AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1994
SEC REGISTRATION NO. 033-52255
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERNATIONAL CONTROLS CORP.
(Exact name of Registrant as specified in its Charter)
FLORIDA 3715 54-0698116
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification
of incorporation) Classification Code) No.)
2016 NORTH PITCHER STREET
KALAMAZOO, MICHIGAN 49007
(616) 343-6121
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
DAVID R. MARKIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERNATIONAL CONTROLS CORP.
2016 NORTH PITCHER STREET
KALAMAZOO, MICHIGAN 49007
(616) 343-6121
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPIES TO:
Paulette Kendler, Esq. Valerie Ford Jacob, Esq.
Hutton Ingram Yuzek Gainen Fried, Frank, Harris, Shriver &
Carroll & Bertolotti Jacobson
250 Park Avenue One New York Plaza
New York, New York 10177 New York, New York 10004
(212) 907-9650 (212) 820-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT (1) OFFERING PRICE FEE (2)
% Senior Secured Notes due 2002 $165,000,000 $1,000 $165,000,000 $56,897
Units consisting of the following:......... 100,000 Units $1,000 $100,000,000 $34,483
$1,000 principal amount of % Senior
Subordinated Notes due 2004............... $100,000,000 (3) (3) (3)
Warrants to purchase shares of Common
Stock, $.01 par value per share (4)....... Warrants (3) (3) (3)
<FN>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(a).
(2) Of the aggregate registration fee of $91,380, $77,586 was paid on February
11, 1994 with the initial filing of this Registration Statement and the
remaining $13,794 was paid on June 9, 1994.
(3) The % Senior Subordinated Notes due 2004 and the Warrants being
registered hereby are being offered as part of the Units and will not be
offered separately.
(4) Includes the shares of Common Stock, $.01 par value, issuable upon
exercise of the Warrants, plus an additional number of shares of Common
Stock which may become issuable upon exercise of the Warrants pursuant to
the anti-dilution provisions relating thereto.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INTERNATIONAL CONTROLS CORP.
FORM S-1 CROSS REFERENCE SHEET
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected Consolidated
Financial Information
4. Use of Proceeds................................... Prospectus Summary; Proposed Refinancing; Use of
Proceeds; Capitalization
5. Determination of Offering Price................... Inapplicable
6. Dilution.......................................... Inapplicable
7. Selling Security Holders.......................... Inapplicable
8. Plan of Distribution.............................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........ Description of Units; Description of Warrants;
Description of Capital Stock; Description of Notes
10. Interests of Named Experts and Counsel............ Inapplicable
11. Information with Respect to the Registrant........ Outside Front Cover Page; Prospectus Summary; Risk
Factors; The Company; Selected Consolidated Financial
Data; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Ownership of Common Stock; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Inapplicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
JUNE 22, 1994
INTERNATIONAL CONTROLS CORP.
$165,000,000 % Senior Secured Notes due 2002
100,000 Units consisting of $100,000,000 % Senior Subordinated Notes due 2004
and Warrants to Purchase Shares of Common Stock
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International Controls Corp. (the "Company" or "ICC") is hereby offering
(the "Offering") $165,000,000 aggregate principal amount of % Senior Secured
Notes due 2002 (the "Senior Notes") and 100,000 units (the "Units"), each Unit
consisting of $1,000 principal amount of the Company's % Senior Subordinated
Notes due 2004 (the "Senior Subordinated Notes" and together with the Senior
Notes, the "Notes") and one warrant (the "Warrants" and together with the Notes
and the Units, the "Securities") to purchase shares of common stock, par
value $.01 per share (the "Common Stock"), of the Company. The Senior
Subordinated Notes and the Warrants will not be separately transferable until
, 1994 or such earlier date as (1) the Underwriters may determine
or (2) the Warrants become exercisable (the "Separation Date").
Interest on the Senior Notes is payable in cash semi-annually on and
of each year, commencing , 1994. Interest on the Senior
Subordinated Notes is payable in cash semi-annually on and of
each year, commencing , 1994. The Notes will be redeemable at the
option of the Company, in whole or in part, at any time on or after
, 1999, 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 on or prior to , 1997, up to 25% of the aggregate principal
amount of the Senior Subordinated Notes outstanding on the date of the Senior
Subordinated Note Indenture (as defined herein) will be redeemable at the option
of the Company from the net proceeds of a Public Offering (as defined herein) at
a redemption price equal to % of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of redemption. Upon a Change of
Control (as defined herein), holders of the Notes may require the Company to
repurchase the Notes at a redemption price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase.
The Senior Notes will be senior secured obligations of the Company and will
rank PARI PASSU in right of payment with all other senior indebtedness of the
Company and senior in right of payment to all subordinated indebtedness of the
Company. The Senior Notes will be secured by a pledge of all of the outstanding
capital stock of two of the Company's subsidiaries, Great Dane Trailers, Inc.
("Great Dane") and Checker Motors Corporation ("Motors"), on an equal and
ratable basis with the obligations incurred under the New Credit Facility (as
defined herein). Certain of the Company's subsidiaries, however, including Great
Dane and Motors, will be co-obligors (the "Co-Obligors") under the New Credit
Facility and the indebtedness of the Company and the Co-Obligors under the New
Credit Facility will also be secured by substantially all of the assets of the
Company and the Co-Obligors. Accordingly, the obligations under the New Credit
Facility will effectively rank senior to the Senior Notes.
The Senior Subordinated Notes will be senior subordinated obligations of the
Company and will be subordinated in right of payment to all senior indebtedness
(including, without limitation, the Senior Notes and the obligations under the
New Credit Facility); PROVIDED, HOWEVER, that the Senior Subordinated Notes will
rank PARI PASSU with or senior in right of payment to all existing and future
indebtedness of the Company that is expressly subordinated to senior
indebtedness.
Since the Company is a holding company, the Notes will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries. After giving effect to the application of the estimated net
proceeds of the Offering and the other transactions contemplated hereby (the
"Refinancing"), the Company would have had outstanding consolidated indebtedness
of $347.4 million at March 31, 1994, including approximately $82.4 million of
secured indebtedness estimated to be drawn under the New Credit Facility, and
the subsidiaries of the Company would have had total liabilities (including
trade payables and indebtedness under the New Credit Facility) of $375.5
million.
Each Warrant will entitle the holder thereof to purchase shares of Common
Stock of the Company at an exercise price of $.01 per share, subject to
adjustment under certain circumstances. The Warrants will entitle the holders
thereof to purchase, in the aggregate, approximately % of the Common Stock of
the Company on a fully diluted basis as of the date of issuance of the Warrants.
The Warrants will become exercisable on , 1999, or upon the earlier
occurrence of (1) a Change of Control or (2) a Public Offering.
The Company intends to make application to list the Notes on the American
Stock Exchange.
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SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR
DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
PRICE PROCEEDS
TO UNDERWRITING TO
PUBLIC(1) DISCOUNTS(2) THE COMPANY(3)
Per Senior Note................................................ % % %
Total.......................................................... $ $ $
Per Unit....................................................... $ % %
Total.......................................................... $ $ $
<FN>
(1) Plus accrued interest, if any, from , 1994.
(2) See "Underwriting" for information regarding the indemnification of the
Underwriters.
(3) Before deducting expenses payable by the Company estimated at $ .
------------------
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them and subject to various prior
conditions, including the right of the Underwriters to reject any order in whole
or in part. It is expected that delivery of the Securities will be made at the
offices of Alex. Brown & Sons Incorporated, New York, New York 10019 on or about
, 1994.
ALEX. BROWN & SONS SPP HAMBRO & CO.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1994
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES, THE
UNITS AND/OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of 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
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matters involved, and each such statement
shall be deemed qualified in its entirety by this reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and in accordance therewith files reports,
proxy statements (if required) and other information with the Commission. Such
reports, proxy statements and other information, including the Registration
Statement, may be inspected and copied (at prescribed rates) at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's Regional Offices
located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. The Company's 12 3/4% Senior Subordinated Debentures due 2001 and
its Subordinated Discount Debentures due January 1, 2006 are listed on the
American Stock Exchange. Reports, proxy statements, and other information can
also be inspected at the office of the American Stock Exchange, 86 Trinity
Place, New York, New York 10006-1881.
The Company will furnish holders of the Securities with copies of reports,
proxy statements or other information as specified in "Description of Warrants
- -- Reports," "Description of Notes -- Certain Covenants -- Provision of
Financial Statements."
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS
PROSPECTUS TO THE COMPANY AND ICC ARE TO INTERNATIONAL CONTROLS CORP. AND ITS
CONSOLIDATED SUBSIDIARIES (WHICH FOR THIS PURPOSE INCLUDES A PARTNERSHIP WHICH
IS CONTROLLED BY ICC).
THE COMPANY
OVERVIEW
ICC is a holding company that is engaged in four principal lines of
business. Great Dane manufactures a full line of truck trailers for the
over-the-road tractor trailer long and short haul markets and containers and
chassis for intermodal shipping. Motors manufactures sheet metal stampings for
automotive components and subassemblies, primarily for General Motors
Corporation ("GM"). The Company's Yellow Cab Company division ("Yellow Cab") is
currently the largest owner of taxicabs and provider of taxi-related services in
Chicago, Illinois. American Country Insurance Company ("Country") underwrites
property and casualty insurance, including taxicab insurance, workers'
compensation and other commercial and personal lines.
Prior to 1987, ICC engaged in various engineering, aerospace and
manufacturing operations, including truck trailer manufacturing. In 1987, ICC
was taken private in a leveraged buyout transaction and initiated a plan of
divestitures to reduce bank debt. In 1989, with Great Dane as its only remaining
business, ICC acquired Motors and immediately thereafter, the major shareholders
of Motors obtained control of ICC through a reverse acquisition (the "Reverse
Acquisition").
TRAILER MANUFACTURING
Great Dane, which generated approximately 78% of the Company's revenues and
62% of the Company's total segment operating profit (segment gross profit less
selling, general and administrative expenses) for the year ended December 31,
1993, designs, manufactures and distributes a full line of both standard and
customized truck trailers (including dry freight vans, refrigerated trailers
("reefers") and platform trailers) and intermodal containers and chassis. In
1993, Great Dane was the largest manufacturer of truck trailers in the United
States with a 12.7% total market share, including an estimated leading 37.9%
share of the reefer market and a 23.3% share of the intermodal container and
chassis market. Great Dane believes it offers the broadest line of trailers in
the industry and emphasizes the production of customized and proprietary
products which generally have higher margins than more standard products. Great
Dane sells and services its trailers primarily through a nationwide network of
branches and independent dealers to gain access to a diversified customer base.
During the past several years, Great Dane has undertaken a number of
strategic initiatives designed to improve its competitive position and
capitalize on the growing intermodal container and chassis market. Accordingly,
Great Dane reduced corporate overhead through management consolidation,
increased operating efficiencies and capacity through plant reconfigurations and
initiated product cost reduction and new product development programs. Great
Dane also increased its manufacturing flexibility by adapting certain of its
assembly lines to be efficient in filling both large and small orders, and
expanded its distribution network domestically, as well as in Canada and Mexico,
in order to provide new outlets for its products and high margin parts and
services business.
Furthermore, during 1992, Great Dane entered the intermodal container and
chassis market as its engineering department, working in conjunction with J.B.
Hunt Transport ("J.B. Hunt"), one of the largest truckload carriers in the U.S.,
developed a unique line of intermodal containers and matching ultra lightweight
chassis. "Intermodal containers," as used in this Prospectus, refers to
containers which are designed to travel principally on rail car, and which, when
removed from the rail car, can be placed on a chassis for transportation by
truck to and from a rail yard. These products enable Great Dane's customers to
take advantage of new double stack intermodal shipping methods, generally the
most economical method of hauling freight over long and intermediate distances.
Great Dane believes that
3
intermodal transportation, which has been expanding at an approximately 10%
compounded annual growth rate since 1988, will provide a significant growth
opportunity as carriers replace some or all of their trailers with containers
and chassis.
Great Dane's objectives are to increase its share of the truck trailer
market and continue to capitalize on the growing intermodal market. To achieve
these objectives, Great Dane will continue to emphasize the development of high
quality innovative products and improve the efficiency of its assembly
operations. Great Dane is presently adapting certain of its assembly lines to
produce either intermodal containers or truck trailers on the same line. In
addition, Great Dane plans to utilize its expanded distribution network and
manufacturing flexibility to broaden its customer base by increasing sales to
large customers.
AUTOMOTIVE PRODUCTS OPERATIONS
Through South Charleston Stamping & Manufacturing Company ("SCSM") and its
Kalamazoo, Michigan facility ("CMC Kalamazoo"), Motors, together with its
customers, develops, designs and manufactures a broad range of sheet metal
automotive components and subassemblies, including tailgates, fenders, doors,
roofs and hoods, primarily for sale to North American original equipment
manufacturers ("OEMs"). These operations generated approximately 14% of the
Company's revenues and 29% of the Company's total segment operating profit for
the year ended December 31, 1993. Motors focuses on the higher-growth light
truck, sports utility vehicle and van segments of the market and currently
supplies products primarily to GM. Other customers include Freightliner Corp.
and Saturn Corporation, and SCSM recently signed a contract with Mercedes-Benz
to produce parts for its new sports utility vehicle commencing in 1996 for the
1997 model year.
Through the purchase of SCSM in 1989 and the expansion of that facility's
press lines, Motors acquired a modernized stamping facility covering an area of
more than 900,000 square feet. Unlike many of its competitors, SCSM presently
has the equipment to supply complete assemblies including large stampings and
related assembly parts. SCSM provides a full complement of services, including
design, engineering and manufacturing, which enables the Company to play an
integral role in the development and execution of product programs for its
customers. SCSM's ability to provide customer service, timely delivery and
quality products at competitive prices has resulted in the receipt of GM's "Mark
of Excellence" award.
VEHICULAR OPERATIONS
The vehicular operations generated approximately 5% of the Company's
revenues and 12% of the Company's total segment operating profit during the year
ended December 31, 1993. Yellow Cab is the largest taxicab fleet owner in the
City of Chicago ("Chicago") and, as of March 31, 1994, owned approximately 2,370
or 44% of the 5,400 taxicab licenses ("licenses" or "medallions") available in
Chicago. Yellow Cab's primary business is the leasing of its medallions and
vehicles to independent taxi operators through two programs: the owner-operator
program and the daily lease program. In contrast to the daily lease program, the
owner-operator program, which covers approximately 65% of the medallions owned
by the Company, relieves Yellow Cab of vehicle maintenance and repair costs, as
well as the cost of housing and storing a large fleet. The Company also provides
a variety of other services to taxi drivers and non-affiliated medallion
holders, including insurance coverage through Country and repair and maintenance
services through Chicago AutoWerks.
INSURANCE OPERATIONS
Country generated approximately 3% of the Company's revenues and an
aggregate of $3.9 million of pre-tax income (comprising approximately $2.0
million of segment operating loss and approximately $5.9 million of portfolio
interest income) during the year ended December 31, 1993. During 1993, 67% of
Country's total premium revenue was attributable to non-affiliated
property/casualty lines, primarily workers' compensation, commercial automobile
and commercial multiple peril. The remainder of Country's premium revenues was
attributable to affiliated taxi liability, collision and workers' compensation
insurance in the State of Illinois. Through its longstanding relationship with
Yellow Cab, Country has developed a comprehensive understanding of the
associated risks of taxicab insurance underwriting and
4
presently is one of the few voluntary providers of such insurance. Country's
strategy is to expand its non-affiliated personal and commercial/casualty
property lines by entering new markets including Southern Illinois and the
states surrounding Illinois while maintaining its affiliated taxi liability and
collision business. Country is currently rated "A" by A.M. Best.
PROPOSED REFINANCING
The Company is implementing a refinancing (the "Refinancing") designed (a)
to increase its liquidity through (i) reduced amortization and interest
requirements and (ii) the removal of certain restrictions on the use of cash
from the Company's subsidiaries providing for more flexible and efficient cash
management and (b) to simplify its corporate structure, thereby enhancing its
ability to obtain future financing. The Refinancing includes the following (all
amounts are as of March 31, 1994):
(A) an initial borrowing of approximately $82.4 million (the "Initial
Borrowing") under the New Credit Facility, the proceeds of which will be
used to repay substantially all of the indebtedness of the Company's
subsidiaries;
(B) the redemption of all of the approximately $132.0 million
outstanding aggregate principal amount of the Company's 12 3/4% Senior
Subordinated Debentures due 2001 (the "12 3/4% Debentures") at 103.18% of
their principal amount, together with accrued and unpaid interest to the
date of redemption (the "12 3/4% Debenture Redemption");
(C) the redemption of all of the approximately $61.3 million outstanding
aggregate principal amount of the Company's Subordinated Discount Debentures
due January 1, 2006 (the "14 1/2% Debentures") at their principal amount,
together with accrued and unpaid interest to the date of redemption (the
"14 1/2% Debenture Redemption");
(D) the redemption of all of the outstanding $30.0 million aggregate
principal amount of the Company's senior notes (the "Existing Notes")
bearing interest at an annual rate of 3.5% above the prime rate of interest,
held by the stockholders of the Company, maturing on the earlier of
September 30, 1997 or the payment in full of certain subsidiary indebtedness
(the "Existing Note Redemption"); and
(E) the redemption for $37.0 million (the "Minority Interest
Redemption") of the minority capital account in Checker Motors Co., L.P.
("Checker L.P.") which was being amortized over a twenty-five year period,
ending in December 2013, with interest at a rate of 7.0%, and any minority
equity interest in Checker L.P.
After consummation of the Minority Interest Redemption, Checker L.P. will be
liquidated and, thereafter, Motors will own directly all of the assets currently
held by Checker L.P., including the vehicular operations, CMC Kalamazoo and the
stock of Country. The operations of Checker L.P. will be conducted by
newly-formed subsidiaries of Motors.
See "Proposed Refinancing," "Use of Proceeds" and "Capitalization."
Before giving effect to the Refinancing, scheduled principal payments on
outstanding indebtedness in each of the five years ending December 31, 1998 are
$19.3 million, $44.4 million, $9.1 million, $54.1 million and $19.6 million,
respectively. After giving effect to the Refinancing, scheduled principal
payments on outstanding indebtedness in each of the next five years would be
$7.1 million, $7.1 million, $7.1 million, $7.1 million and $21.6 million,
respectively. In addition, certain prepayments are required to be made in the
event the Company has Excess Cash Flow (as defined in the New Credit Facility)
or sells any of its capital stock. See "Description of New Credit Facility --
Amortization; Prepayments."
5
ORGANIZATION
The chart below sets forth the corporate structure of the Company after
giving effect to the Refinancing:
See Appendix 1 for a description of the organizational chart.
6
THE OFFERING
Securities Offered................ $165,000,000 principal amount of % Senior Notes Due
2002 and 100,000 Units, each consisting of $1,000
principal amount of % Senior Subordinated Notes Due
2004 and one Warrant to purchase shares of
Common Stock. The Senior Subordinated Notes and the
Warrants will not trade separately until ,
1994 or such earlier date as (1) the Underwriters may
determine or (2) the Warrants become exercisable. See
"Description of Warrants."
Use of Proceeds................... The Company will use the net proceeds from the sale of
the Securities, together with proceeds of an estimated
$82.4 million of initial borrowings under the New Credit
Facility and approximately $22.2 million of its cash
(assuming the Offering had been consummated on March 31,
1994), to (i) redeem all of the outstanding 12 3/4%
Debentures, (ii) redeem all of the outstanding 14 1/2%
Debentures, (iii) redeem the Existing Notes, (iv) retire
substantially all of the indebtedness of the Company's
subsidiaries, and (v) redeem the minority capital
account and any minority interest in Checker L.P. See
"Use of Proceeds," "Proposed Refinancing" and
"Business-Legal Proceedings -- Executive Life
Litigation."
THE SENIOR NOTES
Interest Payment Dates............ and of each year, commencing , 1994.
Mandatory Redemption.............. None.
Optional Redemption............... The Senior Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after
, 1999, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of Notes -- Optional
Redemption."
Security.......................... The Senior Notes will be secured by a pledge of all of
the outstanding capital stock of Great Dane and Motors
on an equal and ratable basis with the obligations
incurred under the New Credit Facility. See "Description
of Notes -- Security."
Ranking........................... The Senior Notes will be senior secured obligations of
the Company and will rank PARI PASSU in right of payment
with all other senior indebtedness of the Company
(including the obligations under the New Credit
Facility) and senior in right of payment to all
subordinated obligations of the Company, including the
Senior Subordinated Notes. However, the Company's
obligations under the New Credit Facility will be
secured by substantially all of the assets of the
Company and the Co-Obligors (including the outstanding
capital stock of Great Dane and Motors). Since the
Company is a holding company, the Senior Notes will also
be effectively subordinated to all existing and future
liabilities (including trade payables and obligations
under the New Credit Facility) of the Company's
subsidiaries. After giving effect to the Refinancing,
the Company would have had an estimated $82.4 million of
secured indebtedness drawn under the New Credit Facility
as of March 31, 1994.
7
THE SENIOR SUBORDINATED NOTES
Interest Payment Dates............ and of each year, commencing ,
1994.
Mandatory Redemption.............. None.
Optional Redemption............... The Senior Subordinated Notes are redeemable at the
option of the Company, in whole or in part, at any time
on or after , 1999, at the redemption prices
set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, on or prior
to , 1997, the Company may, at its option,
redeem up to 25% of the aggregate principal amount of
the Senior Subordinated Notes outstanding on the date of
the Senior Subordinated Note Indenture with the proceeds
of a Public Offering at a price of % of their
principal amount, plus accrued and unpaid interest, if
any, to the date of redemption, provided that $ in
aggregate principal amount of the Senior Subordinated
Notes remains outstanding immediately following such
redemption. See "Description of Notes -- Optional
Redemption."
Ranking........................... The Senior Subordinated Notes will be senior
subordinated obligations of the Company and will be
subordinated in right of payment to all senior
indebtedness (including, without limitation, the Senior
Notes and the obligations under the New Credit
Facility); PROVIDED, HOWEVER, that the Senior
Subordinated Notes will rank senior in right of payment
to all existing and future indebtedness of the Company
that is expressly subordinated to senior indebtedness
except for any future indebtedness of the Company which
expressly provides that it is PARI PASSU with the Senior
Subordinated Notes (and, until redemption thereof, the
12 3/4% Debentures). Since the Company is a holding
company, the Senior Subordinated Notes will also be
effectively subordinated to all existing and future
liabilities of the Company's subsidiaries. After giving
effect to the Refinancing, the Company would have had
outstanding $247.4 million of indebtedness at March 31,
1994 ranking senior in right of payment to the Senior
Subordinated Notes, and there would have been no
indebtedness junior to the Senior Subordinated Notes.
GENERAL PROVISIONS OF THE NOTES
Change of Control................. Upon a Change of Control (as defined in the indentures
governing the Notes (the "Indentures")), each holder of
the Notes may require the Company to repurchase all or a
portion of such holder's Notes at a purchase price equal
to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase.
See "Description of Notes -- Change of Control."
Certain Restrictions.............. The Indentures will contain covenants with respect to
the following matters: (i) limitations on additional
indebtedness; (ii) limitations on restricted payments;
(iii) limitations on transactions with affiliates; (iv)
limitations on compensation paid to
8
certain affiliates; (v) the application of the proceeds
of certain asset sales (including the obligation under
certain circumstances to repurchase the Notes with such
proceeds); (vi) limitations on liens; (vii) limitations
on guarantees by subsidiaries; (viii) limitations on the
issuance and sale of capital stock of subsidiaries; (ix)
limitations on dividends and other payment restrictions
affecting subsidiaries; and (x) restrictions on mergers,
consolidations and transfers of all or substantially all
of the assets of the Company to another person. In
addition, the Senior Subordinated Note Indenture will
prohibit the incurrence of indebtedness that is
subordinated to any senior indebtedness and senior to
the Senior Subordinated Notes. See "Description of Notes
-- Certain Covenants."
Original Issue Discount........... The Senior Subordinated Notes will be issued with
original issue discount for federal income tax purposes.
As a result, purchasers of Senior Subordinated Notes
will be required to recognize such original issue
discount as ordinary income in advance of the receipt of
the cash payments to which such income is attributable.
See "Certain Federal Income Tax Consequences."
THE WARRANTS
Warrants.......................... Each Warrant will entitle the holder thereof to purchase
shares of Common Stock of the Company at an exercise
price of $.01 per share. The Warrants will entitle the
holders thereof to purchase, in the aggregate,
approximately % of the Common Stock of the Company on a
fully diluted basis as of the date of issuance of the
Warrants. The number of shares of Common Stock
purchasable upon the exercise of the Warrants will be
subject to adjustment in certain circumstances as
provided in the Warrant Agreement.
Exercise.......................... The Warrants will become exercisable (an "Exercise
Event") on , 1999, or upon the earlier
occurrence of (1) a Change of Control or (2) a Public
Offering.
Expiration........................ , 1999.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers of the Securities should carefully consider the matters
set forth under "Risk Factors" prior to making an investment decision.
