are provided on the temporary differences resulting from capital acquisitions and depreciation.
Prior to September 28, 1995, the Predecessor was a division of a C
corporation. In preparing its financial statements, the Predecessor has
determined its tax provision substantially on a separate return basis in
accordance with the provisions of Statement of Accounting Standards No. 109,
"Accounting for Income Taxes".
F-11
113
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering
Research, development and engineering costs are expensed as incurred and aggregated approximately $1,993 for the period from January 1, 1995 through
September 27, 1995 for the Predecessor, $672 for the period from September 28,
1995 through December 31, 1995$8,490, $9,397 and $3,548 and $5,860$9,779 for the years ended December 31, 19962002, 2001 and 1997, respectively,2000, respectively.
New Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
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Indebtedness of Others (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and also clarifies that a guarantor is require to recognize, at the inception for a guarantee, a liability for the Company.
RECLASSIFICATIONS
Certain amounts fromfair value of the 1996obligation undertaken in issuing the guarantee. In addition, FIN 45 requires additional disclosures about the guarantees that an entity has issued including those related to product warranties (See Note 11). The recognition and measurement provisions of FIN 45 are not expected to have a material effect on the Company's financial position, results of operations or cash flows.
On January 1, 2002, the Company adopted the accounting standards set forth in Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets" ("SFAS 142") and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). The adoption of SFAS 144 did not have a material impact on the Company's financial position, results of operations or cash flows. SFAS 142 changed the methodology for assessing goodwill impairments. The initial application of this statement resulted in an impairment of goodwill of $29,207 to write down goodwill related to the Valley Acquisition. The impairment was due solely to the change in accounting standards and was reported as a cumulative effect of accounting change in 2002. Under SFAS 141, impairment is determined by comparing the carrying values of reporting units to the corresponding fair values, which are determined based on the discounted estimated future cash flows of the reporting units. As the impairment related to Valley Industries, LLC for which taxable income accrues to the individual members, no tax effect was recorded for this charge. Additionally, under the new standard, goodwill is no longer amortized but is to be tested at least annually for impairment. The effect of no longer amortizing goodwill resulted in a reduction in amortization of intangible assets during 2002 as compared with 2001 and 2000 of $2,996 and $2,998, respectively. The following table presents net income (loss) for 2001 and 2000 as adjusted for the non-amortization provisions of SFAS 142.
| | Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||
| Reported net income (loss) | $ | (11,622 | ) | $ | 2,394 | $ | 7,793 | ||
| Add back: Goodwill amortization | — | 2,996 | 2,998 | ||||||
| Adjusted net income (loss) | $ | (11,622 | ) | $ | 5,390 | $ | 10,791 | ||
Other intangible assets at December 31, 2002 and 2001 consist of deferred financing costs, a defined benefit pension asset and patents and licenses.
Aggregate amortization expense related to other intangible assets for each of the five succeeding fiscal years is as follows:
| 2003 | $ | 807 | |
| 2004 | 567 | ||
| 2005 | 608 | ||
| 2006 | 653 | ||
| 2007 | 689 |
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For the year ended December 31, 2002, the carrying amount of goodwill decreased by $29,207 as a result of the impairment write down discussed above and increased by $3,121 as a result of the change in exchange rates between the U.S. Dollar and the European Euro, the functional currency of Brink International B.V.
Effective June 30, 2001, the Company adopted Emerging Issues Task Force (EITF) Consensus 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13, 'Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"'. Accordingly, based upon the terms of the warrants, the Company has reclassified the mandatorily redeemable warrants to a component of current liabilities. Accretion is included in the determination of net income or loss for each reporting period.
Basis of Presentation (unaudited)
In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements have been reclassifiedcontain all adjustments, which are normal and recurring in nature, necessary to conform withpresent fairly its financial position as of March 31, 2003 and the 1997 financial statement presentation.
results of its operations for the three months ended March 31, 2003 and 2002 and its cash flows for the three months ended March 31, 2003 and 2002.
2. ACQUISITIONSAcquisitions
Acquisitions of the Company from inceptionJanuary 1, 2000 through December 31, 19972002 are as follows:
| Acquired Company | Acquisition Date | Purchase Price | Goodwill Recorded | Location | Product Lines | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Titan Industries, Inc. | February 22, 2000 | $ | 1,525 | $ | 1,237 | United States | Towing systems | |||||
| Wiswall Hill Corporation | September 5, 2000 | 1,200 | — | United States | Rack systems | |||||||
The above acquisitions have each been accounted for in accordance with the purchase method of accounting. Accordingly, the respective purchase price of each acquisition has been allocated to assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The excess of the aggregate purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill. The operating results of these entities have been included in the Company's consolidated financial statements since the date of each acquisition. Predecessor
SportRack, LLC (formerly "Predecessor") is a designer, manufacturer and
distributorEach acquisition represented the purchase of rack systems and accessories to the automotive OEM market and
aftermarket. The Company was acquired from MascoTech, Inc. through an Asset
Purchase Agreement (the "Agreement") which contains indemnification provisions
relating to certain business activities prior to September 28, 1995.
Brink B.V.
The Company acquired all of the outstanding shares of Brink B.V. ("Brink"),
a designer, manufacturer and distributor of towing systems and related products
in Europe. The purchase price of $54,339, including acquisition costs, was
comprised of $45,801 of cash and a 12,500 Junior Subordinated Note ($7,340),
denominated in Dutch guilders, to Brink Holdings, B.V. Through a statutory
reorganization, the operations of Brink B.V. were transferred to Brink
International B.V.
SportRack Division of Bell Sports and Nomadic Sports, Inc.
The Company acquired the nets assets of the SportRack Division of Bell
Sportsrespective company and each acquired company was purchased for cash.
Pro forma results have not been presented as they are substantially the outstanding shares of Nomadic Sports, Inc. (together SportRack
International, Inc.), which are designers, manufacturers
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114
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
and distributors of rack systems and accessories tosame as the OEM market and
automotive aftermarket in Canada and the U.S.
Valley Industries, Inc.
The Company acquired the net assets of Valley Industries, Inc. ("Valley"),
which is a North American supplier of towing systems and related products to the
automotive OEM market and aftermarket.
Pro Forma Data
The following unaudited pro forma consolidated results of operations have
been prepared as if the Valley and SportRack International, Inc. acquisitions
had occurred on January 1, 1996.
1996 1997
---- ----
Net sales................................................ $233,480 $246,669
Income before extraordinary charge....................... 2,724 1,319
Net income (loss)........................................ 754 (6,097)
The pro forma data is not intended to be a projection of futureCompany's actual results.
The pro forma data included above includes adjustments to historical
results of operations for increased depreciation expense, intangible asset
amortization and interest expense, net of the related tax benefits.
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3. LONG-TERM DEBTLong-Term Debt
Long-term debt is comprised of the following:
| | | Outstanding at December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Interest Rate at December 31, 2002 | |||||||||
| | 2002 | 2001 | ||||||||
| Senior Subordinated Notes, less discount of $283 and $327 respectively | 9.75 | % | $ | 124,717 | $ | 124,673 | ||||
| Second Amended and Restated Credit Agreement | ||||||||||
| (U.S. Credit Facility) | ||||||||||
| Term note A | — | — | 1,794 | |||||||
| Term note B | 5.42 | % | 9,489 | 12,079 | ||||||
| Acquisition note | 4.92 | % | 3,937 | 9,188 | ||||||
| Revolving line of credit note | 5.78 | % | 8,574 | 3,002 | ||||||
| Supplemental revolving loan note | — | — | — | |||||||
| First Amended and Restated Credit Agreement | ||||||||||
| (Canadian Credit Facility) | ||||||||||
| Canadian term note | 5.25 | % | 1,946 | 4,509 | ||||||
| Canadian revolving line of credit note | — | — | — | |||||||
| Capital lease obligations | 5.09 | % | 6,284 | 399 | ||||||
| Other | — | — | 1,005 | |||||||
| 154,947 | 156,649 | |||||||||
| Less—current portion | 18,215 | 11,023 | ||||||||
| $ | 136,732 | $ | 145,626 | |||||||
Senior Subordinated Notes
Borrowings under the acquisition of Valley on August 5, 1997, as
described in Note 2, the Company borrowed $55,000, under its Second Amended and
Restated Credit Agreement ("U.S. Credit Facility"), Term note B. In July 1997,
the Company borrowed C$20,000 ($13,952 at December 31, 1997) under its First
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115
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
Amended and Restated Credit Agreement ("Canadian Credit Facility") to purchase
SportRack International, Inc.
On October 1, 1997 the Company together with its subsidiary, AAS Capital
Corporation, issued $125,000 inCompany's Series B Senior Subordinated Notes (the "Notes"). The
proceeds of the offering totaling $124,529, net of discount, were used to reduce
or repay outstanding debt including borrowings under the U.S. Credit Facility,
the Senior Subordinated Loans and the Junior Subordinated Note, and to pay costs
of the transaction totaling $4,950.
SENIOR SUBORDINATED NOTES
Borrowings under the Notes,, due October 1, 2007, are unsecured and are subordinated in right of payment to all existing and future senior indebtedness of the Company, including the loans under the U.S. and Canadian Credit Agreements described below. The Company, at its option, may redeem the Notes, in whole or in part, together with accrued and unpaid interest subsequent to
October 1, 2002 at certain redemption prices as set forth by the indenture under which the Notes have been issued. In addition, at any time the Company may
redeem up to 35% of the aggregate principal amount of the Notes with the net
cash proceeds of one or more public equity offerings at a redemption price equal
to 109.75% of the principal amount to be redeemed. Upon the occurrence of a change of control of the Company, as defined by the indenture, the Company is required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount of the notes.Notes. The indenture places certain limits on the Company, the most restrictive of which include the restrictions on the incurrence of additional indebtedness by the Company, the payment of dividends on and redemption of capital of the Company, the redemption of, certain subordinated obligations, investments, sales of assets and stock of certain subsidiaries, transactions with affiliates, consolidations, mergers and transfers of all or substantially all of the Company's assets. The indenture also requires the Company to file a
registration statement during 1998 with respect to an offer to exchange the
Notes for a series of notes of the Company with terms substantially identical to
the Notes. Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT (U.S. CREDIT FACILITY)
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Second Amended and Restated Credit Agreement
The company's Company's Second Amended and Restated Credit Agreement ("U.S. Credit Facility,Facility"), which is administratedadministered by the First
Chicago NBD Bank ("NBD")One and The Chase Manhattan Bank ("Chase"), is secured by substantially all the assets of the Company and places certain restrictions on the Company related to indebtedness, sales of assets, investments, capital expenditures, dividend payments, management fees, and members' equity transactions. In addition, the agreement subjects the Company to certain restrictive covenants, including the attainment of designated operating ratios and minimum net worth levels. The Company, at its election, may make prepayments of the term notes under the credit agreement on a pro-rata basis. A mandatory
prepayment of the term notes was made on October 1, 1997 as a result of the
issuance of the Company's Notes. Additionally, mandatory prepayments of the term notes are required in the event of sales of assets meeting certain criteria, as set forth by the agreement, or based upon periodic calculations of excess cash flows, as defined by the agreement. On December 15, 2001, the Company entered into Amendment No. 9 to the U.S. Credit Facility which reset certain financial covenants for fiscal years 2001 and 2002 and provided the Company with additional liquidity by adding a conditional supplemental revolving loan facility of up to $10.0 million which is available until March 31, 2003.
The agreementU.S. Credit Facility provides for two term notes (Term note A and Term note B), a revolving line of credit note, an acquisition note and an acquisitionsa supplemental revolving loan note. Loans under each of the term notes and the revolving notenotes can be converted, at the election of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans. Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in one, two three or sixthree months on Eurocurrency Loans, as determined by the length of the Eurocurrency Loan, as selected by the Company. Interest is charged at an adjustable rate plus the applicable margin. The applicable margin is based upon the Company's Senior DebtLeverage Ratio, as defined by the Credit Agreement. Eurocurrency Loans under each of the term notes can be made in U.S. dollars or certain other currencies, at the option of the Company. The agreementU.S. Credit Facility also provides for a Letter of Credit Facility. At December 31, 1997, no2002 and 2001, the Company had irrevocable letters of credit were outstanding.
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116
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
outstanding in the amount of $9,125 and $8,041, respectively (see Note 11).
Term note A
On October 30, 1996, the Company borrowed $65,000 under Term note A. The
applicable margin for Term note A ranges from .5% to 1.75% for Base Rate Loans
and from 1.5% to 2.75% for Eurocurrency Loans. Repayments underOn October 1, 1997, the note, after
giving effect to theCompany made a mandatory prepayment totaling $43,475 in connection with the issuance of the Notes. Mandatory prepayments of $29 and $518 were made on October 1,
1997in August 2001 and June 2000, respectively, for the excess cash flows of the Company as discussed above, are required indefined by the following installments:
Term note B
On August 5, 1997, the Company borrowed $55,000 under Term note B. TheOn October 1, 1997, the Company made a mandatory prepayment totaling $39,044 in connection with the issuance of the Notes. Mandatory prepayments of $2,299 and $833 were made in August 2002 and June 2000, respectively, for the excess cash flows of the Company as defined by the Credit Agreement. At December 31, 2002, the applicable margin for Term note B note ranges from 1.0%2.75% to 2.25%3.75% for Base Rate Loans and from 2.0% 3.50%
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to 3.25%4.50% for Eurocurrency Loans. Repayments under Term note B after giving effect to the mandatory prepayment totaling $39,044 made on October
1, 1997, as discussed above, are required in the following installments:
| March 31, 2003 through September 30, 2003 (quarterly) | $ | 73 | |
| December 31, 2003 | 2,914 | ||
| March 31, 2004 | 3,764 | ||
| June 30, 2004 | 2,592 |
Acquisition note
On December 31, 1997, the Company borrowed $21,000 under its acquisition note. The proceeds were used to acquire the assets of Ellebi on January 2, 1998. At December 31, 2002, the applicable margin for acquisition note ranges from 2.25% to 3.25% for Base Rate Loans and from 3.00% to 4.00% for Eurocurrency Loans. Repayments under the acquisition note are due in equal quarterly installments of $1,312 through September 30, 2003.
Revolving line of credit note
The Company has the ability to borrow up to $25,000 under the revolving line of credit, which expires on October 30, 2003. Available borrowings, however, are limited to a defined borrowing base amount equal to 85% of eligible domestic accounts receivablesreceivable and 80% of certain eligible foreign accounts receivables.receivable. The base borrowing amount is increased by the lesser of the sum of 50% of domestic eligible inventory and 40% to 50% of certain eligible foreign inventory or $10,000. Available borrowings are reduced by amounts outstanding under the Canadian revolving line of credit note described below.below and outstanding letters of credit. At December 31, 2002, $7,301 was available for borrowing on the note. At December 31, 2002, the applicable margin for revolving line of credit note ranges from 2.25% to 3.25% for Base Rate Loans and from 3.00% to 4.00% for Eurocurrency Loans. A commitment fee of .375%0.5% to .5%0.625% is charged on the unused balance based on the Company's Senior Leverage Ratio, as defined.
Supplemental revolving loan note
When the availability under the revolving line of credit note reaches zero, the Company has the ability to borrow up to $10,000 under the supplemental revolving loan note. Available borrowings are limited to the same borrowing base as the revolving line of credit note to the extent the borrowing base exceeds $25,000. At December 31, 1997, $20,300 was2002, $10,000 in borrowings were available underon the facility.
Acquisition revolving note
Onnote. At December 31, 1997,2002, the Company borrowed $21,000 under its $22,000
acquisition revolving note. The proceeds are included in cash at December 31,
1997 and were used to acquire the assets of the towbar segment of Ellebi S.p.A
on January 2, 1998, as discussed further in Note 12. The note is available to
the Company on a revolving credit basis until September 24, 1999 at which time
the outstanding principal balance will convert to a term loan which will
amortize in sixteen equal quarterly installments with a final maturity of
October 30, 2003. The applicable margin for the acquisitionsupplemental revolving note ranges from .5%2.25% to 1.75%3.25% for Base Rate Loans and from 1.0%3.00% to 2.75%4.00% for Eurocurrency Loans. A commitment fee of .375%0.5% to .5%0.625% is charged on the unused balance based on the Company's Senior Leverage Ratio, as defined. At December
31, 1997,A mandatory prepayment of all outstanding loans under the acquisition revolving note wasis due if the Company reports Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as defined by the agreement, of less than $32,000 on a Base Rate Loan with interest
accruingtrailing four quarter basis at the rateend of 10.25% per annum. On January 1, 1998, the Company
converted the Loan to a Eurocurrency Loan with an interest rate of 8.46%.
any fiscal quarter. The note expires on March 31, 2003.
F-15 117
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
FIRST AMENDED AND RESTATED CREDIT AGREEMENT (CANADIAN CREDIT FACILITY)
First Amended and Restated Credit Agreement
The Company's First Amended and Restated Credit Agreement ("Canadian Credit Facility"), which is administered by the NBDBank One and The Chase Manhattan Bank of Canada ("Chase Canada"), is secured by substantially all of all the assets of the Company's Canadian subsidiaries.subsidiaries and is guaranteed by the Company.
The agreementCanadian Credit Facility provides for a C$20,000 term note and a C$4,000 revolving note, (U.S. $13,952$12,662 and U.S. $2,790)$2,532, respectively at December 31, 1997, respectively.2002). Loans under each of the notes can be converted at the election of the company,Company, in whole or in part, into Floating Rate advances, U.S. Base Rate advances or LIBOR advances. Floating rate advances are denominated in Canadian dollars and bear interest at a variable rate based on the bank's prime lending rate plus a variable margin. U.S. Base Rate advances are denominated in U.S. dollars and bear interest at the bank's prime lending rate plus a variable margin. LIBOR advances are denominated in U.S. dollars and bear interest at LIBOR plus a variable margin. The variable margin is based upon the Company's Senior Debt Ratio, as defined by the agreementCanadian Credit Facility and ranges from .5%0.5% to 1.75% for Floating Rate advances and U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR advances.
Canadian term note
Repayments under the Canadian term note are required in the following installments:
| Quarterly | | ||
|---|---|---|---|
| March 31, 2003 through June 30, 2003 | $ | 650 | |
| Final installment on October 30, 2003 | 646 | ||
Canadian revolving line of credit note
A commitment fee of .5%0.5% is charged on the unused balance of the Canadian revolving line of credit note. At December 31, 1997, no additional borrowings
were available under the facility.
SENIOR SUBORDINATED LOANS
Senior Subordinated Loans
On October 30, 1996, the Company borrowed $20,000 under its Senior Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with CB
CapitalJ.P. Morgan Partners (23A SBIC), LLC, an affiliate of J.P. Morgan Partners, LLC, and International Mezzanine. The Senior Subordinated Loans were repaid in full on October 1, 1997 with the proceeds of the Notes discussed above.
Interest on the Senior Subordinated Loans was payable in arrears semiannually
and accrued at a rate of 12.5% per annum. The Senior Subordinated Loans provided
for a prepayment penalty if the Senior Subordinated Loans were paid prior to
October 30, 2002. Under this provision, a prepayment penalty totaling $1,400 was
paid in 1997 and is included in the extraordinary charge resulting from debt
extinguishment.