9
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from the consolidated financial statements of the Company for the years ended
December 31, 1989, 1990, 1991, 1992 and 1993, which have been audited by Ernst &
Young, independent auditors, and from the consolidated financial statements of
the Company for the three-month periods ended March 31, 1993 and 1994. The
summary consolidated financial information provided for the three-month periods
reflects all adjustments (consisting of normal recurring accruals) considered
for a fair presentation of such data. The results of interim periods may not be
indicative of results for the full year. The following summary information
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- ----------------------
1989 1990 1991 1992 1993 1993 1994
--------- ------------ --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Revenues:
Trailer Manufacturing............ $ 575,793 $ 491,532 $ 400,196 $ 536,336 $ 711,862 $ 153,623 $ 215,050
Automotive Products.............. 99,886 133,401 84,401 112,631 127,925 34,685 38,253
Vehicular Operations............. 44,404 45,006 43,527 40,580 42,103 10,262 10,518
Insurance Operations............. 18,304 23,272 27,142 27,186 27,436 6,363 7,859
--------- ------------ --------- --------- --------- --------- ---------
Total Revenues................... $ 738,387 $ 693,211 $ 555,266 $ 716,733 $ 909,326 $ 204,933 $ 271,680
--------- ------------ --------- --------- --------- --------- ---------
--------- ------------ --------- --------- --------- --------- ---------
Segment Operating Profit (Loss):
(1)
Trailer Manufacturing............ $ 26,508 $ 13,109(2) $ 7,059 $ 17,590 $ 32,381 $ 5,144 $ 14,300
Automotive Products.............. 10,561 9,669 (4,237) 11,622 15,306 4,491 5,409
Vehicular Operations............. 9,437 9,751 7,139 5,727 6,251 1,323 1,330
Insurance Operations (3)......... (190) (980) (2,872) (1,557) (1,947) (450) (710)
--------- ------------ --------- --------- --------- --------- ---------
Total Segment Operating Profit... 46,316 31,549 7,089 33,382 51,991 10,508 20,329
Corporate Expenses................. (7,457) (8,115) (4,398) (4,396) (4,646) (1,192) (938)
Interest Expense (4)............... (57,879) (61,596) (47,425) (42,726) (41,614) (10,465) (10,044)
Interest Income.................... 15,494 14,696 11,634 8,895 7,396 2,018 1,660
Other Income (Expense)............. 4,704 (941) (1,078) (2,023) 3,494 991 604
Special Charge (5)................. -- -- -- -- (7,500) -- --
--------- ------------ --------- --------- --------- --------- ---------
Income (Loss) Before Minority
Equity, Income Taxes,
Extraordinary Items and Accounting
Changes........................... 1,178 (24,407) (34,178) (6,868) 9,121 1,860 11,611
Minority Equity.................... (2,424) (2,296) 1,931 -- -- -- --
Income Tax Benefit (Expense)....... (610) 6,429 5,241 (687) (5,757) (2,604) (5,225)
Extraordinary Items (6)............ 4,799 27,749 31,188 -- -- -- --
Accounting Changes (7)............. -- -- -- -- (46,626) (46,626) --
--------- ------------ --------- --------- --------- --------- ---------
Net Income (Loss).................. $ 2,943 $ 7,475 $ 4,182 $ (7,555) $ (43,262) $ (47,370) $ 6,386
--------- ------------ --------- --------- --------- --------- ---------
--------- ------------ --------- --------- --------- --------- ---------
OTHER DATA:
Total Depreciation and Amortization
Expense (8)....................... $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 28,089 $ 6,747 $ 6,882
Capital Expenditures............... 20,513 21,564 16,457 17,549 20,006 7,843 6,903
EBITDA (9)......................... 80,200 61,940(2) 38,304 60,889 84,658 18,675 28,070
Ratio of EBITDA to Cash Interest
Expense (4)....................... 2.6x 1.7x -- 1.5x 2.1x 1.9x 2.9x
Ratio of Earnings to Fixed Charges
(10).............................. 1.0x -- -- -- 1.2x 1.2x 2.1x
Pro Forma Ratio of EBITDA to Cash
Interest Expense (11)............. -- -- -- -- 2.2x -- 2.9x
Pro Forma Ratio of Earnings to
Fixed Charges (12)................ -- -- -- -- 1.2x -- 2.0x
(CONTINUED ON FOLLOWING PAGE)
10
DECEMBER 31, MARCH 31,
---------------------------------------------------------------- ----------------------
1989 1990 1991 1992 1993 1993 1994
--------- ------------ --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working Capital.................... $ 68,829 $ 81,111 $ 48,559 $ 51,091 $ 51,136 $ 61,119 $ 30,339
Property, Plant and Equipment --
Net............................... 134,691 133,116 125,681 119,492 122,355 129,274 123,111
Total Assets....................... 536,084 537,677 481,305 493,763 517,336 514,779 527,158
Long-Term Debt (Including Current
Maturities)....................... 405,167 376,692 312,324 305,368 291,273 316,028 287,113
Shareholders' Deficit.............. (111,799) (104,745) (98,374) (106,296) (149,517) (153,355) (143,538)
<FN>
- ------------------
(1) Segment operating profit (loss) is segment gross profit (loss) less segment
selling, general and administrative expenses.
(2) After deducting $7,500 of plant restructuring costs.
(3) Segment operating profit for the insurance operations does not include
portfolio interest income.
(4) Interest expense includes (dollars in thousands):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
Cash interest expense...................... $ 30,873 $ 36,556 $ 46,081 $ 41,251 $ 39,948 $ 10,068 $ 9,577
Amortization of debt discount.............. 26,638 24,690 1,045 1,181 1,372 324 393
Amortization of debt expense............... 368 350 299 294 294 73 74
--------- --------- --------- --------- --------- --------- ---------
Total Interest Expense................. $ 57,879 $ 61,596 $ 47,425 $ 42,726 $ 41,614 $ 10,465 $ 10,044
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<FN>
(5) Represents cost to the Company of the settlement of certain litigation with
the Boeing Company. See "Business -- Legal Proceedings -- Boeing Litigation"
and Note H to Notes to Consolidated Financial Statements -- December 31,
1993.
(6) Extraordinary items in all years relate to the gain or loss on the
repurchase of indebtedness. See Note L to Notes to Consolidated Financial
Statements -- December 31, 1993.
(7) The accounting changes represent the cumulative effect of changes in
accounting principles as a result of the adoption, as of January 1, 1993, of
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers Accounting for Postretirement Benefits Other Than Pensions,"
and SFAS No. 109, "Accounting for Income Taxes." See Notes I and K to Notes
to Consolidated Financial Statements -- December 31, 1993.
(8) Total depreciation and amortization expense includes (dollars in thousands):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
Depreciation and amortization............... $ 18,186 $ 20,784 $ 20,931 $ 21,054 $ 23,295 $ 5,571 $ 5,631
Amortization of cost in excess of net assets
acquired................................... 1,252 1,250 1,250 1,250 1,250 312 313
Amortization of debt discount............... 26,638 24,690 1,045 1,181 1,372 324 393
Amortization of debt expense................ 368 350 299 294 294 73 74
Other amortization.......................... 1,705 2,717 2,876 2,727 1,878 467 471
--------- --------- --------- --------- --------- --------- ---------
Total Depreciation and Amortization..... $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 28,089 $ 6,747 $ 6,882
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<FN>
(9) EBITDA represents income (loss) before minority equity, income taxes,
extraordinary items and accounting changes plus cash interest expense, total
depreciation and amortization expense and special charges. The Company
believes that EBITDA provides useful information regarding the Company's
ability to service its debt; however, EBITDA does not represent cash flow
from operations and should not be considered as a substitute for net income,
as an indicator of the Company's operating performance or for cash flow as a
measure of liquidity.
(10) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before minority equity, income taxes, extraordinary items,
accounting changes and fixed charges. Fixed charges consist of (i) cash
interest expense, (ii) amortization of debt discount and debt expense, and
(iii) that portion of operating lease rental expense which is representative
of the interest factor (deemed by management to be one-third of rental
expense). The Company's earnings were insufficient to cover fixed charges by
(in thousands) $24,407, $34,178 and $6,868 for the years ended December 31,
1990, 1991 and 1992, respectively.
(11) The adjustments made to the historical ratios of EBITDA to cash interest
expense to arrive at the pro forma ratios were to give effect to the
Refinancing as if it had occurred as of the first day of the period. No
adjustments have been made to reflect interest which will accrue on the
12 3/4% Debentures and the 14 1/2% Debentures during the requisite 30-day
notice periods.
(12) The only adjustments made to the historical ratio of earnings to fixed
charges to arrive at the pro forma ratio were to give effect to the change
in fixed charges resulting from the Refinancing.
11
RISK FACTORS
Prospective purchasers of the Securities should evaluate the following
factors, as well as the other information set forth in this Prospectus, before
making an investment in the Securities.
SUBSTANTIAL LEVERAGE
The Company currently is and, following the completion of the Refinancing,
will continue to be substantially leveraged. After giving effect to the
Refinancing, the Company's consolidated indebtedness would have been $347.4
million at March 31, 1994. See "Proposed Refinancing," "Use of Proceeds,"
"Capitalization," and "Selected Consolidated Financial Data." In addition, the
Company anticipates that the revolving credit portion of the New Credit Facility
would have provided approximately $49.6 million of available additional funds at
March 31, 1994, as determined by a formula based on accounts receivable and
inventory, subject to the Company's ability to meet certain financial tests.
Based upon its current level of operations and anticipated growth, the
Company believes that available cash flow, together with available borrowings
under the New Credit Facility, will be adequate to meet the Company's
anticipated requirements for working capital, capital expenditures, interest
payments and amortization of the New Credit Facility. There can be no assurance,
however, that the Company's businesses will continue to generate cash flow at or
above current levels or otherwise in sufficient amounts to pay the principal and
interest on the Notes or to satisfy the Company's obligations to repurchase the
Notes in the event of a Change of Control.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate purposes,
refinancing of indebtedness or other purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of the principal of and interest on its indebtedness, thereby
reducing the funds available to the Company for its operations; (iii) the
Company is more highly leveraged than certain of its competitors, which may
place the Company at a competitive disadvantage; (iv) certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
could result in higher interest expenses in the event of increases in interest
rates; and (v) the Company's high degree of leverage may make it more vulnerable
to economic downturns and may limit its ability to withstand competitive
pressures.
RANKING OF THE NOTES; HOLDING COMPANY STRUCTURE
The Senior Notes will be senior obligations of the Company and will rank
PARI PASSU in right of payment with all other existing and future senior
indebtedness of the Company (including, without limitation, the New Credit
Facility) and senior in right of payment to all subordinated obligations of the
Company. After giving effect to the Refinancing, the Company would have had
approximately $82.4 million of indebtedness outstanding at March 31, 1994
ranking PARI PASSU in right of payment with the Senior Notes. The Senior
Subordinated Notes will be senior subordinated obligations of the Company and
will be subordinated in right of payment to all existing and future senior
indebtedness of the Company (including, without limitation, the Senior Notes and
the New Credit Facility). After giving effect to the Refinancing, the Company
would have had $247.4 million of indebtedness outstanding at March 31, 1994
ranking senior in right of payment to the Senior Subordinated Notes. See
"Description of New Credit Facility" and "Description of Notes."
Since the Company is a holding company, the Notes will be effectively
subordinated to all existing and future liabilities (including trade payables
and obligations under the New Credit Facility) of the Company's subsidiaries.
All of the Company's operations are conducted, substantially all of the tangible
assets of the Company are held by, and all of the Company's operating revenues
were derived from, operations of the subsidiaries. Therefore, the Company's
ability to make interest and principal payments when due to holders of the
Notes, or to repurchase the Notes in the event of a Change of Control, is
entirely dependent upon the receipt of sufficient funds from its subsidiaries.
The Company's subsidiaries
12
are separate and distinct legal entities and have no obligations, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether in the form of loans, dividends or otherwise.
Under the New Credit Facility, Subsidiaries of the Company are generally
permitted to pay dividends or make other distributions or loans to the Company
in order to make scheduled principal and interest payments on the Notes (but not
any accelerated payments, including if the Company is required to repurchase
Notes upon a Change of Control or, under certain circumstances, after the sale
of assets as described under "Description of Notes -- Certain Covenants");
PROVIDED, HOWEVER, that no such dividends or other distributions or loans will
be permitted (i) if a payment default is continuing under the New Credit
Facility or a change in control (as defined in the Loan Agreement) or certain
events of insolvency occur, or (ii) upon the occurrence of a default under the
New Credit Facility (other than a default described in (i) above) until the
earlier of (a) the 179th day following delivery of notice of such occurrence to
the Company or (b) the curing or waiving of such other default. Notwithstanding
the foregoing, the holders of the Notes are not restricted under the terms of
the Indentures from accelerating the Indebtedness thereunder upon the happening
of an event of default under the Indentures.
In addition, because the obligations under the New Credit Facility are
secured by substantially all of the assets of the Co-Obligors (as compared to
only the common stock of Great Dane and Motors in the case of the Senior Notes),
the Notes will be effectively subordinated to the Company's obligations under
the New Credit Facility. After giving effect to the Refinancing, the
subsidiaries of the Company would have had total liabilities (including trade
payables and obligations under the New Credit Facility) of $375.5 million at
March 31, 1994. In the event of the dissolution, bankruptcy, liquidation or
reorganization of ICC, the holders of the Notes may not receive any payments
with respect to the Notes until after the payment in full of the claims of the
creditors of the Company's subsidiaries, including the lenders under the New
Credit Facility.
The Senior Notes will be secured solely by a pledge of all of the
outstanding capital stock of Great Dane and Motors (the "Collateral"), on an
equal and ratable basis with the obligations incurred under the New Credit
Facility. There can be no assurance that the proceeds of any sale of Collateral
would be sufficient to satisfy payments due on the Senior Notes, particularly
since the obligations incurred under the New Credit Facility are also secured by
substantially all of the assets of the Company and the Co-Obligors. In addition,
the ability of the holders of the Senior Notes to realize upon the Collateral
may be subject to certain bankruptcy limitations in the event of a bankruptcy of
the Company. See "Description of Notes -- Security" and "-- Certain Bankruptcy
Limitations."
COMPETITION
Two of the Company's primary businesses, trailer manufacturing and
automotive products manufacturing, are highly competitive. The Company competes
with other truck trailer manufacturers and automotive stamping companies of
varying sizes (including the in-house capabilities of certain automotive
manufacturers), some of which have greater financial resources than the Company.
In addition, barriers to entry in the truck trailer manufacturing industry are
low and, therefore, it is possible that additional competitors could enter the
market at any time. Although Great Dane is presently the largest manufacturer in
the truck trailer industry, there can be no assurance that it will be able to
maintain or increase its market share.
CYCLICAL BUSINESS
The truck trailer industry is dependent on the trucking industry in general
and the automotive parts industry is dependent on the automotive industry. Poor
economic conditions in either industry could have a material adverse effect on
the Company. Sales of new truck trailers have historically been subject to
cyclical variations based both on general economic conditions and a five to
seven-year replacement cycle. The poor economic conditions in the United States
in 1990 and 1991 had an adverse effect on industry-wide demand for new truck
trailers, causing industry shipments of new truck trailers to fall to their
lowest level since 1983. Although sales have rebounded from these low levels,
there can be no assurance that such growth will continue.
13
GOVERNMENT REGULATIONS OF TRUCK TRAILERS
The federal government regulates certain safety features incorporated in the
design of truck trailers. Changes or anticipation of changes in these
regulations can have a material impact on the cost of manufacturing truck
trailers and on Great Dane's customers and may adversely affect the financial
condition of the Company.
RELIANCE ON MAJOR CUSTOMERS
Great Dane has entered the container manufacturing business in reliance on a
large order from J.B. Hunt. There can be no assurance that Great Dane will be
able to attract other substantial customers for these products. J.B. Hunt
accounted for approximately 13% of Great Dane's revenues for the year ended
December 31, 1993.
The Company's automotive products operations rely heavily on sales to GM.
For the year ended December 31, 1993, sales to GM accounted for approximately
95% of the automotive products operations' revenues and approximately 13% of the
Company's revenues. The automotive products industry has experienced increased
pricing pressure from OEMs which are taking aggressive measures to reduce their
operating costs, including significant price reductions from suppliers. Although
opportunities for new business may arise for Motors as a result of GM's pressure
on other suppliers, future earnings of this segment of the Company's business
may be materially adversely affected by the price reductions required or
requested by GM or by decisions by GM to utilize its own facilities to
manufacture these products. Although GM provides 13 week forecasts of its
purchasing requirements, changes in its production may result in changes to
these requirements. In addition, although the Company is attempting to diversify
its customer base, there can be no assurance that the Company will be able to
reduce its reliance on GM in the foreseeable future.
CONTROL OF THE COMPANY
David R. Markin owns 32.5% of the common stock of the Company and each of
three other individuals owns 22.5% of the Common Stock. Therefore, Mr. Markin,
together with any one of the three other stockholders, or the other three
stockholders acting together, effectively has control of the Company and would
have sufficient voting power to determine the outcome of any corporate
transaction or other matter requiring stockholder approval.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state and local
laws and regulations pertaining to the discharge of materials into the
environment. The Company has taken steps related to such matters in order to
minimize the risks of potentially harmful aspects of its operations on the
environment. From time to time, the Company has incurred expenses to improve its
facilities in accordance with applicable laws. Great Dane has changed its
manufacturing process to comply with new regulations controlling the emission of
chlorofluorocarbons.
The Company also remains obligated to indemnify purchasers of prior
subsidiaries for environmental contamination, if any, of properties owned by
such subsidiaries. The Company's expenditures related to the foregoing
environmental matters and indemnification obligations have not had, and the
Company does not currently anticipate that such expenditures will have, a
material adverse effect on the Company's financial condition, although there can
be no assurance that this will remain the case.
IMPACT OF CITY REGULATION AND EXPIRATION OF ANNUAL LIMIT ON NEW MEDALLION
ISSUANCE
The City of Chicago ("Chicago") regulates Yellow Cab's operations through
rates of fare, maintenance, lease rates, insurance and inspection requirements,
as well as through taxes, license fees and other means. Chicago has recently
given the Commissioner of Consumer Services broad powers to set maximum lease
rates, which, in certain instances, have been set at lower rates than those
currently charged by Yellow Cab. Although Yellow Cab has filed a petition for
higher rates than those set by the Commissioner and is allowed to continue
charging its current rates pending action on its petition, there can be no
assurance that it will be successful or that in the future it will be able to
pass through any increased costs by lease rate increases or other means.
14
The agreement between Yellow Cab and Chicago, pursuant to which increases in
the total number of outstanding medallions in Chicago are limited to a maximum
of 100 annually, expires on December 31, 1997. There can be no assurance as to
how many medallions Chicago will issue after the expiration of the agreement,
nor as to the effect, if any, on the Company, of such issuance, including the
effect on medallion values. Although Yellow Cab has sold medallions during the
past year at selling prices of approximately $38,000 per medallion, there can be
no assurance that such values will continue to prevail in the market, especially
after December 31, 1997. See "Business -- Vehicular Operations -- Regulatory
Issues."
FRAUDULENT CONVEYANCE RISK
The incurrence by the Company of indebtedness under the Notes may be subject
to review under federal and state fraudulent conveyance laws if a bankruptcy,
reorganization or rehabilitation case or similar proceeding is commenced or a
lawsuit is commenced by or on behalf of unpaid creditors of the Company. Under
these laws, if a court were to find that, at the time the indebtedness under the
New Credit Facility was incurred or the Notes were issued, (a) the Company
incurred such indebtedness or issued the Notes with the intent of hindering,
delaying or defrauding current or future creditors or (b)(i) the Company
received less than reasonably equivalent value or fair consideration for
incurring such indebtedness or issuing the Notes, and (ii) the Company (A) was
insolvent or was rendered insolvent by reason of the incurrence of such
indebtedness or the issuance of the Notes, (B) was engaged, or about to engage,
in a business or transaction for which its assets constituted unreasonably small
capital, (C) 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 relevant fraudulent conveyance laws) or (D) was
a defendant in an action for money damages or had a judgment for money damages
docketed against it (if, in either case, after final judgment the judgment is
unsatisfied), such court could avoid or subordinate the Notes to presently
existing and future indebtedness of the Company and take other action
detrimental to the holders of the Notes, including, under certain circumstances,
invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction which is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurred the indebtedness under the New Credit Facility or
incurred the indebtedness constituting the Notes either (i) the fair market
value (or 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 (ii)
it is incurring debt beyond its ability to pay as such debt matures. The Company
believes that it is receiving fair consideration for its incurrence of
indebtedness under the New Credit Facility and its issuance of the Notes and
that it will not be rendered insolvent thereby.
POTENTIAL LACK OF FUNDING FOR CHANGE OF CONTROL OFFER
In the event of a Change of Control, the Company will be required, subject
to certain conditions, to offer to purchase all outstanding Notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. After giving effect to the Refinancing, the
Company may not have sufficient funds available to purchase all of the
outstanding Notes were they to be tendered in response to an offer made as a
result of a Change of Control. In addition, the Company's ability to repurchase
the Notes upon the occurrence of a Change of Control will be restricted by the
New Credit Facility. Further, rights of the holders of the Senior Subordinated
Notes upon the occurrence of a Change of Control will be subordinate to the
rights of the holders of the Senior Notes. See "Description of Notes -- Certain
Covenants -- Purchase of Notes Upon a Change of Control."
DIVIDEND POLICY
ICC has not paid cash dividends on its capital stock in recent years and
does not intend to pay cash dividends on the Common Stock in the foreseeable
future. Furthermore, the Company's ability to pay dividends is limited by the
Indentures and prohibited by the New Credit Facility.
15
CERTAIN ISSUES RELATING TO ORIGINAL ISSUE DISCOUNT
The Senior Subordinated Notes will be issued with original issue discount
for federal income tax purposes. For purposes of computing original issue
discount, the Senior Subordinated Notes and the Warrants will be treated as a
Unit and the issue price of the Unit will be allocated between the Senior
Subordinated Notes and the Warrants. As a result, purchasers of Senior
Subordinated Notes will be required to recognize such original issue discount as
ordinary income in advance of the receipt of the cash payments to which such
income is attributable. See "Certain Federal Income Tax Consequences" for a more
detailed discussion of the federal income tax consequences to the purchasers of
the Units.
If a bankruptcy case is commenced by or against the Company under Title 11
of the United States Code, as amended (the "Bankruptcy Code"), the claim of a
holder of Senior Subordinated Notes with respect to the principal amount thereof
may be limited to an amount equal to the sum of (i) the portion of the original
issue price of the Units allocable to the Senior Subordinated Notes ($ per
$1,000 Unit purchase price) and (ii) that portion of the original issue discount
that is not deemed to constitute "unmatured interest" for purposes of the
Bankruptcy Code. "Unmatured interest" means that portion of the original issue
discount that was not amortized as of the date of the bankruptcy filing. The
amortized amount determined by a bankruptcy court may not be the same amount
previously included in income by the holder for federal income tax purposes.
ABSENCE OF PUBLIC MARKET
The Securities constitute new issues of securities with no established
trading market. In addition, the Common Stock into which the Warrants are
exercisable are presently held by four individuals. Although the Company intends
to apply to list the Notes on the American Stock Exchange, there can be no
assurance that such application will be approved. The Company does not intend to
list the Warrants or the Common Stock underlying the Warrants (the "Warrant
Shares"), on any securities exchange or to seek inclusion thereof through the
National Association of Securities Dealers Automated Quotation System. No
assurance can be given that any trading market for the Securities or the Warrant
Shares will develop or, if any such market does develop, as to the liquidity of
the Securities or the Warrant Shares. If the Senior Notes or the Units are
traded after their initial issuance, they may trade at a discount from their
initial offering price depending upon prevailing interest rates, the market for
similar securities, the performance of the Company and other factors. The
Underwriters have informed the Company that they intend to make a market in the
Senior Notes and in the Units until the Separation Date, and in the Notes and
the Warrants thereafter. However, the Underwriters are not obligated to do so,
and any such market making may be discontinued at any time without notice.
Therefore, no assurance can be given as to whether an active trading market will
develop or be maintained. In addition, the Senior Subordinated Notes and the
Warrants will not be separately transferable until the Separation Date and the
Warrants are not exercisable until the occurrence of any Exercise Event. See
"Description of Warrants" and "Underwriting."
16
PROPOSED REFINANCING
The Company is pursuing the Refinancing in order (a) to increase its
liquidity through (i) reduced amortization and interest payments and (ii) the
removal of certain restrictions on the use of cash from the Company's
subsidiaries providing for more flexible and efficient cash management, and (b)
to simplify its corporate structure, thereby enhancing its ability to obtain
future financing. The Refinancing includes the following primary components: the
Offering, the Initial Borrowing, the 12 3/4% Debenture Redemption, the 14 1/2%
Debenture Redemption, the Existing Note Redemption, the Minority Interest
Redemption, the repayment of subsidiary indebtedness and the liquidation of
Checker L.P., all as described below.
SOURCES AND USES OF FUNDS
The estimated sources and uses of funds which would have been required to
consummate the Refinancing as of March 31, 1994 are as follows:
SOURCES OF FUNDS:
(IN THOUSANDS)
Senior Note Offering........................ $ 165,000
Unit Offering............................... 100,000
New Credit Facility......................... 82,375
Company Cash................................ 22,216
-----------
Total....................................... $ 369,591
-----------
-----------
USES OF FUNDS:
(IN THOUSANDS)
Retire Subsidiary Debt...................... $ 85,988
Redemption of 12 3/4% Debentures(1)......... 136,238
Redemption of 14 1/2% Debentures(1)......... 61,347
Existing Note Redemption.................... 30,000
Minority Interest Redemption................ 37,000
Pay Accrued Interest........................ 6,018
Transaction Fees and Expenses............... 13,000
-----------
Total....................................... $ 369,591
-----------
-----------
<FN>
- --------------
(1) Excludes interest which will accrue until the expiration of the requisite
30-day notice periods, and which will be funded through internal cash flow
and/or additional borrowings under the Revolving Facility (as defined
herein).
NEW CREDIT FACILITY AND REPAYMENT OF SUBSIDIARY INDEBTEDNESS
The New Credit Facility provides for a term loan facility in the amount of
$50.0 million (the "Term Facility") and a revolving credit facility of up to
$95.0 million (the "Revolving Facility"). The Company intends to use the full
amount of the Term Facility and approximately $32.4 million of the Revolving
Facility together with Company cash to retire the following indebtedness of its
subsidiaries (all interest rates and principal amounts are as of March 31,
1994), in each case together with accrued but unpaid interest to the date of the
Initial Borrowing: (a) a term loan maturing in March 1995 with an interest rate
of 7.5%, in the principal amount of approximately $20.4 million; (b) a revolving
loan due in March 1995 with an interest rate of 7.5%, in the principal amount of
approximately $16.9 million; (c) a term loan maturing in July 1996 with an
interest rate of 7.25%, in the principal amount of $5.0 million; (d) a term loan
maturing in April 2008 with an interest rate of 5.0%, in the principal amount of
approximately $10.8 million; (e) a line of credit loan due in September 1994
with an interest rate of 7.0%, in the principal amount of $5.0 million; (f) a
term loan due in September 1997 with an interest rate of 7.25%, in the principal
amount of approximately $21.0 million; and (g) miscellaneous indebtedness in the
aggregate amount of approximately $6.9 million. For a description of certain
terms of the New Credit Facility, see "Description of New Credit Facility." All
amounts set forth above assume that the Refinancing had taken place on March 31,
1994. Any deficiencies in the amounts required to repay such indebtedness will
be funded from increased borrowings under the Revolving Facility and/or Company
cash.
THE OFFERING AND THE HOLDING COMPANY REDEMPTIONS
The net proceeds to the Company from the Offering are estimated to be
approximately $ million after deducting expenses relating to the Offering.
Such net proceeds together with Company funds are intended to be used to redeem
the 12 3/4% Debentures (for which an annual $18.0 million sinking fund payment
would otherwise be due commencing in August 1997) pursuant to the 12 3/4%
Debenture Redemption, the 14 1/2% Debentures pursuant to the 14 1/2% Debenture
Redemption, the Existing Notes
17
pursuant to the Existing Note Redemption and the Minority Interest pursuant to
the Minority Interest Redemption. The Company intends, simultaneously with the
consummation of the Offering, to issue notices of redemption with respect to the
12 3/4% Debenture Redemption and the 14 1/2% Debenture Redemption. The funds
required for the redemption of the 12 3/4% Debentures and the 14 1/2% Debentures
will be held in escrow until the requisite 30-day notice periods have expired
(during which time interest will continue to accrue) and payment can be made.
Interest on the 12 3/4% Debentures and 14 1/2% Debentures for such 30-day period
is estimated to be approximately $1.4 million, net of estimated interest
earnings from the escrow account. The Existing Note Redemption and the Minority
Interest Redemption will be effected upon the consummation of the Offering.
LIQUIDATION OF CHECKER L.P.
After consummation of the Minority Interest Redemption, Motors will own all
of the equity interests in Checker L.P. To simplify the corporate structure, and
because certain of the tax advantages that existed at the time Checker L.P. was
established no longer exist, Checker L.P. will be liquidated and its assets,
including the vehicular operations, CMC Kalamazoo and the stock of Country will
be distributed to Motors.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Securities are estimated to be approximately $ million after deducting an
estimated $ million in expenses estimated to be incurred in connection with the
Offering.
The Company intends to use the net proceeds of the Offering in the manner
specified in "Proposed Refinancing." See "Proposed Refinancing."
DIVIDENDS
The Company has not, in recent years, paid dividends on the Common Stock,
and does not intend to pay dividends in the foreseeable future. As a holding
company, the ability of the Company to pay dividends is dependent upon the
receipt of dividends or other payments from its subsidiaries. The payment of
dividends by the Company is also limited by the Indentures and prohibited by the
New Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Description of Notes" and "Description of New Credit Facility." Any
determination to pay dividends in the future will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions, and other factors
deemed relevant at that time by the Company's Board of Directors.
18
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company and its subsidiaries as of March 31, 1994, and as adjusted to give
effect to the Refinancing as described under "Proposed Refinancing" and "Use of
Proceeds." The table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
MARCH 31, 1994
-----------------------------
HISTORICAL AS ADJUSTED
----------- ---------------
(DOLLARS IN THOUSANDS)
Cash.............................................. $ 32,608 $ 10,392
----------- ---------------
----------- ---------------
Short-Term Subsidiary Debt........................ $ 5,000 $ 0
----------- ---------------
Long-Term Debt (including current maturities):
New Credit Facility -- Term..................... 0 50,000
-- Revolver.................... 0 32,375
Subsidiary Debt (1)............................. 80,988 0
Existing Notes.................................. 30,000 0
Senior Notes offered hereby..................... 0 165,000
Senior Subordinated Notes offered hereby........ 0 100,000(2)
12 3/4% Senior Subordinated Debentures (net of
unamortized discount).......................... 121,261 0
14 1/2% Subordinated Discount Debentures (net of
unamortized discount).......................... 54,864 0
----------- ---------------
Total Long-Term Debt (including current
maturities).................................. 287,113 347,375
Minority Interest................................. 39,898 0(3)
Shareholders' Deficit:
Common Stock, par value $0.01................... 90 90
Additional paid-in capital (2).................. 14,910 14,910
Retained-earnings deficit....................... (29,831) (41,896)(4)
Notes receivable from shareholders.............. (625) (625)
Amounts paid in excess of Motors' net assets.... (127,748) (127,748)
Unrealized depreciation on Insurance
Subsidiary's investments in certain debt and
equity securities.............................. (334) (334)
----------- ---------------
Total Shareholders' Deficit................... (143,538) (155,603)
----------- ---------------
Total Capitalization........................ $ 188,473 $ 191,772
----------- ---------------
----------- ---------------
<FN>
- --------------
(1) Includes $2.4 million outstanding on a term loan made to SCSM in November
1993, the proceeds of which were used by SCSM to purchase a press.
(2) The Senior Subordinated Notes are being sold as Units with the Warrants. The
fair value of the Warrants, which has not been determined, will be based on
final pricing and such fair value will be credited to additional paid-in
capital with a corresponding reduction in Senior Subordinated Notes.
(3) Reflects redemption of minority interest in Checker L.P. See "Business --
Legal Proceedings -- Executive Life Litigation."
(4) The charge to retained-earnings deficit results from an extraordinary charge
to earnings from:
Write off debt discount on 12 3/4% Debentures............................ $ (10,779)
Write off debt discount on 14 1/2% Debentures............................ (6,483)
Premium paid on repurchase of 12 3/4% Debentures......................... (4,198)
Gain on retirement of minority interest.................................. 2,898
Tax effect of above adjustments.......................................... 6,497
---------
Charge to historical retained-earnings deficit........................... $ (12,065)
---------
---------
19
THE COMPANY
ICC is a holding company that is engaged in four principal lines of
business. Great Dane manufactures a full line of truck trailers for the
over-the-road tractor trailer long and short haul markets and containers and
chassis for domestic intermodal shipping. Motors manufactures sheet metal
stampings for automotive components and subassemblies, primarily for GM. Yellow
Cab is currently the largest owner of taxicabs and provider of taxi-related
services in Chicago, Illinois. Country underwrites property and casualty
insurance, including taxicab insurance, workers' compensation and other
commercial and personal lines.
Prior to 1987, ICC engaged in various engineering, aerospace and
manufacturing operations, including truck trailer manufacturing. In 1987, ICC
was taken private in a leveraged buyout transaction and initiated a plan of
divestitures to reduce bank debt. In 1989, with Great Dane as its only remaining
business, ICC acquired Motors and immediately thereafter, the major shareholders
of Motors obtained control of ICC through the Reverse Acquisition.
Simultaneously with the consummation of the Offering, the Company will
redeem the minority capital account and any minority equity interest in Checker
L.P. See "Proposed Refinancing -- The Offering and the Holding Company
Redemptions" and "-- Liquidation of Checker L.P.," "Use of Proceeds" and
"Business -- Legal Proceedings -- Executive Life Litigation."
The Company was incorporated in 1959 under the laws of the State of Florida.
The Company currently maintains its principal executive offices at Checker
L.P.'s facility at 2016 North Pitcher Street, Kalamazoo, Michigan 49007 and its
phone number is (616) 343-6121.
20
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data derived
from the consolidated financial statements of International Controls Corp. and
subsidiaries for the five years ended December 31, 1993, which have been audited
by Ernst & Young, independent auditors. The selected consolidated financial data
for the three-month periods ended March 31, 1993 and 1994, were derived from the
consolidated financial statements of the Company, which reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such data. The operating results for the three months ended March 31, 1994, are
not necessarily indicative of the operating results for the full year. The
following financial data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ ---------------------
1989 1990 1991 1992 1993 1993 1994
--------- ------------ --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Revenues............................... $ 738,387 $ 693,211 $ 555,266 $ 716,733 $ 909,326 $ 204,933 $ 271,680
Cost of Revenues....................... 624,138 584,680 480,543 610,870 778,805 175,631 230,835
--------- ------------ --------- --------- --------- --------- ---------
Gross Profit........................... 114,249 108,531 74,723 105,863 130,521 29,302 40,845
Selling, General and Administrative
Expense............................... 75,390 77,597 72,032 76,877 83,176 19,986 21,454
Plant Restructuring Costs.............. -- 7,500 -- -- -- -- --
--------- ------------ --------- --------- --------- --------- ---------
Income from Operations................. 38,859 23,434 2,691 28,986 47,345 9,316 19,391
Interest Expense (1)................... (57,879) (61,596) (47,425) (42,726) (41,614) (10,465) (10,044)
Interest Income........................ 15,494 14,696 11,634 8,895 7,396 2,018 1,660
Other Income (Expense)................. 4,704 (941) (1,078) (2,023) 3,494 991 604
Special Charge (2)..................... -- -- -- -- (7,500) -- --
--------- ------------ --------- --------- --------- --------- ---------
Income (Loss) Before Minority Equity,
Income Taxes, Extraordinary Items and
Accounting Changes.................... 1,178 (24,407) (34,178) (6,868) 9,121 1,860 11,611
Minority Equity........................ (2,424) (2,296) 1,931 -- -- -- --
Income Tax Benefit (Expense)........... (610) 6,429 5,241 (687) (5,757) (2,604) (5,225)
Extraordinary Items (3)................ 4,799 27,749 31,188 -- -- -- --
Accounting Changes (4)................. -- -- -- -- (46,626) (46,626) --
--------- ------------ --------- --------- --------- --------- ---------
Net Income (Loss)...................... $ 2,943 $ 7,475 $ 4,182 $ (7,555) $ (43,262) $ (47,370) $ 6,386
--------- ------------ --------- --------- --------- --------- ---------
--------- ------------ --------- --------- --------- --------- ---------
OTHER DATA:
Total Depreciation and Amortization
Expense (5)........................... $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 28,089 $ 6,747 $ 6,882
Capital Expenditures................... 20,513 21,564 16,457 17,549 20,006 7,843 6,903
EBITDA (6)............................. 80,200 61,940(7) 38,304 60,889 84,658 18,675 28,070
Ratio of EBITDA to Cash Interest
Expense (1)........................... 2.6x 1.7x -- 1.5x 2.1x 1.9x 2.9x
Ratio of Earnings to Fixed Charges
(8)................................... 1.0x -- -- -- 1.2x 1.2x 2.1x
(CONTINUED ON FOLLOWING PAGE)
21
DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working Capital........................ $ 68,829 $ 81,111 $ 48,559 $ 51,091 $ 51,136 $ 61,119 $ 30,339
Property, Plant and Equipment -- Net... 134,691 133,116 125,681 119,492 122,355 129,274 123,111
Total Assets........................... 536,084 537,677 481,305 493,763 517,336 514,779 527,158
Long-Term Debt (Including Current
Maturities)........................... 405,167 376,692 312,324 305,368 291,273 316,028 287,113
Shareholders' Deficit.................. (111,799) (104,745) (98,374) (106,296) (149,517) (153,355) (143,538)
<FN>
- ------------------
(1) Interest expense includes (dollars in thousands):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
Cash interest expense.................. $ 30,873 $ 36,556 $ 46,081 $ 41,251 $ 39,948 $ 10,068 $ 9,577
Amortization of debt discount.......... 26,638 24,690 1,045 1,181 1,372 324 393
Amortization of debt expense........... 368 350 299 294 294 73 74
--------- --------- --------- --------- --------- --------- ---------
Total Interest Expense............... $ 57,879 $ 61,596 $ 47,425 $ 42,726 $ 41,614 $ 10,465 $ 10,044
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<FN>
(2) Represents cost to the Company of the settlement of certain litigation with
the Boeing Company. See "Business -- Legal Proceedings -- Boeing
Litigation" and Note H to Notes to Consolidated Financial Statements --
December 31, 1993.
(3) Extraordinary items in all years relate to the gain or loss on the
repurchase of indebtedness. See Note L to Notes to Consolidated Financial
Statements -- December 31, 1993.
(4) The accounting changes represent the cumulative effect of changes in
accounting principles as a result of the adoption, as of January 1, 1993,
of the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 109, "Accounting for Income Taxes." See Notes I and
K to Notes to Consolidated Financial Statements -- December 31, 1993.
(5) Total depreciation and amortization expense includes (dollars in
thousands):
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
Depreciation and amortization.......... $ 18,186 $ 20,784 $ 20,931 $ 21,054 $ 23,295 $ 5,571 $ 5,631
Amortization of cost in excess of net
assets acquired....................... 1,252 1,250 1,250 1,250 1,250 312 313
Amortization of debt discount.......... 26,638 24,690 1,045 1,181 1,372 324 393
Amortization of debt expense........... 368 350 299 294 294 73 74
Other amortization..................... 1,705 2,717 2,876 2,727 1,878 467 471
--------- --------- --------- --------- --------- --------- ---------
Total Depreciation and
Amortization........................ $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 28,089 $ 6,747 $ 6,882
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<FN>
(6) EBITDA represents income (loss) before minority equity, income taxes,
extraordinary items and accounting changes plus cash interest expense,
total depreciation and amortization expense and special charges. The
Company believes that EBITDA provides useful information regarding the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations and should not be considered as a substitute for
net income, as an indicator of the Company's operating performance or for
cash flow as a measure of liquidity.
(7) After deducting $7,500 of plant restructuring costs.
(8) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before minority equity, income taxes,
extraordinary items, accounting changes and fixed charges. Fixed charges
consist of (i) cash interest expense, (ii) amortization of debt discount
and debt expense, and (iii) that portion of operating lease rental expense
which is representative of the interest factor (deemed by management to be
one-third of rental expense). The Company's earnings were insufficient to
cover fixed charges by (in thousands) $24,407, $34,178 and $6,868 for the
years ended December 31, 1990, 1991 and 1992, respectively.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In January 1989, the Company purchased all of the outstanding common stock
of Motors, the general partner of Checker L.P., for a purchase price of $138.8
million (the "Checker Acquisition"). Immediately thereafter, four of the five
former shareholders of Motors purchased, through Checker Holding Corp.
("Holding"), all of the outstanding common stock of the Company for $45 million.
Holding was created solely for the purpose of acquiring the stock of the Company
and was subsequently merged into the Company. Holding was capitalized with an
equity contribution of $15 million and loans aggregating $30 million from the
former Motors shareholders. The Reverse Acquisition has been accounted for as if
Motors had acquired the Company, since there has been no significant change in
control of Motors.
Under generally accepted accounting principles for reverse acquisitions, the
net assets of Motors acquired in the Checker Acquisition could not be revalued
to estimated fair market value. Accordingly, the $127.7 million excess of the
amount paid over the historical book value of Motors' net assets has been
accounted for as a separate component reducing shareholders' equity and is not
subject to amortization.
In August 1989, Motors acquired all of the outstanding common stock of SCSM
for a purchase price of $19.9 million (including expenses of $0.3 million) in
cash for SCSM's stock and $4 million in cash for a noncompete agreement. The
acquisition was funded with proceeds from a new bank loan. In connection with
the acquisition, Motors also assumed, and Checker L.P. guaranteed, $12.7 million
of the seller's obligation to the State of West Virginia. In addition, both
Motors and Checker L.P. guaranteed loans aggregating $5.6 million made by the
State of West Virginia and Volkswagen of America, Inc. to SCSM.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994, COMPARED TO THREE MONTHS ENDED MARCH 31,
1993:
Revenues increased $66.7 million during the three months ended March 31,
1994, as compared to the same period of 1993. The higher revenues are
principally attributed to higher trailer segment revenues ($61.4 million),
primarily associated with a higher volume of sales of containers and chassis and
trailers. Automotive segment revenues increased $3.6 million during the three
months ended March 31, 1994, as compared to the same period in 1993. General
increases in volume to accommodate automotive customers' demands were the
principal reason for the revenue increases.
The Company's operating profit (gross profit less selling, general and
administrative expenses) increased $10.1 million in the 1994 period compared to
the 1993 period. This increase is attributed to an increase of trailer segment
operating profits ($9.2 million) which is principally due to higher sales of
Great Dane's product lines and improved margins, and an increase of automotive
segment operating profits ($0.9 million) principally due to higher sales.
Income tax expense is higher for financial statement purposes than would be
computed if the statutory rate were used because of state income taxes and the
impact of the reporting of certain income and expense items in the financial
statements which are not taxable or deductible for income tax purposes.
1993 COMPARED TO 1992:
During 1993, revenues increased $192.6 million and gross profit increased
$24.7 million as compared to 1992. The trailer segment and the automotive
segment operations benefited from increased demand for their products. Trailer
segment revenues increased by $175.5 million as compared to 1992, primarily due
to the sale of containers and chassis which were introduced in late 1992 and
sold principally to one customer, and a higher volume of truck trailer sales.
Automotive segment revenues increased $15.3 million as compared to 1992.
Increased production of the General Motors Blazer and Suburban models and Crew
Cab products and other general increases in volumes to accommodate automotive
customers' demands are the principal reasons for the increase. Vehicular segment
revenues
23
increased $1.5 million in 1993 as compared to 1992. The increase was attributed
to lease rate increases obtained in 1993 to cover certain vehicular segment cost
increases. The revenue increase was somewhat offset by the impact of tendering
medallions to Chicago.
The factors impacting sales, as discussed previously, had the effect of
increasing the Company's 1993 operating profit (gross profit less selling,
general and administrative expenses) by $18.4 million as compared to 1992.
Trailer segment operating profit increased by $14.8 million as compared to 1992.
This increase is principally due to higher volumes, partly offset by higher
selling, general and administrative expenses ("S G & A"). Higher volumes were
also the principal reason for an increase of $3.7 million of automotive segment
operating profits as compared to 1992.
S G & A expenses were $6.3 million higher in 1993 as compared to 1992, but
as a percentage of sales, S G & A expense is 1.6 percentage points lower in 1993
as compared to 1992.
Other expenses decreased $5.5 million in 1993 as compared to 1992. The
decrease in expenses resulted primarily from $1.4 million in income from the
settlement of a dispute in 1993 and $2.8 million in income from sales of taxi
medallions in 1993.
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-199MA, United States District Court for the District
of Oregon. In that lawsuit, Boeing sought damages and declaratory relief for
past and future costs resulting from alleged groundwater contamination at a
location in Gresham, Oregon, where the three prior subsidiaries of the Company
formerly conducted business operations. On December 22, 1993, the Company
entered into a settlement with Boeing, settling all claims asserted by Boeing in
the lawsuit. Pursuant to the settlement terms, the Company will pay Boeing $12.5
million over the course of five years, $5 million of which has been committed by
certain insurance carriers in the form of cash or irrevocable letters of credit.
Accordingly, the Company recorded a $7.5 million special charge during 1993 to
provide for the cost associated with this legal proceeding. In accordance with
the settlement agreement, the claims against the Company and the three former
subsidiaries have been dismissed and Boeing has released and indemnified the
Company with respect to certain claims.
1992 COMPARED TO 1991:
During 1992, revenues increased $161.5 million and gross profit increased
$31.1 million as compared to 1991. The trailer and the automotive segment
operations were positively impacted by increased demand for their products.
Trailer segment revenues increased by $136.1 million as compared to 1991,
primarily resulting from a higher volume of truck trailer sales. Automotive
segment revenues increased $28.2 million as compared to 1991. Increased
production of GM's Blazer and Suburban models and Crew Cab products for the 1993
model year and other general increases in volumes to accommodate automotive
customers' demands were partly offset by a $6.1 million decrease in revenues
associated with the coordination of tooling programs for GM. Vehicular segment
revenues decreased $2.9 million as compared to 1991. The decrease in revenues is
principally attributed to a continuing downturn in taxicab leasing in Chicago,
as well as a decrease in the number of cabs available for lease from Yellow Cab
as a result of the settlement agreement reached with Chicago in 1988. The
negative trend to revenue changes for this segment could continue if the
economic environment does not improve and if the segment is not successful in
continuing to develop new sources of revenue as the settlement agreement
requires the tendering of 100 additional licenses to Chicago in each of the next
five years.
The factors impacting sales, as discussed previously, had the effect of
increasing the Company's 1992 operating profit by $26.3 million as compared to
1991. Trailer segment operating profit increased by $10.5 million as compared to
1991. This increase is principally due to higher volumes, partly offset by
higher selling, general and administrative expenses ("S G & A"). Higher volumes
were also the principal reason for an increase of $15.9 million of automotive
segment operating profits as compared to 1991. Automotive segment S G & A
expenses were only slightly higher in 1992 as compared to 1991. Vehicular
segment operating profits decreased $1.4 million in 1992 compared to 1991 due to
lower revenues.
24
While efforts were made to reduce vehicular segment operating costs through the
combination of the Company's then existing two taxicab operations in late 1991,
the decrease in revenues previously discussed was not fully offset by decreased
operating and sales, general and administrative costs.
S G & A expenses were $4.9 million higher in 1992 as compared to 1991, but
as a percentage of sales, S G & A expense is 2.2 percentage points lower in 1992
as compared to 1991.
Other expenses increased $0.9 million in 1992 as compared to 1991. Higher
gains realized on investment transactions during 1992 compared to 1991 were
offset by lower gains on sale of assets in 1992 as compared to 1991.
Interest expense was $4.7 million lower in 1992 than in 1991. The decrease
can be attributed to lower interest rates during 1992 compared to 1991 as well
as lower levels of debt outstanding during 1992 compared to 1991.
There is no minority equity expense in 1992 because Executive Life Insurance
Company ("ELIC") was placed into conservatorship in 1991 and as a result, its
interest in Checker L.P. and rights under the Partnership Agreement became
limited to the right to receive the balance of its capital account on April 11,
1991. "See "Business -- Legal Proceedings -- Executive Life Litigation."
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Available cash and cash equivalents, cash flow generated from operations
($66.9 million, $12.4 million, $37.8 million, $25.2 million and $30.7 million
for the years ended December 31, 1989, 1990, 1991, 1992 and 1993, respectively),
proceeds from borrowings and proceeds from the disposal of assets have provided
sufficient liquidity and capital resources for the Company to conduct its
operations.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The impact of adopting SFAS No. 106 was a charge to net income of $29.7 million
(net of taxes of $16.5 million) which was recorded as a cumulative effect
adjustment in the quarter ended March 31, 1993.
The Company also adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes," effective January 1, 1993. The impact of adopting SFAS No. 109
was a charge to net income of $16.9 million which was recorded as a cumulative
effect adjustment in the quarter ended March 31, 1993.
During the quarter ended March 31, 1993, the Company adopted the provisions
of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short Duration and
Long Duration Contracts." Because of the type of insurance contracts Country
provides, the adoption of this statement had no impact on earnings; however, it
requires the disaggregation of various balance sheet accounts. For financial
reporting purposes, the 1992 balance sheet and statement of cash flows have been
restated as if SFAS No. 113 were adopted as of the beginning of the earliest
period presented. During the quarter ended March 31, 1994, the Company adopted
the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Although the adoption of SFAS Nos. 106, 109, 113 and 115 has collectively
had a significant effect on the Company's financial position, it has not
adversely affected liquidity and capital resources.
Great Dane's debt agreement with certain banks matures in March 1995.
Accordingly, this debt is classified as a current liability at March 31, 1994.
Refinancing is anticipated to be accomplished prior to maturity and,
accordingly, it is not anticipated that working capital will be adversely
affected.
Purchases of property, plant and equipment have averaged approximately $18
million per year over the past three years and have been funded principally by
cash flow generated from operations as well as proceeds from disposals of
assets. Purchases of property, plant and equipment for 1994 are anticipated to
be approximately $26.0 million and are expected to be funded principally by cash
flow generated from operations.
25
During the fourth quarter of 1993, the Company entered into a settlement of
the Boeing litigation (see "Business -- Legal Proceedings -- Boeing
Litigation"). It is anticipated that the settlement ($12.5 million over five
years) will be paid by the Company through recoveries from insurance carriers,
the sale of assets of certain of the subsidiaries, cash currently on hand and
cash flow generated from operations.
GM, a major customer of the Company's automotive products segment, is
resorting to many measures, including obtaining significant price reductions
from its suppliers, in an effort to reduce its operating costs. Management of
the Company's automotive products segment is currently engaged in discussions
with GM concerning future pricing of parts presently being manufactured.
Automotive products segment management believes that it has adequately provided
in its near-term financial plans for any price reductions which may result from
its current discussions with GM. However, price reductions in excess of those
anticipated could have a material adverse effect on the automotive products
operations.
IMPACT OF INFLATION
Recently, due to competitive market conditions, the Company has been unable
to factor all cost increases into selling prices for its products and services.
The Company does not believe, however, that the impact of inflation affects the
Company any more than it affects the Company's competitors.
26
BUSINESS
GENERAL
ICC is a holding company that is engaged in four principal lines of
business. Great Dane manufactures a full line of truck trailers for the
over-the-road tractor trailer long and short haul markets and containers and
chassis for intermodal shipping. Motors manufactures sheet metal stampings for
automotive components and subassemblies, primarily for GM. The Company's Yellow
Cab division is currently the largest owner of taxicabs and provider of
taxi-related services in Chicago, Illinois. Country underwrites property and
casualty insurance, including taxicab insurance, workers' compensation and other
commercial and personal lines.
TRAILER MANUFACTURING OPERATIONS
OVERVIEW
Great Dane, which generated approximately 78% of the Company's revenues and
62% of the Company's total segment operating profit for the year ended December
31, 1993, designs, manufactures and distributes a full line of both standard and
customized truck trailers (including dry freight vans, reefers and platform
trailers) and intermodal containers and chassis. In 1993, Great Dane was the
largest manufacturer of truck trailers in the United States with a 12.7% total
market share, including an estimated leading 37.9% share of the reefer market
and a 23.3% share of the intermodal container and chassis market. Great Dane
believes it offers the broadest line of trailers in the industry and emphasizes
the production of customized and proprietary products which generally have
higher margins than more standard products. Great Dane sells and services its
trailers primarily through a nationwide network of branches and independent
dealers to gain access to a diversified customer base.
INDUSTRY OVERVIEW
The new truck trailer industry, with annual revenues of approximately $3.1
billion, is cyclical and competitive and closely tied to overall economic
conditions as well as to regulatory changes. In addition, new truck trailers
have traditionally had a five to seven-year replacement cycle. In 1990 and 1991,
the industry experienced a severe downturn due to the recession in the United
States. The industry recovered in 1992 and 1993 due in large part to the general
improvement in the U.S. economy, the replacement of a large number of truck
trailers sold in the mid-1980's and, to a lesser extent, new regulations in
certain states permitting longer truck lengths.
The national truck trailer market is highly fragmented, with approximately
180 companies operating in the truck trailer manufacturing industry. In 1993,
the two largest companies, Great Dane and Wabash National Corporation, accounted
for approximately 24% of the market and the ten largest companies accounted for
approximately 65% of sales. The basis of competition in the truck trailer
industry is product quality and durability, price, flexibility in design and
engineering, warranties, service and relationships. Due in large part to the
quality of its products and its strong distribution system, the Company believes
that Great Dane has built sustainable competitive advantages in each of these
important areas.
Recently, the transportation industry began shifting toward intermodal
containers and chassis. Since 1988, intermodal container traffic has grown by a
compounded annual growth rate of approximately 10%. "Intermodal" refers to the
transition from one mode of transportation to another and, as used in this
Prospectus, refers to the transition from rail to road. "Intermodal containers,"
as used in this Prospectus, refers to containers which are designed to travel
principally on rail, and which, when removed from the rail car, can be placed on
a chassis for transportation by truck to and from a rail yard. The emphasis on
intermodal transportation is being led by J.B. Hunt, which is integrating rail
and truck support of goods for its end customers on what J.B. Hunt has informed
Great Dane it believes is a more cost-effective basis.
27
BUSINESS STRATEGIES
During the past several years, Great Dane has undertaken a number of
strategic initiatives designed to improve its competitive position and
capitalize on the growing intermodal container and chassis market. Accordingly,
Great Dane reduced corporate overhead through management consolidation,
increased operating efficiencies and capacity through plant reconfigurations and
initiated product cost reduction and new product development programs. Great
Dane also increased its manufacturing flexibility by adapting certain of its
assembly lines to be efficient in filling both large and small orders, and
expanded its distribution network domestically, as well as in Canada and Mexico,
in order to provide new outlets for its products and high margin parts and
services business.
Furthermore, during 1992, Great Dane entered the intermodal container and
chassis market as its engineering department, working in conjunction with J.B.