In connection with the issuance of the Senior Subordinated Loans, the Company issued warrants to purchase 1,002 membership units. The warrants have an exercise price of one cent per warrant, are exercisable immediately, and expire October 30, 2004. As provided in the Warrant Agreement, the warrant holder can put the warrants and membership Unitsunits acquired through the exercise of the warrants back to the Company after October 30, 2001 or upon occurrence of a
Triggering Event, as defined, but prior tobefore the earlier of October 30, 2004 orand the consummation of a Qualified Public Offering for an amount equal to Fair Market Value, as defined. Additionally, as provided in the Warrant Agreement, the Company may call the warrants and membership Unitsunits acquired through the exercise of the warrants at any time after the sixth anniversary of the Closing
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Date, but prior to the earlier of October 30, 2004 or a Qualified Public Offering for an amount equal to Fair Market Value, as defined.
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118
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED) At the date of issuance, the proceeds from the Senior Subordinated Loans were allocated between the Senior Subordinated Loans and the warrants based upon their estimated relative fair market value; accordingly, the Senior Subordinated
Loans were recorded at a discount of $3,498, which was partially amortized prior
to repayment on October 1, 1997. The remaining unamortized balance of $3,145 was
charged to 1997 operations as part of the extraordinary charge resulting from
debt extinguishment.value.
The warrants are beingwere accreted to their estimated redemption value through periodic charges against Members' Equity through the earlier of October 30, 2001 or the time redemption first becomes available. Thereafter the warrants will beare being recorded at the then estimated redemption value. The aforementioned warrants have been presented as mandatorily redeemable warrants in the accompanying balance sheets.
JUNIOR SUBORDINATED NOTE
On October 30, 1996,
Capital Leases
During 2002, the Company issuedborrowed Euro 5,702 (U.S. $5,978 as of December 31, 2002) under a 12,500 Junior Subordinated Note
("Junior Note"), denominatedEuro 6,850 ($7,183 as of December 31, 2002) 12 year lease for a new manufacturing plant in Dutch guilders, to Brink Holdings B.V.France. The remaining amount available under the lease will be borrowed by the Company in the first quarter of 2003. Repayments under the lease are due in 48 equal quarterly installments of Euro 143 (U.S. $150 as partof December 31, 2002) plus interest and commence on March 31, 2003. Interest accrues at a fixed rate of 5.21% on half of the consideration paid foroutstanding loan balance and accrues on the purchase of Brink B.V. The Junior Note was due
April 30, 2005, but was repaid in full on October 1, 1997 with the proceedsbalance of the Notes discussed above. The Junior Note accrued interestoutstanding loan balance at an adjustable rate, which is determined each quarter by reference to the three month Euribor rate plus a ratemargin of 7% per
annum, payable semi-annually in arrears.
EXTINGUISHMENT OF DEBT
1997 Extinguishments
As discussed above, on October 1, 1997 the Company repaid, in full, its
Senior Subordinated Loans and Junior Note and prepaid a portion of the term
notes under the U.S. Credit Facility. In connection with this extinguishment,
the Company recorded an extraordinary charge of $7,416, net of a tax benefit of
$365. The extinguishment charge is comprised of $1,400 prepayment penalties,
$3,145 of unamortized debt discount and $3,236 of unamoritized debt issuance
costs.
1996 Extinguishments
On October 30, 1996, the Company prepaid all amounts outstanding under a
$30,000 credit agreement and a prior $11,000 senior subordinated loan agreement.
In connection with these extinguishments, the Company recorded an extraordinary
charge of $1,970. The extinguishment charge is comprised of prepayment penalties
totaling $220, unamortized debt discount totaling $150 and debt issuance costs
of $1,600.
In connection with the issuance of the prior senior subordinated loan, the
Company issued warrants to purchase 617 membership units. The proceeds from the
issuance were allocated based on the estimated relative fair market values;
accordingly, the notes were recorded at a discount of $200. As part of the
extinguishment of the prior senior subordinated loan, the Company paid $1,600 to
redeem the warrants.
INTEREST RATE RISK0.85%.
The Company is exposedalso has entered into various other capital lease arrangements for certain machinery and equipment. These leases generally require monthly payments of principal and interest and have terms from three to interest rate volatility with regard to variable
rate debt. The Company uses interest rate swaps to reduce interest rate
volatility.five years. At December 31, 1996 and 1997,2002 the notionalpresent value of interest rate
swaps was $18,500. Under the terms of the interest rate swap agreements, the
Company pays a fixed interest rate on debt equal to the notional value. The
effects of interest rate swaps are reflected in interest expense.
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119
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
SCHEDULED MATURITIESremaining payments outstanding under these other capital leases totaled $306.
Scheduled Maturities
The aggregate scheduled annual principal payments due in each of the years ending December 31, is as follows:
| 2003 | $ | 18,215 | ||
| 2004 | 7,083 | |||
| 2005 | 662 | |||
| 2006 | 658 | |||
| 2007 | 125,599 | |||
| Thereafter | 3,013 | |||
| 155,230 | ||||
| Less—discount | (283 | ) | ||
| $ | 154,947 | |||
4. INCOME TAXESMembers' Equity
Holders of Class A Units are eligible to vote in elections of Managers of the Company and other matters as set forth in the Company's Operating Agreement and By-Laws and are convertible to
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Class A-1 Units by holders that are regulated financial institutions. Class A-1 Units are non-voting but are otherwise entitled to the identical rights as holders of Class A Units and are convertible to Class A units provided such conversion is not in violation of certain governmental regulations of the unit holder.
Holders of Class B Units are entitled to such rights as designated by the Board of Managers upon the original issuance of any Class B Units provided, however, that those rights shall not be senior to the rights of the holders of Class A units as to allocations of net profits and as to distributions without the consent of a majority in interest of Class A Members. There were no Class B Units issued as of December 31, 2002 or 2001.
Effective January 1, 2000, the Company issued 3,655 of its Class A-1 Units in exchange for an equal amount of Class A Units.
Effective November 11, 2000, the Company issued 1,478 of its Class A-1 Units in exchange for an equal amount of Class A Units.
5. Income Taxes
The Company's C corporation subsidiaries and taxable foreign subsidiaries and
the Predecessor account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Company and certain domestic subsidiaries are limited liability corporations;companies; as such, the Company's earnings are included in the taxable income of the Company's members. Income (loss) before minority interest, income taxes and the pre-tax
charge resulting from debt extinguishment were attributable to the following sources:
| | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||
| United States | $ | (15,475 | ) | $ | 6,160 | $ | 10,491 | |||
| Foreign | 8,105 | (3,164 | ) | (2,976 | ) | |||||
| $ | (7,370 | ) | $ | 3,002 | $ | 7,515 | ||||
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES -- (CONTINUED)
The provision (benefit) for income taxes including $365 of income tax
benefit allocated to the extraordinary charge in 1997, is comprised of the following:
| | Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||||
| Currently payable | |||||||||||
| United States | $ | 5 | $ | 26 | $ | — | |||||
| Foreign | 2,972 | 737 | 630 | ||||||||
| 2,977 | 763 | 630 | |||||||||
Deferred | |||||||||||
| United States | — | — | — | ||||||||
| Foreign | 1,275 | (161 | ) | (908 | ) | ||||||
| 1,275 | (161 | ) | (908 | ) | |||||||
| $ | 4,252 | $ | 602 | $ | (278 | ) | |||||
The effective tax rates differ from the U.S. federal income tax rate as follows:
| | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||
| Income tax provision (benefit) at U.S. statutory rate (35%) | $ | (2,580 | ) | $ | 1,051 | $ | 2,630 | |||
| U. S. income taxes attributable to members | 5,416 | (2,147 | ) | (3,674 | ) | |||||
| Change in valuation allowance | (2,817 | ) | 841 | (86 | ) | |||||
| Deemed forgiveness of subsidiary intercompany debt | 2,884 | — | — | |||||||
| Nondeductible foreign goodwill | 212 | 391 | 224 | |||||||
| Foreign rate differences and other, net | 1,137 | 466 | 628 | |||||||
| $ | 4,252 | $ | 602 | $ | (278 | ) | ||||
F-19 121
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities, related primarily to the Company's foreign subsidiaries, comprise the following:
| | December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | |||||
| Deferred tax assets | |||||||
| Net operating loss carryforwards of foreign subsidiaries | $ | 1,472 | $ | 6,229 | |||
| Fixed assets | 2,356 | 2,169 | |||||
| Goodwill | 541 | 452 | |||||
| Inventory | 54 | 52 | |||||
| Other | 2,260 | 2,369 | |||||
| $ | 6,683 | $ | 11,271 | ||||
Deferred tax liabilities | |||||||
| Fixed assets | (1,272 | ) | (1,565 | ) | |||
| Inventory | (849 | ) | (783 | ) | |||
| Goodwill | (192 | ) | (194 | ) | |||
| Other | (110 | ) | (243 | ) | |||
| (2,423 | ) | (2,785 | ) | ||||
| Valuation allowance | (2,799 | ) | (5,739 | ) | |||
| Net deferred tax asset | $ | 1,461 | $ | 2,747 | |||
The net operating loss carryforwards of the Company's European subsidiaries approximate $8,000$1,554 at December 31, 19972002 and have no expiration date. The net operating loss carryforwards of the Company's Canadian subsidiaries approximate $1,100$2,425 at December 31, 19972002 and expire primarily in 2004.2005 through 2008. As of December 31, 2002 and 2001, respectively, the Company recorded a valuation allowance of $2,799 and $5,739 based upon management's current assessment of the likelihood of realizing the Canadian subsidiaries' deferred tax assets. Management believes that it is more likely than not that the related deferred tax assets recorded for its other subsidiaries will be realized and no valuation allowance has been provided against such amounts as of December 31, 1997.2002. If certain substantial changes in the Company's ownership should occur, there could be an annual limit on the amount of thecertain carryforwards which can be utilized.
5. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
In connection with the acquisition of Brink B.V., the Company entered into
the Junior Note Agreement, with Brink Holdings B.V., as described in Note 3 to
the financial statements. Concurrent with this acquisition, owners of Brink
Holdings B.V. purchased 1,230 membership units of the Company for cash of $4,286
($3,485 per unit).
6. Related Party Transactions and Allocations
A portion of the Company's U.S. Credit Facility, Canadian Credit Facility and $20,000 Senior Subordinated Loans, as described in Note 3,4, is with Chase and CB Capital
Investors, Inc., respectively,Chase Canada, which are each affiliates of certain membersa member of the Company.Company, and J.P. Morgan Partners (23A SBIC), LLC, respectively.
Charges to operations related to consulting services provided to the Company by certain members of the Company aggregated approximately $70 for the
period from September 28, 1995 through December 31, 1995, $243$100, $361 and $350$406 for the years ended December 31, 19962002, 2001 and 1997,2000, respectively.
Certain employees and consultants of the Company are also membershold Class A Units of the Company.
F-20
7. Option Plan
The Predecessor was a divisionCompany uses the disclosure requirements of MascoTech, Inc. Accordingly, certain
corporate and divisional general and administrative costs were allocatedFinancial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The Company, however, elected to continue to measure compensation cost using the Predecessor from MascoTech, Inc. and certain of its subsidiaries. Allocated
costs include insurance, pensions, profit sharing, accounting and finance,
information systems and corporate overhead costs. Corporate overhead costs
relateintrinsic value method, in accordance with APB Opinion 25 ("APB 25"), "Accounting for Stock Issued to such functions asEmployees".
The Company has issued options to purchase Class A Units which are outstanding under the corporate office, executive management, investor
relations and legal. Allocated costs, other than corporate overhead, were
charged to the division generally using an effort-based approach or based on the
division's actual
F-20
122
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS AND ALLOCATIONS -- (CONTINUED)
experience or headcount, depending upon the nature of the cost. Allocated
corporate overhead costs were charged to the division based primarily on
divisional sales. Corporate overhead costs allocated to the Predecessor
aggregated approximately $1,000 for the period from January 1, 1995 through
September 27, 1995.
It was MascoTech, Inc.'s policy not to charge the Predecessor interest on
the intercompany balance.
Management believes that the methods utilized to allocate costs to the
division, as discussed above, are reasonable. However, the terms of transactions
between the division and MascoTech, Inc., including allocated costs, may differ
from those that would result from transactions with unrelated parties.
6. OPTION PLAN
At September 28, 1995, the Company adopted theCompany's 1995 Option Plan (the "Plan"). UnderAs of December 31, 2002 and 2001, the Company was authorized under the Plan certainto issue options to purchase up to 4,200 Class A Units to officers, directors and employees of the Company and its subsidiaries may be grantedsubsidiaries. At December 31, 2002, there were 184 options that remained available for grant under the Plan.
Information concerning options to purchase membership units (limited to up
to a total of 3,525 unitsClass A Units is as of December 31, 1996 and 3,903 units as of December
31, 1997). Of the options granted, 2,925 were granted in 1995, 600 were granted
in January 1996 and 378 were granted in 1997.follows:
| | 2002 | 2001 | 2000 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number of Units | Weighted Average Exercise Price | Number of Units | Weighted Average Exercise Price | Number of Units | Weighted Average Exercise Price | |||||||||
| Outstanding at January 1 | 2,264 | $ | 1,247 | 2,358 | $ | 1,417 | 2,405 | $ | 1,499 | ||||||
| Options cancelled | 5 | $ | 4,000 | 94 | $ | 5,524 | 47 | $ | 5,610 | ||||||
| Outstanding at December 31 | 2,259 | $ | 1,240 | 2,264 | $ | 1,247 | 2,358 | $ | 1,417 | ||||||
| Exercisable at December 31 | 1,563 | $ | 1,309 | 1,247 | $ | 1,282 | 1,581 | $ | 1,515 | ||||||
All options granted in 1995have terms of 15 years and vest as follows:
| Number of Units | Weighted Average Exercise Price | Vesting Period | |||
|---|---|---|---|---|---|
| 129 | $ | 3,029 | Options vest immediately. | ||
| 1,290 | $ | 1,183 | Options vest over periods, generally up to ten years, as determined by the Option Committee. Vesting may be accelerated based on the results of a Liquidity Event, as defined in the Plan, or based upon the achievement of certain operating results of the Company or its subsidiaries. | ||
| 275 | $ | 1,000 | Options vest based on the results of a Liquidity Event, as defined in the Plan. | ||
| 565 | $ | 1,080 | Options vest based upon achievement of certain operating results of the Company. | ||
The Company has elected to continue applying the January 1996provisions of APB 25 and accordingly, recognized compensation expense of $450 for the year ended December 31, 2000. No compensation expense was recognized during 2002 or 2001 as no options were granted at an exercise price of $1,000, which
equaledvested during those years. If compensation cost and the fair value of a membership unit on the date of grant. Of the options granted in 1997, 178 were granted at an exercise price of $5,610 and 200 were
granted at an exercise price of $5,000, both of which exceeded the fair value of
a membership unit on the date of grant. Of the total options granted, 275 vest
based upon the results of a Liquidity Event, as defined in the plan, and 739
vest based upon the achievement of certain operating results of the Company. The
remaining options granted under the Plan vest over periods, generally up to ten
years, as determined by the Option Committee. The vesting can be accelerated in
certain instances based on the future operating results of the Company, or the
occurrence of a Liquidity Event, as defined in the Plan. At December 31, 1996
and 1997, 480 units and 938 units, respectively, were exercisable by their
terms. There were no options available for future grant at December 31, 1997. No
options were exercised, cancelled or expired during the period from September
28, 1995 through December 31, 1995 or for the years ended December 31, 1996 and
1997.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) in accounting for stock options.
Compensation cost was $332 and $263 for the years ended December 31, 1996 and
1997, respectively. If compensation cost had been determined based upon the fair value method in
F-21
accordance with Statement of Financial Accounting Standards No.SFAS 123, "Accounting for Stock-Based Compensation", the pro forma net (loss) income (loss)
from September 28, 1995 through December 31, 1995of the Company would have been $(11,676), $2,256 and $8,047 for the years ended December 31, 19962002, 2001 and 1997 would not have been materially different than that
calculated under the provisions of APB 25. For pro forma purposes, the2000, respectively.
The fair value of each stock option grant wasoptions granted and related pro forma compensation cost were estimated using the Black-Scholes option
pricingoption-pricing model with an expected volatility of zero and the following assumptions: weighted average risk free
interest rates
| 1999 | |||
|---|---|---|---|
| Dividend yield | 0.0 | % | |
| Risk-free rate of return | 6.0 | % | |
| Expected option term (in years) | 8 |
The following table summarizes the status of 6.33%, 6.21%,the Company's options outstanding and 6.12% for the period from September 28, 1995
throughexercisable at December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively, an expected option life of eight years and no cash dividends.
7. PENSION PLAN2002:
| | Options Outstanding | | ||||
|---|---|---|---|---|---|---|
| Exercise Prices | Units | Weighted Average Remaining Contractual Life | Options Exercisable | |||
| $1,000 | 2,025 | 8 | 1,959 | |||
| $3,029 | 129 | 10 | 129 | |||
| $3,485 | 65 | 10 | 65 | |||
| $4,000 | 40 | 12 | 25 | |||
8. Pension Plans
The Company has a defined benefit pension plan covering substantially all of SportRack, LLC's domestic employees covered under a collective bargaining agreement. An employee's monthly pension benefit is determined by multiplying a defined dollar amount by the years of credited service earned. Plan assets are comprised principally of marketable equity securities and short-term investments. The Company's funding policy is to contribute annually the amounts necessary to comply with ERISA funding requirements.
F-21
123
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSION PLAN -- (CONTINUED)
F-22
The following table sets forth the change in the plan's benefit obligations and plan assets, and the funded status of the plan as of and amounts
recognized infor the Company's consolidated balance sheet atyears ended December 31, 19962002 and 1997.
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of year | $ | 3,080 | $ | 2,703 | ||||
| Benefits earned during the year | 149 | 136 | ||||||
| Interest on projected benefit obligation | 217 | 201 | ||||||
| Actuarial loss (gain) | 90 | 133 | ||||||
| Benefits paid | (93 | ) | (93 | ) | ||||
| Benefit obligation at end of year | 3,443 | 3,080 | ||||||
| Change in plan assets: | ||||||||
| Market value of assets at beginning of year | 2,610 | 2,424 | ||||||
| Actual return on plan assets | (235 | ) | (79 | ) | ||||
| Employer contributions | 196 | 358 | ||||||
| Benefits paid | (93 | ) | (93 | ) | ||||
| Market value of assets at end of year | 2,478 | 2,610 | ||||||
| Funded status | (965 | ) | (470 | ) | ||||
| Unrecognized prior service cost | 292 | 318 | ||||||
| Unrecognized net (gain) loss | 850 | 285 | ||||||
| Net amount recognized | $ | 177 | $ | 133 | ||||
| Amounts recognized in the statement of financial position consist of: | ||||||||
| Accrued benefit liability | $ | (965 | ) | $ | (470 | ) | ||
| Intangible asset | 292 | 318 | ||||||
| Accumulated other comprehensive income adjustment | 850 | 285 | ||||||
| Net amount recognized | $ | 177 | $ | 133 | ||||
| | Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||||
| Components of net periodic benefit cost: | |||||||||||
| Service cost | $ | 149 | $ | 136 | $ | 124 | |||||
| Interest cost | 217 | 201 | 182 | ||||||||
| Expected return on plan assets | (240 | ) | (232 | ) | (205 | ) | |||||
| Recognized net actuarial gain | — | — | (10 | ) | |||||||
| Amortization of prior service cost | 27 | 27 | 27 | ||||||||
| Net periodic benefit cost | $ | 153 | $ | 132 | $ | 118 | |||||
F-23
The weighted average discount rate used in determining the actuarial present value of the accumulated benefit obligation was 7.75%7.00%, 7.25%, and 7.00%7.50% at December 31, 19962002, 2001 and 1997,2000, respectively. The expected long-term rate of return on plan assets was 9.00% at December 31, 19962002, 2001 and 1997.