Hunt, one of the largest truckload carriers in the U.S., developed a unique line
of intermodal containers and matching ultra lightweight chassis. Great Dane's
intermodal containers are designed for use on rail but may also be transported
over the road on chassis to and from rail yards. These products enable Great
Dane's customers to take advantage of new double stack intermodal shipping
methods, believed by J.B. Hunt to be the most economical method of hauling
freight over long and intermediate distances. In connection with an
approximately $121 million initial purchase order from J.B. Hunt for these new
intermodal products, the Company installed new assembly lines in three existing
factories and initiated production for the order during the first and second
quarters of 1993. In late 1993 and in 1994, Great Dane received additional
orders of approximately $48 million and $16 million, respectively, from J.B.
Hunt. Although J.B. Hunt's requirements for these containers and chassis will
level off, Great Dane believes that J.B. Hunt's success may lead other carriers
to replace some or all of their trailers with containers and chassis. Great Dane
believes that intermodal transportation, which has been expanding at an
approximately 10% compounded annual growth rate in the United States since 1988,
will provide a significant growth opportunity as carriers replace some or all of
their trailers with containers and chassis.
Great Dane's objectives are to increase its share of the truck trailer
market and capitalize on the growing intermodal market. To achieve these
objectives, Great Dane will continue to emphasize the development of high
quality innovative products and improve the efficiency of its assembly
operations. Great Dane is currently developing and testing a new line of
ultra-lightweight flatbeds, as well as developing a new floor for its reefers.
Great Dane is also presently adapting certain of its assembly lines to produce
either intermodal containers or truck trailers on the same line. In addition,
Great Dane plans to utilize its expanded distribution network and manufacturing
flexibility to broaden its customer base by increasing sales to large customers.
PRODUCTS
GENERAL. Great Dane's principal products include vans, reefers, platform
trailers and intermodal containers and chassis. During 1992 and 1993, the sale
of these products accounted for 80% and 82% of Great Dane's revenues,
respectively. Great Dane's trailers and intermodal containers are manufactured
in sizes ranging from 28 to 57 feet. Great Dane offers 11 versions of its
various trailers and sells virtually all of these versions on a regular basis.
In addition to this standard line of products, its flexible assembly operations
enable Great Dane to customize products for its customers at premium prices.
Set forth below is a description of Great Dane's share of the market for its
principal products during 1993. All figures are based on estimated shipments.
PRODUCT TYPE GREAT DANE UNIT SALES INDUSTRY UNIT SALES GREAT DANE SHARE
- ------------------------------------------------- ---------------------- ------------------- ---------------------
Vans............................................. 14,132 121,100 11.5%
Reefers.......................................... 8,034 21,200 37.9%
Platform Trailers................................ 1,767 16,200 10.9%
Intermodal Containers and Chassis................ 10,301 44,200 23.3%
28
VANS. Vans are used primarily for the transportation of dry freight. Great
Dane believes that it offers the greatest variety of vans in the industry with
four primary styles: sheet and post, aluminum plate, ThermaCube and Fiberglass
Reinforced Plastic Plywood. Great Dane sells vans primarily to for-hire
truckload carriers, private carriers and leasing companies.
Great Dane's highest volume van product is the sheet and post van. These
trailers haul general non-refrigerated freight. Great Dane's models offer custom
design features in order to improve their appearance, durability and resale
value when compared to certain competitors' models.
Great Dane's aluminum plate vans were developed in late 1991. These vans
utilize thicker and more durable sidewalls than sheet and post vans and offer
significantly more interior space since they are constructed without interior
liners. Great Dane's aluminum plate van is considered a premium product and, due
to the current low price of aluminum, is a cost efficient alternative to the
sheet and post van.
Great Dane's ThermaCube van was developed and brought to market in late
1990. The ThermaCube van currently uses a technology licensed to Great Dane by
Graaff KG ("Graaff"), a German limited partnership. The ThermaCube process
involves injecting high density foam between two thin skins of aluminum or other
suitable material and bonding them into a single panel. ThermaCube vans are
lightweight and offer superior width, space, strength and thermal properties.
Since it has completed the maximum royalty payment under its agreement with
Graaff, Great Dane's current and future usage of this technology for trailers is
royalty free.
Fiberglass Reinforced Plastic Plywood vans account for a small percentage of
Great Dane's van sales. They offer increased inside width but are 300 pounds
heavier than sheet and post vans. These vans are very durable and therefore are
used predominantly in large metropolitan areas.
REEFERS. Great Dane's reefers are specialized products that command premium
pricing. The Company believes that it is the largest supplier of reefers in the
industry (with a 37.9% share in 1993) and the only company to offer more than
one type of reefer. Great Dane currently sells three types of reefers: Classic
(either aluminum or stainless steel), Superseal and ThermaCube. The
refrigeration cooling units are not manufactured by Great Dane.
The Classic reefer, essentially a sheet and post reefer, is particularly
suitable for the food distribution market because it has been engineered to
accept numerous structural modifications such as side doors and
multi-temperature refrigeration compartments. Classic reefers are sold primarily
to private carriers and truck leasing companies.
The Superseal reefer is Great Dane's lightweight, lower-priced model. This
product offers fewer options than the Classic reefer but is most popular with
for-hire carriers. Since its purchase by Great Dane in 1988, its market share
has steadily increased due to product improvements and the use of Great Dane's
national distribution network.
Great Dane believes that its proprietary ThermaCube reefer is the most
efficient and technologically advanced reefer in the industry. It offers large
cubic capacity and inside width, side wall strength and superior thermal
properties. It is currently the flagship of two of the largest reefer carriers
in the U.S. and it is gaining popularity among medium-sized carriers.
PLATFORM TRAILERS. Platform trailers are flatbeds or open deck trailers.
Great Dane offers a full line of platform trailers, consisting of drop frame,
extendible, curtained and straight frame trailers. Drop frame flatbeds are
designed for heavy duty hauling where low deck heights are required. Extendible
flatbeds are used for self-supporting loads (e.g., pre-stressed concrete).
Curtainside flatbeds are used where side loading and cover is required. The
primary customers for Great Dane's platform trailers are for-hire material
haulers, which would include steel haulers, pre-stressed concrete carriers and
builders. Great Dane is developing and testing a new line of ultra-lightweight
flatbeds intended to increase substantially its market share.
INTERMODAL CONTAINERS AND CHASSIS. In conjunction with the growth of
intermodal container transportation, Great Dane's engineers developed a
specialized container (which can be double stacked
29
during rail transport) and chassis that allow a trucking company to haul
containerized loads which are similar in size and weight to those carried on
conventional over the road trailers. These containers use either aluminum plate
or the ThermaCube technology, which is Great Dane's composite wall construction,
to offer greater inside width, higher cubic capacity and greater strength than
can be obtained by conventional sheet and post construction. Further, these
containers are 500 to 1,000 pounds lighter and the chassis are 1,000 to 1,500
pounds lighter than products now in use with similar carrying capacities. The
Company believes that it is one of the two largest U.S. manufacturers of
intermodal containers and chassis and the only domestic producer of reefer
containers. Great Dane is expecting to produce, for J.B. Hunt and others, a
total of approximately 4,700 intermodal containers and a total of 5,400 chassis
in 1994.
SERVICES
GENERAL. Great Dane's business includes aftermarket parts and accessories
sales, used trailer sales and retail services (including repair and maintenance)
which enable it to be a full-service provider. The parts and service operations
have historically been a stable source of higher margin business.
AFTERMARKET PARTS AND ACCESSORIES SALES. Sales of replacement parts and
accessories are an important source of higher margin revenues for Great Dane,
and provide a value-added service which attracts and maintains Great Dane's
customer base. Parts and accessories are marketed through 51 full-line dealers,
19 parts-only dealers and 17 Great Dane-owned branch operations. Dealers and
branches sell parts either over-the-counter or through their respective retail
services.
USED TRAILERS. To be competitive in the sale of new trailers, it is often
necessary to accept used trailers in trade. Great Dane's larger retail branches
employ individuals who are responsible for trade-in appraisals and selling used
trailers. Great Dane believes that its nationwide distribution system provides
it with superior used trailer marketing capabilities.
RETAIL SERVICES. Great Dane owns and operates 17 full-service retail
branches, which provide repair and maintenance services. These retail branches
also provide warranty support to Great Dane's customers.
The chart below sets forth the percentage of Great Dane's total sales and
gross profit represented by each product or service category.
% OF % OF GROSS
SALES PROFITS
-------------------- --------------------
PRODUCT OR SERVICE CATEGORY 1992 1993 1992 1993
- ----------------------------------------------------------------------------------- --------- --------- --------- ---------
New Truck Trailers and Containers and Chassis...................................... 79.6 82.5 59.4 63.5
Parts Sales........................................................................ 11.1 9.3 25.5 23.0
Used Trailers...................................................................... 6.6 6.0 3.9 3.7
Retail Services.................................................................... 2.7 2.2 11.2 9.8
BACKLOG
At December 31, 1993, Great Dane's backlog totalled $365 million and
consisted of approximately $295 million of trailer orders and approximately $70
million of container and chassis orders, while at December 31, 1992 the backlog
totalled $255 million and consisted of $134 million and $121 million,
respectively. Great Dane's backlog of truck trailer orders was approximately $70
million at December 31, 1991.
MARKETING, DISTRIBUTION AND SALES
Great Dane believes it has the largest marketing organization in the United
States trailer industry. Sales and comprehensive support service functions are
implemented through 17 Company-owned branches (accounting for 51% of unit sales
excluding J.B. Hunt), 51 independent dealers throughout the United States,
Canada and Mexico (accounting for 49% of unit sales excluding J.B. Hunt), and 19
parts-only dealers. Great Dane's nationwide distribution system enables it to
reach a diversified customer base consisting of: for-hire carriers (such as J.B.
Hunt, Direct Transit, KLLM and Landair), private carriers (such
30
as Pepsico, Burger King, Publix, Winn Dixie and Food Lion) and leasing companies
(such as Ryder, Penske, Rollins, XTRA and Ruan). Except for J.B. Hunt, no
customer accounted for more than 5% of total revenues in 1993. With the
exception of a small percentage of used trailer sales, all sales are made
through Great Dane's distribution system.
Great Dane's sales force includes approximately 126 sales representatives in
dealerships and 43 sales representatives in its branches. Great Dane's Executive
Vice President of Sales oversees and coordinates the sales effort and is
assisted by five district managers. The Company's sales force is given
incentives to meet revenue and/or profitability targets.
Under an agreement with Associates Corporation of North America
("Associates"), Great Dane has agreed to refer to Associates, until the last
quarter of 1996, those of Great Dane's customers who request financing and Great
Dane has guaranteed 50% of Associates' losses (to a potential maximum of $1.25
million each year) if a trailer is repossessed. Great Dane has not experienced
any material losses under this agreement.
Great Dane provides five year warranties to its customers and estimates its
warranty costs are only 0.8% of its sale price.
MANUFACTURING AND OPERATIONS
MANUFACTURING. Great Dane has four manufacturing facilities, located in
Savannah, Georgia; Memphis, Tennessee; Wayne, Nebraska; and Brazil, Indiana.
Certain of Great Dane's manufacturing operations include flexible assembly lines
that allow Great Dane to customize its products in a cost-efficient manner.
Great Dane exercises strict quality control by screening suppliers and
conducting inspections throughout the production process. Great Dane is
currently implementing a total quality management program that endorses employee
involvement, empowerment and continuous cost improvement.
RESEARCH AND DEVELOPMENT. Great Dane currently employs a corporate
engineering department with 36 employees, which is higher than the industry
average. Great Dane makes extensive use of computer-aided design ("CAD")
technology to support production engineering. Great Dane's use of CAD technology
accelerates the development of product innovations and manufacturing
efficiencies. Great Dane's new products must meet strict quality and durability
standards and must pass strenuous road test procedures. Great Dane believes that
it is the only trailer manufacturer with on-site road simulation testing
capability.
Great Dane is currently developing a new proprietary floor for its
ThermaCube and certain Classic reefers which will eliminate wood components,
thereby increasing the life of the floor, increasing the capacity of the reefer,
simplifying the manufacturing process and reducing the cost to manufacture the
reefer. Great Dane is also developing and testing a new line of
ultra-lightweight flatbeds intended to increase its market share.
SUPPLIES AND RAW MATERIALS. Purchased materials represent approximately 81%
of direct cost of goods sold and are purchased on a centralized basis in order
to achieve economies of scale. Great Dane purchases a variety of raw materials
and sub-assemblies from various vendors with short-term contracts. Aluminum,
wood, tires and steel account for a significant portion of materials costs.
Great Dane has not experienced major shortages in these materials, but prices
may fluctuate. However, Great Dane attempts to minimize purchased material price
fluctuations by utilizing just-in-time inventory systems, thereby coordinating
the purchase of certain materials with customer orders.
ENVIRONMENTAL. Certain of Great Dane's manufacturing processes involve the
emission of chlorofluorocarbons, but Great Dane is changing that process to
comply with new regulations and does not believe that this change will have a
material adverse effect on its operations. The manufacturing process does not
require a large quantity of any material classified as hazardous.
31
Great Dane is involved in a small number of environmental matters.
Management believes that the expenses associated with Great Dane's involvement
are not material in the aggregate.
PATENTS, LICENSES AND TRADEMARKS
The Company believes its "Great Dane" trademark, which identifies all of its
products, to be of value and to contribute significantly to the wide acceptance
of its products.
AUTOMOTIVE PRODUCTS OPERATIONS
OVERVIEW
Through CMC Kalamazoo and SCSM, Motors operates an automotive parts stamping
facility in Kalamazoo, Michigan and a larger, more modern facility, in South
Charleston, West Virginia, which was acquired in 1989. Motors, together with its
customers, develops, designs and manufactures a broad range of sheet metal
automotive components and subassemblies, including tailgates, fenders, doors,
hoods and roofs, primarily for sale to North American OEMs. These operations
generated approximately 14% of the Company's revenues and 29% of the Company's
total segment operating profit for the year ended December 31, 1993.
INDUSTRY OVERVIEW
The North American automotive parts industry is composed of two distinct
sectors, the original equipment market and the automotive aftermarket.
Substantially all of Motors' sales are to the original equipment market.
Industry factors which affect the automotive segment's current and future
competitiveness, growth and performance include, among others, trends in the
automotive market and policies of OEMs with respect to suppliers.
The overall market for new cars and light trucks in the United States and
Canada is large and cyclical, with a trend line annual growth of 2.3% from 1983
to 1993. While the trend line demand for cars has remained relatively flat over
this period, demand for minivan, sports utility vehicles and light trucks has
grown at a compound annual growth rate of 7.3% over this period. The Company
believes it is well positioned as a supplier of sheet metal components and
subassemblies to the OEMs in this high-growth market segment.
Generally, the OEM selects a supplier to work in conjunction with the OEM's
design team to design and develop a component which will satisfy the OEM's
purchasing standards. OEMs also evaluate and rate suppliers using rigorous
programs which encompass quality, cost control, reliability of delivery, new
technology implementation and overall management leadership and structure. As a
result, new supplier policies have sharply reduced the number of component
suppliers.
Because of ever-increasing global competition, OEMs are continually
upgrading their supplier policies. The OEMs are requiring suppliers to meet ever
stricter standards of quality, overall cost reductions and increased support for
up-front design, engineering and project management. These requirements are
continually accelerating the trend toward consolidation of the OEMs' supplier
base.
MANUFACTURING
Unlike certain of its smaller competitors, SCSM has the equipment and
versatility to produce a wide variety of automotive stamping products, carrying
out substantially all phases of a project under one roof. SCSM produces
approximately 150 products at its over 900,000 square foot modernized facility.
Its principal products include tailgate and liftgate assemblies, door
assemblies, hood assemblies, fender assemblies, wheelhouses, pillars, back
panels, floor panels, deck lids, body side panels, roof outer panels and related
parts. SCSM currently processes 8,000 tons of steel per month for 400 part
numbers and currently ships between 45,000 and 50,000 pieces per day to its
customers from 940 dies. SCSM currently utilizes between 55% and 65% of its
production capacity in terms of equipment load. Volume fluctuations at SCSM are
managed by use of overtime and temporary manpower. Management is pursuing new
long-term commitments to utilize SCSM's available capacity.
The major portion of tooling design, build and prototype for SCSM is
performed by selected suppliers under close supervision. Die maintenance and
engineering changes are completed in SCSM's
32
own 60,000 square foot die room which houses approximately 60 tool and die
makers. The tool room handles all die maintenance and engineering changes
in-house, including all serious die trouble such as major breaks.
CMC Kalamazoo also fabricates and assembles automotive products for those
jobs whose end product must be delivered in the surrounding Midwest region,
since transportation is a growing cost in this industry.
MARKETING AND CUSTOMERS
The automotive segment focuses on the higher-growth light truck, sports
utility vehicle and van segments of the market and currently supplies products
primarily for GM. At the present time, Motors is supplying parts on the
following GM vehicles: Suburban, Blazer, S-10 Blazer, Crew Cab, M Van (Astro and
Safari), full-size G Van, CK Truck and J Car (Cavalier). The Company has been
advised that GM plans to begin production of a four-door version of the
full-size Blazer. SCSM has supplied the roof module and other parts for the
two-door model for the past two years and is expecting to be GM's supplier of
the roof module for the four-door version. The automotive segment also supplies
parts for GM's services organization.
Management has attempted to broaden its customer base. The effect of that
effort is evidenced by the expansion of the customer base to include, among
others, Freightliner Corp. and Saturn Corporation. In addition, the automotive
segment recently signed a contract with Mercedes-Benz to produce parts for its
new sports utility vehicle for which production is expected to begin in 1996 for
the 1997 model year. Mercedes-Benz is providing the funding necessary for the
tooling to produce these parts.
Shipments of customer orders from both SCSM and CMC Kalamazoo are made on a
daily or weekly basis as required by the customer. GM provides an estimated
13-week shipping forecast which is used for material and fabrication planning
purposes. Nevertheless, changes in production by the customer may be reflected
in increases or decreases of these forecasts.
CMC Kalamazoo and SCSM are committed to customer satisfaction by producing
parts and providing the necessary support systems to assure conformity to
customer requirements. As evidence of success in these areas, SCSM has been
awarded GM's "Mark of Excellence" Award.
VEHICULAR OPERATIONS
OVERVIEW
The vehicular operations generated approximately 5% of the Company's
revenues and 12% of the Company's total segment operating profit during the year
ended December 31, 1993. Yellow Cab is the largest taxicab fleet owner in
Chicago and as of March 31, 1994, owned approximately 2,370 or 44% of the
approximately 5,400 medallions available in Chicago. Yellow Cab's primary
business is the leasing of its medallions and vehicles to independent taxi
operators through two programs: the owner-operator program and the daily lease
program. The Company also provides a variety of other services to taxi drivers
and non-affiliated medallion holders, including insurance coverage through
Country and repair and maintenance services through Chicago AutoWerks.
THE OWNER-OPERATOR AND DAILY LEASE PROGRAMS
Pursuant to Yellow Cab's owner-operator program, an independent,
non-employee taxi operator leases from Yellow Cab a license and vehicle, with an
option to purchase the vehicle beginning at the end of the second year. During
the lease term (generally five years), Yellow Cab receives a weekly lease
payment for the vehicle as well as a weekly fee to cover the use of Yellow Cab's
license and other services provided by Yellow Cab and its affiliates, including
use of its colors and tradename, liability insurance coverage, radio dispatch,
repair and maintenance. Most operators also purchase the required collision
insurance from Country. See "Business-Insurance Operations."
Despite the name of the Yellow Cab "owner-operator program," taxi drivers
participating in the program do not take ownership of the vehicles, unless they
exercise their option to purchase the vehicle at the end of the initial lease
term and, even when the operators take ownership of the vehicle, Yellow
33
Cab retains ownership of the medallion, which is then transferred to a new
vehicle. Nevertheless, owner-operators take responsibility for the maintenance
and storage of their vehicles and are responsible for compliance with all
Chicago and Yellow Cab regulations. Thus, Yellow Cab is relieved of these
maintenance and repair costs as well as the cost of housing and storing this
significant portion of its large fleet. As of March 31, 1994, approximately 65%
of the Company's medallions were leased under the owner-operator program.
The daily lease program allows drivers to lease a medallion and a vehicle
for 12 hours, 24 hours, or for a weekend. All leases must be paid in advance. As
Yellow Cab has increased its emphasis on the more profitable owner-operator
program, its daily lease program has been used largely as a source and training
operation for new owner-operators. Through a "new licensee introductory offer,"
those recipients of new chauffeurs' licenses who are at least 23 years old may
lease a vehicle and a medallion from Yellow Cab at reduced rates for the first
five days following their receipt of a license. Management believes that Yellow
Cab holds a greater than 75% Share of the total "off-the-street" taxi leasing
market in Chicago.
THE MEDALLIONS
As of March 31, 1994, Yellow Cab owned approximately 2,370 of the roughly
5,400 medallions available in Chicago. In order to retain these licenses, the
Company must comply with the regulations of Chapter 9-112 of the Municipal Code
of Chicago (governing public passenger vehicles), including the payment of
annual taxicab license fees, currently $500 per vehicle.
Pursuant to a 1988 agreement with Chicago to settle various lawsuits, Yellow
Cab is required to relinquish to Chicago and not renew 100 taxicab licenses on
January 1 of each year through 1997 (the "Agreement"). In addition, the
Agreement limits to 100 per year the number of new licenses that Chicago may add
to the total outstanding through 1997, bringing the total number of available
licenses to a maximum of 5,700 on December 31, 1997. At the required surrender
rate, assuming no additional medallions are sold by Yellow Cab, Yellow Cab would
hold approximately 2,070 medallions after January 1, 1997, or approximately 36%
of the maximum total then-to-be outstanding.
The scheduled decline in the number of licenses allowed to be held by Yellow
Cab pursuant to the Agreement has had, and will continue to have, a negative
effect on the revenue-generating capability of the taxi leasing operations.
Although Yellow Cab has been able to offset these declines to some extent
through increases in the average lease rates charged to its customers, in
December 1993, Chicago passed an ordinance which gives the Commissioner of
Consumer Services broad powers to set maximum lease rates. See "-- Regulatory
Issues." The Company has also sought to increase its vehicular operations'
revenues by offering ancillary services to the increasing number of unaffiliated
taxi cab drivers through Chicago AutoWerks. At the same time, as the number of
medallions held by Yellow Cab declines, Yellow Cab will require fewer new
vehicles to support its taxi leasing operations and, consequently, a lower level
of capital spending.
The Agreement has also had the effect of allowing the Company to sell
licenses in the open market for the first time since 1982. In 1993 and the first
quarter of 1994, the Company sold 73 and 4 medallions, respectively, at an
average price of $38,000 each, a historical high. Although the value of Yellow
Cab's fleet of vehicles is reflected on the Company's balance sheet, the
significant value of its medallions is not.
THE VEHICLE FLEET
Under Chicago regulations, no medallion holder may operate a vehicle older
than seven model years. Each year, Yellow Cab orders new vehicles to replace
those that are expected to be removed from service during the next year. Yellow
Cab has given increased emphasis to selling its older used cars during the past
several years. Recent efforts have included a program of increased advertising
and marketing, and the development of this segment of business beyond the
immediate region. At March 31, 1994, Yellow Cab owned approximately 2,370
vehicles at a net book value of $14.0 million (net of depreciation of $19.4
million).
34
MAINTENANCE, REPAIR AND PARTS SALES
Chicago AutoWerks provides preventive and other maintenance services,
primarily to Yellow Cab and non-affiliated taxi drivers, and also, as a licensed
full-line auto repair shop, to the public. Chicago AutoWerks maintains a body
shop at which major repairs can be made. As an authorized Chevrolet and Ford
warrantor, Chicago AutoWerks also repairs those manufacturers' vehicles that are
under warranty and bills the manufacturers directly.
Chicago AutoWerks serves the dispatching needs of Yellow Cab and
non-affiliated drivers, maintains the radios in their taxicabs and supplies
emergency radio services they require. Chicago AutoWerks also sells automotive
parts.
COMPETITION
Although Yellow Cab is the largest provider of taxicab related services in
Chicago, it faces competition from a number of other medallion owners who lease
medallions and vehicles to independent operators. The most significant of these
competitors are Flash Cab Company and American United Cab Association. Yellow
Cab management believes that each of these competitors owns approximately 150 to
200 medallions although each competitor operates under a variety of individual
cab service names and logos.
LIABILITY INSURANCE
Yellow Cab currently maintains liability insurance coverage for losses of up
to $350,000 per occurrence as well as an "excess layer" of coverage for losses
over $600,000 and up to $29,000,000. The initial $350,000 layer of insurance is
issued by Country. See "Business-Insurance Operations." During several periods
in the past, Yellow Cab did not maintain the level of coverage that Yellow Cab
currently maintains. As a result, there were, as of March 31, 1994, eight
outstanding claims against Yellow Cab for which it is not fully covered by
third-party insurance. As of that date, Yellow Cab maintained balance sheet
reserves totalling approximately $2,650,000 for these claims. Management
believes that these reserves will be sufficient to cover its outstanding claims.
REGULATORY ISSUES
Yellow Cab's operations are regulated extensively by the Department of
Consumer Services of Chicago which regulates Chicago taxicab operations with
regard to certain requirements including vehicle maintenance, insurance and
inspections, among others. The City Council of Chicago has authority for setting
taxicab rates of fare. Effective January 18, 1994, rates of fare paid by
passengers increased by 10%. However, lessors had the right to increase, until
May 1, 1994, the rates paid by lessee drivers by not more than 2.8% of the lease
rate in effect on December 1, 1993. After May 1, 1994, lessors may not charge
more than the rates prescribed by the Commissioner (which, in certain
categories, are less than the rates currently charged by Yellow Cab) without the
consent of the City of Chicago. The rates in effect on May 1, 1994, including
the 2.8% increase, may remain in effect pending a petition and appeal for a
higher rate. Yellow Cab increased its rates by the maximum allowed 2.8% prior to
May 1, 1994 and has filed, in a timely manner, a petition to increase its rates
still further. Yellow Cab intends to pursue that proposal to final hearing.
ENVIRONMENTAL ISSUES
Yellow Cab owns eleven parcels of real estate, all situated in Chicago. Some
of these sites have previously been used for the storage and servicing of
taxicabs and some of the sites continue to be so used. These sites, therefore,
involve gasoline and oil underground storage tanks which may create a hazardous
waste product if the tanks on any parcel now leak or have in the past leaked.
Yellow Cab has registered in accordance with law all of its underground
tanks with the Office of the State Fire Marshall for the State of Illinois and
has secured site assessments from environmental engineers and consultants
concerning the nature and extent of any hazardous discharge. Under the Illinois
Underground Storage Tank Fund Law, virtually all clean-up costs associated with
leaking tanks are covered by a guaranty fund, which is administered by the
Illinois Environmental Protection Agency and reimburses these costs except for
the first $10,000 per site. Even assuming reimbursement is denied or unavailable
from this guaranty fund, the Company believes that the liability for clean-up
expenses on sites which have not already been cleaned up will not be material.
35
INSURANCE OPERATIONS
Country generated approximately 3% of the Company's revenues and an
aggregate of $3.9 million of pre-tax income, comprising approximately $2.0
million of segment operating loss and approximately $5.9 million of portfolio
interest income, during the year ended December 31, 1993. During 1993, 67% of
Country's total premium revenue was attributable to non-affiliated
property/casualty lines, primarily worker's compensation, commercial automobile
and commercial multiple peril. The remainder of Country's premium revenues was
attributable to affiliated taxi liability, collision and worker's compensation
insurance in the State of Illinois. Through its longstanding relationship with
Yellow Cab, Country has developed a comprehensive understanding of the
associated risks of taxicab insurance underwriting and presently is one of the
few voluntary providers of such insurance. Country's strategy is to expand its
non-affiliated personal and commercial/casualty property lines by entering new
markets including Southern Illinois and the states surrounding Illinois while
maintaining its affiliated taxi liability and collision business. Country is
currently rated "A" by A.M. Best.
The taxicab liability coverage which Country writes carries a $350,000 limit
of liability for each occurrence. In addition, Country makes collision insurance
available to licensees and owner-operators at
premium rates which are comparable to the rates charged by competitors for
equivalent coverage. Country also writes full lines of commercial and personal
property and casualty insurance for risks located in Chicago and the surrounding
metropolitan area. With the exception of a specialty public transportation
program, which program policies are reinsured for amounts above $350,000, all
non-affiliate policies are reinsured for amounts above $150,000.
During 1993, new management was brought into Country to review and manage
its lines of business with a view to dropping or reducing its exposure in
certain lines and expanding Country's operations
within its geographic region. Country intends to limit its exposure by not
writing in excess of two-and-one-half times the amount of its statutory surplus,
which the Company believes to be a conservative approach.
Country is domiciled in the State of Illinois and is a licensed carrier in
Michigan as well as being admitted as an excess and surplus lines carrier in 33
other states. Country has commenced expansion of its business in Southern
Illinois by contracting with established agencies in Peoria, Decatur and
Champaign, Illinois and intends to emphasize personal lines of insurance, such
as homeowners and commercial multiple peril and automobile liability and
collision. Country is also applying for licenses in other states, such as
Wisconsin and Indiana. To the best of management's knowledge, Country is in
compliance with all applicable statutory requirements and regulations.
INFORMATION CONCERNING BUSINESS SEGMENTS
Certain financial data with respect to the Company's business segments
appear in Note N of Notes to Consolidated Financial Statements -- December 31,
1993 and are incorporated herein by reference.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1993, the Company employed a total of approximately 5,055
people. The table below details the number of persons employed as of that date
in each of the Company's business segments:
ADMINISTRATIVE
HOURLY AND EXECUTIVE
----------- -------------------
Trailer Manufacturing Operations....................................................... 3,265 546
Automotive Products Operations......................................................... 697 142
Vehicular Operations................................................................... 228 21
Insurance Operations................................................................... 8 148
Approximately 295 employees in the Company's trailer manufacturing
operations, 286 in the Company's automotive products operations, and 63 in the
Company's vehicular operations are covered by collective bargaining agreements.
During 1993, Checker L.P. entered into a new contract with the Allied Industrial
Workers of America, AFL-CIO, Local 682 in Kalamazoo, Michigan, currently known
as Local
36
Union No. 7682 of The United Paperworkers International Union, AFL-CIO, which
expires in May 1996. Checker L.P. is party to a contract with D.U.O.C. Local
777, a division of National Production Workers of Chicago and Vicinity, Local
777, which expires in November 1995. During 1993, Great Dane Trailers Tennessee,
Inc., a subsidiary of Great Dane, negotiated a new contract (expiring in January
1996) with Talbot Lodge No. 61 of the International Association of Machinists
and Aerospace Workers. In general, the Company believes its relationship with
its employees to be satisfactory. Although there have been attempts to unionize
various of the Company's divisions in the past few years, including SCSM and the
Great Dane plant in Brazil, Indiana, such attempts have, to date, been
unsuccessful.
PROPERTIES
The Company currently maintains its principal executive offices at Checker
L.P.'s facility in Kalamazoo, Michigan.
The location and general description of the principal properties owned or
leased by the Company are as follows:
OWNED OR LEASED;
IF LEASED,
LOCATION TYPE OF FACILITY AREA/FACILITY SQUARE FOOTAGE EXPIRATION YEAR
- ----------------------------- ------------------------------- ----------------------------- ------------------
TRAILER MANUFACTURING
OPERATIONS:
Savannah, Georgia............ Manufacturing Plant and Office 61 acres/455,000 sq. ft. Owned
Brazil, Indiana.............. Manufacturing Plant and Office 80 acres/564,000 sq. ft. Owned
Memphis, Tennessee........... Manufacturing Plant 8 acres/107,000 sq. ft. Leased; 2003
3.5 acres/13,000 sq. ft. Owned
Wayne, Nebraska.............. Manufacturing Plant and Office 35 acres/179,000 sq. ft. Owned
14 Locations in 10 States.... Sales and Service Branches 98 acres/303,000 sq. ft. Owned
15 Locations in 10 States.... Sales and Service Branches 34 acres/218,000 sq. ft. Leases expiring
1994 to 2015
AUTOMOTIVE PRODUCTS OPERATIONS:
Kalamazoo, Michigan.......... Manufacturing Plant and Office 71 acres/750,000 sq. ft. Owned
South Charleston, Manufacturing Plant and Office 922,000 sq. ft. Leased; 2028
West Virginia...............
VEHICULAR OPERATIONS:
Chicago, Illinois (13 Garages, Parking Lots and 735,000 sq. ft. 11 Owned
Locations).................. Offices
INSURANCE OPERATIONS:
Chicago, Illinois (3 Offices/Storage Facility 33,000 sq. ft. Leased; 1995 to
Locations).................. 2002
The principal facilities owned by the Company and its subsidiaries are
considered by the Company to be well maintained, in good condition and suitable
for their intended use.
LEGAL PROCEEDINGS
EXECUTIVE LIFE LITIGATION
By order of the Superior Court of Los Angeles County (the "California
Court") on April 11, 1991, Case No. B5-006-912 (the "California Order"), the
California State Insurance Commissioner was appointed Conservator for ELIC, a
limited partner in Checker L.P. By letter dated May 20, 1991, Motors and
37
Checker L.P. advised ELIC and the Conservator that the appointment of the
Conservator pursuant to the California Order constituted an "Event of Default"
under the Partnership Agreement, and that, therefore, ELIC's rights under the
Partnership Agreement and interest in Checker L.P. were altered. More
specifically, Motors and Checker L.P. asserted that ELIC's rights, as of April
11, 1991, were limited to the right to receive a payout of its capital account,
calculated as of that date, in quarterly installments over approximately a
23-year period. On June 28, 1991, the Conservator notified Motors and Checker
L.P. that he did not accept the position set forth in the May 20 letter and
that, in his view, ELIC's status as a limited partner had not been altered.
The Company and the Conservator have been in litigation for three years,
each seeking, among other things, a declaration of its rights under the
Partnership Agreement. The Company and the Conservator have agreed to settle the
litigation. Pursuant to the settlement, the Company will redeem ELIC's interest
in Checker L.P. for $37.0 million, to be paid upon consummation of the Offering.
In addition, under certain circumstances, if all or substantially all of the
assets of Checker L.P. are sold within five years of the consummation of the
Minority Interest Redemption, ELIC may be entitled to receive a payment equal to
the positive difference between (x) the distribution ELIC would have received
upon liquidation of Checker L.P. as a result of such transaction, calculated in
accordance with the provisions of the Partnership Agreement as if it had
continued to hold its partnership interest, and (y) the future value of $37.0
million calculated at 15% per annum from the date of the Minority Interest
Redemption to the date of such transaction. The California Court approved the
settlement on May 26, 1994.
BOEING LITIGATION
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-119MA, United States District Court for the District
of Oregon. In that lawsuit, Boeing sought damages and declaratory relief for
past and future costs resulting from alleged groundwater contamination at a
location in Gresham, Oregon, where the three prior subsidiaries of the Company
formerly conducted business operations. On December 22, 1993, the Company
entered into a settlement with Boeing, settling all claims asserted by Boeing in
the lawsuit. Pursuant to the settlement terms, the Company will pay Boeing $12.5
million over the course of five years, at least $5 million of which is being
provided by certain insurance companies. In accordance with the settlement
agreement, Boeing's claims against the Company and the three former subsidiaries
have been dismissed and Boeing has released and indemnified the Company with
respect to certain claims. The Company established a reserve of $7.5 million in
1993 in connection with this matter.
CERTAIN ENVIRONMENTAL MATTERS
Within the past five years, Great Dane and Motors have entered into certain
consent decrees with federal and state governments relating to the cleanup of
waste materials. The aggregate obligations of Great Dane and Motors pursuant to
these consent decrees are not material.
In May 1988, the Company sold all of the stock of its subsidiaries, Datron
Systems, Inc. and All American Industries, Inc., and in connection therewith
agreed to indemnify the purchaser for, among other things, certain potential
environmental liabilities. The purchaser asserted various claims for
indemnification and had commenced litigation in Connecticut with respect to
alleged contamination at a manufacturing facility owned by a former second-tier
subsidiary. The court denied one of the purchaser's claims and dismissed another
with prejudice. The balance of the claims for reimbursement of monitoring and
clean up costs were dismissed without prejudice. The Company and the purchaser
have resolved their relative responsibilities for all claims for cleanup and
monitoring costs at the facility through April 1993 and the Company paid
$350,000 in complete payment of all bills submitted for work completed prior to
that time. The Company and the purchaser are continuing to discuss their
relative responsibilities for monitoring costs after that time. The Company does
not believe that its obligations will be material. The purchaser has also put
the Company on notice of certain other alleged environmental and other matters
for which it intends to seek indemnification as costs are incurred. The Company
does not believe that its obligations, if any, to pay these claims will be
material.
38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and principal position of each
of the executive officers and directors of the Company as of March 31, 1994:
NAME AGE POSITION
- -------------------------------------------------------------- ----------- --------------------------------------
David R. Markin............................................... 63 President, Chief Executive Officer and
Director
Allan R. Tessler.............................................. 57 Chairman of the Board
Martin L. Solomon............................................. 57 Vice Chairman and Secretary
Wilmer J. Thomas, Jr.......................................... 67 Vice Chairman
Jay H. Harris................................................. 57 Executive Vice President and Chief
Operating Officer
Marlan R. Smith............................................... 50 Treasurer
Kevin J. Hanley............................................... 38 Controller
Willard R. Hildebrand......................................... 54 President and Chief Executive Officer
of Great Dane
Larry D. Temple............................................... 47 Group Vice President of Motors
Jeffrey M. Feldman............................................ 43 President of Yellow Cab
BIOGRAPHICAL INFORMATION
David R. Markin, President and Chief Executive Officer of the Company since
January 11, 1989, has been President and Chief Executive Officer of Motors since
1970. Mr. Markin serves on the Boards of Directors of Jackpot Enterprises, Inc.,
an operator of gaming machines, Enhance Financial Services Group Inc., a
reinsurance company, and Data Broadcasting Corporation, a provider of market
data services to the investment community.
Allan R. Tessler, Chairman of the Board of the Company since January 11,
1989, is also Chairman of the Boards of Directors of International Financial
Group, Inc., a merchant banking firm ("IFG"), Enhance Financial Services Group
Inc., a reinsurance company, and Allis-Chalmers Corporation, a manufacturer of
miscellaneous fabricated textile products ("Allis-Chalmers"), and is Chief
Executive Officer of IFG since 1987 and of Allis-Chalmers since 1994. Mr.
Tessler serves on the Boards of Directors of Jackpot Enterprises, Inc., an
operator of gaming machines, and The Limited, Inc., a manufacturer and retailer
of apparel. Mr. Tessler is also an attorney and from 1976 through 1988, he was a
member of the Executive Committee of the law firm of Shea & Gould; from 1989
through March 1, 1993, he was of counsel to that firm. Beginning in 1990, Mr.
Tessler and another person were retained by Infotechnology, Inc. and Financial
News Network Inc. as a restructuring team and to serve as Co-Chief Executive
Officers during the restructuring of those companies. As part of the plan
implemented by the restructuring team, those companies were placed in
bankruptcy, from which they emerged in 1992 as Data Broadcasting Corporation, a
provider of market data services to the investment community. Mr. Tessler
continues to serve as Co-Chairman of the Board and Co-Chief Executive Officer of
the restructured company.
Martin L. Solomon, Vice Chairman and Secretary of the Company since January
11, 1989, is a private investor. Mr. Solomon was employed as a securities and
portfolio analyst at Steinhardt Partners, an investment firm, from 1985 through
1987. From 1988 through September 1990, he was the Managing Partner and Director
at Value Equity Associates I, Limited Partnership, an investment firm. Mr.
Solomon serves on the Board of Directors of Xtra Corporation, a truck leasing
company.
Wilmer J. Thomas, Jr., Vice Chairman of the Company since January 11, 1989,
is a private investor. Mr. Thomas served as Treasurer of the Company from
January 1989 to January 1994. Mr. Thomas serves
39
on the Boards of Directors of Moore Medical Corp., a pharmaceutical and surgical
supply company, Oak Hills Sportswear Corp., a clothing company, and RCL Capital
Corp., a development stage company whose business objective is to acquire an
operating business.
The executive officers of the Registrant, in addition to Messrs. Markin,
Tessler, Solomon and Thomas, are:
Jay H. Harris has been Executive Vice President and Chief Operating Officer
of the Company for more than the past five years and a Vice President of Motors
since May 1991. Mr. Harris was a director of the Company from 1978 until January
11, 1989.
Marlan R. Smith has been Treasurer of the Company since January 1994 and
Vice President and Treasurer of Motors since March 1988. Prior to being elected
Treasurer of the Company, he served as Assistant Treasurer since January 1989.
Kevin J. Hanley has been Controller of the Company since January 1994 and
Secretary and Controller of Motors since December 1989. For more than five years
prior thereto, Mr. Hanley served as a senior manager with Ernst & Young.
Willard R. Hildebrand, was elected as President and Chief Executive Officer
of Great Dane effective January 1, 1992. Mr. Hildebrand had served as President
and Chief Operating Officer of Fiatallis North America, Inc., a manufacturer of
heavy construction and agricultural equipment, for more than five years prior
thereto.
Larry D. Temple, has been Group Vice President of Motors since September
1989. Mr. Temple served as Vice President of Manufacturing from 1988 to 1989
and, prior thereto, as Assistant Vice President of Manufacturing.
Jeffrey M. Feldman has been President of Yellow Cab since 1983 and Vice
President of Motors since January 1988.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
The Company's officers are elected annually by the Board and hold office until
their successors are qualified and chosen.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each of Messrs. Markin, Solomon, Tessler and Thomas is an executive officer
of the Company and participates, as a director, in the deliberations concerning
executive officer compensation. During 1993, Mr. Markin served on the
compensation committee of Enhance Financial Services Group Inc. and Data
Broadcasting Corporation and Mr. Tessler served as an executive officer of each
of these companies.
As of December 31, 1993, Country holds $0.9 million principal amount of
Enhance Financial Services Group Inc., 7% Notes due December 1, 1996, of which
company Mr. Markin is a director.
During 1993, 1992 and 1991, the Company used, on a month-to-month basis, an
airplane owned by a corporation of which Mr. Tessler is the sole shareholder.
The Company paid $60,000 per month for such use.
Each of Messrs. Markin, Solomon, Tessler and Thomas provides consulting
services to Yellow Cab and each receives for such services (commencing in
January 1988) $10,000 per month. Messrs. Solomon, Tessler and Thomas also
provide consulting services (a) to Motors for which they each receive monthly
fees of $5,000 (commencing in January 1988) and (b) to Country for which they
each received monthly fees of approximately $18,300 in each of 1993, 1992 and
1991. Mr. Markin serves as a consultant to Chicago AutoWerks, a division of
Checker L.P., for which he receives monthly fees of approximately $1,200
(commencing in January 1988), and to Country, for which he receives monthly fees
of approximately $4,600.
During 1991, 1992, and until March 1, 1993, Mr. Tessler was of counsel to
Shea & Gould, a law firm retained by the Company for certain matters.
40
Frances Tessler, the wife of Allan R. Tessler, is employed by Smith Barney
Shearson which executes trades for Country's investment portfolio. During 1993
and 1992, Mrs. Tessler received for her services approximately $78,000 and
$69,000, respectively, of the commissions paid to Smith Barney Shearson.
On September 24, 1992, American Country Financial Services Corp. ("AFSC"), a
subsidiary of Country, purchased from The Mid City National Bank of Chicago the
promissory note dated July 30, 1992, made by King Cars, Inc. ("King Cars") in
the principal amount of $381,500 plus accrued interest in the amount of $3,560.
The note, which has been renewed several times, had outstanding principal and
accrued interest as of March 31, 1994 of approximately $423,000 and matures in
December 1994. King Cars is owned by Messrs. Markin, Tessler, Solomon, Thomas
and Feldman. King Cars is a party to an agreement dated December 15, 1992, with
Yellow Cab pursuant to which Yellow Cab purchases from King Cars display frames
for installation in its taxicabs and King Cars furnishes Yellow Cab advertising
copy for insertion into the frames. King Cars receives such advertising copy as
an agent in Chicago for an unrelated company which is in the business of selling
and arranging for local and national advertising. Of the revenues generated from
such advertising, 30% will be retained by King Cars and the balance will be
delivered to Yellow Cab until such time as Yellow Cab has recovered costs
advanced by it for the installation of advertising frames in 500 of its taxicabs
(approximately $78,000). The terms to Yellow Cab are the same or more favorable
than those offered by King Cars to unrelated third parties.
Each of Messrs. Markin, Solomon, Tessler and Thomas received interest
payments of $704,795 in 1993, $733,356 in 1992 and $897,637 in 1991 pursuant to
the terms of the Existing Notes held by them (See Note G of the Notes to
Consolidated Financial Statements -- December 31, 1993).
41
COMPENSATION
The following table sets forth the 1993 annual compensation for the
Company's Chief Executive Officer and the five highest paid executive officers,
as well as the total compensation paid to each individual for the Company's two
previous fiscal years:
SUMMARY COMPENSATION TABLE
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- ------------------------------------------- --------- ------------- ----------- --------------- ---------------
David R. Markin, .......................... 1993 $ 1,230,000 $ 250,000 $ 246,519(1) $ 2,249(4)
President, Chief Executive 1992 1,230,000 150,000 239,594(1) 2,182(4)
Officer and Director 1991 1,230,000 0 258,072(1) 915(4)
Jay H. Harris, ............................ 1993 350,000 250,000 0 2,249(4)
Executive Vice President and 1992 326,016 125,000 0 2,182(4)
Chief Operating Officer 1991 302,032 50,000 0 915(4)
Jeffrey M. Feldman, ....................... 1993 210,000 150,000 85,008(2) 2,249(4)
President of Yellow Cab 1992 186,667 150,000 77,755(2) 2,182(4)
1991 138,906 150,000 53,328(2) 659(4)
Martin L. Solomon, ........................ 1993 0 0 400,000(3) 0
Vice Chairman and Secretary 1992 0 0 400,000(3) 0
1991 0 0 405,000(3) 0
Allan R. Tessler, ......................... 1993 0 0 400,000(3) 0
Chairman of the Board 1992 0 0 400,000(3) 0
1991 0 0 405,000(3) 0
Wilmer J. Thomas, Jr., .................... 1993 0 0 400,000(3) 0
Vice Chairman 1992 0 0 400,000(3) 0
1991 0 0 405,000(3) 0
<FN>
- --------------
(1) Other compensation
for Mr. Markin includes: 1993 1992 1991
-------- -------- --------
Consulting Fees.......... $190,000 $190,000 $195,000
Life Insurance.......... 41,027 37,023 40,527
Automobile.............. 8,125 5,100 15,400
Club dues............... 7,367 7,471 7,145
-------- -------- --------
$246,519 $239,594 $258,072
-------- -------- --------
-------- -------- --------
(2) Other compensation
for Mr. Feldman includes: 1993 1992 1991
--------- --------- ---------
Consulting Fees................ $ 57,000 $ 57,000 $ 40,000
Life Insurance................ 11,253 10,739 7,861
Automobile.................... 1,748 1,537 1,481
Club dues..................... 15,007 8,479 3,986
--------- --------- ---------
$ 85,008 $ 77,755 $ 53,328
--------- --------- ---------
--------- --------- ---------
(3) Consulting fees.
(4) Matching contributions under the Partnership 401(k) plan.
42
EMPLOYMENT AGREEMENTS
Checker L.P., as the assignee of Motors, is party to an Amended and Restated
Employment Agreement dated as of November 1, 1985, as further amended, with
David R. Markin pursuant to which Mr. Markin is to serve as President, Chief
Executive Officer and Chief Operating Officer of Checker L.P. until April 30,
1996, subject to extension (the "Termination Date"), at a minimum salary of
$600,000 per annum, together with the payment of certain insurance premiums, the
value of which have been included in the Summary Compensation Table above. The
beneficiaries of these insurance policies are designated by Mr. Markin. Mr.
Markin continues to be eligible to participate in profit sharing, pension or
other bonus plans of Checker L.P. Pursuant to the Amended and Restated
Employment Agreement, in the event of Mr. Markin's death, Checker L.P. shall pay
Mr. Markin's estate the compensation which would otherwise be payable to him for
the period ending on the last day of the month in which death occurs. In
addition, Checker L.P. shall pay to Mr. Markin's beneficiaries deferred
compensation from the date of his death through the Termination Date in an
annual amount equal to one-third of his base salary at the date of his death. In
the event of termination of the Amended and Restated Employment Agreement for
any reason other than cause, disability or death, Mr. Markin shall continue to
serve as a consultant to Checker L.P. for a period of five years, for which he
shall receive additional compensation in the amount of $50,000 per annum.
Checker L.P. has agreed to indemnify Mr. Markin from certain liabilities arising
out of his service to Checker L.P., except for liabilities resulting from his
gross negligence or willful misconduct. Effective January 1, 1994, Mr. Markin
and the Company memorialized in writing their agreement, pursuant to which Mr.
Markin has been compensated by the Company since January 11, 1989, on
substantially the same terms as are set forth above.
The Company entered into an employment agreement as of July 1, 1992, with
Jay H. Harris pursuant to which Mr. Harris serves as Executive Vice President
and Chief Operating Officer of the Company until June 30, 1994, subject to
extension, at a minimum salary of $350,000 per annum, an incentive bonus to be
determined by the Board of Directors, and such other fringe benefits and plans
as are available to other executives of the Company. Upon the happening of
certain events, including a change in control (as defined therein) of ICC or
retirement after June 30, 1994, Mr. Harris is entitled to compensation in an
amount equal to the greater of (a) five percent of the increase in the Company's
retained earnings, subject to certain adjustments, during the period commencing
on March 31, 1992, and ending on the last day of the month preceding the event
which triggers the payment (the "Termination Payment") and (b) 2.99 times his
then base salary. If Mr. Harris were to leave the Company before July 1, 1994,
or if he were to die or become disabled, he or his estate would receive the
greater of (a) one year's base compensation or (b) the Termination Payment.
Payments in either case would be made over a period of time, the length of which
would be dependent on the amount due to Mr. Harris. Mr. Harris has agreed to
serve as a consultant to the Company during the first year after termination for
no compensation beyond his expenses incurred in connection with rendering such
services. The Company has agreed to indemnify Mr. Harris for certain liabilities
to the full extent allowed by law. Motors has guaranteed the Company's
obligations.
Checker L.P. is party to an Amended and Restated Employment Agreement dated
as of June 1, 1992, with Jeffrey Feldman pursuant to which Mr. Feldman serves as
President of the vehicular operations segment until February 1, 1996, subject to
extension (the "Termination Date"), at a minimum salary of $200,000 per annum,
together with the payment of certain insurance premiums, the value of which have
been included in the Summary Compensation Table above. The beneficiaries of
these insurance policies are designated by Mr. Feldman. Mr. Feldman is eligible
to participate in profit sharing, pension or other bonus plans implemented by
the vehicular operations segment. Pursuant to the Amended and Restated
Employment Agreement, in the event of Mr. Feldman's death, Checker L.P. shall
pay Mr. Feldman's estate the amount of compensation which would otherwise be
payable to him for the period ending on the last day of the month in which death
occurs. In addition, Checker L.P. shall pay to Mr. Feldman's estate deferred
compensation from the date of his death to the Termination Date in an annual
amount equal to one-third of his base salary at the date of his death. In the
event of the termination of the Amended and Restated Employment for any reason
other than cause, disability or death, Mr. Feldman shall continue to serve as a
consultant to Checker L.P. for a period of five years (if terminated by Mr.
Feldman) or seven
43
years (if terminated by Checker L.P.), for which he shall receive compensation
in the amount of $75,000 per annum. Checker L.P. has agreed to indemnify Mr.
Feldman from certain liabilities, except for those resulting from his gross
negligence or willful misconduct.
Great Dane is party to a letter agreement with Willard R. Hildebrand
pursuant to which Mr. Hildebrand serves as President and Chief Executive Officer
of Great Dane at a starting base salary of $15,833.33 per month ($190,000
annualized), plus incentive compensation and certain other benefits. In the
event of a change of control of Great Dane, prior to November 4, 1994 and the
subsequent termination of his agreement, Mr. Hildebrand would be entitled to
payment of up to three years of his salary less amounts received as of the date
of termination, but in no event less than six months' salary. Mr. Hildebrand's
current annual salary is $275,000.
COMPENSATION PURSUANT TO PLANS
GREAT DANE PENSION PLAN
Great Dane has in effect a defined benefit employee pension plan entitled
Retirement Plan For Great Dane Trailers, Inc. (the "Retirement Plan") covering
substantially all of its employees. Pension benefits are subject to limitations
imposed by the Internal Revenue Code of 1986, as amended, and the Employee
Retirement Income Security Act of 1974, as amended, with respect to the annual
amount of benefits provided by employer contributions.