Net periodic pension cost for 1995 was approximately $100, of which $75 was
included in the operations of the Predecessor for the period from January 1,
1995 through September 27, 1995.2000.
The Company has various defined contribution retirement plans for its domestic and certain foreign subsidiaries, including 401(k) plans, whereby participants can contribute a portion of their salary up to certain maximums established by the related plan documents. The Company makes matching contributions, which are based upon the amounts contributed by employees. The Company's matching contributions charged to operations aggregated $130$375, $296 and $229$369 in 19962002, 2001 and 1997,2000, respectively.
Substantially all of the employees of Brink International B.V. are covered by a union-sponsored, collectively-bargained, multi-employer defined benefit plan. Pension expense was $118$1,302, $1,086 and $660$1,270 for the two-month period from November
1, 1996 through December 31, 1996 and for the yearyears ended December 31, 1997,2002, 2001 and 2000, respectively.
F-22
124
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OPERATING LEASES
9. Operating Leases
The Company leases certain equipment under leases expiring on various dates through 2004.2007. Future minimum annual lease payments required under leases that have a noncancellable lease term in excess of one year at December 31, 19972002 are as follows:
| 2003 | $ | 2,571 | |
| 2004 | 1,986 | ||
| 2005 | 1,276 | ||
| 2006 | 431 | ||
| 2007 | 13 | ||
| $ | 6,277 | ||
Rental expense charged to operations was approximately $434 for the period
from January 1, 1995 through September 27, 1995 for the Predecessor$4,399, $4,069 and $34 for
the period September 28, 1995 through December 31, 1995 and $669 and $2,252$4,066 for the years ended December 31, 19962002, 2001 and 1997, respectively for the Company.
9. ACCOUNT BALANCES2000, respectively.
F-24
10. Account Balances
Account balances included in the consolidated balance sheets are comprised of the following:
| | December 31, | March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2003 | |||||||
| | | | (Unaudited) | |||||||
| Inventories | ||||||||||
| Raw materials | $ | 14,631 | $ | 14,689 | $ | 15,618 | ||||
| Work-in-process | 9,893 | 10,323 | 12,352 | |||||||
| Finished goods | 19,068 | 17,248 | 21,314 | |||||||
| Reserves | (2,910 | ) | (2,828 | ) | (3,359 | ) | ||||
| $ | 40,682 | $ | 39,432 | $ | 45,925 | |||||
Property and equipment | ||||||||||
| Land, buildings and improvements | $ | 26,570 | $ | 23,138 | ||||||
| Land, buildings and improvements under capital leases | 7,183 | — | ||||||||
| Furniture, fixtures and computer hardware | 15,497 | 11,582 | ||||||||
| Machinery, equipment and tooling | 65,468 | 57,994 | ||||||||
| Machinery and equipment under capital leases | 409 | 409 | ||||||||
| Construction-in-progress | 1,557 | 2,262 | ||||||||
| 116,684 | 95,385 | |||||||||
| Less—accumulated depreciation | (56,112 | ) | (40,981 | ) | ||||||
| $ | 60,572 | $ | 54,404 | |||||||
Accrued liabilities | ||||||||||
| Compensation and benefits | $ | 15,387 | $ | 13,594 | ||||||
| Interest | 3,078 | 2,983 | ||||||||
| Other | 12,297 | 6,976 | ||||||||
| $ | 30,762 | $ | 23,553 | |||||||
11. Commitments and Contingencies
In February 1996, the Company commenced an action against certain individuals alleging breach of contract under the terms of an October 1992 Purchase Agreement and Employment Agreements with the predecessor of the Company. The individuals then filed a separate lawsuit against the Company alleging breach of contract under the respective Purchase and Employment agreements. On May 7, 1999 a jury in the United States District Court for the Eastern District of Michigan reached a verdict against the Company and awarded the individuals approximately $3,800 plus interest and reasonable attorney fees. The Company is currently pursuing an appeal in the Sixth Circuit Court of Appeals. During 2002 and 2001, the Company increased its estimated accrual for this matter by $600 and $600, respectively, representing accrued interest for the year which charge is included in interest expense. At December 31, 2002, the Company had an outstanding irrevocable letter of credit totaling $8,325 benefiting the individuals. No amounts have been paid as of December 31, 2002.
F-25
The Company offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. The majority of the Company's product warranties are customer specific. A typical warranty program requires that the Company replace defective products within a specified time period from the date of sale. The Company records and estimate for future warranty related costs based on actual historical return rates. The Company has not experienced significant costs related to its warranties.
In early July 2002, three European automotive OEM customers of Brink Sweden recalled in total approximately 41,000 towbars which were supplied by the Company. The recall affects vehicles fitted with the G 3.0 model removable towbar system sold between January 1999 and March 2000. The Company is in the process of working with its customers to provide technical and other support in response to the recall. During the fourth quarter of 2002, based upon information gathered concerning the costs of the recall and from discussions with its customers during the fourth quarter, management estimated and recorded an expense of approximately $3,000 for the recall. The expense is included in selling, administrative and product development expenses. At December 31, 2002 the unpaid liability for the recall totaling $2,854 was included in accrued liabilities.
In addition to the above, the Company is party to various claims, lawsuits and administrative proceedings related to matters arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
11. SEGMENT INFORMATION
12. Segment Information
The Company operates in one industryreportable segment, providing towing and allrack systems and related accessories to the automotive OEM and aftermarket. All sales are to unaffiliated customers. Revenues by geographic area, accumulated by the countrygeographic area where the revenue originated, revenues by
F-26
product line and long-lived assets, which include net property and equipment and net goodwill and debt issuance costs, by geographic area are as follows:
| | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||
| Revenues | ||||||||||
| United States | $ | 231,133 | $ | 223,662 | $ | 222,159 | ||||
| The Netherlands | 35,177 | 31,768 | 32,344 | |||||||
| Italy | 16,437 | 15,788 | 15,725 | |||||||
| Other foreign | 47,035 | 42,817 | 48,589 | |||||||
| $ | 329,782 | $ | 314,035 | $ | 318,817 | |||||
| | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||
| Revenues | ||||||||||
| Towing systems | $ | 175,348 | $ | 173,327 | $ | 186,753 | ||||
| Rack systems | 154,434 | 140,708 | 132,064 | |||||||
| $ | 329,782 | $ | 314,035 | $ | 318,817 | |||||
| | Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||
| Long-lived assets | ||||||||||
| United States | $ | 62,489 | $ | 93,068 | $ | 96,201 | ||||
| The Netherlands | 24,978 | 22,326 | 24,197 | |||||||
| Italy | 4,214 | 4,705 | 6,280 | |||||||
| Other foreign | 19,834 | 12,384 | 13,975 | |||||||
| $ | 111,515 | $ | 132,483 | $ | 140,653 | |||||
The Netherlands............................... -- -- 2,791 36,268
Other foreign................................. -- -- 4,780 30,116
------- ------- -------- --------
$48,698 $16,299 $ 81,466 $188,678
======= ======= ======== ========
Although the estimated fair market valueCompany is directly affected by the economic well being of the net assets acquired was
approximately $3,250. The acquisition was financed primarily through the
Company's Acquisition revolving note.
In February 1998,industries and customers referred to above, management does not believe significant credit risk exists at December 31, 2002. Consistent with industry practice, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. for an aggregate purchase price
of approximately $1,100, including estimated costs of the transaction.
Transfo-Rakzs is a designer, manufacturer and distributor of rear hitch rack
carrying systems and related productsdoes not require collateral to Canada and the U.S. The acquisition
will be accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the estimated fair market value of the net assets
acquired was approximately $900.
F-24
126
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reduce such credit risk.
F-27
13. CONDENSED CONSOLIDATING INFORMATION
The Notes have been issued byCondensed Consolidating Information
On October 1, 1997, the Company and its wholly-owned subsidiary, AAS Capital Corporation, issued and sold $125,000 of its 93/4% Senior Subordinated Notes due 2007. The Notes are guaranteed jointlyon a full, unconditional and severally,joint and several basis, by all of the Company's direct and indirect wholly-owned domestic subsidiaries. The following condensed consolidating financial information for 19972002, 2001 and 2000 presents the financial position, results of operations and cash flows of (i) the Company as parent, together withas if it accounted for its subsidiaries on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries which are domestic, subsidiaries;wholly-owned subsidiaries and (ii)include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries as non-guarantorand include Brink International B.V. and its subsidiaries, SportRack Accessories, Inc. and its subsidiary, and SportRack Automotive, GmbH and its subsidiaries. The financial position and operating results of the guarantor and non-guarantor subsidiaries do not include any allocationmanagement fees of overhead or similar charges except that certain
foreign subsidiaries are charged interest on their intercompany debt balance.
The Company acquired Brink, a non-guarantor subsidiary, on October 30, 1996.
Consolidated results of operations for 1996 include Brink for the two months
ended December 31, 1996$1,407 and reflect Brink's net sales of $7,571 and a net loss
of $1,353. At December 31, 1996, Brink's total assets were $86,285. Other than
Brink, the Company had no non-guarantor subsidiaries during 1996, and had no
non-guarantor subsidiaries as of and for the period ended December 31, 1995.
F-25
127
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
PARENT AND
GUARANTOR NON-GUARANTOR ELIMINATIONS/
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
Current assets
Cash............................................ $ 2,217 $ 25,131 $ -- $ 27,348
Accounts receivable............................. 31,649 11,874 -- 43,523
Inventories..................................... 14,835 19,573 -- 34,408
Other current assets............................ 4,912 1,557 -- 6,469
-------- -------- -------- --------
Total current assets....................... 53,613 58,135 -- 111,748
-------- -------- -------- --------
Property and equipment, net....................... 28,009 27,919 -- 55,928
Goodwill, net..................................... 62,576 23,313 -- 85,889
Intangible assets, net............................ 6,280 1,315 -- 7,595
Deferred income taxes and other noncurrent
assets.......................................... 384 3,939 -- 4,323
Investment in subsidiaries........................ 9,955 -- (9,955) --
Intercompany notes receivable..................... 25,838 -- (25,838) --
-------- -------- -------- --------
Total Assets............................... $186,655 $114,621 $(35,793) $265,483
======== ======== ======== ========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities
Current maturities of long-term debt............ $ -- $ 3,746 $ -- $ 3,746
Accounts payable................................ 19,053 4,426 -- 23,479
Accrued liabilities and deferred income taxes... 11,382 8,766 -- 20,148
-------- -------- -------- --------
Total current liabilities.................. 30,435 16,938 -- 47,373
-------- -------- -------- --------
Deferred income taxes and other non current
liabilities..................................... 1,318 3,461 -- 4,779
Long-term debt, less current maturities........... 126,436 66,944 -- 193,380
Intercompany debt................................. -- 25,838 (25,838) --
Mandatorily redeemable warrants................... 3,507 -- -- 3,507
Minority interest................................. 251 -- -- 251
Members' equity................................... 24,708 1,440 (9,955) 16,193
-------- -------- -------- --------
Total liabilities and members' equity...... $186,655 $114,621 $(35,793) $265,483
======== ======== ======== ========
F-26
128
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
PARENT AND
GUARANTOR NON-GUARANTOR ELIMINATIONS/
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales.................................... $122,294 $66,384 $ -- $188,678
Cost of sales................................ 89,647 45,909 -- 135,556
-------- ------- ------- --------
Gross profit............................... 32,647 20,475 -- 53,122
Selling, administrative and product
development expenses....................... 15,406 15,944 -- 31,350
Amortization of intangible assets............ 1,624 712 -- 2,336
-------- ------- ------- --------
Operating income........................... 15,617 3,819 -- 19,436
Interest expense............................. 7,108 5,519 -- 12,627
Foreign currency (gain) loss................. (1,041) 7,138 -- 6,097
-------- ------- ------- --------
Income (loss) before minority interest and
income taxes............................... 9,550 (8,838) -- 712
Provision (benefit) for income taxes......... -- (2,856) -- (2,856)
-------- ------- ------- --------
Income (loss) before minority interest..... 9,550 (5,982) -- 3,568
Minority interest............................ 97 -- -- 97
Extraordinary charge resulting from debt
extinguishment............................. 6,678 738 -- 7,416
-------- ------- ------- --------
Net income (loss)............................ $ 2,775 $(6,720) $ -- $ (3,945)
======== ======= ======= ========
F-27
129
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
PARENT AND
GUARANTOR NON-GUARANTOR ELIMINATIONS/
SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
Net cash provided by (used in) operating
activities................................. $ 8,614 $ (1,632) $ -- $ (6,982)
-------- -------- ------- ---------
Cash flows from investing activities:
Acquisition of machinery and equipment..... (6,005) (1,746) -- (7,751)
Amount due from sellors of Valley
Industries, Inc......................... (1,150) -- -- (1,150)
Acquisition of subsidiaries, net of cash
acquired................................ (56,478) (14,354) -- (70,832)
-------- -------- ------- ---------
Net cash used for investing activities....... (63,633) (16,100) -- (79,733)
-------- -------- ------- ---------
Cash flows from financing activities
Change in intercompany debt................ (23,559) 23,559 -- --
Proceeds from issuance of debt............. 179,529 35,521 -- 215,050
Increase (decrease) in revolving loan...... (2,400) 2,904 -- 504
Repayment of debt.......................... (91,199) (22,049) -- (113,248)
Debt issuance costs........................ (7,280) -- -- (7,280)
Issuance of membership units............... 4,999 -- -- 4,999
Distributions to members................... (2,945) -- -- (2,945)
-------- -------- ------- ---------
Net cash provided by financing activities.... 57,145 39,935 -- 97,080
-------- -------- ------- ---------
Effect of exchange rate changes.............. -- 505 -- 505
Net increase (decrease) in cash.............. 2,126 22,708 -- 24,834
Cash at beginning of period.................. 91 2,423 -- 2,514
-------- -------- ------- ---------
Cash at end of period........................ $ 2,217 $ 25,131 $ -- $ 27,348
======== ======== ======= =========
F-28
130
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Brink B.V.:
We have audited the accompanying consolidated balance sheets of Brink B.V.
as of October 31, 1996 and December 31, 1995, and the related statements of
consolidated income and cash flows for the ten month period ended October 31,
1996 and the year ended December 31, 1995. 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. The financial
statements have been prepared in accordance with accounting principles generally
accepted in The Netherlands.
We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands, which are substantially similar to those followed
in the United States. These 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, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brink B.V. at
October 31, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for the ten month period ended October 31, 1996
and the year ended December 31, 1995 in conformity with accounting principles
generally accepted in The Netherlands.
Accounting principles generally accepted in The Netherlands vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net income
for the ten months ended October 31, 1996 and the year ended December 31, 1995
and the shareholders' equity as of October 31, 1996 and December 31, 1995 to the
extent summarized in Note 1.7 to the consolidated financial statements.
Coopers & Lybrand N.V.
Zwolle, The Netherlands
September 4, 1997
F-29
131
BRINK B.V.
1.1 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND OCTOBER 31, 1996
(AFTER PROFIT APPROPRIATION)
DECEMBER 31, 1995 OCTOBER 31, 1996
--------------------- ---------------------
NLG 1,000 NLG 1,000 NLG 1,000 NLG 1,000
FIXED ASSETS
Tangible fixed assets............................... 30,099 30,662
Financial fixed assets.............................. 141 --
------ ------
30,240 30,662
CURRENT ASSETS
Stocks.............................................. 29,233 25,087
Accounts receivable................................. 14,532 22,107
Cash on hand and at bank............................ 657 3,517
------ ------
44,422 50,711
------ ------
Total assets...................................... 74,662 81,373
------ ------
GROUP EQUITY........................................ 28,039 33,294
DEFERRED INVESTMENT GRANTS.......................... 1,335 1,334
PROVISIONS.......................................... 3,056 3,395
LONG-TERM LIABILITIES............................... 18,487 20,118
CURRENT LIABILITIES................................. 23,745 23,232
------ ------
74,662 81,373
------ ------
1.2 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE TEN MONTHS ENDED OCTOBER 31, 1996
FOR THE TEN MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, 1995 OCTOBER 31, 1996
--------------------- ---------------------
NLG 1,000 NLG 1,000 NLG 1,000 NLG 1,000
NET TURNOVER........................................ 102,527 98,393
Costs of raw materials and supplies................. 38,031 36,872
Work contracted out and other external costs........ 4,695 5,082
Personnel expenses.................................. 29,346 28,088
Depreciation........................................ 5,321 4,363
Other operating expenses............................ 13,288 14,090
------ ------
TOTAL OF OPERATING EXPENSES......................... 90,681 88,495
------ ------
OPERATING RESULT.................................... 11,846 9,898
Interest income..................................... 44 17
Interest expense.................................... (2,782) (1,788)
------ ------
Financial income and expense........................ (2,738) (1,771)
------ ------
Result from ordinary activities before income tax... 9,108 8,127
Income tax.......................................... 3,292 2,871
------ ------
GROUP RESULT........................................ 5,816 5,256
------ ------
F-30
132
BRINK B.V. -- (CONTINUED)
1.3 CONSOLIDATED CASH FLOWS STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE TEN MONTHS ENDED OCTOBER 31, 1996
FOR THE TEN MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, 1995 OCTOBER 31, 1996
--------------------- ---------------------
NLG 1,000 NLG 1,000 NLG 1,000 NLG 1,000
CASH FLOWS FROM OPERATING ACTIVITIES
Net result.......................................... 5,816 5,256
Depreciation........................................ 5,425 4,394
------ ------
11,241 9,650
Changes in:
Stocks............................................ (4,276) 4,146
Accounts receivable............................... (2,864) (7,575)
Current liabilities............................... 688 2,669
Provisions and other changes...................... 580 337
------ ------
(5,872) (423)
------ ------
Cash flows from operating activities................ 5,369 9,227
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to tangible fixed assets.............. 2,977 4,957
------ ------
Cash flows from investing activities................ (2,977) (4,957)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in loans..................................... (2,169) 1,631
Change in credit institutions....................... (1,711) (3,182)
Change in financial assets.......................... -- 141
------ ------
Cash flows from financing activities................ (3,880) (1,410)
------ ------
Total cash flows.................................... (1,488) 2,860
Cash on hand and at bank January 1.................. 2,145 657
------ ------
CASH ON HAND AND AT BANK AT END OF PERIOD........... 657 3,517
------ ------
1.4 GENERAL NOTES
1.4.1 General
Activities
The activities of Brink B.V. and its subsidiaries mainly comprise the
development, manufacture and sale of towbars and accessories.
Group structure
Brink B.V. forms part of the Brink Group. The ultimate parent company of
the group is Brink Holding B.V. As of November 1, 1996 Brink Holding B.V. sold
the shares in Brink B.V. to Advanced Accessory Systems, LLC, (formerly AAS
Holdings, LLC), in the United States of America. Advanced Accessory Systems, LLC
subsequently established Brink International B.V. in The Netherlands. The shares
of Brink B.V. have been transferred from Advanced Accessory Systems, LLC to
Brink International B.V. in December 1996. At that time, Brink B.V. transferred
the shares of its foreign subsidiaries to Brink International B.V.
F-31
133
BRINK B.V. -- (CONTINUED)
The consolidated financial statements$320, respectively, for the year ended December 31, 19952002, $1,416 and for the ten month period ended October 31, 1996 comprise the financial
information of Brink B.V. and the following wholly-owned subsidiaries:
- - Brink Trekhaken B.V. Hoogeveen, The Netherlands
- - Nordisk Komponent Holding A/S Naestved, Denmark
- - Brink A/S Naestved, Denmark
- - Brink UK Ltd. Nuneaton, England
- - Brink Sverige AB Vanersborg, Sweden
- - Brink France Sarl Paris, France
- - SCI l'Elmontaise Aiglemont, France
- - Societe de Fabrication
d'Equipements
et d'Accessoires SA (SFEA) Betheny, France
The information stated in the financial statements of the consolidated
investments are included for 100% in the consolidation.