Effective as of July 1, 1988, the assets and the liabilities attributable to
active and former employees under the Amended and Restated International
Controls Corp. Pension Plan as of June 30, 1988 were transferred to the
Retirement Plan and the Company adopted the Retirement Plan for the benefit of
its employees. With respect to benefits accruing after June 30, 1984, to a
participant who was a participant under the Amended and Restated International
Controls Corp. Pension Plan as of June 30, 1988, the following table shows the
estimated annual benefits payable upon retirement at age 65 under the plan to
specified average annual compensation and years of benefit service
classifications. The following amounts would be reduced by a Social Security
offset:
YEARS OF BENEFIT SERVICE
-----------------------------------------------------------
AVERAGE ANNUAL COMPENSATION 1 5 10 15 20
- ---------------------------------------------------- --------- --------- ----------- ----------- -----------
$100,000............................................ $ 2,000 $ 10,000 $ 20,000 $ 30,000 $ 40,000
150,000............................................ 3,000 15,000 30,000 45,000 60,000
200,000............................................ 4,000 20,000 40,000 60,000 80,000
250,000............................................ 5,000 25,000 50,000 75,000 100,000
300,000............................................ 5,000 25,000 60,000 90,000 115,641*
400,000............................................ 5,000 25,000 80,000 115,641* 115,641*
500,000............................................ 5,000 25,000 100,000 115,641* 115,641*
<FN>
- --------------
* Maximum permitted in 1993
Mr. Harris has an aggregate of 24 years of benefit service under the Retirement
Plan (8 years) and the Amended and Restated International Controls Corp. Pension
Plan (16 years) and will receive benefits of approximately $74,000 per year at
age 65.
PARTNERSHIP PENSION AND EXCESS BENEFIT PLANS
Checker L.P. maintains a defined benefit employee pension plan entitled
Checker Motors Pension Plan (the "Pension Plan") covering substantially all of
its non-union employees, and, effective January 1, 1992, the employees of the
Company.
Checker L.P. also maintains the Checker Motors Co., L.P. Excess Benefit
Retirement Plan (the "Excess Benefit Plan"). An employee of Checker L.P. will
become a participant in the Excess Benefit Plan if the benefits which would be
payable under the Pension Plan are not fully provided thereunder because of the
annual maximum benefit limitations of Section 415 of the Internal Revenue Code
of 1986, as amended. The amount that the participant is entitled to receive
under the Excess Benefit Plan is an amount equal to the amount that would have
been payable under the Pension Plan if Section 415 did not
44
apply, minus the amount that is actually payable under the Pension Plan. At the
present time, David R. Markin and Jeffrey M. Feldman are the only individuals
named above who would receive benefits under the Excess Benefit Plan. Considered
compensation under the Excess Benefit Plan is limited to $300,000.
Set forth below are the estimated annual benefits for participants in the
Pension Plan (including benefits payable under the Excess Benefit Plan) who have
been employed by Checker L.P. and its predecessors for the indicated number of
years prior to retirement, assuming retirement at age 65 in 1993:
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
-----------------------------------------------------------
AVERAGE COMPENSATION (AS DEFINED IN PLAN) 10 20 30 40 45
- --------------------------------------------------- --------- --------- ----------- ----------- -----------
$100,000........................................... $ 13,950 $ 28,756 $ 47,024 $ 66,159 $ 75,870
150,000........................................... 21,450 46,256 74,524 103,659 118,370
200,000........................................... 28,950 63,756 102,024 141,159 160,870
250,000........................................... 36,450 81,256 129,524 178,659 203,370
300,000........................................... 43,950 98,756 157,024 216,159 245,870
400,000........................................... 43,950 98,756 157,024 216,159 245,870
500,000........................................... 43,950 98,756 157,024 216,159 245,870
The above benefit projections were prepared on the assumption that the
participant made participant contributions to the Pension Plan for all years in
which he was eligible to contribute, and that Social Security covered
compensation is $1,750. The benefit projection would be reduced by a Social
Security offset.
For those executive officers named above, the following are credited years
of service under the Pension and Excess Benefit Plans and 1993 salary covered by
the Pension Plan:
CREDITED YEARS OF EXPECTED CREDITED YEARS OF 1993 SALARY COVERED
SERVICE SERVICE AT 65 BY PENSION PLAN
------------------- ----------------------------- --------------------
David R. Markin................................. 39 41 $ 235,840
Jay H. Harris................................... 2 10 235,840
Jeffrey M. Feldman.............................. 15 37 235,840
SALARY CONTINUATION PLAN
Motors entered into Stated Benefit Salary Continuation Agreements (the
"Agreements") with certain officers and employees (the "Salary Plan") pursuant
to which such participants will receive benefits upon attaining age 65 (or their
beneficiaries will receive benefits upon their death prior to or within 120
months after such executives or employees attain age 65). Motors' obligations
pursuant to the Salary Plan were assumed by Checker L.P. in 1986.
For those executive officers named above, the following table sets forth the
benefits payable pursuant to the Salary Plan:
ANNUAL SURVIVOR
ANNUAL BENEFIT BENEFIT PAYABLE TOTAL
PAYABLE UPON TOTAL BENEFIT UPON DEATH PRIOR SURVIVORSHIP
ATTAINING AGE PAYABLE OVER TO ATTAINING AGE BENEFIT PAYABLE
65 THE YEARS 65 OVER THREE YEARS
--------------- -------------- ---------------- -----------------
David R. Markin........................... $ 240,000 $ 2,400,000 $ 368,000 $ 1,104,000
Jeffrey M. Feldman........................ $ 19,950 $ 199,500 $ 79,800 $ 239,400
COMPENSATION OF DIRECTORS
The directors did not receive any fees for their services as directors in
1993. See "Compensation Committee Interlocks and Insider Participation."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffrey M. Feldman is the nephew of David R. Markin.
Checker L.P. has borrowed $2.5 million from Country, which loan is secured
by certain of Checker L.P.'s property.
45
See also "Compensation Committee Interlocks and Insider Participation."
OWNERSHIP OF COMMON STOCK
The Common Stock, which is the only class of stock of the Company, is owned
as follows:
NO. OF SHARES OF COMMON
STOCK OF RECORD AND PERCENT OF
NAME BENEFICIALLY OWNED CLASS
- ------------------------------ ----------------------- ----------
David R. Markin............... 2,936,927.5 32.5
Martin L. Solomon............. 2,033,257.5 22.5
Allan R. Tessler.............. 2,033,257.5 22.5
Wilmer J. Thomas, Jr.......... 2,033,257.5 22.5
-----
100.0%
-----
-----
The address of each of the shareholders is c/o International Controls Corp.,
2016 North Pitcher Street, Kalamazoo, Michigan 49007.
DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
The following is a summary of the anticipated material terms and conditions
of the New Credit Facility. This summary does not purport to be a complete
description of the New Credit Facility and is subject to the detailed provisions
of the Loan Agreement (the "Loan Agreement") and the various related documents
to be entered into in connection with the New Credit Facility. A draft copy of
the Loan Agreement will be filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The completion of the Offering is subject to
the simultaneous consummation of the New Credit Facility.
Concurrently with the issuance of the Notes, the Company and the Co-Obligors
(Motors, Checker L.P., SCSM (collectively, the "Checker Borrowers") and Great
Dane, Great Dane Tennessee, Inc., Great Dane Nebraska, Inc. and Great Dane Los
Angeles, Inc. (collectively, the "Great Dane Borrowers")) will enter into the
New Credit Facility. The New Credit Facility will consist of a five-year term
loan facility (the "Term Facility") of $50.0 million and a five-year revolving
credit facility (the "Revolving Facility") of up to an aggregate of $95.0
million (including up to $15.0 million which can be utilized for standby letters
of credit), subject to the Company's ability to meet certain financial tests.
The obligations of the Company and the Co-Obligors under the New Credit Facility
will be secured by substantially all of the assets of the Company and the
Co-Obligors. In connection with the New Credit Facility, NBD Bank, N.A. ("NBD")
has formed a syndicate of lenders (the "Lenders") for which NBD will serve as
agent ("Agent").
Permissible levels of borrowing by the Company, the Checker Borrowers and
the Great Dane Borrowers under the Revolving Facility will be determined based
on eligible inventory and eligible accounts receivable of the Company, the
Checker Borrowers and the Great Dane Borrowers, respectively (collectively,
"Borrowing Base Requirements"). It is anticipated that, upon consummation of the
New Credit Facility, the Term Facility will be in the full principal amount of
$50.0 million and the initial borrowings under the Revolving Facility will
aggregate approximately $32.4 million (assuming that the Refinancing had been
consummated as of March 31, 1994). All of the initial borrowings under the New
Credit Facility will be used by the Company and the Co-Obligors to provide for
repayment of existing indebtedness and the payment of transaction fees and
expenses. Management estimates that, upon consummation of the New Credit
Facility, Borrowing Base Requirements would permit additional usage under the
Revolving Facility of at least $49.6 million at March 31, 1994, subject to the
Company's ability to meet certain financial tests.
AMORTIZATION; PREPAYMENTS
The Term Facility will require quarterly amortization payments based on a
seven-year amortization schedule, commencing on , 1994 and continuing
until , 1999, at which time all amounts outstanding under the New
Credit Facility become due and payable. In addition, the Company
46
must prepay the Term Facility in amounts equal to: (i) 75% of the Company's
Excess Cash Flow (as defined in the Loan Agreement) during the first two years
that the New Credit Facility is in effect up to a maximum of $5 million each
year; and (ii) a portion of the proceeds of the sale of any capital stock of the
Company; provided, however, that after such time as the prepayment pursuant to
the foregoing clause (i) has been made in full, the mandatory prepayment
required by clause (ii) may be applied to either the Term Facility or to a
permanent reduction of the Revolving Facility.
INTEREST RATES; FEES
During the first 180 days after the closing of the New Credit Facility,
amounts outstanding under the New Credit Facility will bear interest at a rate
per annum equal to the lower of (i) 3.00% above the London Interbank Offered
Rate of Interest ("LIBOR") and (ii) .50% plus the greater of (a) NBD's prime
rate of interest and (b) 1.00% above the Federal Funds Rate (the "Base Rate").
Thereafter, amounts outstanding under the New Credit Facility will bear interest
at a fluctuating rate per annum equal, at the option of the Company, to LIBOR
plus the Applicable Margin or the Base Rate plus the Applicable Margin. The
Applicable Margin will be determined on the basis of the Company's ratio of EBIT
to Interest Expense (as both are defined in the Loan Agreement). With respect to
the Term Facility, the Applicable Margin will range from 0% to 0.75% with
respect to the Base Rate and 2.25% to 3.00% with respect to LIBOR. With respect
to the Revolving Credit Facility, the Applicable Margin will range from 0% to
.50% with respect to the Base Rate and from 2.00% to 2.75% with respect to
LIBOR.
In connection with the New Credit Facility, the Company will pay an unused
revolving credit fee of .375% to .50% (depending upon the Company's ratio of
EBIT to Interest Expense) per annum of the average unused commitments under the
Revolving Facility, an agency fee as the Company, the Co-Obligors and the Agent
may from time to time agree and a closing fee of $ .
COLLATERAL
The obligations of the Company and the Co-Obligors under the New Credit
Facility will be secured by substantially all of the assets of the Company and
the Co-Obligors including a pledge of the stock of Great Dane and Motors, which
pledge will be on an equal and ratable basis with the pledge of stock securing
the Senior Notes. The collateral will include inventories, receivables, certain
property, plant, equipment and other assets, including medallions. In addition,
a negative pledge will prohibit incurring liens (with certain exceptions) on any
of the assets of the Co-Obligors, or entering into any agreement which prohibits
the ability of the Company and the Co-Obligors to create, incur, assume or
suffer to exist any lien in favor of the Lenders on current or after acquired
property.
COVENANTS
Under the Loan Agreement, subsidiaries of the Company will be prohibited
from paying dividends or making distributions or loans to the Company (i) if a
payment default is continuing under the New Credit Facility or a change in
control (as defined in the Loan Agreement) or certain events of insolvency
occur, or (ii) upon the occurrence of a default under the New Credit Facility
(other than a default described in (i) above) until the earlier of (a) the 179th
day following delivery of notice of such occurrence to the Company or (b) the
curing or waiving of such other default. Notwithstanding the foregoing, the
holders of the Notes are not restricted under the terms of the Indentures from
accelerating the Indebtedness thereunder upon the happening of an event of
default under the Indentures. The Loan Agreement will also contain certain other
restrictive covenants, including various reporting requirements and financial
covenants requiring specified levels of current assets to current liabilities
and cash flow, specified fixed charges and interest coverage ratios, and
restrictions on the payment of dividends and compensation by the Company to
certain affiliates. Other restrictive covenants will limit the incurrence of
additional indebtedness, the incurrence of liens, capital expenditures, certain
investments, certain affiliate transactions, the acquisition or disposition of
assets outside of the ordinary course of business and the use of proceeds from
asset sales, in each case with certain exceptions, or subject to the prior
approval of the Lenders. The Loan Agreement will also prohibit any optional
payment, prepayment or redemption of the Senior Notes and any subordinated debt,
including the Senior Subordinated Notes, with certain exceptions. After giving
effect to the Refinancing, the Company expects to be in compliance with the
financial and other covenants described above.
47
EVENTS OF DEFAULT
Events of default under the Loan Agreement will include (i) any failure by
the Company to pay when due amounts owing under the New Credit Facility, (ii)
any failure to meet certain covenants in the Loan Agreement (subject, in certain
circumstances, to materiality standards and cure periods), (iii) the breach of
any representations or warranties in the Loan Agreement (subject, in certain
circumstances, to materiality standards and cure periods), (iv) any failure to
pay amounts (in excess of certain levels) due under certain other agreements or
defaults that result in or permit the acceleration of certain other indebtedness
(including the Notes), (v) unsatisfied judgments in excess of certain amounts,
(vi) a change of control and (vii) certain events of bankruptcy, insolvency or
dissolution.
DESCRIPTION OF UNITS
Each Unit offered hereby consists of $1,000 principal amount of the Senior
Subordinated Notes and one Warrant to purchase shares of Common Stock. The
Warrants and the Senior Subordinated Notes will not be separately transferable
until the Separation Date. Prior to separation, the Units will be physically
represented by the Senior Subordinated Notes bearing an endorsement representing
beneficial ownership of the related Warrants. Prior to separation, transfer of a
Senior Subordinated Note will also constitute transfer of a holder's beneficial
interest in the related Warrant. On the Separation Date, each Unit will be
deemed to separate into a Senior Subordinated Note and a Warrant and from and
after such time, each Senior Subordinated Note will represent beneficial
ownership of such Senior Subordinated Note only. On or as soon as practicable
after the Separation Date, the Warrant Agent will deliver to each holder of
Senior Subordinated Notes a Warrant certificate or certificates representing the
aggregate number of Warrants represented by such holder's Units immediately
prior to separation.
DESCRIPTION OF WARRANTS
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement"), dated as of , 1994, between the Company and American
Stock Transfer Company, as warrant agent (the "Warrant Agent"), a copy of which
is attached as an exhibit to the Registration Statement. The following summary
of certain provisions of the Warrant Agreement does not purport to be complete
and is qualified in its entirety by reference to the Warrant Agreement,
including the definitions therein of certain terms.
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
shares of Common Stock of the Company, at an exercise price of $.01 per
share (the "Exercise Price"). The number of Warrant Shares issuable upon
exercise of a Warrant is subject to adjustment in certain cases referred to
below (the "Exercise Rate"). Unless exercised, the Warrants will automatically
expire on , 1999. The Warrants will entitle the holders thereof to
purchase in the aggregate % of the outstanding Common Stock on a fully diluted
basis as of the date of issuance of the Warrants.
The Warrants may be exercised on or after the Exercisability Date by
surrendering to the Company the Warrant certificates evidencing such Warrants,
if any, with the accompanying form of election to purchase, properly completed
and executed, together with payment of the Exercise Price. Payment of the
Exercise Price may be made in the form of cash or a certified or official bank
check payable to the order of the Company. Upon surrender of the Warrant
certificate and payment of the Exercise Price, the Warrant Agent will deliver or
cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole shares of Common Stock or other
securities or property to which such holder is entitled. If less than all of the
Warrants evidenced by a Warrant certificate are to be exercised, a new Warrant
certificate will be issued for the remaining number of Warrants. "Exercisability
Date" is defined in the Warrant Agreement as the date of occurrence of any
Exercise Event. "Exercise Event" is defined in the Warrant Agreement as
, 1999, or the earlier occurrence of (1) a Change of Control or (2)
a Public Offering.
48
No service charge will be made for any exercise, exchange or registration of
transfer of Warrant certificates, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
No fractional shares of Common Stock will be issued upon exercise of the
Warrants. In lieu thereof, the Company will pay a cash adjustment. The holders
of the Warrants have no right to vote on matters submitted to the stockholders
of the Company and have no right to receive cash dividends (other than
extraordinary dividends). The holders of the Warrants are not entitled to share
in the assets of the Company in the event of the liquidation, dissolution or
winding up of the Company's affairs.
ADJUSTMENTS
The number of shares of Common Stock purchasable upon the exercise of the
Warrants will be subject to adjustment in certain events, including: (i) the
issuance by the Company of dividends (or other distributions) on Common Stock
payable in Common Stock or other shares of the Company's capital stock; (ii)
subdivisions, combinations and reclassifications of the Common Stock; (iii) the
issuance to all holders of Common Stock of rights, options or warrants entitling
them to subscribe for Common Stock or securities convertible into, or
exchangeable or exercisable for, Common Stock at an offering price (or with an
initial conversion, exchange or exercise price plus such offering price) which
is less than the current market price per share (as defined) of the Common
Stock; (iv) the distribution to all holders of Common Stock of any of the
Company's assets, debt securities or any rights or warrants to purchase
securities (excluding those rights and warrants referred to in clause (iii)
above); (v) the issuance of shares of Common Stock for a consideration per share
less than the current market price; and (vi) the issuance of securities
convertible into or exchangeable for shares of Common Stock for a conversion or
exchange price less than the current market price for a share of Common Stock.
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment to the number of shares of Common Stock or other
consideration for which a Warrant may be exercised, the holders of the Warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. See "Certain Federal Income
Tax Consequences."
No anti-dilution adjustment will be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Exercise
Rate; PROVIDED, HOWEVER, that any adjustment which is not made will be carried
forward and taken into account in any subsequent adjustment.
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another corporation,
each Warrant shall thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrants been exercised immediately prior thereto.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including curing defects or inconsistencies or making any
change that does not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants shall require the written
consent of the holders of a majority of the then outstanding Warrants. The
consent of each holder of the Warrants affected shall be required for any
amendment pursuant to which the Exercise Price would be increased or the number
of shares of Common Stock purchasable upon exercise of Warrants would be
decreased (other than pursuant to adjustments provided in the Warrant
Agreement.)
REPORTS
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company will, to the extent permitted under the Exchange Act,
file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been or is required to file with the
Commission pursuant to such Section 13(a) or 15(d) if the Company were or is so
subject, such
49
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been or is
required so to file such documents if the Company were or is so subject. The
Company will also in any event (x)(i) within 15 days of each Required Filing
Date file with the Warrant Agent copies of the annual reports, quarterly reports
and other documents which the Company would have been or is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were or is subject to such Section and (ii) within the earlier of 30
days after the filing of such report or other document with the Warrant Agent
and 45 days of each such Required Filing Date transmit such report or document
by mail to all holders of the Warrants, as their names and addresses appear in
the security register, without cost to such holders and (y) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request supply copies of such documents to any
prospective holders of the Warrants at the Company's cost.
REGISTRATION RIGHTS
The holders of Warrants will be entitled, under certain specified
circumstances and subject to certain limitations, to require the Company to
register under the Securities Act the shares of Common Stock into which the
Warrants have been, or simultaneously with the registration will be, exercised
into Common Stock (the "Registrable Shares"). On or after 120 days following a
Public Offering, the Company will be required to register the Registrable Shares
upon demand of the holders of Registrable Shares on not more than two occasions
so long as the amount of Registrable Shares to be registered on each occasion
has an aggregate fair market value (in the good faith opinion of the Company) of
$5.0 million or more. In addition, the Company will be required to include the
Registrable Shares in a registration of shares of Common Stock initiated by the
Company under the Securities Act (other than a Public Offering) in which the
aggregate net proceeds to the Company exceed $20.0 million and any other
registration of Common Stock initiated by the Company under the Securities Act
thereafter. In the event the aggregate number of Registrable Shares requested to
be included in any registration, together, in the case of a registration
initiated by the Company, with the shares of Common Stock to be included in such
registration, exceeds the number which in the opinion of the managing
underwriter can be sold in such offering without materially affecting the
offering price of such shares, the number of shares of each requesting holder to
be included in such registration will be reduced pro rata based on the aggregate
number of shares for which registration was requested.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of shares of
Common Stock, par value $.01 per share, of which 9,036,700 shares were
outstanding on May 1, 1994. As of May 1, 1994, there were 4 holders of record of
the Common Stock. See "Ownership of Common Stock." Upon completion of the
Offering, shares will be issuable upon exercise of the Warrants. All of the
outstanding shares and shares issuable upon exercise of the Warrants will be
"restricted" shares as defined in Rule 144 promulgated under the Securities Act.
All current stockholders of the Company have agreed not to offer, sell, or
otherwise dispose of any shares of Common Stock without the prior written
consent of the Underwriters for a period of 90 days after the date of this
Prospectus.
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Certificate of Incorporation, as
amended, and By-Laws of the Company, copies of which have been filed with the
Commission.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote for each
outstanding share of Common Stock owned by him on each matter properly submitted
to the stockholders for their vote.
Except as may be limited by the terms and provisions of the Indentures and
the New Credit Facility, holders of Common Stock are entitled to any dividend
declared by the Board of Directors out of funds legally available for such
purpose. See "Risk Factors -- Dividend Policy" and "Dividends." Holders of
50
Common Stock are entitled to receive on a pro rata basis all remaining assets of
the Company available for distribution to the holders of Common Stock in the
event of the liquidation, dissolution, or winding up of the Company.
Holders of Common Stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of Common Stock are, and
the shares of Common Stock issuable upon the exercise of the Warrants will be,
upon issuance and payment therefor, fully paid and nonassessable.
TRANSFER AGENT
The transfer agent for the Common Stock will be American Stock Transfer
Company, New York, New York.
DESCRIPTION OF NOTES
The Senior Notes offered hereby will be issued under an indenture to be
dated as of , 1994 (the "Senior Note Indenture") between the Company
and First Fidelity Bank, National Association as trustee (the "Senior Note
Trustee"). The Senior Subordinated Notes will be issued under an indenture to be
dated as of , 1994 (the "Senior Subordinated Note Indenture" and,
together with the Senior Note Indenture, the "Indentures") between the Company
and Marine Midland Bank, as trustee (the "Senior Subordinated Note Trustee" and,
together with the Senior Note Trustee, the "Trustees"). Any reference to a
"Trustee" means the Senior Note Trustee or the Senior Subordinated Note Trustee
as the context may require. Any reference to an "Indenture" means the Senior
Note Indenture or the Senior Subordinated Note Indenture as the context may
require. References to "(Section )" mean the applicable Section of each
Indenture.
Copies of the proposed forms of the Indentures have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. The Indentures
are subject to and governed by the Trust Indenture Act. The following summary of
the material provisions of the Indentures do not purport to be complete, and
where reference is made to particular provisions of the Indentures, such
provisions, including the definitions of certain terms, are qualified in their
entirety by reference to all of the provisions of the Indentures and those terms
made a part of the Indentures by the Trust Indenture Act. For definitions of
certain capitalized terms used in the following summary, see "-- Certain
Definitions." For purposes of this Section of the Prospectus, the "Company"
shall mean International Controls Corp. without its subsidiaries.
GENERAL
The Senior Notes will mature on , 2002, will be limited to $165
million aggregate principal amount, and will be senior secured obligations of
the Company. See "-- Security," below. The Senior Subordinated Notes will mature
on , 2004, will be limited to $100 million aggregate principal
amount, and will be senior subordinated obligations of the Company. The Senior
Notes will bear interest from , 1994 or from the most recent interest
payment date to which interest has been paid, payable semiannually on
and , each year, commencing , 1994, to the Person in whose
name the Senior Note (or any predecessor Senior Note) is registered at the close
of business on the or next preceding such interest payment
date. The Senior Subordinated Notes will bear interest from ______, 1994 or from
the most recent interest payment date to which interest has been paid, payable
semiannually on _______ and _______, each year, commencing ______, 1994, to the
Person in whose name the Senior Subordinated Note (or any predecessor Senior
Subordinated Note) is registered at the close of business on the _______ or
_______ next preceding such interest payment date.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable at the office or agency of
the Company in The City of New York maintained for such purposes; PROVIDED,
HOWEVER, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
(Sections 301,
51
305, 1002) The Notes will be issued only in fully registered form without
coupons, in denominations of $1,000 and any integral multiple thereof. (Section
302) No service charge will be made for any registration of transfer, exchange
or redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith. (Section 305)
RANKING
The Senior Notes will be senior secured obligations of the Company and will
rank PARI PASSU in right of payment with all other senior Indebtedness of the
Company and senior in right of payment to all subordinated obligations of the
Company. The Senior Subordinated Notes will be senior subordinated obligations
of the Company and will be subordinated in right of payment to all Senior
Indebtedness (including, without limitation, the Senior Notes and the
obligations under the New Credit Facility), PROVIDED, HOWEVER, that the Senior
Subordinated Notes will rank senior in right of payment to all existing and
future Indebtedness of the Company that is expressly subordinated to Senior
Indebtedness (as defined below) except for any future Indebtedness of the
Company which expressly provides that it is PARI PASSU with the Senior
Subordinated Notes (and, until redemption thereof, the 12 3/4% Debentures).
After giving effect to the sale of the Notes and the application of the
estimated net proceeds of the Refinancing, the Company would have had $82.4
million of Indebtedness ranking PARI PASSU in right of payment with the Senior
Notes and $247.4 million of Indebtedness ranking senior in right of payment to
the Senior Subordinated Notes at March 31, 1994.
As a result of the Company's holding company structure, the Company's
creditors, including the holders of the Notes, will effectively be subordinated
to all creditors of the Company's Subsidiaries, including, but not limited to,
trade creditors and lenders under the New Credit Facility. In addition, because
the obligations of the Company and the Co-Obligors under the New Credit Facility
are secured by all of the assets of the Co-Obligors, the Notes will be
effectively subordinated to the Company's obligations under the New Credit
Facility. All of the Company's operations are conducted, substantially all of
the tangible assets of the Company are held by, and all of the Company's
operating revenues are derived from, operations of its Subsidiaries. Therefore,
the Company's ability to make interest and principal payments when due to
holders of the Notes, or to repurchase the Notes in the event of a Change in
Control, is entirely dependent upon the receipt of sufficient funds from its
Subsidiaries. The Company's Subsidiaries are separate and distinct legal
entities and have no obligations, contingent or otherwise, to pay any amounts
due pursuant to the Notes or to make any funds available therefor, whether in
the form of loans, dividends or otherwise. In the event of the dissolution,
bankruptcy, liquidation or reorganization of the Company, the holders of the
Notes may not receive any payments with respect to the Notes until after the
payment in full of the claims of the creditors of the Company's Subsidiaries.
After giving effect to the Refinancing, the Subsidiaries would have had total
liabilities (including trade payables and the obligations under the New Credit
Facility) of $375.5 million at March 31, 1994.
In addition, by reason of the subordination of the Senior Subordinated
Notes, in the event of liquidation or insolvency, holders of Senior Indebtedness
may recover more, ratably, than the holders of the Senior Subordinated Notes,
and funds which would be otherwise payable to the holders of the Senior
Subordinated Notes will be paid to the holders of the Senior Indebtedness in
full.
SUBORDINATION OF SENIOR SUBORDINATED NOTES
The payment of the principal of, premium, if any, and interest on, the
Senior Subordinated Notes will be subordinated, as set forth in the Senior
Subordinated Indenture, in right of payment to the prior payment in full of all
Senior Indebtedness, in cash or cash equivalents or in any other form as
acceptable to holders of Senior Indebtedness.
Upon the occurrence of any default in the payment of principal, premium, if
any, or interest on any Designated Senior Indebtedness, whether at maturity or
otherwise, no payment (other than payments previously made pursuant to the
provisions described under "-- Defeasance or Covenant Defeasance of Indentures")
or distribution of any assets of the Company of any kind or character (excluding
certain permitted issuances of equity or subordinated securities) shall be made
by the Company on account of
52
the principal of, premium, if any, or interest on, the Senior Subordinated Notes
or any other Indenture Obligation under the Senior Subordinated Note Indenture
or on account of the purchase, redemption, defeasance or other acquisition of or
in respect of the Senior Subordinated Notes unless and until such default has
been cured, waived, or has ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full, in cash or cash
equivalents or in any other form as acceptable to the holders of Senior
Indebtedness.
Upon the occurrence of any default other than a payment default with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated (a "Non-payment Default"), and after any applicable grace period
and the receipt by the Senior Subordinated Indenture Trustee and the Company
from a representative of the holder or the holder of any Designated Senior
Indebtedness of a written notice of such default, no payment (other than
payments previously made pursuant to the provisions described under "--
Defeasance or Covenant Defeasance of Indentures") or distribution of any assets
of the Company of any kind or character (excluding certain permitted equity or
subordinated securities) may be made by the Company on account of any principal
of, premium, if any, or interest on, the Senior Subordinated Notes or any other
Indenture Obligation under the Senior Subordinated Note Indenture or on account
of the purchase, redemption, defeasance, or other acquisition of or in respect
of, the Senior Subordinated Notes for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Senior Subordinated Note Trustee and the Company from
a representative of the holder or the holder of any Designated Senior
Indebtedness and shall end on the earliest to occur of (i) 179 days after
receipt of such written notice by the Senior Subordinated Note Trustee (provided
such Designated Senior Indebtedness as to which notice was given shall not
theretofore have been accelerated), (ii) the date on which such Non-payment
Default is cured, waived or ceases to exist or on which such Designated Senior
Indebtedness is discharged or paid in full, in cash or cash equivalents or in
any other form as acceptable to the holders of such Designated Senior
Indebtedness, or (iii) the date on which such Payment Blockage Period shall have
been terminated by written notice to the Company or the Senior Subordinated Note
Trustee from the representatives of holders of Designated Senior Indebtedness or
the holder of any Designated Senior Indebtedness initiating such Payment
Blockage Period, after which, in the case of clause (i), (ii), or (iii), the
Company shall promptly resume making any and all required payments in respect of
the Senior Subordinated Notes, including any missed payments. In no event will a
Payment Blockage Period extend beyond 179 days from the date of the receipt by
the Senior Subordinated Note Trustee of the notice initiating such Payment
Blockage Period (such 179-day period referred to as the "Initial Blockage
Period"). Any number of notices of Non-payment Defaults may be given during the
Initial Blockage Period; PROVIDED that during any period of 365 consecutive days
only one such Payment Blockage Period may commence and the duration of such
period may not exceed 179 days. No Non-payment Default with respect to
Designated Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period will be, or can be, made the basis
for the commencement of a second Payment Blockage Period, whether or not within
a period of 365 consecutive days, unless such Non-payment Default has been cured
or waived for a period of not less than 90 consecutive days. (Section 1203 of
the Senior Subordinated Note Indenture only)
If the Company fails to make any payment on the Senior Subordinated Notes
when due or within any applicable grace period, whether or not on account of the
payment blockage provisions referred to above, such failure would constitute an
Event of Default under the Senior Subordinated Note Indenture and would enable
the holders of the Senior Subordinated Notes to accelerate the maturity thereof.
See "-- Events of Default."
The Senior Subordinated Indenture will provide that in the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to the Company or to its assets or (b) any liquidation, dissolution or
other winding up of the Company whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy or (c) any assignment for the benefit of
creditors or any other
53
marshalling of assets or liabilities of the Company, all Senior Indebtedness
must be paid in full, in cash or cash equivalents or in any other form as
acceptable to the holders of Senior Indebtedness, before any payment or
distribution (excluding distributions of certain permitted equity or
subordinated securities) is made on account of the principal of, premium, if
any, or interest on the Senior Subordinated Notes.
"Senior Indebtedness" under the Senior Subordinated Note Indenture means the
principal of, premium, if any, and interest (including interest accruing after
the filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy laws whether or not allowed as a claim in such proceeding) on
any Indebtedness of the Company (other than as otherwise provided in this
definition), whether outstanding on the date of the Senior Subordinated Note
Indenture or thereafter created, incurred or assumed, and whether at any time
owing, actually or contingent, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Senior Subordinated Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
the principal of, premium, if any, and interest (including interest accruing
after the filing of a petition initiating any proceeding under any state,
federal or foreign bankruptcy laws whether or not allowed as a claim in such
proceeding ) on all Indebtedness of the Company from time to time owed under the
New Credit Facility and the Senior Notes and the Senior Note Indenture,
PROVIDED, HOWEVER, that any Indebtedness under any refinancing, refunding, or
replacement of the New Credit Facility or the Senior Notes shall not constitute
Senior Indebtedness to the extent that the Indebtedness thereunder is by its
express terms subordinate in right of payment to any other Indebtedness of the
Company. Notwithstanding the foregoing, "Senior Indebtedness" shall not include
(i) Indebtedness evidenced by the Senior Subordinated Notes, (ii) Indebtedness
that is subordinate or junior in right of payment to any Indebtedness of the
Company, (iii) Indebtedness which when incurred, and without respect to any
election under Section 1111(b) of the Bankruptcy Law, is without recourse to the
Company, (iv) Indebtedness which is represented by Redeemable Capital Stock, (v)
any liability for foreign, federal, state, local or other taxes owed or owing by
the Company, (vi) Indebtedness of the Company to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's subsidiaries and (vii) that
portion of any Indebtedness which at the time of incurrence is issued in
violation of the provisions of the "Limitation on Indebtedness" covenant of the
Senior Subordinated Note Indenture.
"Designated Senior Indebtedness" under the Senior Subordinated Note
Indenture means (i) all Senior Indebtedness under the New Credit Facility, the
Senior Notes and the Senior Note Indenture and (ii) 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 $40 million and is specifically designated in the instrument evidencing
such Senior Indebtedness or the agreement under which such Senior Indebtedness
arises as "Designated Senior Indebtedness" by the Company.
As of March 31, 1994, after giving effect to the sale of the Notes and the
application of the estimated net proceeds thereof, the aggregate amount of
Senior Indebtedness (all of which would constitute Designated Senior
Indebtedness) outstanding would have been approximately $247.4 million.
SECURITY
Pursuant to the Pledge Agreement, the Company will assign and pledge to the
Collateral Agent for the benefit of the holders of the Senior Notes and the
lenders under New Credit Facility on an equal and ratable basis, a security
interest in all of the shares of capital stock of Great Dane and Motors owned by
the Company on the date of the Senior Note Indenture or thereafter acquired by
the Company and all dividends, interest, cash, instruments and other property
and proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any of the foregoing and any account, instrument
or security in which any of the foregoing is deposited or invested, including
any earnings therein (collectively, the "Collateral"). The obligations under the
New Credit Facility are secured by both the Collateral and substantially all the
assets of the Co-Obligors. (Section 1201 of the Senior Note Indenture only)
54
The Pledge Agreement provides that upon delivery of a request to the
Collateral Agent, after the occurrence and during the continuance of any event
of default under the New Credit Facility or the Senior Note Indenture, as the
case may be, by the requisite lenders under the New Credit Facility (as set
forth in the New Credit Facility) or the Senior Note Trustee at the direction of
the holders of the Senior Notes, respectively, the Collateral Agent shall seek
to enforce the rights and remedies available to it under the Pledge Agreement,
including foreclosure upon the Collateral. Any amounts realized by the
Collateral Agent as a result of the exercise of rights and remedies under the
Pledge Agreement will be applied as follows: first, to the payment of the
expenses relating to the enforcement of such rights and remedies; second, to the
payment of principal and interest due and payable with respect to the New Credit
Facility and the Senior Note Indenture pro rata based upon the aggregate
principal amount of Indebtedness outstanding thereunder; third, to the payment
of fees and other amounts then payable to the Collateral Agent, the agent under
New Credit Facility and the Senior Note Trustee on a pro rata basis in
accordance with the total amount owing to each of the foregoing; and fourth, to
the Company or such other person as may be legally entitled thereto.
The value of the Collateral in the event of liquidation will depend on
market and economic conditions, the availability of buyers and similar factors
at the time of liquidation. Accordingly, there can be no assurance that the
proceeds of the Collateral or any sale thereof pursuant to the terms of the
Pledge Agreement would be sufficient to satisfy payments due on the New Credit
Facility and the Senior Notes. If such proceeds were not sufficient to repay all
such amounts, then holders of the Senior Notes (to the extent not so repaid)
would have only an unsecured claim against the remaining assets, if any, of the
Company.
The Pledge Agreement may be amended or waived only with the consent of the
requisite lenders under the New Credit Facility and the holders of a majority of
the aggregate principal amount of Senior Notes outstanding. However, the Pledge
Agreement may not be amended or waived to release any material Collateral or to
change the priority of payment of the proceeds from the sale of Collateral
without the consent of all of the lenders under the New Credit Facility and all
of the holders of the Senior Notes. For a description of the requisite consent
of the holders of the Senior Notes required to approve an amendment, see "--
Modifications and Amendments."
OPTIONAL REDEMPTION
The Senior Notes will be subject to redemption at any time on or after
, 1999, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral
multiple thereof at the following redemption prices (expressed as percentages of
the principal amount), if redeemed during the 12-month period beginning on
of the years indicated below:
YEAR REDEMPTION PRICE
- --------- -----------------
1999 %
2000 %
2001 %
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
The Senior Subordinated Notes will be subject to redemption at any time on
or after , 1999, at the option of the Company, in whole or in part,
on not less than 30 nor more than 60 days' prior
55
notice in amounts of $1,000 or an integral multiple thereof at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning on of the years indicated
below:
YEAR REDEMPTION PRICE
- --------- -----------------
1999 %
2000 %
2001 %
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, up to 25% of the aggregate principal amount of the Senior
Subordinated Notes outstanding on the date of the Senior Subordinated Note
Indenture will be redeemable prior to , 1997, at the option of the
Company, within 120 days of a Public Offering from the net proceeds of such
sale, in amounts of $1,000 or an integral multiple thereof, at a redemption
price equal to % of the principal amount, together with accrued and unpaid
interest, if any, to the date of redemption (subject to the right of holders of
record on relevant record dates to receive interest due on an interest payment
date); PROVIDED that $ in aggregate principal amount of the Senior
Subordinated Notes remains outstanding immediately following such redemption.
If less than all of the Notes are to be redeemed in the case of any of the
foregoing redemptions, the applicable Trustee shall select the Notes or the
portion thereof to be redeemed pro rata, by lot or by any other method the
applicable Trustee shall deem fair and reasonable. (See Sections 203, 1101, 1105
and 1107)
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
CERTAIN COVENANTS
The Indentures will contain, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any
Subsidiary to, create, issue, assume, guarantee, or otherwise in any manner
become directly or indirectly liable for or with respect to or otherwise incur
(collectively, "incur") any Indebtedness (other than Permitted Indebtedness but
including any Acquired Indebtedness) unless (i) such Indebtedness is
Indebtedness of the Company, Permitted Subsidiary Indebtedness or Acquired
Indebtedness of a Subsidiary and (ii) at the time of such incurrence the
Consolidated Fixed Charge Coverage Ratio for the Company for the four full
fiscal quarters immediately preceding such incurrence reflected on the Company's
historical financial statements is at least equal to 2.0:1.0 (after giving PRO
FORMA effect to (a) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such four-quarter period; (b) the
incurrence, repayment or retirement of any other Indebtedness by the Company and
its Subsidiaries since the first day of such four-quarter period as if such
Indebtedness was incurred, repaid or retired at the beginning of such
four-quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter period);
(c) in the case of Acquired Indebtedness, the related acquisition (as if such
acquisition had been consummated on the first day of such four-quarter period);
and (d) any acquisition or disposition by the Company and its Subsidiaries of
any company or any business or any assets out of the ordinary course of
business, whether by merger, stock purchase or sale, or asset purchase or sale,
or any related repayment of Indebtedness, in each case since the first day of
such four-quarter period, as if such acquisition or disposition had been
consummated on the first day of such four-quarter period). (Section 1008).
56
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, the Company's Capital Stock (other than dividends or distributions
payable in shares of the Company's Qualified Capital Stock or in options,
warrants or other rights to acquire such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any Capital Stock of the Company or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Subsidiary or Capital Stock held by the Company or any Wholly Owned
Subsidiary) or options, warrants or other rights to acquire such Capital
Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, any sinking fund payment or maturity, any Indebtedness of the
Company that is expressly subordinate in right of payment to the Senior
Notes or the Senior Subordinated Notes, as the case may be;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary to any Person (other than with respect to any Capital Stock
held by the Company or any of its Wholly Owned Subsidiaries);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than a Wholly Owned Subsidiary of the
Company); or
(vi) make any Investment in any Person (other than any Permitted
Investments);
(all of the foregoing payments described in paragraphs (i) through (vi) above,
other than any such action that is a Permitted Payment (as defined below),
collectively are referred to as "Restricted Payments") unless at the time of and
after giving effect to the proposed Restricted Payment (the amount of any such
Restricted Payment, if other than cash, as determined by the Board of Directors,
whose determination shall be conclusive and evidenced by a board resolution),
(1) no Default or Event of Default shall have occurred and be continuing and
such Restricted Payment shall not be an event which is, or after notice or lapse
of time or both, would be, an "event of default" under the terms of any
Indebtedness of the Company or its Subsidiaries; (2) immediately before and
immediately after giving effect to such transaction on a PRO FORMA basis, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions described under "-- Limitation on
Indebtedness"; and (3) the aggregate amount of all such Restricted Payments
(other than Permitted Payments) declared or made after the date of the
Indentures does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the Company's fiscal quarter commencing after the date of the
Indentures and ending on the last day of the Company's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss);
(B) the aggregate Net Cash Proceeds received after the date of the
Indentures by the Company from the issuance or sale (other than to any of
its Subsidiaries) of its Qualified Capital Stock or any options, warrants or
rights to purchase such Qualified Capital Stock of the Company (except, in
each case, to the extent such proceeds are used to purchase, redeem or
otherwise retire Capital Stock or Indebtedness subordinate in right of
payment to the Senior Notes or the Senior Subordinated Notes, as the case
may be, as set forth below);
(C) the aggregate Net Cash Proceeds received after the date of the
Indentures by the Company (other than from any of its Subsidiaries) upon the
exercise of any options or warrants to purchase Qualified Capital Stock of
the Company; and
(D) the aggregate Net Cash Proceeds received after the date of the
Indentures by the Company from debt securities or Redeemable Capital Stock
that have been converted into or exchanged for
57
Qualified Capital Stock of the Company to the extent such debt securities or
Redeemable Capital Stock are originally sold for cash plus the aggregate Net
Cash Proceeds received by the Company at the time of such conversion or
exchange.
(b) Notwithstanding the foregoing, and in the case of paragraphs (ii),
(iii), (iv), (v), (vi), (vii) and (viii) below, so long as there is no Default
or Event of Default continuing, the foregoing provisions shall not prohibit the
following actions (each of paragraphs (i) through (ix) being referred to as a
"Permitted Payment"):
(i) the payment of any dividend or distribution within 60 days after the
date of declaration thereof, if at such date of declaration such payment
would be permitted by the provisions of paragraph (a) of this Section and
such payment shall be deemed to have been paid on such date of declaration
for purposes of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company in exchange for (including any
such exchange pursuant to the exercise of a conversion right or privilege
which in connection therewith cash is paid in lieu of the issuance of
fractional shares or scrip), or out of the Net Cash Proceeds of, a
substantially concurrent issue and sale for cash (other than to a
Subsidiary) of other Qualified Capital Stock of the Company; PROVIDED that
the Net Cash Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(B) of paragraph (a) of this Section;
(iii) any repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Indebtedness subordinate in right
of payment to the Senior Notes or the Senior Subordinated Notes, as the case
may be, in exchange for, or out of the net proceeds of, a substantially
concurrent issuance and sale for cash (other than to a Subsidiary) of any
Qualified Capital Stock of the Company; PROVIDED that the Net Cash Proceeds
from the issuance of such Qualified Capital Stock are excluded from clause
(3)(B) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Indebtedness
subordinate in right of payment to the Senior Notes or the Senior
Subordinated Notes, as the case may be (other than Redeemable Capital Stock)
(a "refinancing"), through the issuance of new Indebtedness subordinated to
the Senior Notes or the Senior Subordinated Notes, as the case may be, of
the Company; PROVIDED that any such new Indebtedness (1) shall be in a
principal amount that does not exceed the principal amount so refinanced
(or, if such old Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration or acceleration
thereof, then such lesser amount as of the date of determination), plus the
lesser of (I) the stated amount of any premium or other payment required to
be paid in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (II) the amount of premium or other payment
actually paid at such time to refinance the Indebtedness, plus, in either
case, the amount of expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Senior Notes or the Senior
Subordinated Notes, as the case may be; (3) has a Stated Maturity for its
final scheduled principal payment later than the Stated Maturity for the
final scheduled principal payment of the Senior Notes or the Senior
Subordinated Notes, as the case may be; and (4) such new Indebtedness is
expressly subordinated in right of payment to the Senior Notes or the Senior
Subordinated Notes, as the case may be, at least to the same extent as the
Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value (collectively, a "repurchase") of all (but not less
than all) the 14 1/2% Debentures and the 12 3/4% Debentures, in each case,
outstanding on the date of the Indentures in accordance with the terms of
the respective instruments governing the terms of such respective
Indebtedness for an aggregate consideration not to exceed $ million (plus
accrued and unpaid interest through the date of repurchase) for all 14 1/2%
Debentures repurchased and $ million (plus accrued and unpaid interest
through the date of repurchase) for all 12 3/4% Debentures repurchased;
58
(vi) in the case of the Senior Note Indenture, the redemption of up to
25% of the initial aggregate principal amount of the Senior Subordinated
Notes issued pursuant to the Senior Subordinated Note Indenture within 120
days of the Public Offering, if any, from the net proceeds thereof in
accordance with the terms of the Senior Subordinated Notes; PROVIDED that
$ in aggregate principal amount of the Senior Subordinated Notes
remains outstanding immediately following such redemption;
(vii) the repurchase of any Indebtedness which is subordinate in right of
payment to the Senior Notes or the Senior Subordinated Notes, as the case
may be, at a purchase price not greater than 100% of the principal amount of
such Indebtedness pursuant to a provision similar to the covenant described
under "-- Limitation on Sale of Assets"; PROVIDED, that prior to such
repurchase the Company has made the Senior Note Offer or Senior Subordinated
Offer, as the case may be, as described under "-- Limitation on Sale of
Assets" and has repurchased all Senior Notes or Senior Subordinated Notes,
as the case may be, validly tendered for payment in connection with such
Senior Note Offer or Senior Subordinated Offer;
(viii) the repurchase of any Indebtedness which is subordinate in right of
payment to the Senior Notes or the Senior Subordinated Notes, as the case
may be, at a purchase price not greater than 101% of the principal amount of
such Indebtedness in the event of a Change of Control pursuant to a
provision similar to the covenant described under "-- Purchase of Notes Upon
a Change of Control"; PROVIDED, that prior to such repurchase the Company
has made the Change of Control Offer as described in "Purchase of Notes Upon
a Change of Control" and has repurchased all Senior Notes or Subordinated
Notes, as the case may be, validly tendered for payment in connection with
such Change of Control Offer; and
(ix) the payment by SCSM of any dividend or distribution on any of its
Capital Stock; PROVIDED that such payments are paid pro rata to all
shareholders and the aggregate amount of any such payments paid to
shareholders (other than the Company and its Wholly Owned Subsidiaries)
within any fiscal year does not exceed 10% of the Consolidated Net Income of
SCSM for the previous fiscal year. (Section 1009)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Subsidiary to, directly and indirectly, make any loan, advance,
guarantee or capital contribution to, or for the benefit of, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or for the
benefit of, or purchase or lease any property or assets from, or enter into or
amend, or increase the payments by the Company or any of its Subsidiaries under
or otherwise alter the terms of, any contract, agreement or understanding with,
or for the benefit of, any Affiliate of the Company, including pay any
compensation paid to Affiliates of the Company that are officers or employees of
the Company (each, an "Affiliate Transaction") unless (i) such Affiliate
Transaction is in writing and on terms which are fair and reasonable to the
Company or such Subsidiary, as the case may be, and are at least as favorable to
the Company or such Subsidiary as the terms which could be obtained by the
Company or such Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis with a Person who is not such an Affiliate of the
Company, (ii) with respect to any Affiliate Transaction involving aggregate
payments in excess of $2 million, the Company delivers an officer's certificate
to the Trustee certifying that such Affiliate Transaction complies with clause
(i) above and that either (A) such Affiliate Transaction has been approved by a
majority of the Disinterested Directors of the Board of Directors who shall have
determined in good faith that such Affiliate Transaction is on terms which are
fair and reasonable to the Company or such Subsidiary, as the case may be, and
are at least as favorable to the Company or such Subsidiary as the terms which
could be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis with a Person who is not
such an Affiliate of the Company, or (B) the Company has received an opinion
from a qualified independent financial adviser to the Company to the effect that
such Affiliate Transaction is fair to the Company or such Subsidiary, as the
case may be, from a financial point of view, and (iii) with respect to any
Affiliate Transaction involving aggregate payments in excess of $5 million, the
Company delivers an officers' certificate to the Trustee certifying that such
Affiliate Transaction complies with clause (i) above and both clauses (ii)(A)
and
59
(ii)(B) above; PROVIDED, HOWEVER, that Affiliate Transactions shall not include
(i) transactions between the Company and any of its Wholly Owned Subsidiaries or
among Wholly Owned Subsidiaries of the Company (for this purpose a Wholly Owned
Subsidiary shall include SCSM if the Company, directly or indirectly,
beneficially owns at least 90% of the equity interest in SCSM and the remaining
equity interest, if any, is beneficially owned by Persons other than Affiliates
of the Company), (ii) any transaction with an officer or member of the Board of
Directors of the Company or any Subsidiary entered into in the ordinary course
of business or (iii) performance of any agreement or arrangement in existence
(written or oral) on the date of the Indentures in accordance with its terms as
in effect on such date. (Section 1010)
LIMITATION ON COMPENSATION. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, pay to each of Martin L. Solomon, Allan
R. Tessler and Wilmer J. Thomas, Jr. aggregate compensation from the Company and
its Subsidiaries in any calendar year in excess of the aggregate compensation
which was paid in 1993 to each such person by the Company and its Subsidiaries
as disclosed in this Prospectus. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, pay to David R. Markin aggregate
consulting fees from the Company and its Subsidiaries in any calendar year in
excess of the aggregate consulting fees which he was paid in 1993 by the Company
and its Subsidiaries as disclosed in this Prospectus. (Section 1019)
LIMITATION ON SALE OF ASSETS. (a) The Company will not, and will not permit
any Subsidiary to, directly or indirectly, consummate an Asset Sale unless (i)
at least 75% of the proceeds from such Asset Sale are received in cash and (ii)
the Company or such Subsidiary receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the shares or assets sold (as
determined by the Board of Directors of the Company and evidenced in a board
resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale is not
required to be applied to repay permanently any Indebtedness outstanding under
the New Credit Facility, or the Company determines not to apply such Net Cash
Proceeds to the permanent prepayment of any Indebtedness outstanding under the
New Credit Facility or such New Credit Facility Indebtedness is no longer
outstanding, then the Company may within one year of the Asset Sale either
invest or enter into a legally binding agreement to invest the Net Cash Proceeds
in properties and assets that (as determined by the Board of Directors) replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the businesses of the Company or its
Subsidiaries existing on the date of the Indentures or reasonably related
thereto. The amount of such Net Cash Proceeds neither used to permanently repay
or prepay New Credit Facility Indebtedness nor used or invested as set forth in
this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $10 million or more,
the Company shall apply the Excess Proceeds to the repayment of the Senior Notes
and any Pari Passu Indebtedness thereof (other than Indebtedness outstanding
under the New Credit Facility) required to be repurchased under the
instrument(s) governing such Pari Passu Indebtedness as follows: (i) the Company
shall make an offer to purchase (a "Senior Note Offer") from all holders of the
Senior Notes in accordance with the procedures set forth in the Senior Note
Indenture in the maximum principal amount (expressed as a multiple of $1,000) of
Senior Notes that may be purchased out of an amount (the "Note Amount") equal to
the product of such Excess Proceeds multiplied by a fraction, the numerator of
which is the outstanding principal amount of the Senior Notes, and the
denominator of which is the sum of the outstanding principal amount of the
Senior Notes and such Pari Passu Indebtedness (subject to proration in the event
such amount is less than the aggregate Offered Price (as defined herein) of all
Senior Notes tendered) and (ii) to the extent required by such Pari Passu
Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") out of an
amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds
over the Note Amount; PROVIDED that in no event shall the Pari Passu Debt Amount
exceed the principal amount of such Pari Passu Indebtedness plus the amount of
any premium required to be paid to repurchase such Pari Passu Indebtedness. The
Senior Note Offer price shall be payable in cash in an amount equal to 100% of
the principal amount of the Senior Notes plus accrued and unpaid interest, if
any, to the date (the "Offer Date") such Senior Note
60
Offer is consummated (the "Offered Price"), in accordance with the procedures
set forth in the Senior Note Indenture. To the extent the aggregate amount of
Excess Proceeds remaining after giving effect to the Senior Note Offer and the
related Pari Passu Offers (if any) equals $10 million or more, on the Business
Day following the date of purchase under the Senior Note Offer, the Company
shall apply the then remaining Excess Proceeds to the repayment of the Senior
Subordinated Notes and any Pari Passu Indebtedness thereof required to be
repurchased under the instruments governing such Pari Passu Indebtedness
pursuant to an offer to purchase (the "Senior Subordinated Offer"; together with
the Senior Note Offer, the "Offers"; reference to an "Offer" means a Senior Note
Offer or a Senior Subordinated Offer as the context may require) to the holders
of the Senior Subordinated Notes and an offer to purchase or other purchase or
redemption of such Pari Passu Indebtedness on the same terms as the Senior Note
Offer and the Pari Passu Offers related thereto as specified above. Upon
completion of the purchase of all the Notes tendered pursuant to the Offers
referred to above or repurchase of the Pari Passu Indebtedness pursuant to any
related Pari Passu Offers, the amount of Excess Proceeds shall be reset at zero.