Outstanding intercompany accounts between group companies, as well as
intercompany supplies and other costs charged between group companies have been
eliminated in the consolidation. Profits on intercompany supplies which have not
yet been delivered to third parties are eliminated in the consolidation.
1.4.2 Accounting principles and determination of result
Comparison with the previous year
The accounting principles and determination of result remained unchanged
compared with the previous year.
General
Assets and liabilities are carried at face value, unless indicated
otherwise. If deemed necessary, a provision is deducted from accounts
receivable.
Foreign currency translation
a. Transactions in foreign currencies
Assets and liabilities denominated in foreign currencies are
translated at the rate of exchange prevailing on the balance sheet
date.
The resulting translation differences are included in the profit and
loss account, except for those on long-term loans, which relate to
the financing of foreign investments.
The exchange differences on these loans are directly added to or
charged against equity.
Transactions in foreign currencies during the reporting period have
been processed in the financial statements at the rate at transaction
date.
b. Investments in group companies
The financial statements denominated in foreign currencies are
translated at the rates prevailing on the balance sheet date.
The exchange difference on the opening balance of investments and the
changes during the year are directly added to or charged against
shareholders' equity.
F-32
134
BRINK B.V. -- (CONTINUED)
Tangible fixed assets
Valuation occurs at historical cost less depreciation, being a fixed
percentage of cost in accordance with the estimated useful life. The
depreciation period commences at the moment the asset is put into use.
In connection with the acquisition of Brink B.V. by Advanced Accessory
Systems, LLC, the fair value of the tangible fixed assets of Brink B.V. and its
subsidiaries was required to be determined. The fair value of such assets at
November 1997 was approximately NLG 50,000.
Stocks
Stocks consist of raw materials and supplies, work in progress and finished
goods and trade goods.
- Raw materials and supplies are valued at purchase prices.
- Work in progress is valued at the processed raw materials and
supplies, direct labor costs incurred as well as an uplift for
indirect manufacturing costs.
- Installments invoiced to customers are deducted from work in progress.
- Foreseeable losses are provided for and deducted from work in
progress.
- Finished goods and trade goods are valued at manufacturing cost
(direct costs of materials and labor, with an uplift for indirect
costs) and the last known purchase price respectively.
A provision is included for possible obsolescence.
Deferred investment grants
The rights to investment grants are recognized in the year in which they
arise as deferred income. The grants are amortized in the result over the
depreciation period of the assets concerned.
PROVISIONS
Deferred tax liabilities:
This concerns liabilities resulting from the differences in valuation of
assets and liabilities for the financial statements and those for tax purposes.
They are included at nominal value, based on the prevailing tax rate in the
countries concerned.
Deferred tax debits are carried if it can reasonably be assumed that
realization will take place in due course.
Long-term liabilities
Long-term liabilities are debts with a remaining term of more than one
year.
Determination of result
The result represents the difference between the proceeds from goods
supplied or services rendered and the costs and other charges for the year.
Results on transactions are recognized in the year in which they are
realized; losses are taken when foreseeable.
F-33
135
BRINK B.V. -- (CONTINUED)
Depreciation takes place according to the straight-line method on the basis
of the estimated useful lives.
a. Net turnover
Net turnover represents the amounts charged to third parties for the
goods, supplies and services rendered less discounts and excluding
VAT, as well as the changes in the added value in the stock of work
in progress and of finished goods.
b. Costs of raw materials and supplies
Costs of raw materials and supplies represent the use of raw
materials and supplies in the production by the manufacturing
companies.
c. Work contracted out and other external costs
Costs of work contracted out and other external costs represent the
costs, except for the use of raw materials and supplies, that can
directly be allocated to the manufactured goods and services rendered
in the current financial year.
d. Other operating expenses
Costs are allocated to the reporting year to which they relate.
e. Taxation
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the
financial statements or tax returns, and are determined annually
based on the difference between financial statement and tax bases
using enacted tax laws and rates in effect for the year in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. The provision for
taxes on income is the tax payable for the year plus the change in
deferred tax assets and liabilities during the year.
1.5 NOTES TO THE CONSOLIDATED BALANCE SHEET
1.5.1 Tangible fixed assets
The changes in tangible fixed assets can be summarized as follows (x NLG
1,000):
1995 1996
---- ----
BALANCE JANUARY 1
Cost..................................................... 60,999 62,847
Cumulative depreciation.................................. (28,452) (32,748)
-------- --------
Book value............................................... 32,547 30,099
-------- --------
CHANGE IN BOOK VALUE
Additions................................................ 4,245 5,120
Disposals................................................ (1,100) (550)
Depreciation............................................. (5,425) (4,394)
Exchange rate adjustments................................ (168) 387
-------- --------
(2,448) 563
-------- --------
BALANCE DECEMBER 31, 1995/OCTOBER 31, 1996
Cost..................................................... 62,847 67,804
Cumulative depreciation.................................. (32,748) (37,142)
-------- --------
Book value............................................... 30,099 30,662
-------- --------
F-34
136
BRINK B.V. -- (CONTINUED)
Tangible fixed assets can be specified by category as follows:
DECEMBER 31, OCTOBER 31, DEPRECIATION
1995 1996 RATES
------------ ----------- ------------
Land and buildings.......................... 20,069 19,892 0-10%
Machinery and equipment..................... 9,750 7,564 20-25%
Other....................................... 280 3,206 20-50%
------ ------
30,099 30,662
------ ------
Tangible fixed assets also include the investment commitments of NLG
237,000 (1995: NLG 203,000).
Tangible fixed assets contain land and buildings, machinery and equipment
with a book value of NLG 1,550,000 (1995: NLG 510,000), financed by means of
financial lease. The lease commitments for the buildings run until 2000, after
which year the buildings will be in the group's ownership.
1.5.2 Stocks
The stocks of raw materials and supplies, work in progress, finished goods
and trade goods within the group can be detailed as follows (x NLG 1,000):
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
Towbars and accessories................................ 29,156 24,749
Other stock............................................ 77 338
------ ------
29,233 25,087
------ ------
On account of article 410 sub 2, Book 2 of the Dutch Civil Code, Title 9,
stocks are not broken down.
1.5.3 Accounts receivable
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
Trade debtors.......................................... 12,752 18,334
Group companies........................................ 6 --
Taxes and social security premiums..................... 974 274
Other debtors, prepayments and accrued income.......... 800 3,499
------ ------
14,532 22,107
------ ------
1.5.4 Group equity; shareholders' equity
a. Issued and paid-up capital
The authorized capital amounts to NLG 50,000. The issued and paid-up
capital at October 31, 1996 amounts to NLG 50,000, consisting of 200
shares of NLG 250 nominal each. There were no changes during the ten
month period ended October 30, 1996.
b. Share premium reserve
This concerns the share premium received upon the share issue in
1985. No changes took place during the ten months' period ended
October 31, 1996.
F-35
137
BRINK B.V. -- (CONTINUED)
c. Legal reserve
A statutory reserve has been formed for income from investments, the
payment of which income cannot be realized without restriction. At
October 31, 1996, this reserve amounted to NLG 0 (1995: NLG 450,000).
d. Other reserves
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
Balance as of January 1................................ 21,824 28,039
Profit appropriation................................... 5,816 5,256
Equity movement investment............................. 359 --
Exchange rate adjustments.............................. 40 (1)
------ ------
Balance at end of period............................... 28,039 33,294
------ ------
1.5.5 Deferred investment grants
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
Balance as of January 1................................ 1,082 1,335
Exchange rate adjustments.............................. (18) 30
Received grants to be offset........................... 375 --
Release to the result.................................. (104) (31)
----- -----
Balance at end of period............................... 1,335 1,334
----- -----
1.5.6 Provisions
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
Deferred tax liabilities............................... 3,056 3,395
----- -----
The provisions are mainly of a long-term nature.
1.5.7 Long-term liabilities
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
Medium-term credits.................................... 4,710 --
Mortgage loan.......................................... 2,069 --
Roll-over loan......................................... 2,300 --
Private loan credit institution........................ 4,309 --
Loan from parent....................................... 4,400 19,588
Lease commitments...................................... 699 530
------ ------
18,487 20,118
------ ------
Redemption liabilities due within 12 months after year end have not been
included in the above amounts but are accounted for under current liabilities.
F-36
138
BRINK B.V. -- (CONTINUED)
Foreign currencies
a. Medium-term credits have been raised in Dutch guilders. The other
long-term liabilities have been raised in the local currencies, being
DKK, GBP and FFR.
b. The medium-term credits were raised with credit institutions; the
interest rate ranges from 8.75% to 9.5%. As collateral for the loans
granted, the real estate in The Netherlands has been mortgaged up to
an amount of NLG 13.5 million.
c. The mortgage loan concerns a loan denominated in DKK at a 7% interest
rate. As collateral for the credit granted, the real estate in
Denmark has been mortgaged up to an amount of DKK 7.5 million (NLG
2.2 million).
d. The roll-over loan concerns a loan originally amounting to GBP 1.5
million. As collateral, a credit guarantee of Brink B.V. has been
given and a negative pledge regarding the assets of Brink UK Ltd. The
interest on the loan is 6.9375%.
e. The private loan of the credit institution concerns a loan for an
amount of FFR 14.5 million. No redemption commitments or securities
have been agreed. The interest rate is 7.25%.
f. This concerns a loan from Advanced Accessory Systems LLC at an
average interest rate of 6.5%. No redemption schedules or securities
have been agreed.
g. Lease commitments: this concerns the capitalized financial lease
agreements, denominated in FFR. The assets concerned have been given
as collateral for the lease commitments.
1.5.8 Current liabilities
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
Redemptions on long-term loans......................... 2,230 175
Credit institutions.................................... 4,187 1,005
Creditors.............................................. 8,962 12,271
Group companies........................................ 1,075 --
Income tax............................................. 177 297
Other taxes and social premiums........................ 2,805 2
Other debts, accruals and deferred income.............. 4,309 9,482
------ ------
23,745 23,232
------ ------
In addition to the securities given for credits received, recognized under
long-term liabilities, a chattel mortgage has been given to credit institutions
by the Swedish subsidiary.
1.5.9 Contingent liabilities
Liability
The company and its Dutch subsidiary are severally liable for each other's
total commitments vis-a-vis the Dutch credit institution.
Lease commitments
The annual amount of lease commitments entered into with third parties
totals approximately NLG 2,400,000.
The operating lease commitments have a term of two to four years.
F-37
139
BRINK B.V. -- (CONTINUED)
1.6 NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
1.6.1 Net turnover
The turnover can be broken down into geographical area as follows (x NLG
1,000):
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
The Netherlands....................................... 31,750 22,816
Foreign countries..................................... 70,777 75,577
------- ------
102,527 98,393
------- ------
1.6.2 Personnel expenses (x NLG 1,000)
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
Wages and salaries.................................... 24,635 23,838
Social charges........................................ 4,316 3,920
Pension charges....................................... 1,204 1,067
------ ------
30,155 28,825
Charged on by maintenance service..................... (809) (737)
------ ------
29,346 28,088
------ ------
Pension Plan
Approximately 98% of the Company's employees are covered by a union
sponsored collective bargaining, multiemployer defined benefit pension plan.
1.6.3 Employees
During the year, the group employed on average 563 persons (1995: 551),
spread over geographical areas as follows:
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
The Netherlands....................................... 293 277
Other European countries.............................. 258 286
--- ---
551 563
--- ---
F-38
140
BRINK B.V. -- (CONTINUED)
1.6.4 Depreciation (x NLG 1,000)
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
Buildings............................................. 726 629
Plant, machinery and equipment........................ 4,498 3,375
Other fixed assets.................................... 201 390
----- -----
5,425 4,394
Release of investment grants.......................... (104) (31)
----- -----
5,321 4,363
----- -----
1.6.5 Income taxes (x NLG 1,000)
The income tax for the period ended October 31, 1996 consists of the
following:
Deferred taxes.............................................. 339
Current taxes............................................... 2,532
-----
2,871
-----
1.7 SUMMARY OF DIFFERENCES BETWEEN DUTCH AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Brink's consolidated financial statements have been prepared in accordance
with Dutch GAAP which differs in certain significant respects from U.S. GAAP.
These differences relate principally to the following items, and the effect of
the adjustments to group result and group equity which would be required under
U.S. GAAP are set out in the tables below.
1.7.1 Purchase accounting
Under Dutch GAAP, goodwill arising upon acquisition represents the
difference between the book value of assets acquired and consideration paid, and
is immediately written off against reserves. Under U.S. GAAP, goodwill
represents the difference between fair value of assets acquired and
consideration paid. Resulting goodwill is held as an intangible asset in the
balance sheet and amortized over its estimated useful life, not to exceed 40
years.
Group Result
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
NLG 1,000 NLG 1,000
Group result reported under Dutch GAAP................ 5,816 5,256
----- -----
U.S. GAAP adjustments
Depreciation........................................ (361) (301)
Amortization of goodwill............................ (262) (218)
----- -----
Pre-tax effect of U.S. GAAP adjustments............... (623) (519)
Tax effect of U.S. GAAP adjustments................... 125 105
----- -----
Net effect of U.S. GAAP adjustments................... (498) (414)
----- -----
Group result under U.S. GAAP.......................... 5,318 4,842
----- -----
F-39
141
BRINK B.V. -- (CONTINUED)
Group equity
YEAR TEN MONTHS
ENDED ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
Group equity under Dutch GAAP.......................... 28,039 33,294
------ ------
U.S. GAAP adjustments:
Goodwill............................................. 3,929 3,929
Accumulated amortization............................. (262) (480)
Fixed assets......................................... 2,563 2,563
Accumulated depreciation............................. (805) (1,106)
Deferred tax......................................... (611) (506)
------ ------
Net U.S. GAAP adjustments......................... 4,814 4,400
------ ------
Group equity under U.S. GAAP........................... 32,853 37,694
------ ------
2 OTHER INFORMATION
2.1 REPORT OF INDEPENDENT ACCOUNTANTS
The report of the independent accountants is enclosed on page F-29 of this
report.
2.2 PROVISIONS IN THE ARTICLES OF ASSOCIATION RE PROFIT APPROPRIATION
Article 19
The profit available for distribution is at the disposal of the general
meeting of shareholders. The general meeting of shareholders can allocate this
profit in full or in part to the (general) reserves or other reserves, for the
payment of bonuses and/or distribution of dividend.
The company is only allowed to make payments to shareholders and other
persons entitled to the profit available for distribution, insofar as the
shareholders' equity exceeds the paid-up and called-in capital increased by the
statutory reserves.
2.3 PROPOSED PROFIT APPROPRIATION
It is proposed to the general meeting of shareholders that the profit for
the period January 1 - October 31, 1996 of NLG 5,256 be added to the other
reserves.
In anticipation of the approval of the general meeting of shareholders,
this proposal has already been processed in the financial statements.
2.4 EVENTS OCCURRED AFTER BALANCE SHEET DATE
In August 1997, the Company executed a nonbinding letter of intent to
acquire a manufacturer of towing systems.
F-40
142
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Valley Industries, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations and shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Valley Industries, Inc. at August
5, 1997 and the results of its operations and its cash flows for the period then
ended in conformity with generally accepted accounting principles. Those
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 7, on August 5, 1997, Valley Industries, Inc. sold
certain net operating assets to Advanced Accessory Systems, LLC. The
accompanying financial statements do not give effect to this transaction.
Price Waterhouse LLP
Bloomfield Hills, Michigan
December 5, 1997
F-41
143
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Valley Industries, Inc.
We have audited the accompanying balance sheets of Valley Industries, Inc.
as of December 31, 1995 and December 28, 1996, and the related statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Valley Industries, Inc. at
December 31, 1995, and December 28, 1996, and the results of its operations and
its cash flows for each of the two years in the period ended December 28, 1996,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Sacramento, California
March 10, 1997
F-42
144
VALLEY INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash..................................................... $ 6 $ 34 $ 2,328
Accounts and notes receivable, less allowance of $216,
$288 and $246, respectively........................... 8,271 13,304 12,673
Receivable from shareholders............................. -- -- 93
Inventories:
Raw materials......................................... 5,904 5,007 5,599
Work in progress...................................... 1,382 2,463 1,965
Finished products..................................... 4,145 4,038 4,823
------- ------- -------
11,431 11,508 12,387
Less LIFO reserve..................................... 853 706 706
------- ------- -------
10,578 10,802 11,681
Prepaid expenses and other current assets................ 753 849 1,151
------- ------- -------
Total current assets................................ 19,608 24,989 27,926
Property, plant and equipment:
Land..................................................... 428 428 428
Buildings and improvements............................... 2,470 2,588 2,596
Machinery and equipment.................................. 8,396 10,245 11,218
Furniture and office equipment........................... 1,777 2,221 2,654
Construction in progress................................. 1,477 701 901
------- ------- -------
14,548 16,183 17,797
Less accumulated depreciation and amortization........... 7,690 8,707 9,300
------- ------- -------
6,858 7,476 8,497
Other assets............................................... 638 621 871
------- ------- -------
$27,104 $33,086 $37,294
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank..................................... $ 6,815 $ 8,709 $13,721
Accounts payable......................................... 8,494 9,996 11,952
Accrued compensation..................................... 447 1,174 959
Other accrued liabilities................................ 701 749 860
Current portion of long-term debt........................ 691 777 692
------- ------- -------
Total current liabilities........................... 17,148 21,405 28,184
Long-term debt............................................. 2,523 1,500 1,480
Note payable to shareholder................................ 5,046 5,046 5,046
Commitments (Note 6)
Shareholders' equity:
Common stock, no par value; 1,000 shares authorized, 555
shares issued and outstanding......................... 443 443 --
Class A voting common stock, no par value; 2,775 shares
authorized, issued and outstanding.................... -- -- 22
Class B non-voting common stock, no par value; 52,725
shares authorized, issued and outstanding............. -- -- 421
Shareholder note receivable................................ (200) (117) --
Retained earnings.......................................... 2,144 4,809 2,141
------- ------- -------
Total shareholders' equity.......................... 2,387 5,135 2,584
------- ------- -------
$27,104 $33,086 $37,294
======= ======= =======
See accompanying notes to the financial statements.
F-43
145
VALLEY INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
YEAR ENDED YEAR ENDED DECEMBER 29,
DECEMBER 31, DECEMBER 28, 1996 TO
1995 1996 AUGUST 5, 1997
------------ ------------ --------------
(DOLLARS IN THOUSANDS)
Net sales.............................................. $65,277 $85,721 $53,510
Cost of products sold.................................. 54,605 68,876 41,630
Selling and distribution expenses...................... 4,828 5,559 4,560
General and administrative expenses.................... 5,422 6,453 4,686
Product development costs.............................. 479 301 352
------- ------- -------
Operating income (loss)................................ (57) 4,532 2,282
Other income (expense):
Interest expense..................................... (897) (892) (587)
Other, net........................................... (9) (5) (125)
------- ------- -------
Income (loss) before provision (benefit) for income
taxes................................................ (963) 3,635 1,570
Provision (benefit) for income taxes................... (163) 133 (11)
------- ------- -------
Net income (loss)...................................... $ (800) $ 3,502 $ 1,581
======= ======= =======
See accompanying notes to the financial statements.
F-44
146
VALLEY INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, DECEMBER 28, 1996,
AND THE PERIOD FROM DECEMBER 29, 1996 TO AUGUST 5, 1997
SHAREHOLDER TOTAL
COMMON NOTE RETAINED SHAREHOLDERS'
STOCK RECEIVABLE EARNINGS EQUITY
------ ----------- -------- -------------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1994........................ $151 $ -- $ 3,867 $ 4,018
Issuance of common stock for note receivable........ 292 (292) -- --
Dividends........................................... -- -- (923) (923)
Payments received on note receivable................ -- 92 -- 92
Net loss............................................ -- -- (800) (800)
---- ----- ------- -------
Balance at December 31, 1995........................ 443 (200) 2,144 2,387
Dividends........................................... -- -- (837) (837)
Payments received on note receivable................ -- 83 -- 83
Net income.......................................... -- -- 3,502 3,502
---- ----- ------- -------
Balance at December 28, 1996........................ 443 (117) 4,809 5,135
Dividends........................................... -- -- (4,249) (4,249)
Payments received on note receivable................ -- 117 -- 117
Net income.......................................... -- -- 1,581 1,581
---- ----- ------- -------
Balance at August 5, 1997........................... $443 $ -- $ 2,141 $ 2,584
==== ===== ======= =======
See accompanying notes to the financial statements.
F-45
147
VALLEY INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
YEAR ENDED YEAR ENDED DECEMBER 29,
DECEMBER 31, DECEMBER 28, 1996 TO
1995 1996 AUGUST 5, 1997
------------ ------------ --------------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)...................................... $ (800) $ 3,502 $ 1,581
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 929 1,153 775
Deferred income tax expense (benefit)................ (167) 135 (23)
Net changes in operating assets and liabilities:
Accounts, notes and shareholder receivable........ (550) (5,033) 538
Inventories....................................... (386) (224) (879)
Prepaid expenses and other current assets......... (160) (231) (529)
Accounts payable.................................. 1,815 1,502 1,956
Accrued compensation.............................. 59 727 (215)
Other accrued liabilities......................... 53 48 111
------- ------- -------
Net cash provided by operating activities......... 793 1,579 3,315
------- ------- -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment............. (2,262) (1,771) (1,844)
Other, net............................................. 5 17 48
------- ------- -------
Net cash used in investing activities............. (2,257) (1,754) (1,796)
------- ------- -------
FINANCING ACTIVITIES
Net proceeds from notes payable to bank................ 2,616 1,894 5,012
Proceeds of long-term debt............................. -- 2,650 251
Payments of long-term debt............................. (327) (3,587) (356)
Payments received on note receivable from
shareholder.......................................... 92 83 117
Dividends paid......................................... (923) (837) (4,249)
------- ------- -------
Net cash provided by financing activities.............. 1,458 203 775
------- ------- -------
Net increase (decrease) in cash........................ (6) 28 2,294
Cash at beginning of period............................ 12 6 34
------- ------- -------
Cash at end of period.................................. $ 6 $ 34 $ 2,328
======= ======= =======
See accompanying notes to the financial statements.
F-46
148
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Valley Industries, Inc. (the "Company") is engaged in the manufacture and
marketing of automotive vehicle products (primarily trailer hitches and towing
products) and sells to original equipment manufacturers and automotive
aftermarket customers principally within the United States.
FISCAL YEAR
The Company operates with a 52/53 week fiscal year ending on the last
Saturday in December. The fiscal years ended December 28, 1996 and December 31,
1995 included 52 and 53 weeks, respectively.
INVENTORIES
Inventories for the Company's Western division are carried at the lower of
cost, as determined by the last-in, first-out (LIFO) method, or market. The
current costs of LIFO inventories exceed their balance sheet carrying amount by
$853, $706 and $706 at December 31, 1995, December 28, 1996, and August 5, 1997,
respectively. In 1996, inventory quantities at the Western division were
reduced. This reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years as compared with current year
costs. The effect of this liquidation was to increase net income by
approximately $80$310, respectively, for the year ended December 28, 1996.
Inventories for the Company's Eastern division are carried at the lower of
cost, as determined by the first-in, first-out (FIFO) method, or market.
RECEIVABLE FROM SHAREHOLDERS
Shareholder receivables represent costs associated with the sale of Valley
Industries, Inc. of $93 which the Shareholders have agreed to pay.
PROPERTY, PLANT AND EQUIPMENT
Property, plant31, 2001 and equipment is stated at cost$1,410 and depreciated or
amortized on a straight-line basis over the estimated useful lives of the assets
or the capital lease term, whichever is less. The estimated useful lives range
from 5 to 20 years. Amortization of equipment recorded under capital leases is
included in depreciation expense.
INCOME TAXES
The Company has elected S corporation status for federal and state income
tax purposes except for California income tax purposes for which the Company
files its tax return as a C corporation. No provision has been made for federal
income taxes in the accompanying financial statements because the federal income
tax consequences of the Company's operations are the responsibility of the
individual shareholders. The Company provided for income taxes in California and
is subject to the Michigan Single Business Tax (MSBT). MSBT is based primarily
on factors other than income, and accordingly, is classified as general and
administrative expense.
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
F-47
149
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized when the product is shipped to the customer.
ADVERTISING COSTS
The Company accounts for advertising costs as expense in the period in
which incurred. Advertising expense for the years ended December 31, 1995 and
December 28, 1996 was $499 and $622, respectively. Advertising expense for the
period ended August 5, 1997 was $428.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company manufactures and sells automotive vehicle products to companies
in the automotive industry. The Company performs periodic credit evaluations of
its customers and generally does not require collateral. At December 31, 1995,
December 28, 1996, and August 5, 1997, primarily all of the Company's accounts
receivable were from customers in the automotive industry. The Company believes
that adequate provision for uncollectible accounts receivable has been made in
the accompanying financial statements.
Three customers accounted for approximately 21%, 15% and 11% of net sales
for fiscal 1995, and approximately 22%, 16% and 14% of net sales for fiscal
1996. Three customers accounted for approximately 21%, 17% and 17% of net sales
for the period ended August 5, 1997.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. FINANCING ARRANGEMENTS
NOTE PAYABLE TO BANK
The Company has a revolving credit agreement with a bank that expires in
April 1998. Pursuant to an amendment on March 10, 1997, the agreement provides
for borrowings of up to $14,000 based upon specified percentages of eligible
accounts receivable and inventory. Under the agreement, borrowings bear interest
at either the bank's prime rate or a defined Eurodollar-based rate. At August 5,
1997, the outstanding borrowings of $13,721 bear interest at the bank's prime
rate of 8.5%. The Company is subject to certain restrictive covenants under the
revolving credit agreement, including, among other things, the maintenance of
certain financial ratios, and restrictions on repayment of the note payable to
shareholder, payment of dividends (except for tax distributions to the Company's
shareholders), the sale or redemption of the Company's common stock and the
incurrence of additional indebtedness. Substantially all of the Company's assets
are pledged as collateral for borrowings under the revolving credit agreement.
The term note payable to a bank (see "Long-Term Debt" below) is subject to
the restrictive covenants and security arrangements discussed above. As
explained in Note 7, the Company's outstanding debt at August 5, 1997 was repaid
from the proceeds of the sale of certain of the Company's net operating assets.
NOTE PAYABLE TO SHAREHOLDER
The note payable to shareholder is secured by the Company's Lodi facilities
including land and building with a net book value at August 5, 1997 of
approximately $1,365. Payments of principal on the note payable to
F-48
150
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. FINANCING ARRANGEMENTS -- (CONTINUED)
shareholder were not made through August 4, 1997 due to the restrictive
covenants under the Company's current and former revolving credit agreements.
While the agreements with the Company's principal bank permit the payment of
interest on the note payable to shareholder, the Company and the note holder
have agreed to forego the payment or accrual of interest.
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
Term note payable to a bank due in quarterly installments
of principal of $194 through March 1998, and quarterly
installments of principal of $113 from June 1998 to April
2001; with interest at the bank's prime rate (8.5% at
August 5, 1997).......................................... $ -- $2,107 $2,032
Term note payable to a bank (refinanced in 1996)........... 1,800 -- --
Refinancing of previous revolving credit agreement......... 850 -- --
Capitalized lease obligation due in monthly installments of
$6, including principal and interest imputed at 10.6%,
through December 1999.................................... 221 170 140
Other notes payable and capitalized lease obligations...... 343 -- --
------ ------ ------
3,214 2,277 2,172
Less current portion....................................... 691 777 692
------ ------ ------
$2,523 $1,500 $1,480
====== ====== ======
On March 10, 1997, the Company executed an amendment to the term note
payable to a bank with an outstanding balance of $2,032 at August 5, 1997. In
addition, the Company obtained a new term credit facility which provides for
borrowings of up to $900 to fund a portion of certain planned capital
expenditures. Borrowings under the new term equipment note are due in eight
equal quarterly installments commencing September 1997. No borrowings have been
made under the new term equipment note through August 5, 1997. The term note
payable of $2,032 was repaid from the proceeds of the sale of certain of the
Company's net operating assets as described in Note 7.
Interest paid during 1995 and 1996 was $881 and $889, respectively.
Interest paid during the period ended August 5, 1997 was $628.
3. SHAREHOLDERS' EQUITY
On January 1, 1995, the Company sold 55 shares of common stock to its
President in exchange for a note receivable in the amount of $292. The note
receivable is due in ten annual installments of $29 commencing January 1, 2000,
and bears interest payable annually at a variable rate of interest
(approximately 6% at December 28, 1996). In addition, any cash dividend
distributions on the related common stock are to be applied as a reduction of
the note receivable balance. For 1995, 1996 and 1997, cash dividends of $92, $83
and $117,$330, respectively, were applied against the note receivable balance.
In connection with the issuance of common stock, the Company and the
President have entered into an agreement which provides the Company the right of
first refusal in the event the President attempts to sell or dispose of such
shares. The Company's purchase option allows the Company to acquire the shares
at the lesser of adjusted book value or a bona fide offer from a third party.
Adjusted book value is defined as book value per
F-49
151
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. SHAREHOLDERS' EQUITY -- (CONTINUED)
share adjusted for the per share difference, if any, between the net book value
and fair value of certain of the Company's real estate.
In July 1997, the Company's Board of Directors approved an amendment to the
Company's certificate of incorporation to create two new classes of common
stock. Pursuant to the amendment, each existing share of common stock was
exchanged for five shares of Class A voting common stock and ninety-five shares
of Class B nonvoting common stock.
4. INCOME TAXES
The income tax provision (benefit), which relates solely to California
state taxes, consists of the following components (in thousands):
YEAR ENDED PERIOD
--------------------------- ENDED
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
Current expense.............................. $ 4 $ (2) $103
Deferred expense (benefit) before benefit of
net operating loss and California
manufacturers' investment tax credit....... (8) 215 (23)
Benefit of net operating loss carryforward... (30) -- --
California manufacturers' investment tax
credit..................................... (129) (80) (91)
----- ---- ----
$(163) $133 $(11)
===== ==== ====
The components of deferred tax assets are as follows:
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
Inventory.................................... $ 53 $ 50 $ 82
Accounts receivable.......................... 20 14 12
California manufacturers' investment tax
credit..................................... 128 23 --
Net operating loss carryforward.............. 30 -- --
Accrued liabilities and other................ 12 21 40
---- ---- ----
$243 $108 $134
==== ==== ====
Cash paid for income taxes was $92 in 1995. There were no tax payments made
during the year ended December 28, 1996, or the period ended August 5, 1997.
5. PENSION PLANS
DEFINED BENEFIT PENSION PLAN
Effective December 31, 1995, the Company terminated its Defined Benefit
Pension Plan (the "Benefit Plan") and settled the Benefit Plan's obligations
through the purchase of annuity contracts and lump sum payments. The Benefit
Plan was previously amended in August 1993 to freeze benefit accruals and
restrict further participation in the Benefit Plan. The net effect of the
termination of the Benefit Plan in 1995 was not significant, as a settlement
gain of $56 was substantially offset by estimated special benefit distributions
and
F-50
152
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. PENSION PLANS -- (CONTINUED)
expected plan expenses. In addition, the termination of the Benefit Plan did not
have a significant effect on the Company's results of operations for the year ended December 28, 1996.
Net pension income recognized for 1995, excluding31, 2000. Since its formation in September 1997, AAS Capital Corporation has had no operations and has no assets or liabilities at December 31, 2002.
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2003
(unaudited)
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Dollar amounts in thousands) | |||||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets | ||||||||||||||||||
| Cash | $ | 278 | $ | 76 | $ | 1,633 | $ | — | $ | 1,987 | ||||||||
| Accounts receivable | — | 39,701 | 25,404 | — | 65,105 | |||||||||||||
| Inventories | — | 17,210 | 28,715 | — | 45,925 | |||||||||||||
| Deferred income taxes and other current assets | 264 | 7,829 | 4,210 | — | 12,303 | |||||||||||||
| Total current assets | 542 | 64,816 | 59,962 | — | 125,320 | |||||||||||||
| Property and equipment, net | — | 33,949 | 27,119 | — | 61,068 | |||||||||||||
| Goodwill, net | 985 | 24,729 | 22,390 | — | 48,104 | |||||||||||||
| Other intangible assets, net | 2,798 | 382 | 207 | — | 3,387 | |||||||||||||
| Deferred income taxes and other noncurrent assets | 93 | 570 | 3,375 | — | 4,038 | |||||||||||||
| Investment in subsidiaries | 87,047 | 9,955 | — | (97,002 | ) | — | ||||||||||||
| Intercompany notes receivable | 61,391 | 2,103 | — | (63,494 | ) | — | ||||||||||||
| Total assets | $ | 152,856 | $ | 136,504 | $ | 113,053 | $ | (160,496 | ) | $ | 241,917 | |||||||
LIABILITIES AND MEMBERS' EQUITY | ||||||||||||||||||
| Current liabilities | ||||||||||||||||||
| Current maturities of long-term debt | $ | 10,424 | $ | 54 | $ | 11,415 | $ | — | $ | 21,893 | ||||||||
| Accounts payable | — | 24,515 | 15,584 | — | 40,099 | |||||||||||||
| Accrued liabilities and deferred income taxes | 11,196 | 7,250 | 16,574 | — | 35,020 | |||||||||||||
| Mandatorily redeemable warrants | 5,250 | — | — | — | 5,250 | |||||||||||||
| Total current liabilities | 26,870 | 31,819 | 43,573 | — | 102,262 | |||||||||||||
| Deferred income taxes and other noncurrent liabilities | 2,003 | 1,391 | 3,082 | — | 6,476 | |||||||||||||
| Long-term debt, less current maturities | 124,734 | 227 | 8,969 | — | 133,930 | |||||||||||||
| Intercompany debt | — | — | 63,494 | (63,494 | ) | — | ||||||||||||
| Members' equity | (751 | ) | 103,067 | (6,065 | ) | (97,002 | ) | (751 | ) | |||||||||
| Total liabilities and members' equity | $ | 152,856 | $ | 136,504 | $ | 113,053 | $ | (160,496 | ) | $ | 241,917 | |||||||
F-29
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2002
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||||||||||
| Current assets | ||||||||||||||||||
| Cash | $ | 440 | $ | 77 | $ | 2,136 | $ | — | $ | 2,653 | ||||||||
| Accounts receivable | — | 31,920 | 19,606 | — | 51,526 | |||||||||||||
| Inventories | — | 16,810 | 23,872 | — | 40,682 | |||||||||||||
| Deferred income taxes and other current assets | 80 | 6,836 | 6,563 | — | 13,479 | |||||||||||||
| Total current assets | 520 | 55,643 | 52,177 | — | 108,340 | |||||||||||||
| Property and equipment, net | — | 33,433 | 27,139 | — | 60,572 | |||||||||||||
| Goodwill, net | 985 | 24,729 | 21,594 | — | 47,308 | |||||||||||||
| Other intangible assets, net | 2,971 | 371 | 293 | — | 3,635 | |||||||||||||
| Deferred income taxes and other noncurrent assets | 93 | 794 | 3,413 | — | 4,300 | |||||||||||||
| Investment in subsidiaries | 78,160 | 9,955 | — | (88,115 | ) | — | ||||||||||||
| Intercompany notes receivable | 59,487 | 3,591 | — | (63,078 | ) | — | ||||||||||||
| Total assets | $ | 142,216 | $ | 128,516 | $ | 104,616 | $ | (151,193 | ) | $ | 224,155 | |||||||
LIABILITIES AND MEMBERS' EQUITY | ||||||||||||||||||
| Current liabilities | ||||||||||||||||||
| Current maturities of long-term debt | $ | 8,574 | $ | 54 | $ | 9,587 | $ | — | $ | 18,215 | ||||||||
| Accounts payable | — | 22,346 | 10,813 | — | 33,159 | |||||||||||||
| Accrued liabilities and deferred income taxes | 8,060 | 7,846 | 14,856 | — | 30,762 | |||||||||||||
| Mandatorily redeemable warrants | 5,250 | — | — | — | 5,250 | |||||||||||||
| Total current liabilities | 21,884 | 30,246 | 35,256 | — | 87,386 | |||||||||||||
| Deferred income taxes and other noncurrent liabilities | 2,003 | 1,391 | 3,031 | — | 6,425 | |||||||||||||
| Long-term debt, less current maturities | 124,717 | 252 | 11,763 | — | 136,732 | |||||||||||||
| Intercompany debt | — | — | 63,078 | (63,078 | ) | — | ||||||||||||
| Members' equity | (6,388 | ) | 96,627 | (8,512 | ) | (88,115 | ) | (6,388 | ) | |||||||||
| Total liabilities and members' equity | $ | 142,216 | $ | 128,516 | $ | 104,616 | $ | (151,193 | ) | $ | 224,155 | |||||||
F-30
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2001
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash | $ | 334 | $ | 2 | $ | 1,803 | $ | — | $ | 2,139 | |||||||
| Accounts receivable | — | 29,094 | 15,696 | — | 44,790 | ||||||||||||
| Inventories | — | 15,603 | 23,829 | — | 39,432 | ||||||||||||
| Deferred income taxes and other current assets | 7 | 2,326 | 3,443 | — | 5,776 | ||||||||||||
| Total current assets | 341 | 47,025 | 44,771 | — | 92,137 | ||||||||||||
| Property and equipment, net | — | 34,071 | 20,333 | — | 54,404 | ||||||||||||
| Goodwill, net | 985 | 53,930 | 18,479 | — | 73,394 | ||||||||||||
| Other intangible assets, net | 3,670 | 412 | 603 | — | 4,685 | ||||||||||||
| Deferred income taxes and other noncurrent assets | 93 | 1,340 | 2,237 | — | 3,670 | ||||||||||||
| Investment in subsidiaries | 70,173 | 9,955 | — | (80,128 | ) | — | |||||||||||
| Intercompany notes receivable | 74,601 | — | — | (74,601 | ) | — | |||||||||||
| Total assets | $ | 149,863 | $ | 146,733 | $ | 86,423 | $ | (154,729 | ) | $ | 228,290 | ||||||
LIABILITIES AND MEMBERS' EQUITY | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Current maturities of long-term debt | $ | — | $ | 1,108 | $ | 9,915 | $ | — | $ | 11,023 | |||||||
| Accounts payable | — | 19,562 | 9,489 | — | 29,051 | ||||||||||||
| Accrued liabilities and deferred income taxes | 6,731 | 7,804 | 9,018 | — | 23,553 | ||||||||||||
| Mandatorily redeemable warrants | 5,130 | — | — | — | 5,130 | ||||||||||||
| Total current liabilities | 11,861 | 28,474 | 28,422 | — | 68,757 | ||||||||||||
| Deferred income taxes and other noncurrent liabilities | 2,003 | 719 | 2,861 | — | 5,583 | ||||||||||||
| Long-term debt, less current maturities | 127,675 | 297 | 17,654 | — | 145,626 | ||||||||||||
| Intercompany debt | — | 16,920 | 57,681 | (74,601 | ) | — | |||||||||||
| Members' equity | 8,324 | 100,323 | (20,195 | ) | (80,128 | ) | 8,324 | ||||||||||
| Total liabilities and members' equity | $ | 149,863 | $ | 146,733 | $ | 86,423 | $ | (154,729 | ) | $ | 228,290 | ||||||
F-31
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the settlement gain
described above, includedthree months ended March 31, 2003
(unaudited)
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Dollar amounts in thousands) | ||||||||||||||||
| Net sales | $ | — | $ | 57,429 | $ | 27,911 | $ | — | $ | 85,340 | |||||||
| Cost of sales | — | 44,966 | 19,295 | — | 64,261 | ||||||||||||
| Gross profit | — | 12,463 | 8,616 | — | 21,079 | ||||||||||||
| Selling, administrative and product development expenses | 136 | 6,037 | 6,226 | — | 12,399 | ||||||||||||
| Amortization of intangible assets | — | 5 | 2 | — | 7 | ||||||||||||
| Operating income (loss) | (136 | ) | 6,421 | 2,388 | — | 8,673 | |||||||||||
| Interest income (expense) | (2,992 | ) | 43 | (883 | ) | — | (3,832 | ) | |||||||||
| Equity in income (loss) of subsidiaries | 9,939 | — | — | (9,939 | ) | — | |||||||||||
| Foreign currency gain (loss) | — | — | 3,596 | — | 3,596 | ||||||||||||
| Other income (expense) | — | (24 | ) | (41 | ) | — | (65 | ) | |||||||||
| Income (loss) before income taxes | 6,811 | 6,440 | 5,060 | (9,939 | ) | 8,372 | |||||||||||
| Provision for income taxes | — | — | (1,561 | ) | — | (1,561 | ) | ||||||||||
| Net income | $ | 6,811 | $ | 6,440 | $ | 3,499 | $ | (9,939 | ) | $ | 6,811 | ||||||
F-32
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the following components:
Service cost (benefits earned during the year).............. $ --
Interest cost on projected benefit obligation............... 70
Actual (return) on plan assets.............................. (327)
Net amortization and deferral............................... 242
-----
Net pension (income)........................................ $ (15)
=====
The expected long-term rate of return used in determining net pension
income was 8.5% for 1995.
DEFINED CONTRIBUTION PLAN
Effective January 1, 1993,three months ended March 31, 2002
(unaudited)
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Dollar amounts in thousands) | ||||||||||||||||
| Net sales | $ | — | $ | 56,840 | $ | 23,030 | $ | — | $ | 79,870 | |||||||
| Cost of sales | — | 44,758 | 16,196 | — | 60,954 | ||||||||||||
| Gross profit | — | 12,082 | 6,834 | — | 18,916 | ||||||||||||
| Selling, administrative and product development expenses | (20 | ) | 5,815 | 5,055 | — | 10,850 | |||||||||||
| Amortization of intangible assets | — | 3 | 4 | — | 7 | ||||||||||||
| Operating income | 20 | 6,264 | 1,775 | — | 8,059 | ||||||||||||
| Interest (expense) | (2,663 | ) | (203 | ) | (1,091 | ) | — | (3,957 | ) | ||||||||
| Equity in loss of subsidiaries | (23,297 | ) | — | — | 23,297 | — | |||||||||||
| Foreign currency (loss), net | — | — | (1,244 | ) | — | (1,244 | ) | ||||||||||
| Other income | — | 9 | 32 | — | 41 | ||||||||||||
| Income (loss) before cumulative effect of accounting change and income taxes | (25,940 | ) | 6,070 | (528 | ) | 23,297 | 2,899 | ||||||||||
| Cumulative effect of accounting change | — | (29,207 | ) | — | — | (29,207 | ) | ||||||||||
| Loss before income taxes | (25,940 | ) | (23,137 | ) | (528 | ) | 23,297 | (26,308 | ) | ||||||||
| Benefit for income taxes | — | — | 368 | — | 368 | ||||||||||||
| Net loss | $ | (25,940 | ) | $ | (23,137 | ) | $ | (160 | ) | $ | 23,297 | $ | (25,940 | ) | |||
F-33
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2002
| | Issuers | Guarantor subsidiaries | Non- guarantor subsidiaries | Eliminations/ adjustments | Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | — | $ | 231,133 | $ | 98,649 | $ | — | $ | 329,782 | |||||||
| Cost of sales | — | 180,421 | 70,095 | — | 250,516 | ||||||||||||
| Gross profit | — | 50,712 | 28,554 | — | 79,266 | ||||||||||||
| Selling, administrative and product development expenses | 1,088 | 23,817 | 24,404 | — | 49,309 | ||||||||||||
| Amortization of intangible assets | 109 | 13 | — | 122 | |||||||||||||
| Operating income (loss) | (1,088 | ) | 26,786 | 4,137 | — | 29,835 | |||||||||||
| Interest (expense) | (11,310 | ) | (316 | ) | (4,281 | ) | — | (15,907 | ) | ||||||||
| Equity in net (income) of subsidiaries | (776 | ) | — | — | 776 | — | |||||||||||
| Foreign currency gain | — | — | 8,429 | — | 8,429 | ||||||||||||
| Other expense | — | 340 | 180 | — | 520 | ||||||||||||
| Income before cumulative effect of accounting change and income taxes | 11,622 | 26,130 | 8,105 | (776 | ) | 21,837 | |||||||||||
| Cumulative effect of accounting change for goodwill impairment | — | (29,207 | ) | — | — | (29,207 | ) | ||||||||||
| Income (loss) before income taxes | (11,622 | ) | (3,077 | ) | 8,105 | (776 | ) | (7,370 | ) | ||||||||
| Provision for income taxes | — | — | (4,252 | ) | — | (4,252 | ) | ||||||||||
| Net income (loss) | $ | (11,622 | ) | $ | (3,077 | ) | $ | 3,853 | $ | (776 | ) | $ | (11,622 | ) | |||
F-34
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2001
| | Issuers | Guarantor subsidiaries | Non- guarantor Subsidiaries | Eliminations/ adjustments | Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | — | $ | 223,662 | $ | 90,373 | $ | — | $ | 314,035 | |||||||
| Cost of sales | — | 178,092 | 61,491 | — | 239,583 | ||||||||||||
| Gross profit | — | 45,570 | 28,882 | — | 74,452 | ||||||||||||
| Selling, administrative and product development expenses | 247 | 24,822 | 19,700 | — | 44,769 | ||||||||||||
| Amortization of intangible assets | 40 | 2,372 | 900 | — | 3,312 | ||||||||||||
| Operating income (loss) | (287 | ) | 18,376 | 8,282 | — | 26,371 | |||||||||||
| Interest (expense) | (8,853 | ) | (2,533 | ) | (6,298 | ) | — | (17,684 | ) | ||||||||
| Equity in net (income) of subsidiaries | (11,534 | ) | — | — | (11,534 | ) | — | ||||||||||
| Foreign currency (loss) | — | — | (4,948 | ) | — | (4,948 | ) | ||||||||||
| Other expense | — | 543 | 200 | — | 743 | ||||||||||||
| Income (loss) before income taxes | 2,394 | 15,300 | (3,164 | ) | (11,534 | ) | 2,996 | ||||||||||
| Provision for income taxes | — | — | (602 | ) | — | (602 | ) | ||||||||||
| Net income (loss) | $ | 2,394 | $ | 15,300 | $ | (3,766 | ) | $ | (11,534 | ) | $ | 2,394 | |||||
F-35
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 2000
| | Issuers | Guarantor subsidiaries | Non- guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | — | $ | 222,159 | $ | 96,658 | $ | — | $ | 318,817 | ||||||
| Cost of sales | — | 173,230 | 65,860 | — | 239,090 | |||||||||||
| Gross profit | — | 48,929 | 30,798 | — | 79,727 | |||||||||||
| Selling, administrative and product development expenses | 1,780 | 23,450 | 20,297 | — | 45,527 | |||||||||||
| Amortization of intangible assets | 40 | 2,347 | 910 | — | 3,297 | |||||||||||
| Operating income (loss) | (1,820 | ) | 23,132 | 9,591 | — | 30,903 | ||||||||||
| Interest expense | 6,027 | 4,433 | 7,490 | — | 17,950 | |||||||||||
| Equity in net (income) of subsidiaries | (15,640 | ) | — | — | 15,640 | — | ||||||||||
| Foreign currency loss | — | — | 5,386 | — | 5,386 | |||||||||||
| Other (income) expense | — | 361 | (309 | ) | — | 52 | ||||||||||
| Income (loss) before income taxes | 7,793 | 18,338 | (2,976 | ) | (15,640 | ) | 7,515 | |||||||||
| Benefit for income taxes | — | — | 278 | — | 278 | |||||||||||
| Net income (loss) | $ | 7,793 | $ | 18,338 | $ | (2,698 | ) | $ | (15,640 | ) | $ | 7,793 | ||||
F-36
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2003
(unaudited)
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Dollar amounts in thousands) | |||||||||||||||||
| Net cash provided by operating activities | $ | 13 | $ | 499 | $ | 1,123 | $ | — | $ | 1,635 | ||||||||
| Cash flows from investing activities: | ||||||||||||||||||
| Acquisition of property and equipment | — | (1,963 | ) | (549 | ) | — | (2,512 | ) | ||||||||||
| Net cash used for investing activities | — | (1,963 | ) | (549 | ) | — | (2,512 | ) | ||||||||||
| Cash flows from financing activities: | ||||||||||||||||||
| Change in intercompany debt | (1,904 | ) | 1,488 | 416 | — | �� | — | |||||||||||
| Net increase in revolving loan | 1,850 | — | — | — | 1,850 | |||||||||||||
| Repayment of debt | — | (25 | ) | (2,193 | ) | — | (2,218 | ) | ||||||||||
| Borrowing of debt | — | — | 722 | — | 722 | |||||||||||||
| Distributions to members | (121 | ) | — | — | — | (121 | ) | |||||||||||
| Net cash used for (provided by) financing activities | (175 | ) | 1,463 | (1,055 | ) | — | 233 | |||||||||||
| Effect of exchange rate changes | — | — | (22 | ) | — | (22 | ) | |||||||||||
| Net decrease in cash | (162 | ) | (1 | ) | (503 | ) | — | (666 | ) | |||||||||
| Cash at beginning of period | 440 | 77 | 2,136 | — | 2,653 | |||||||||||||
| Cash at end of period | $ | 278 | $ | 76 | $ | 1,633 | $ | — | $ | 1,987 | ||||||||
F-37
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2002
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | (Dollar amounts in thousands) | | |||||||||||||||
| Net cash provided by (used for) operating activities | $ | 520 | $ | 5,865 | $ | (1,688 | ) | $ | — | $ | 4,697 | |||||||
| Cash flows from investing activities: | ||||||||||||||||||
| Acquisition of property and equipment | — | (597 | ) | (1,286 | ) | — | (1,883 | ) | ||||||||||
| Net cash used for investing activities | — | (597 | ) | (1,286 | ) | — | (1,883 | ) | ||||||||||
| Cash flows from financing activities: | ||||||||||||||||||
| Change in intercompany debt | (216 | ) | (4,721 | ) | 4,937 | — | — | |||||||||||
| Net decrease in revolving loan | (2 | ) | — | — | — | (2 | ) | |||||||||||
| Repayment of debt | — | (549 | ) | (2,912 | ) | — | (3,461 | ) | ||||||||||
| Distributions to members | �� | (636 | ) | — | — | — | (636 | ) | ||||||||||
| Net cash used for financing activities | (854 | ) | (5,270 | ) | 2,025 | — | (4,099 | ) | ||||||||||
| Effect of exchange rate changes | — | — | 470 | — | 470 | |||||||||||||
| Net decrease in cash | (334 | ) | (2 | ) | (479 | ) | — | (815 | ) | |||||||||
| Cash at beginning of period | 334 | 2 | 1,803 | — | 2,139 | |||||||||||||
| Cash at end of period | $ | — | $ | — | $ | 1,324 | $ | — | $ | 1,324 | ||||||||
F-38
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2002
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided by (used for) operating activities | $ | (10,224 | ) | $ | 27,238 | $ | 3,990 | $ | — | $ | 21,004 | |||||||
| Cash flows from investing activities: | ||||||||||||||||||
| Acquisition of property and equipment | — | (5,554 | ) | (9,800 | ) | — | (15,354 | ) | ||||||||||
| Investment in Subsidiary | (7,000 | ) | — | — | 7,000 | — | ||||||||||||
| Net cash (used for) investing activities | (7,000 | ) | (5,554 | ) | (9,800 | ) | 7,000 | (15,354 | ) | |||||||||
| Cash flows provided by (used for) financing activities: | ||||||||||||||||||
| Change in intercompany debt | 15,114 | (20,510 | ) | 5,396 | — | — | ||||||||||||
| Net increase in revolving loan | 5,572 | — | — | — | 5,572 | |||||||||||||
| Repayment of debt | — | (1,099 | ) | (12,280 | ) | — | (13,379 | ) | ||||||||||
| Borrowing of debt | — | — | 5,637 | — | 5,637 | |||||||||||||
| Issuance of Membership Units | — | — | 7,000 | (7,000 | ) | — | ||||||||||||
| Distributions to members | (3,356 | ) | — | — | — | (3,356 | ) | |||||||||||
| Net cash provided by (used for) financing activities | 17,330 | (21,609 | ) | 5,753 | (7,000 | ) | (5,526 | ) | ||||||||||
| Effect of exchange rate changes | — | — | 390 | — | 390 | |||||||||||||
| Net increase in cash | 106 | 75 | 333 | — | 514 | |||||||||||||
| Cash at beginning of period | 334 | 2 | 1,803 | — | 2,139 | |||||||||||||
| Cash at end of period | $ | 440 | $ | 77 | $ | 2,136 | $ | — | $ | 2,653 | ||||||||
F-39
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2001
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided by (used for) operating activities | $ | (8,830 | ) | $ | 32,749 | $ | 3,732 | $ | — | $ | 27,651 | |||||||
| Cash flows from investing activities: | ||||||||||||||||||
| Acquisition of property and equipment | — | (4,249 | ) | (3,331 | ) | — | (7,580 | ) | ||||||||||
| Net cash used for investing activities | — | (4,249 | ) | (3,331 | ) | — | (7,580 | ) | ||||||||||
| Cash flows provided by (used for) financing activities: | ||||||||||||||||||
| Change in intercompany debt | 17,094 | (29,144 | ) | 12,050 | — | — | ||||||||||||
| Net decrease in revolving loan | (8,341 | ) | — | — | — | (8,341 | ) | |||||||||||
| Repayment of debt | — | — | (11,706 | ) | — | (11,706 | ) | |||||||||||
| Collection on members notes receivable | 59 | — | — | — | 59 | |||||||||||||
| Borrowing of debt | — | 400 | — | — | 400 | |||||||||||||
| Distributions to members | (801 | ) | — | — | (801 | ) | ||||||||||||
| Net cash provided by (used for) financing activities | 8,011 | (28,744 | ) | 344 | — | (20,389 | ) | |||||||||||
| Effect of exchange rate changes | — | — | (858 | ) | — | (858 | ) | |||||||||||
| Net decrease in cash | (819 | ) | (244 | ) | (113 | ) | — | (1,176 | ) | |||||||||
| Cash at beginning of period | 1,153 | 246 | 1,916 | — | 3,315 | |||||||||||||
| Cash at end of period | $ | 334 | $ | 2 | $ | 1,803 | $ | — | $ | 2,139 | ||||||||
F-40
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2000
| | Issuers | Guarantor subsidiaries | Non-guarantor subsidiaries | Eliminations/ adjustments | Consolidated | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided by (used for) operating activities | $ | (5,585 | ) | $ | 22,146 | $ | 4,855 | $ | — | $ | 21,416 | |||||||
| Cash flows from investing activities: | ||||||||||||||||||
| Acquisition of property and equipment | — | (7,699 | ) | (2,746 | ) | — | (10,445 | ) | ||||||||||
| Acquisition of subsidiaries, net of cash acquired | — | (1,545 | ) | (1,259 | ) | — | (2,804 | ) | ||||||||||
| Net cash used for investing activities | — | (9,244 | ) | (4,005 | ) | — | (13,249 | ) | ||||||||||
| Cash flows provided by (used for) financing activities: | ||||||||||||||||||
| Change in intercompany debt | 7,842 | (18,125 | ) | 10,283 | — | — | ||||||||||||
| Net increase in revolving loan | 11,343 | — | — | — | 11,343 | |||||||||||||
| Repayment of debt | — | — | (13,878 | ) | — | (13,878 | ) | |||||||||||
| Repurchase of membership units | (6,422 | ) | — | — | — | (6,422 | ) | |||||||||||
| Collection on members notes receivable | 65 | — | — | — | 65 | |||||||||||||
| Distributions to members | (6,090 | ) | — | — | — | (6,090 | ) | |||||||||||
| Net cash provided by (used for) financing activities | 6,738 | (18,125 | ) | (3,595 | ) | — | (14,982 | ) | ||||||||||
| Effect of exchange rate changes | — | — | 1,412 | — | 1,412 | |||||||||||||
| Net increase (decrease) in cash | 1,153 | (5,223 | ) | (1,333 | ) | — | (5,403 | ) | ||||||||||
| Cash at beginning of period | — | 5,469 | 3,249 | — | 8,718 | |||||||||||||
| Cash at end of period | $ | 1,153 | $ | 246 | $ | 1,916 | $ | — | $ | 3,315 | ||||||||
14. Subsequent Event (unaudited)
On April 15, 2003, substantially all employees became eligible to
participate in a tax deferred investment plan (the "401(k) Plan") established by
the Company. Effective November 1, 1995, the Company's former profit sharing
plan was merged into the 401(k) Plan. The 401(k) Plan permits each participant
to contribute up to 15% of compensation on a pre-tax basis, to a specified
maximum amount per year. The Company, at its discretion, may make matching
contributions. Matching contributions were approximately $31, $32 and $16 for
1995, 1996 and 1997 respectively.
6. LEASE COMMITMENTS
In May 1993, the Company sold the land and building relating to its
principal operating facility in Michigan for $1,450 cash to Valley Industries
Realty, L.P. (the "Partnership"), a related party. Concurrent with the sale, the
Company leased the facilities back from the Partnership through December 31,
2002. The lease requires minimum monthly rentals of approximately $15, with
escalations in certain circumstances. At August 5, 1997, the Company is
obligated to pay minimum lease payments of approximately $84 for the remaining
period of 1997, and approximately $180 in each of the five years ending December
31, 2002. The lease arrangement has been accounted for as an operating lease.
The Company also leases certain machinery, equipment and facilities under
agreements which expire at various dates through 2002. At August 5, 1997, annual
minimum lease and rental payments for all capital leases and noncancellable
operating leases are as follows:
The Company's outstanding debtconsideration paid at August 5,
1997 was repaid fromor shortly after the proceedsclosing of the sale. In conjunction with the saleacquisition consisted of the Company, in July 1997 management and other bonuses aggregating approximately $900 were paid. The associated expense is included within general and
administrative expenses for the period ended August 5, 1997.
F-52
154
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board$260 million, approximately $168 million of Directorswhich was used to repay or defease certain of Ellebi S.p.A.
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of the towbar segment of Ellebi S.p.A. (the Company), at
December 31, 1997, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with U.S. generally accepted accounting principles. These financial
statements are the responsibility of the management of the Company; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with U.S.
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The Company, as disclosed in Note 1 to the accompanying financial
statements, is a division of Ellebi S.p.A. and has extensive transactions and
relationships with Ellebi S.p.A. Because of these relationships, it is possible
that the terms of these transactions are not the same as those that would result
from transactions among wholly unrelated parties.
As discussed in Note 9, on January 2, 1998, Ellebi S.p.A. sold certain net
assets of the Company to Brink International B.V. The accompanying financial
statements do not give effect to this purchase transaction.
AXIS S.r.1.
Reggio Emilia, Italy
March 13, 1998
F-53
155
TOWBAR SEGMENT OF ELLEBI S.P.A.
BALANCE SHEETS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
ASSETS
Current assets
Cash and cash equivalents................................. 1,781 558 10
Trade receivables, less allowance of 147, 248 and 248 at
December 31, 1995, 1996 and 1997, respectively......... 6,471 6,337 7,113
Other receivables, less allowance of 142 at December 31,
1995, 1996 and 1997, respectively...................... 554 482 627
Inventories............................................... 14,308 17,015 15,926
------ ------ ------
Total current assets................................... 23,114 24,392 23,676
Property, plant and equipment, net.......................... 3,221 4,632 4,733
Receivables from associated company......................... -- 71 71
Other receivables........................................... 4 4 113
Intangible assets........................................... 22 103 57
------ ------ ------
TOTAL ASSETS........................................... 26,361 29,202 28,650
====== ====== ======
LIABILITIES AND ELLEBI S.P.A. INVESTMENT
Current liabilities
Trade payables............................................ 8,281 5,913 3,876
Tax payable............................................... 1,336 1,796 2,707
Social Security payable................................... 300 311 345
Other payables............................................ 1,603 1,104 1,237
------ ------ ------
Total current liabilities.............................. 11,520 9,124 8,165
Agents severance fund....................................... 421 462 380
Termination indemnity....................................... 1,551 1,780 1,769
------ ------ ------
TOTAL LIABILITIES...................................... 13,492 11,366 10,314
------ ------ ------
Ellebi S.p.A. investment.................................... 12,869 17,836 18,336
------ ------ ------
TOTAL LIABILITIES AND ELLEBI S.P.A. INVESTMENT......... 26,361 29,202 28,650
====== ====== ======
See accompanying notes to the financial statements.
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TOWBAR SEGMENT OF ELLEBI S.P.A.
STATEMENTS OF OPERATIONS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
Net sales................................................... 31,301 32,541 36,378
Cost of sales............................................... 20,521 20,547 21,180
------ ------ ------
Gross profit.............................................. 10,780 11,994 15,198
Selling, general and product development expenses........... 6,517 6,187 6,988
------ ------ ------
Operating income.......................................... 4,263 5,807 8,210
Other income (expense)...................................... 2 (173) (37)
------ ------ ------
Income before provision for income taxes.................. 4,265 5,634 8,173
Taxes on income............................................. 2,270 3,130 4,460
------ ------ ------
Net income................................................ 1,995 2,504 3,713
====== ====== ======
See accompanying notes to the financial statements.
F-55
157
TOWBAR SEGMENT OF ELLEBI S.P.A.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
Net income.................................................. 1,995 2,504 3,713
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................. 1,306 1,141 823
Termination indemnity provision........................... 330 322 323
Changes in assets and liabilities
Trade receivables...................................... 74 134 (776)
Other receivables...................................... 146 72 (145)
Inventories............................................ (5,432) (2,707) 1,089
Trade, tax and social security payables................ 1,335 (1,897) (1,092)
Other payables......................................... 282 (499) 133
Agents severance fund.................................. (40) 41 (82)
Other, net............................................. (87) (93) (282)
------ ------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... (91) (982) 3,704
------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Intangible asset additions.................................. -- (147) (22)
Property, plant and equipment additions..................... (2,658) (2,486) (909)
Other....................................................... -- (71) (108)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES.................. (2,658) (2,704) (1,039)
------ ------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid.............................................. (797) (227) --
Increase (decrease) in Ellebi S.p.A. investment............. 707 2,690 (3,213)
------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... (90) 2,463 (3,213)
------ ------ ------
Net decrease in cash........................................ (2,839) (1,223) (548)
Cash at beginning of year................................... 4,620 1,781 558
------ ------ ------
Cash at end of year......................................... 1,781 558 10
====== ====== ======
See accompanying notes to the financial statements.
F-56
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TOWBAR SEGMENT OF ELLEBI S.P.A.
STATEMENT OF CHANGES IN ELLEBI S.P.A. INVESTMENT
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
BEGINNING ELLEBI S.P.A. INVESTMENT.......................... 10,964 12,869 17,836
Net income.................................................. 1,995 2,504 3,713
Intercompany activity....................................... 707 2,690 (3,213)
Dividends paid.............................................. (797) (227) --
------ ------ ------
ENDING ELLEBI S.P.A. INVESTMENT............................. 12,869 17,836 18,336
====== ====== ======
See accompanying notes to the financial statements.
F-57
159
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The towbar segment of Ellebi S.p.A. (the "Company"), is a manufacturer and
distributor of trailers, towbars, accessories and spare parts. The financial
statements have been prepared on a carve-out basis and present the historical
financial position, results of operations and cash flows of the Company
previously included in the financial statements of Ellebi S.p.A. The Company's
financial information included herein is not necessarily indicative of its
financial position, results of operations and cash flows in the future, or of
the results which would have been reported if the Company had operated as an
unaffiliated enterprise.
SIGNIFICANT ESTIMATES
The preparation of combined financial statements on a carve-out basis in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue from product sales is recognizedindebtedness at the time of shipmentthe acquisition and approximately $92 million (inclusive of subordinated promissory notes) of which was used for the closing purchase price of the equity interests of AAS. The cash purchase price payable to the customer, which representssellers is subject to an adjustment based on working capital at the moment when ownership passes.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially exposeacquisition closing date, as determined by an audit currently being conducted of our balance sheet, adjusted for certain agreed upon items, to the Companyextent that working capital was more or less than $55.0 million.
F-41
PROSPECTUS DATED , 2003
$150,000,000
Advanced Accessory Systems, LLC
AAS Capital Corporation
Offer to a
concentrationExchange
103/4% Senior Notes due 2011, Series B
for any and all outstanding
103/4% Senior Notes due 2011, Series A
PROSPECTUS
The issuers have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or the issuers' solicitation of credit risk, consist primarilyyour offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of accounts receivable. The
Company doesthis prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of our company have not require collateral from its customers. To minimize this risk,
ongoing credit evaluations of customers' financial condition are performed. At
December 31, 1995, 1996 and 1997, approximately 29%changed since the date hereof.
Until , 41% and 41%, respectively,
of trade accounts receivable were2003 (90 days from the Company's ten major customers. Fordate of this prospectus), all dealers effecting transactions in the same yearssecurities, whether or not participating in this exchange offer, may be required to deliver a prospectus.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Indemnification Under the major customer (Fiat Auto S.p.A.) represented 19%, 28% and
25%, respectively, of trade accounts receivable.
FINANCIAL INSTRUMENTS
The carrying valueDelaware Limited Liability Company Act
AAS, a co-issuer of the Company's financial instruments, comprising cash,
accounts receivable, accounts payableNew Notes, and accrued liabilities, approximate their
fair values.
CASH AND CASH EQUIVALENTS
CashAAS Acquisitions, LLC, CHAAS Acquisitions, LLC, SportRack, LLC, Valley Industries LLC, and cash equivalents include cash on hand and on deposit.
RECEIVABLES
Receivables are stated at face value reduced to their estimated realizable
value by the allowance for doubtful accounts.
INVENTORIES
Inventories are carried at the lower of cost, as determined per item by the
last-in-first-out (LIFO) method, or market. Inventories are periodically
reviewed and reserves established for excess and obsolete items.
F-58
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TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful trade receivables is provided for based on
specific identification.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and depreciated using
estimated useful lives. Depreciation is computed on the straight-line method.
Maintenance and repairs costs are charged to expense as incurred. Plant and
equipment additions and improvements are capitalized. Yearly depreciation rates
are as follows:
Plant and machinery......................................... 10%
Equipment and tools (molds)................................. 25%
Cars........................................................ 25%
Furniture................................................... 12%
Computers................................................... 20%
Vans........................................................ 20%
Management believes that there are no impairments of property, plant and
equipment or other long-lived assets at December 31, 1997.
INTANGIBLE ASSETS
Intangible assets are carried at cost and amortized on the straight-line
method over their estimated useful lives.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are charged to expense as
incurred. These costs for the years ended December 31, 1995, 1996 and 1997 were
1,110, 1,150 and 1,350, respectively.
DEFERRED COMPENSATION
All employees are covered byValTek, LLC, each a plan required under Italian law and labor
contracts which grants a termination indemnity based on compensation and years
of service. The Company accrues the amount due to each employee, based on the
relevant factors at year-end.
TRANSACTIONS IN FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the exchange rates in
effect at the transaction dates. Exchange gains or losses realized during the
year are included in the statement of income. The effect of translation of
foreign currency receivables and payables using year-end rates are reported as
other payables in the balance sheet.
INCOME TAXES
The Company is included in the income tax return of Ellebi S.p.A. In
preparing its financial statements, the Company has determined its tax provision
on a separate return basis and the resulting liability is settled on an
intercompany basis. There are no temporary differences that give rise to
deferred taxes.
F-59
161
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INTERCOMPANY TRANSACTIONS AND ALLOCATIONS
The profit and loss accounts are prepared based upon an allocation of costs
between Ellebi S.p.A. and the Company. The allocation of costs has been prepared
taking into account the activitiesguarantor of the Company and of Ellebi S.p.A. and alsoNew Notes, are limited liability companies organized under the assumption that the segments were separate and that each segment
should carry its own direct operating costs.
Management believes that the methods utilized to allocate costs to the
Company, as discussed above, are reasonable. However, the terms of transactions
between the Company and Ellebi S.p.A., including allocated costs, may differ
from those that would result from transactions with unrelated parties.
3. NET SALES
Classification of net sales is as follows:
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
Towbars -- aftermarket................................ 13,915 15,610 16,946
Towbars -- OEM........................................ 3,876 4,844 5,939
Trailers.............................................. 10,126 9,381 10,894
Accessories and spare parts........................... 3,769 3,178 3,106
Other................................................. 287 96 233
Bonuses to customer................................... (672) (568) (740)
------ ------ ------
31,301 32,541 36,378
====== ====== ======
4. TAXES ON INCOME
Current income tax expense for the three years ended December 31, 1997 was
calculated at a rate of 53.2% on taxable income. Current income tax expense
included in the statements of operations are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
Income before taxes...................................... 4,265 5,634 8,173
Non deductible costs..................................... -- 252 207
----- ----- -----
4,265 5,886 8,380
----- ----- -----
Tax charge............................................... 2,270 3,130 4,460
===== ===== =====
5. INVENTORIES
The difference between LIFO and current valuation as of December 31, 1997,
1996 and 1995 is 2,770, 3,670 and 3,690, respectively.
F-60
162
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNT BALANCES
Account balances included in the balance sheet are comprised of the
following:
DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
CASH AND CASH EQUIVALENTS
Banks and postal deposit.................................... 1,761 550 --
Cash on hand................................................ 20 8 10
------- ------- -------
1,781 558 10
======= ======= =======
OTHER RECEIVABLES
Due from personnel.......................................... 4 20 6
Due from sales agents....................................... 329 266 397
Due from freight forwarders................................. 214 167 209
Due from suppliers.......................................... 7 23 10
Other....................................................... 142 148 147
Allowance for doubtful accounts............................. (142) (142) (142)
------- ------- -------
554 482 627
======= ======= =======
INVENTORIES VALUED AT LIFO
Raw materials and supplies.................................. 5,561 4,664 2,846
Work-in-process............................................. 4,052 6,133 6,491
Finished goods and merchandise.............................. 4,965 6,425 6,793
Allowance for obsolescence and slow-moving items............ (270) (207) (204)
------- ------- -------
14,308 17,015 15,926
======= ======= =======
PROPERTY, PLANT AND EQUIPMENT
Plant and machinery......................................... 7,966 9,198 10,050
Molds, jigs and other tools................................. 8,738 9,282 9,476
Other fixed assets.......................................... 2,137 2,180 2,283
Assets under construction and advances...................... 136 44 8
Accumulated depreciation.................................... (15,756) (16,072) (17,084)
------- ------- -------
3,221 4,632 4,733
======= ======= =======
TAXES PAYABLE
Income taxes................................................ 1,107 1,483 2,325
Tax on equity............................................... 63 57 30
V.A.T. tax.................................................. -- 55 150
Withholding tax............................................. 166 201 202
------- ------- -------
1,336 1,796 2,707
======= ======= =======
OTHER PAYABLES
Due to customers............................................ 671 567 740
Due to workers.............................................. 440 478 444
Other....................................................... 492 59 53
------- ------- -------
1,603 1,104 1,237
======= ======= =======
7. ELLEBI S.P.A. INVESTMENT
The Ellebi S.p.A. investment balance represents the cumulative activity
from transactions between the Company and Ellebi S.p.A.
F-61
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TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASE COMMITMENTS
The Company leases certain buildings under operating lease agreements. Rent
charged from Ellebi S.p.A. to the Company approximates 750 annually.
9. SUBSEQUENT EVENT (UNAUDITED)
On January 2, 1998, Ellebi S.p.A. sold substantially all of the net assets
of the Company to Brink International B.V. for approximately 35,000, subject to
certain post-closing adjustments. The accompanying financial statements do not
give effect to this transaction.
F-62
164
=========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information................... 3
Prospectus Summary...................... 4
Risk Factors............................ 17
The Exchange Offer...................... 23
Use of Proceeds......................... 31
Pro Forma Capitalization................ 32
Unaudited Pro Forma Financial
Information........................... 33
Selected Historical Financial Data...... 41
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 43
Business................................ 48
Management.............................. 58
Security Ownership of Certain Beneficial
Owners and Management................. 62
Limited Liability Company Agreement..... 63
Certain Transactions.................... 64
Description of the Credit Facilities.... 64
Description of the Notes................ 66
Plan of Distribution.................... 97
Legal Matters........................... 98
Experts................................. 98
Index to Financial Statements........... F-1
=========================================================
=========================================================
$125,000,000
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
9 3/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
, 1998
=========================================================
165
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Lawlaws of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director. Pursuant to Section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation of
Capital Corp and AAS Holdings, Inc. provide that the directors of Capital Corp
and AAS Holdings, Inc., individually or collectively, shall not be held
personally liable to Capital Corp or AAS Holdings, Inc. (as the case may be) or
their respective stockholders for monetary damages for breaches of fiduciary
duty as directors, except that any director shall remain liable (1) for any
breach of the director's fiduciary duty of loyalty to Capital Corp or AAS
Holdings, Inc. (as the case may be) or their respective stockholders, (2) for
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law, (3) for liability under Section 174 of the General
Corporation Law of the State of Delaware or (4) for any transaction from which
the director derived an improper personal benefit. The by-laws of Capital Corp
and AAS Holdings, Inc. provide for indemnification of their respective officers
and directors to the full extent authorized by law.Delaware. Section 18-108 of the Delaware Limited Liability Company Act, (the "Act")or the Delaware Act, provides that subject to such standards and restrictions, if any, as are set
forth in a limited liability company's operating agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.whatsoever, subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement.
Indemnification Under the Operating Agreements of AAS, Certain Guarantors and the By-laws of ValTek, LLC
The Bylawsoperating agreements of AAS, AAS Acquisitions, LLC, SportRack, LLC, and Valley Industries LLC, and the by-laws of ValTek, LLC, each provide that AAS, SportRack, LLCpersons covered under Section 18-108 of the Delaware Act will be indemnified and Valley Industries, LLC shall,held harmless to the fullest extent authorized underof the Delaware Act indemnify and hold harmless againstfor all expense,
liability and loss (including attorneys' fees, judgments, fines, excise taxes or
penalties and amounts paid in settlement)expenses reasonably incurred or suffered any
manager or officer of AAS, SportRack, LLC or Valley Industries, LLC, as the case
may be, including indemnification for negligence or gross negligence butby an indemnitee, excluding indemnification (i) for acts or omissions involving actual fraud or willful misconduct or (ii) with respect to any transaction from which thesuch indemnitee derived an improper personal benefit. I-1
166
ITEMThe right to indemnification, including expenses incurred in defense of a proceeding in advance of its final disposition, and the right to such advancement of expenses is a contract right, which will continue as to an indemnitee who has ceased to be a managing member, officer, employee or agent, and will inure to the benefit of the indemnitee's heirs, executors and administrators. Indemnification rights are not exclusive of other rights that a person has or may acquire via statute, agreement, vote of managing member, or otherwise. Each operating agreement also provides for maintenance of insurance by the respective company to protect itself and any managing member, officer, employee or agent of the company or another limited liability company whether or not the company would have the power to indemnify such person under the Delaware Act. Each company may from time to time grant rights to indemnification and to advancement of expenses to any employee or agent of the company to the fullest extent of the provisions encompassed in its operating agreement with respect to the indemnification and advancement of expenses of the managing member and officers of the company.
The operating agreement of CHAAS Acquisitions, LLC provides that no manager or officer shall be liable to the company or the members for the mistakes of any manager or officer in judgment or for losses due to any act or omission (except to the extent that the mistake, action or inaction was caused by willful misconduct, bad faith or gross negligence) or for losses due to the conduct of any independent contractor selected, engaged or retained and continued by the board of managers or any officer in good faith. No manager or officer shall be liable for and the company shall hold a manager or officer harmless from all liabilities and claims arising from the performance by any manager or officer of duties in conformance with the terms of the operating agreement. Actions or omissions taken or suffered by a manager or officer in good faith in reliance and accordance with the written opinion or advice of legal counsel or accountants (if selected with reasonable care) shall be full protection and justification with respect to the action or omission. Notwithstanding section 18-303 of the Delaware Act, if a manager or officer should become liable under the judgment, decree or order of a court or in any other manner for a debt, obligation or liability of the company, then the company shall indemnify and hold harmless such member or officer to the extent that such liability related to or arose out of any action or transaction taken or effected by a manager or officer under the terms of the operating agreement, or any action or transaction which a manager or officer failed to take or effect as obligated
II-1
under the terms of the operating agreement. No member, manager or officer will be personally liable for the return of all or any part of a member's capital contribution, and such return or payment shall be made solely from the company's assets pursuant to the operating agreement. The company has agreed to indemnify and hold harmless all employees, and agents of the company, all officers, directors, employees and agents of any subsidiary of the company (to the extent not provided by any such subsidiary) to the fullest extent permitted by applicable law and in accordance with Section 4.3(a) of its operating agreement.
Indemnification Under the Delaware General Corporation Law
AAS Capital Corporation, a co-issuer of the New Notes, is a corporation incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law, or the DGCL, authorizes a corporation to indemnify any person 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, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. In addition, the Delaware General Corporation Law does not permit indemnification in any threatened, pending or completed action or suit by or in the right of the corporation in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses, which such court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter, such person shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by such person. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The Delaware General Corporation Law also allows a corporation to provide for the elimination or limit of the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director
- (1)
- for any breach of the director's duty of loyalty to the corporation or its stockholders,
- (2)
- for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law,
- (3)
- for unlawful payments of dividends or unlawful stock purchases or redemptions, or
- (4)
- for any transaction from which the director derived an improper personal benefit.
These provisions will not limit the liability of directors or officers under the federal securities laws of the United States.
Indemnification Under the By-Laws of AAS Capital Corporation
The by-laws of AAS Capital Corporation provide that directors will not be liable to the Corporation or its stockholders for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL. Further, without limitation of the rights conferred under the DGCL, each person party
II-2
to any threatened, pending or completed action by reason of past or present position as a director, officer or employee of the corporation or past or present service at the request thereof as a director, officer or employee, whether the basis of such proceeding is such person's action in an official or unofficial capacity, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the DGCL. Such indemnification shall continue as to an indemnitee who has ceased to be a director, officer or employee, and shall inure to the benefit of the indemnitee's heirs, testators, intestates, executors and administrators provided the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In the course of such action or proceeding, such person must not have been deemed liable to the corporation unless a court having jurisdiction determines that such person is fairly and reasonably entitled to indemnification. Any such indemnitee will only be indemnified by the corporation in connection with proceedings initiated by the indemnitee if the proceeding was approved by the board of directors of the corporation. The indemnification right is a contractual right, and includes the right to advance payment of expenses incurred in defending any such proceeding in advance of its final disposition, provided, if the DGCL so requires, an undertaking is delivered to the corporation by or on behalf of such indemnitee to repay all amounts so advanced if it should ultimately be determined that by any final judicial decision that such indemnitee is not entitled to be indemnified for such expenses. If a claim brought under the indemnification provisions is not paid by the corporation within 60 days of receipt of a written claim, or 20 days if the claim is for advancement of expenses, the indemnitee may at any time thereafter bring suit against the corporation to recover the amount of the claim, and the indemnitee will be further entitled to be paid the expense of prosecuting or defending such suit. In any suit on the part of the corporation to recover expenses advanced to an indemnitee, the corporation will be entitled to recovery of such expenses upon a finding that the indemnitee has not met the applicable standard of conduct set forth in the DGCL. The burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, is on the corporation. The rights to indemnification and to the advancement of expenses conferred in the by-laws are not exclusive of any other right which any person may have or may acquire under any statute, the charter, agreement, vote of stockholders or disinterested directors or otherwise.
II-3
Item 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
Exhibits and Financial Statement Schedules.
| Exhibit Number | Description | |||
|---|---|---|---|---|
1.1* | Purchase Agreement, dated as of May 20, 2003, among Advanced Accessory Systems, LLC, AAS Capital Corporation and the Initial Purchasers* | |||
3.1 | Amended and Restated Certificate of Formation of | (A) | ||
3.2* | Fourth Amended and Restated Operating Agreement of AAS | |||
3.3 | Certificate of Incorporation of AAS Capital | (A) | ||
3.4 | By-laws of AAS Capital Corporation. | (A) | ||
3.5* | Certificate of Formation of CHAAS Acquisitions, LLC | |||
3.6* | Operating Agreement of CHAAS Acquisitions, LLC | |||
3.7* | Certificate of Formation of AAS Acquisitions, LLC | |||
3.8* | Operating Agreement of AAS Acquisitions, LLC | |||
3.9* | Certificate of Formation of Valley Industries, LLC | |||
3.10* | Operating Agreement of Valley Industries, LLC | |||
3.11* | Amendment No. 1 to the operating agreement of Valley Industries, LLC | |||
3.12* | Bylaws of | |||
3.12* | Certificate of Formation of SportRack, LLC | |||
3.13* | Operating Agreement of SportRack, LLC | |||
3.14* | Amendment No. 1 to the operating agreement of SportRack, LLC | |||
3.15* | By-laws of SportRack, LLC | |||
3.16* | Certificate of Formation of ValTek, LLC | |||
3.17* | Operating Agreement of ValTek, LLC | |||
3.18* | By-laws of ValTek, LLC | |||
4.1* | Indenture dated as of | |||
4.2* | Form of | |||
4.3* | Registration Rights Agreement, dated | |||
4.4 | Form of Guarantee (included in Exhibit 4.1) | |||
5.1* | Opinion of Schulte Roth & Zabel LLP | |||
10.1* | Securities | |||
II-4
10.2* | Amended and Restated Credit Agreement dated as of May 23, 2003 among SportRack, LLC, Valley Industries, LLC, and Brink B.V. as Borrowers, Antares Capital | |||
10.3* | Security Agreement, dated as of April 15, among CHAAS Acquisitions, LLC, Advanced Accessory Systems, LLC, Valley Industries, LLC, SportRack, LLC, AAS Capital Corporation, ValTek, LLC, AAS Acquisitions, LLC, Grantors, and General Electric Capital Corporation, as Agent for Lenders | |||
10.4* | Form of Pledge Agreement | |||
10.5* | Form of Subordinated Promissory Note issued by SportRack, LLC and Valley Industries, LLC under the SPA dated April 15, 2003 | |||
10.6* | Form of Subordinated Guarantee for the Subordinated Promissory Note. | |||
10.7* | Executive Employment Agreement, dated April 15, 2003 between Terence C. Seikel and CHAAS Acquisitions, LLC | |||
10.8* | Executive Employment Agreement, dated April 15, 2003 between Richard E. Borghi and CHAAS Acquisitions, LLC | |||
10.9* | Executive Employment Agreement, dated April 15, 2003 between Bryan Fletcher and CHAAS Acquisitions, LLC | |||
10.10* | Management Agreement dated April 15, 2003 among Castle Harlan, Inc., AAS and CHAAS Acquisitions, LLC | |||
12.1 | Statement | |||
21.1* | List of subsidiaries of the | |||
23.1 | Consent of | |||
23.2* | Consent of Schulte Roth & | |||
24 | Power of Attorney (included on | |||
25 | * | Statement of Eligibility and | ||
99.1* | Form of Letter of Transmittal | |||
99.2* | Form of Notice of Guaranteed Delivery |
- *
- To be filed by
Amendment. (B) FINANCIAL STATEMENT SCHEDULES: SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore have been omitted. ITEMamendment - (A)
- Previously filed as an exhibit to AAS' Registration Statement on Form S-4 (File No.: 333-49011) filed, March 31, 1998
II-5
Item 22. UNDERTAKINGS.
(a)Undertakings.
The undersigned registrantsRegistrants hereby undertake:
- (1)
- To file, during any period in which offers or sales are being made, a post-effective amendment to this
registration statement;Registration Statement:- (i)
- To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
- (ii)
- To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (orRegistration Statement, or the most recent post-effective amendmentthereof)thereof, which, individually or in the aggregate, represent a fundamental change in the information set forth in theregistration statement.Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered,(ifif the total dollar value of securities offered would not exceed that which wasregistered)registered, and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with theCommissionSEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more thana 20%20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registrationstatement. I-3168statement; - (iii)
- To include any material information with respect to the plan of distribution not previously disclosed in the
registration statementRegistration Statement or any material change to such information in theregistration statement.Registration Statement;
- (2)
- That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering
thereof.thereof; and - (3)
- To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) Insofar as indemnification
The undersigned Registrants hereby undertake that:
- (1)
- Prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for
liabilities arising underby theSecurities Act of 1933 (the "Securities Act")applicable registration form with respect to the reofferings by persons who may bepermitteddeemed underwriters, in addition todirectors, officers and controlling personsthe information called for by the other items of theregistrantsapplicable form. - (2)
- Every prospectus: (i) that is filed pursuant to the
DGCL,immediately preceding paragraph or (ii) that purports to meet theAct, the Certificaterequirements ofIncorporation and BylawsSection 10(a)(3) ofCapital Corp., the Certificate of Formation, Operating Agreement and Bylaws of AAS, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed inthe Securities Act and istherefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of any registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling personused in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to thesecurities being registered, the registrantsRegistration Statement and willunless in the opinionnot be used until such amendment is effective, and that, for purposes ofits 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 indetermining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, andwill be governed bythefinal adjudicationoffering of suchissue. (c)securities at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrantsRegistrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this form,Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statementRegistration Statement through the date of responding to the request.
(d)
II-6
The undersigned registrantsRegistrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statementRegistration Statement when it became effective.
I-4
169
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the 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 Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by then is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-7
Pursuant to the requirements of the Securities Act of 1933, the Registrants
haveAdvanced Accessory Systems, LLC has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sterling Heights, State of Michigan, on the 20th day of June, 2003.
| ADVANCED ACCESSORY SYSTEMS, LLC | |||
Date: June 20, 2003 | By: | /s/ TERENCE C. SEIKEL Name: Terence C. Seikel Title: Chief Executive Officer | |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Terence C. Seikel and Barry G. Steele, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ TERENCE C. SEIKEL Terence C. Seikel | Chief Executive Officer and Manager | June 20, 2003 | ||
/s/ BARRY G. STEELE Barry G. Steele | Chief Financial Officer | June 20, 2003 | ||
/s/ RICHARD E. BORGHI Richard E. Borghi | Manager | June 20, 2003 |
II-8
Pursuant to the requirements of the Securities Act of 1933, AAS Capital Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sterling Heights, State of Michigan, on the 20th day of June, 2003.
| AAS CAPITAL CORPORATION | |||
Date: June 20, 2003 | By: | /s/ BARRY G. STEELE Name: Barry G. Steele Title: Chairman, Chief Executive Officer, Secretary and Treasurer | |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Barry G. Steele (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ BARRY G. STEELE Barry G. Steele | Chairman, Chief Executive Officer, Secretary, Treasurer and Director | June 20, 2003 | ||
/s/ PAULETTE BRINKER Paulette Brinker | Assistant Treasurer | June 20, 2003 |
II-9
Pursuant to the requirements of the Securities Act of 1933, CHAAS Acquisitions, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 30th20th day of March, 1998.
ADVANCED ACCESSORY SYSTEMS, LLC
By: /s/ TERENCE C. SEIKEL
------------------------------------
Name: Terence C. Seikel
Title: Vice President of Finance and
Administration
POWER OF ATTORNEYJune, 2003.
| CHAAS ACQUISITIONS, LLC | |||
Date: June 20, 2003 | By: | /s/ TERENCE C. SEIKEL Name: Terence C. Seikel Title: President and Chief Executive Officer | |
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS DONALD J. HOFMANN AND TERENCEthat each individual whose signature appears below constitutes and appoints Terence C. SEIKEL, AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS AND EACH OF THEM FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.Seikel and Barry G. Steele, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4registration statement has been signed as of the 30th day of March,
1998below by the following persons in the capacitycapacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ TERENCE C. SEIKEL Terence C. Seikel | President, Chief Executive Officer and | June 20, 2003 | ||
/s/ BARRY Barry | Controller | June 20, 2003 | ||
/s/ JOHN K. CASTLE John K. Castle | Manager | June 20, 2003 | ||
/s/ MARCEL FOURNIER Marcel Fournier | Manager | June 20, 2003 | ||
/s/ WILLIAM PRUELLAGE William Pruellage | Manager | June 20, 2003 |
II-10
Pursuant to the requirements of the Securities Act of 1933, the Registrants
haveSportRack, LLC has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sterling Heights, State of Michigan, on the 20th day of June, 2003.
| SPORTRACK, LLC | |||
Date: June 20, 2003 | By: | /s/ TERENCE C. SEIKEL Name: Terence C. Seikel Title: Chief Executive Officer | |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Terence C. Seikel and Barry G. Steele, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ TERENCE C. SEIKEL Terence C. Seikel | Chief Executive Officer and Manager | June 20, 2003 | ||
/s/ RICHARD E. BORGHI Richard E. Borghi | President and Chief Operating Officer | June 20, 2003 | ||
/s/ BARRY G. STEELE Barry G. Steele | Secretary and Treasurer | June 20, 2003 |
II-11
Pursuant to the requirements of the Securities Act of 1933, ValTek, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sterling Heights, State of Michigan, on the 20th day of June, 2003.
| VALTEK, LLC | |||
Date: June 20, 2003 | By: | /s/ TERENCE C. SEIKEL Name: Terence C. Seikel Title: Chief Executive Officer | |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Terence C. Seikel and Barry G. Steele, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ TERENCE C. SEIKEL Terence C. Seikel | Chief Executive Officer and Manager | June 20, 2003 | ||
/s/ BARRY G. STEELE Barry G. Steele | Secretary and Treasurer | June 20, 2003 |
II-12
Pursuant to the requirements of the Securities Act of 1933, Valley Industries, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sterling Heights, State of Michigan, on the 20th day of June, 2003.
| VALLEY INDUSTRIES, LLC | |||
Date: June 20, 2003 | By: | /s/ TERENCE C. SEIKEL Name: Terence C. Seikel Title: Chief Executive Officer | |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Terence C. Seikel and Barry G. Steele, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ TERENCE C. SEIKEL Terence C. Seikel | Chief Executive Officer and Manager | June 20, 2003 | ||
/s/ BARRY G. STEELE Barry G. Steele | Secretary and Treasurer | June 20, 2003 |
II-13
Pursuant to the requirements of the Securities Act of 1933, AAS Acquisitions, LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 30th20th day of March, 1998.
AAS CAPITAL CORPORATION
By: /s/ TERENCE C. SEIKEL
------------------------------------
Name: Terence C. Seikel
Title: Treasurer
POWER OF ATTORNEYJune, 2003.
| AAS ACQUISITIONS, LLC | |||
Date: June 20, 2003 | By: | /s/ MARCEL FOURNIER Name: Marcel Fournier Title: President | |
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS DONALD J. HOFMANN AND TERENCE C. SEIKEL, AND EACH
OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS AND EACH OF THEM FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.that each individual whose signature appears below constitutes and appoints Marcel Fournier and Howard Weiss, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and abut the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4registration statement has been signed as of the 30th day of March,
1998below by the following persons in the capacitycapacities and on the date indicated.
| Signature | Title | Date | ||
|---|---|---|---|---|
| /s/ MARCEL FOURNIER Marcel Fournier | President | June 20, 2003 | ||
/s/ HOWARD WEISS Howard Weiss | Vice President | June 20, 2003 |
| CHAAS ACQUISITIONS, LLC, AS MANAGING MEMBER OF AAS ACQUISITIONS, LLC | ||
By: | /s/ TERENCE C. SEIKEL Name: Terence C. Seikel | |
II-14
| Exhibit Number | Description | |||
|---|---|---|---|---|
1.1* | Purchase Agreement, dated as of May 20, 2003, among Advanced Accessory Systems, LLC, AAS Capital Corporation and the Initial Purchasers* | |||
| 3.1 | Amended and Restated Certificate of Formation of | (A) | ||
| 3.2* | Fourth Amended and Restated Operating Agreement of AAS | |||
| 3.3 | Certificate of Incorporation of AAS Capital | (A) | ||
| 3.4 | By-laws of AAS Capital Corporation. | (A) | ||
| 3.5* | Certificate of Formation of CHAAS Acquisitions, LLC | |||
| 3.6* | Operating Agreement of CHAAS Acquisitions, LLC | |||
| 3.7* | Certificate of Formation of AAS Acquisitions, LLC | |||
| 3.8* | Operating Agreement of AAS Acquisitions, LLC | |||
| 3.9* | Certificate of Formation of Valley Industries, LLC | |||
| 3.10* | Operating Agreement of Valley Industries, LLC | |||
| 3.11* | Amendment No. 1 to the operating agreement of Valley Industries, LLC | |||
| 3.12* | Bylaws of | |||
| 3.12* | Certificate of Formation of SportRack, LLC | |||
| 3.13* | Operating Agreement of SportRack, LLC | |||
| 3.14* | Amendment No. 1 to the operating agreement of SportRack, LLC | |||
| 3.15* | By-laws of SportRack, LLC | |||
| 3.16* | Certificate of Formation of ValTek, LLC | |||
| 3.17* | Operating Agreement of ValTek, LLC | |||
| 3.18* | By-laws of ValTek, LLC | |||
| 4.1* | Indenture dated as of | |||
| 4.2* | Form of | |||
| 4.3* | Registration Rights Agreement, dated | |||
| 4.4 | Form of Guarantee (included in Exhibit 4.1) | |||
| 5.1* | Opinion of Schulte Roth & Zabel LLP | |||
| 10.1* | Securities | |||
| 10.2* | Amended and Restated Credit Agreement dated as of May 23, 2003 among SportRack, LLC, Valley Industries, LLC, and Brink B.V. as Borrowers, Antares Capital | |||
| 10.3* | Security Agreement, dated as of April 15, among CHAAS Acquisitions, LLC, Advanced Accessory Systems, LLC, Valley Industries, LLC, SportRack, LLC, AAS Capital Corporation, ValTek, LLC, AAS Acquisitions, LLC, Grantors, and General Electric Capital Corporation, as Agent for Lenders | |||
| 10.4* | Form of Pledge Agreement | |||
| 10.5* | Form of Subordinated Promissory Note issued by SportRack, LLC and Valley Industries, LLC under the SPA dated April 15, 2003 | |||
| 10.6* | Form of Subordinated Guarantee for the Subordinated Promissory Note. | |||
| 10.7* | Executive Employment Agreement, dated April 15, 2003 between Terence C. Seikel and CHAAS Acquisitions, LLC | |||
| 10.8* | Executive Employment Agreement, dated April 15, 2003 between Richard E. Borghi and CHAAS Acquisitions, LLC | |||
| 10.9* | Executive Employment Agreement, dated April 15, 2003 between Bryan Fletcher and CHAAS Acquisitions, LLC | |||
| 10.10* | Management Agreement dated April 15, 2003 among Castle Harlan, Inc. | |||
| 12.1* | Statement | |||
| 21.1* | List of subsidiaries of the | |||
| 23.1 | Consent of | |||
| 23.2* | Consent of Schulte Roth & | |||
| 24 | Power of Attorney (included on | |||
| 25* | Statement of Eligibility and | |||
| 99.1* | Form of Letter of Transmittal | |||
| 99.2* | Form of Notice of Guaranteed Delivery |
- *
- To be filed by
Amendment.176amendment - (A)
- Previously filed as an exhibit to AAS' Registration Statement on Form S-4 (File No.: 333-49011) filed, March 31, 1998
TABLE OF CONTENTS
MARKET SHARE, RANKING AND OTHER DATA
FORWARD-LOOKING STATEMENTS
TRADEMARKS AND TRADE NAMES
PROSPECTUS SUMMARY
Our Company
THE EXCHANGE OFFER
SUMMARY TERMS OF NEW NOTES
Summary Consolidated Historical and Unaudited Pro Forma Financial Data
RISK FACTORS
Risks Relating to Our Indebtedness
Risks Relating to the New Notes
Risks Relating to Our Business
THE ACQUISITION
USE OF PROCEEDS
CAPITALIZATION
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the Year Ended December 31, 2002 (Dollars in thousands)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 2003 (Dollars in thousands)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the Twelve Months Ended March 31, 2003 (Dollars in thousands)
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) March 31, 2003 (Dollars in thousands)
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE EXCHANGE OFFER
For information by Telephone: (212) 815-3738
By Facsimile Transmission: (212) 298-1915 (Telephone Confirmation) (212) 815-3738
BUSINESS
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF THE NEW NOTES
MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
AVAILABLE INFORMATION
ADVANCED ACCESSORY SYSTEMS, LLC
ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands)
ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
ADVANCED ACCESSORY SYSTEMS, LLC CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (Dollar amounts in thousands)
ADVANCED ACCESSORY SYSTEMS, LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except unit related data)
CONDENSED CONSOLIDATING BALANCE SHEET March 31, 2003 (unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2002
CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2001
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the three months ended March 31, 2003 (unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the three months ended March 31, 2002 (unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 2002
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 2001
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the year ended December 31, 2000
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 31, 2003 (unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 31, 2002
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 2002
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 2001
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the year ended December 31, 2000
PART II