To the extent that the aggregate amount of Notes tendered and repurchased and
Pari Passu Indebtedness repurchased pursuant to any Offers referred to above and
any related Pari Passu Offers, respectively, is less than the amount of Excess
Proceeds, the Company may use such deficiency, or portion thereof, for general
corporate purposes.
(d) Whenever the Excess Proceeds received by the Company exceed $10 million,
such Excess Proceeds shall, prior to the purchase of Notes or any Pari Passu
Indebtedness described in paragraph (c) above, be set aside by the Company in a
separate account pending (i) deposit with the depositary or a paying agent or
the applicable Trustee of the amount required to purchase the Notes or the
repurchase or redemption price of Pari Passu Indebtedness tendered in a Senior
Note Offer or Senior Subordinated Offer or a Pari Passu Offer, (ii) delivery by
the Company of the Offered Price to the holders of the Notes tendered in a
Senior Note Offer or Senior Subordinated Offer or Pari Passu Indebtedness
tendered in a Pari Passu Offer and (iii) application, as set forth above, of
Excess Proceeds in the business of the Company and its Subsidiaries; PROVIDED
that in no event shall the Company be required to set aside an amount in excess
of the sum of the Note Amount for the Senior Note Offer and the Note Amount for
the Senior Subordinated Offer and the Pari Passu Debt Amount for the Senior Note
Offer and the Senior Subordinated Offer. Such Excess Proceeds may be invested in
Temporary Cash Investments; PROVIDED that the maturity date of any such
investment made after the amount of Excess Proceeds exceeds $10 million shall
not be later than the Offer Date with respect to the Senior Note Offer (or if no
Senior Note Offer is required, the Offer Date with respect to the Senior
Subordinated Note Offer). The Company shall be entitled to any interest or
dividends accrued, earned or paid on such Temporary Cash Investments; PROVIDED
that the Company shall not be entitled to such interest if an Event of Default
has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Notes shall be purchased by the Company, at the option of the holders
thereof, in whole or in part in integral multiples of $1,000, on a date that is
not earlier than 45 days and not later than 60 days from the date the notice of
the Senior Note Offer or Senior Subordinated Offer is given to holders, or such
later date as may be necessary for the Company to comply with the requirements
under the Exchange Act, subject to proration in the event the Note Amount is
less than the aggregate Offered Price of all Notes tendered.
(f) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of the Indentures as such
Indebtedness may be refinanced or replaced from time to time; PROVIDED that such
restrictions are not less favorable to the holders of Notes than those existing
on the date of the Indentures) that would materially impair the ability of the
Company to make an Offer to purchase the Notes or, if such Offer is made, to pay
for the Notes tendered for purchase. (Section 1011)
LIMITATION ON LIENS. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, affirm or suffer to exist
any Lien (other than Permitted Liens) of any kind upon any of its property or
assets (including any intercompany notes) or any income or profits therefrom,
61
except if the Notes (or a Guarantee, in the case of Liens of a Guarantor) are
directly secured equally and ratably with (or prior to in the case of Liens with
respect to Indebtedness subordinate in right of payment to the Senior Notes or
the Senior Subordinated Notes, as the case may be, or Indebtedness of a
Guarantor subordinated in right of payment to any Guarantee) the obligation or
liability secured by such Lien. (Section 1012)
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. (a)
The Company will not permit any Subsidiary, directly or indirectly, to
guarantee, assume or in any other manner become liable with respect to any
Indebtedness of the Company other than guarantees of the Notes or indebtedness
under the New Credit Facility unless (i) such Subsidiary simultaneously executes
and delivers a supplemental indenture to each of the Indentures providing for a
guarantee of the Notes and if such Indebtedness is by its terms expressly
subordinated to the Senior Notes or the Senior Subordinated Notes, as the case
may be, any such assumption, guarantee or other liability of such Subsidiary
with respect to such Indebtedness shall be subordinated to such Subsidiary's
assumption, guarantee or other liability with respect to the Notes to the same
extent as such Indebtedness is subordinated to the Senior Notes or the Senior
Subordinated Notes, as the case may be, and (ii) such Subsidiary waives and will
not in any manner whatsoever claim, or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Subsidiary as a result of any payment by such
Subsidiary.
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
Notes pursuant to the foregoing paragraph but not the provisions of "--
Limitation on Issuance and Sale of Capital Stock of Subsidiaries" shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person not an Affiliate
of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Subsidiary, which sale, exchange or
transfer is in compliance with the Indentures. (Section 1013)
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Notes, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), pursuant to the offer described below (the
"Change of Control Offer") and the other procedures set forth in the Indentures.
Within 30 days following any Change of Control, the Company shall notify the
Trustees thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address appearing
in the applicable security register, stating, among other things: (a) the Change
of Control Purchase Price and that the Change of Control Purchase Date shall be
a certain business day no earlier than 30 days or later than 60 days from the
date such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act; provided, that the Change of Control
Purchase Date (as set forth in the Senior Subordinated Note Indenture)
established by the Company for the repurchase of the Senior Subordinated Notes
will be a date subsequent to the Change of Control Purchase Date (as set forth
in the Senior Note Indenture) established by the Company for the repurchase of
the Senior Notes; (b) that any Senior Note or Senior Subordinated Note not
tendered will continue to accrue interest; (c) that, unless the Company defaults
in the payment of the Change of Control Purchase Price, any Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date; and (d) certain other procedures that
a holder of Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance. (Section 1014)
The Senior Subordinated Note Indenture will provide that, prior to complying
with this provision, the Company shall either repay and discharge all
outstanding Senior Indebtedness (including the Senior Notes) or obtain the
requisite consents, if any, under all agreements governing the outstanding
Senior Indebtedness, or in the case of the Senior Notes, consummate a Change of
Control Offer, to permit the repurchase of Senior Subordinated Notes required by
this provision. Any failure to comply with this paragraph shall constitute a
default of a covenant for purposes of clause (iii) (c) of the first paragraph of
"-- Events of Default."
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If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for any or all of the Notes that might be delivered by holders of
the Notes seeking to accept the Change of Control Offer and, accordingly, none
of the holders of the Notes may receive the Change of Control Purchase Price for
their Notes in the event of a Change of Control. The failure of the Company to
make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due will give the Trustees and the holders of the Notes the
rights described under "-- Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indentures) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elected to exercise their rights under the
Indentures and the Company elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The provisions of the Indentures may not afford holders of the Notes the
right to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the Company
by their respective managements or affiliates) involving the Company that may
adversely affect holders of the Notes, if such transaction is not a transaction
defined as a Change of Control. Reference is made to "Certain Definitions" for
the definition of "Change of Control." A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, may result in a Change of Control if it is the type of transaction
specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer. (Section 1014)
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF SUBSIDIARIES. The
Company will not permit (a) any Subsidiary to issue any Capital Stock (other
than to the Company or any Wholly Owned Subsidiary) or (b) any Person (other
than the Company or a Wholly Owned Subsidiary) to acquire any Capital Stock of
any Subsidiary from the Company or any Wholly Owned Subsidiary except upon the
sale of all of the outstanding Capital Stock of such Subsidiary owned by the
Company or a Wholly Owned Subsidiary except in either case if (i) the Subsidiary
whose Capital Stock is issued or sold guarantees all obligations of the Company
under the Indentures and the Notes by simultaneously executing and delivering a
supplemental indenture to each of the Indentures providing for such guarantee
(the terms of which guarantee, in the case of the guarantee of the obligations
under the Senior Note Indenture, shall rank no less than PARI PASSU in right of
payment with all Indebtedness of such Subsidiary Guarantor and in the case of
the guarantee of the obligations under the Senior Subordinated Note Indenture,
shall rank subordinate to the guarantee of Senior Indebtedness of the Subsidiary
(including the Senior Notes) and senior in right of payment to all Indebtedness
expressly subordinated to senior Indebtedness except for any future Indebtedness
of such Subsidiary Guarantor which expressly provides that it is PARI PASSU with
the senior subordinated Indebtedness of such Guarantor and PARI PASSU with such
Indebtedness of such Guarantor expressly provided to be PARI PASSU with the
senior subordinated Indebtedness) (provided that this clause (i) shall not be
applicable in the case of the issuance or sale of the Capital Stock of American
Country Insurance Company to the extent such guarantee is prohibited by law),
(ii) after giving effect to the sale or issuance of such Capital Stock, the
Company beneficially owns in excess of 50% of the outstanding Capital Stock of
such Subsidiary on a fully diluted basis and (iii) the Capital Stock is issued
or sold in an underwritten public offering pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act. (Section 1015)
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LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not permit any 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 Subsidiary to (a)
pay dividends or make any other distribution on its Capital Stock to the Company
or any other Subsidiary, (b) pay any Indebtedness owed to the Company or any
Subsidiary, (c) make any Investment in the Company or any other Subsidiary or
(d) transfer any of its properties or assets to the Company or any Subsidiary,
except (i) any encumbrance or restriction pursuant to an agreement in effect on
the date of the Indentures and listed on a schedule to each of the Indentures,
(ii) any encumbrance or restriction, with respect to a Subsidiary that is not a
Subsidiary of the Company on the date of the Indentures, in existence at the
time such Person becomes a Subsidiary of the Company and not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary,
(iii) any such encumbrance or restriction in the New Credit Facility as in
effect on the date of the Indentures and (iv) any encumbrance or restriction
existing under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing clauses
(i) and (ii), PROVIDED that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the holders of the Notes than
those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced. (Section 1016)
IMPAIRMENT OF SECURITY INTEREST. The Senior Note Indenture will provide
that the Company shall not, and shall not permit any Subsidiary to, take or
knowingly or negligently omit to take any action which action or omission might
or would have the result of affecting or impairing the security interest in
favor of the Senior Note Trustee, on behalf of itself and the holders of the
Senior Notes, with respect to the Collateral, and the Company shall not, and
shall not permit any Subsidiary to, grant to any Person (other than the Senior
Note Trustee on behalf of itself and the holders of the Senior Notes) any
interest whatsoever in the Collateral other than Liens permitted by the Pledge
Agreement, including the security interest in the Collateral held pursuant to
the New Credit Facility. (Section 1017 of the Senior Note Indenture only)
LIMITATION ON SUBORDINATED INDEBTEDNESS. The Senior Subordinated Note
Indenture will provide that the Company will not incur, create, issue, assume,
guarantee, or otherwise become directly or indirectly liable with respect to any
Indebtedness that is contractually subordinate or junior in right of payment to
any Senior Debt and contractually senior in any respect in right of payment to
the Senior Subordinated Notes. (Section 1017 of the Senior Subordinated Note
Indenture only)
PROVISION OF FINANCIAL STATEMENTS. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been or is
required to file with the Commission pursuant to such Section 13(a) or 15(d) if
the Company were or is so subject, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been or is required so to file such documents if
the Company were or is so subject. The Company will also in any event (x)(i)
within 15 days of each Required Filing Date file with each of the Trustees
copies of the annual reports, quarterly reports and other documents which the
Company would have been or is required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if the Company were or is subject to
such Section and (ii) within the earlier of 30 days after the filing of such
report or other document with the Trustee and 45 days of each such Required
Filing Date transmit such report or document by mail to all holders of Notes, as
their names and addresses appear in the applicable security register, without
cost to such holders of Notes and (y) if filing such documents by the Company
with the Commission is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any prospective holder of
Notes at the Company's cost. (Section 1018)
ADDITIONAL COVENANTS. The Indentures also contain covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of
64
New York; (iii) arrangements regarding the handling of money held in trust; (iv)
maintenance of corporate and Company existence; (v) payment of taxes and other
claims; (vi) maintenance of properties; and (vii) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or series of related transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Subsidiaries on a Consolidated basis to any other Person or
group of affiliated Persons, unless at the time and after giving effect thereto:
(i) either (a) the Company shall be the continuing corporation or (b) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially all of the properties and
assets of the Company and its Subsidiaries on a Consolidated basis (the
"Surviving Entity") shall be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and such Person assumes by supplemental indentures in form
reasonably satisfactory to the Trustees, all the obligations of the Company
under the Notes and the Indentures, and the Indentures shall remain in full
force and effect; (ii) immediately before and immediately after giving effect to
such transaction on a PRO FORMA basis, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a PRO FORMA basis, the Consolidated Net Worth of the Company (or
the Surviving Entity if the Company is not the continuing obligor under the
Indentures) is equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction; (iv) immediately before and
immediately after giving effect to such transaction on a PRO FORMA basis (on the
assumption that the transaction occurred on the first day of the four-quarter
period immediately prior to the consummation of such transaction with the
appropriate adjustments with respect to the transaction being included in such
PRO FORMA calculation), the Company (or the Surviving Entity if the Company is
not the continuing obligor under the Indentures) could incur $1.00 of additional
Indebtedness under the provisions of "-- Certain Covenants -- Limitation on
Indebtedness" (other than Permitted Indebtedness); (v) each Guarantor, if any,
unless it is the other party to the transactions described above, shall have by
supplemental indentures confirmed that its Guarantee shall apply to such
Person's obligations under the Indentures and the Notes; (vi) if any of the
property or assets of the Company or any of its Subsidiaries would thereupon
become subject to any Lien, the provisions of "-- Certain Covenants --
Limitation on Liens" are complied with; and (vii) the Company or the Surviving
Entity shall have delivered, or caused to be delivered, to the Trustees, in form
and substance reasonably satisfactory to the Trustees, an officers' certificate
and an opinion of counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, lease or other transaction and the supplemental
indentures in respect thereto comply with the provisions described herein and
that all conditions precedent herein provided for relating to such transaction
have been complied with. (Section 801)
Each Guarantor shall not, and the Company will not permit a Guarantor to, in
a single transaction or series of related transactions, merge or consolidate
with or into any other corporation (other than the Company or any other
Guarantor) or other entity, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on a
Consolidated basis to any entity (other than the Company or any other Guarantor)
unless at the time and after giving effect thereto: (i) either (a) such
Guarantor shall be the continuing corporation or (b) the entity (if other than
such Guarantor) formed by such consolidation or into which such Guarantor is
merged or the entity which acquires by sale, assignment, conveyance, transfer,
lease or disposition the properties and assets of such Guarantor shall be a
corporation duly organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia and shall expressly assume
by supplemental indentures, executed and delivered to the Trustees, in a form
reasonably satisfactory to the Trustees, all the obligations of such
65
Guarantor under the Notes and the Indentures; (ii) immediately before and
immediately after giving effect to such transaction on a PRO FORMA basis, no
Default or Event of Default shall have occurred and be continuing; and (iii)
such Guarantor shall have delivered to the Trustees, in form and substance
reasonably satisfactory to the Trustees, an officers' certificate and an opinion
of counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or disposition and such supplemental indentures
comply with the Indentures, and thereafter all obligations of the predecessor
shall terminate. (Section 801)
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraphs in which the Company
or any Guarantor is not the continuing corporation, the successor Person formed
or remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company or such Guarantor, as the case may be, and the
Company or such Guarantor, as the case may be, shall be discharged from all
obligations and covenants under the Indentures, the Notes or such Guarantee, as
the case may be; PROVIDED that in the case of a transfer by lease, the
predecessor shall not be released from the payment of principal and interest on
the Notes or such Guarantee, as the case may be.
EVENTS OF DEFAULT
An Event of Default will occur under either Indenture (except as provided
below) if:
(i) there shall be a default in the payment of any interest on any
Senior Note or Senior Subordinated Note, as the case may be, when it becomes
due and payable, and such default shall continue for a period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Senior Note or Senior Subordinated Note, as the
case may be, when and as the same shall become due and payable (at maturity,
upon acceleration, optional or mandatory redemption, required repurchase or
otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Senior Note
Indenture or the Senior Subordinated Note Indenture, as the case may be, or,
in the case of the Senior Notes, the Pledge Agreement (other than a default
in the performance, or breach, of a covenant or agreement which is
specifically dealt with in paragraphs (i) or (ii) or in clauses (b), (c) and
(d) of this paragraph (iii)) and such default or breach shall continue for a
period of 60 days after written notice has been given, by certified mail,
(x) to the Company by the applicable Trustee or (y) to the Company and the
applicable Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Senior Notes or Senior Subordinated Notes, as the
case may be; (b) there shall be a default in the performance or breach of
the provisions described in "-- Consolidation, Merger, Sale of Assets"; (c)
the Company shall have failed to make or consummate a Change of Control
Offer in accordance with the provisions of "-- Certain Covenants -- Purchase
of Notes Upon a Change of Control"; or (d) the Company shall have failed to
make or consummate a Senior Note Offer in the case of the Senior Notes or an
Offer in the case of the Senior Subordinated Notes in accordance with the
provisions of "-- Certain Covenants -- Limitation on Sale of Assets";
(iv) (a) in the case of the Senior Note Indenture, any default in the
payment of principal, premium, if any, or interest on any Indebtedness shall
have occurred under any agreements, indentures or instruments under which
the Company or any Subsidiary then has outstanding Indebtedness which
aggregate in excess of $5 million when the same shall become due and payable
and continuation of such default after any applicable grace period and, if
such Indebtedness has not already matured at its final maturity in
accordance with its terms, the holder of such Indebtedness shall have the
right to accelerate such Indebtedness or (b) in the case of either
Indenture, an event of default as defined in any of the agreements,
indentures or instruments described in clause (a) of this paragraph (iv)
shall have occurred and the Indebtedness thereunder, if not already matured
at its final maturity in accordance with its terms, shall have been
accelerated;
66
(v) one or more judgments, orders or decrees for the payment of money in
excess of $5 million, either individually or in the aggregate, shall be
entered against the Company or any Subsidiary or any of their respective
properties and shall not be discharged and either (a) enforcement
proceedings shall have been commenced upon such judgment, order or decree or
(b) there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment or order, by reason of an appeal or
otherwise, shall not be in effect;
(vi) in the case of the Senior Note Indenture, the Pledge Agreement shall
for any reason cease to be, or be asserted in writing by the Company not to
be, in full force and effect and enforceable in accordance with its terms,
or any security interest purported to be created by the Pledge Agreement
shall cease to be a valid and perfected security interest in any Collateral;
(vii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Material Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (b) a decree or order adjudging the Company or
any Material Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Material Subsidiary under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Material
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order for
relief shall continue to be in effect, or any such other decree or order
shall be unstayed and in effect, for a period of 60 consecutive days; or
(viii) (a) the Company or any Material Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
Material Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Material Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (c) the Company or
any Material Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, (d) the
Company or any Material Subsidiary (x) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official of
the Company or such Material Subsidiary or of any substantial part of its
property, (y) makes an assignment for the benefit of creditors or (z) admits
in writing its inability to pay its debts generally as they become due or
(e) the Company or any Material Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (viii).
If an Event of Default (other than as specified in paragraphs (vii) and
(viii) of the prior paragraph) shall occur and be continuing, the applicable
Trustee or the holders of not less than 25% in aggregate principal amount of the
Senior Notes or the Senior Subordinated Notes, as the case may be, then
outstanding may declare by notice to the Company (or the Company and the
applicable Trustee if notice is given by the Holders) the Senior Notes or the
Senior Subordinated Notes, as the case may be, due and payable immediately at
their principal amount together with accrued and unpaid interest, if any, to the
date the Notes shall have become due and payable and thereupon the applicable
Trustee may, at its discretion, proceed to protect and enforce the rights of the
holders of Senior Notes or the Senior Subordinated Notes, as the case may be, by
appropriate judicial proceeding. If an Event of Default specified in paragraph
(vii) or (viii) of the prior paragraph occurs and is continuing, then all the
Senior Notes and the Senior Subordinated Notes shall IPSO FACTO become and be
immediately due and payable, in an amount equal to the principal amount of the
Senior Notes and the Senior Subordinated Notes together with accrued and unpaid
interest, if any, to the date the Senior Notes and the Senior Subordinated Notes
become due and payable, without any declaration or other act on the part of the
applicable Trustee or any holder.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee, the
holders of at least a majority in aggregate principal
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amount of Senior Notes or the Senior Subordinated Notes, as the case may be,
outstanding, by written notice to the Company and the applicable Trustee, may
rescind and annul such declaration and its consequences if (a) the Company has
paid or deposited with the applicable Trustee a sum sufficient to pay (i) all
sums paid or advanced by the applicable Trustee under the applicable Indenture
and the reasonable compensation, expenses, disbursements and advances of the
applicable Trustee, its agents and counsel, (ii) all overdue interest on all
Senior Notes or the Senior Subordinated Notes, as the case may be, (iii) the
principal of and premium, if any, on any Senior Notes or the Senior Subordinated
Notes, as the case may be, which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Senior
Notes or the Senior Subordinated Notes, as the case may be, and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Senior Notes or the Senior Subordinated Notes, as the
case may be; and (b) all Events of Default, other than the non-payment of
principal of the Senior Notes or the Senior Subordinated Notes, as the case may
be, which have become due solely by such declaration of acceleration, have been
cured or waived. (Section 502)
The holders of not less than a majority in aggregate principal amount of the
Senior Notes or the Senior Subordinated Notes, as the case may be, outstanding
may on behalf of the holders of all the Senior Notes or the Senior Subordinated
Notes, as the case may be, waive any past defaults under the applicable
Indenture and their consequences, except a default in the payment of the
principal of, premium, if any, or interest on any Senior Note or Senior
Subordinated Note, as the case may be, or in respect of a covenant or provision
which under the applicable Indenture cannot be modified or amended without the
consent of the holder of each Senior Note or Senior Subordinated Note, as the
case may be, outstanding affected thereby. (Section 513)
The Company is also required to notify the applicable Trustee within five
business days of the occurrence of any Default. (Section 501)
The Trust Indenture Act contains limitations on the rights of the Trustees,
should either of them become a creditor of the Company or any Guarantor, to
obtain payment of claims in certain cases or to realize on certain property
received by them in respect of any such claims, as security or otherwise. The
Trustees are permitted to engage in such other transactions, PROVIDED that if
they acquire any conflicting interest they must eliminate such conflict upon the
occurrence of an Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES
The Company may, at its option and at any time, elect to have the
obligations of the Company and any Guarantor discharged with respect to the
outstanding Senior Notes or Senior Subordinated Notes, as the case may be
("defeasance"). Such defeasance means that the Company and any Guarantor shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Senior Notes or Senior Subordinated Notes, as the case may be, and
the Collateral would be released from the Lien in favor of the holders of the
Senior Notes or Senior Subordinated Notes, as the case may be, except for (i)
the rights of holders of outstanding Senior Notes or Senior Subordinated Notes,
as the case may be, to receive payments in respect of the principal of, premium,
if any, and interest on such Senior Notes or Senior Subordinated Notes, as the
case may be, solely from the trust fund as described below, when such payments
are due, (ii) the Company's obligations with respect to the Senior Notes or
Senior Subordinated Notes, as the case may be, concerning issuing temporary
Senior Notes or temporary Senior Subordinated Notes, as the case may be,
registration of Senior Notes or Senior Subordinated Notes, as the case may be,
mutilated, destroyed, lost or stolen Senior Notes or Senior Subordinated Notes,
as the case may be, and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the applicable Trustee and (iv) the defeasance
provisions of the applicable Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and any
Guarantor released with respect to certain covenants (PROVIDED that the
Company's obligations to pay interest, premium, if any, and principal on the
Senior Notes or Senior Subordinated Notes, as the case may be, under the
applicable Indenture shall remain in full force and effect as long as the Senior
Notes or Senior Subordinated Notes, as the case may
68
be, are outstanding), that are described in the applicable Indenture ("covenant
defeasance") and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Senior Notes or
Senior Subordinated Notes, as the case may be. In the event covenant defeasance
occurs, certain events (not including non-payment, enforceability of any
Guarantee, bankruptcy and insolvency events) described under "-- Events of
Default" will no longer constitute an Event of Default with respect to the
Senior Notes or Senior Subordinated Notes, as the case may be. (Sections 401,
402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the applicable Trustee, in trust, for the
benefit of the holders of the Senior Notes or Senior Subordinated Notes, as the
case may be, cash in United States dollars, U.S. Government Obligations (as
defined in the Indentures), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Senior Notes or Senior Subordinated Notes, as the
case may be, on the Stated Maturity of such principal or installment of
principal (or on any date after , 1999 (such date being referred to
as the applicable "Defeasance Redemption Date"), if when exercising either
defeasance or covenant defeasance, the Company has delivered to the applicable
Trustee an irrevocable notice to redeem all of the outstanding Senior Notes or
Senior Subordinated Notes, as the case may be, on the applicable Defeasance
Redemption Date); (ii) in the case of defeasance, the Company shall have
delivered to the applicable Trustee an opinion of independent counsel in the
United States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
applicable Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such opinion will
confirm that, the holders of the outstanding Senior Notes or Senior Subordinated
Notes, as the case may be, will not recognize income, gain or loss for federal
income tax purposes as a result of such 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 defeasance had not occurred; (iii) in the
case of covenant defeasance, the Company shall have delivered to the applicable
Trustee an opinion of independent counsel in the United States to the effect
that the holders of the outstanding Senior Notes or Senior Subordinated Notes,
as the case may be, 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)
no Default or Event of Default shall have occurred and be continuing on the date
of such deposit or insofar as clause (vii) or (viii) under the first paragraph
under "-- Events of Default" is concerned, at any time during the period ending
on the 91st day after the date of deposit; (v) such defeasance or covenant
defeasance shall not cause the applicable Trustee to have a conflicting interest
with respect to any securities of the Company or any Guarantor; (vi) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a Default under, the applicable Indenture or any other material
agreement or instrument to which the Company or any Guarantor is a party or by
which it is bound; (vii) the Company shall have delivered to the applicable
Trustee an opinion of independent counsel in the United States to the effect
that (A) the trust funds will not be subject to any rights of holders of
Indebtedness, including, without limitation, those arising under the applicable
Indenture and (B) after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (viii) the
Company shall have delivered to the applicable Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the Senior Notes or Senior Subordinated Notes, as the
case may be, or any Guarantee over the other creditors of the Company or any
Guarantor with the intent of defeating, hindering, delaying or defrauding
creditors of the Company, any Guarantor or others; (ix) no event or condition
shall exist that would prevent the Company from making payments of the principal
of, premium, if any, and interest on the Senior Notes or Senior Subordinated
Notes, as the case may be, on the date of such deposit or at any time ending on
the 91st day after the date of such deposit; and (x) the Company shall have
delivered to the applicable
69
Trustee an officers' certificate and an opinion of independent counsel, each
stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with. (Section 404)
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Senior Note Trustee to repossess and dispose of the
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable Bankruptcy Law if a bankruptcy proceeding
were to be commenced by or against the Company prior to the Collateral Agent
having disposed of the Collateral. Under the Bankruptcy Law, a secured creditor
such as the Collateral Agent on behalf of the holders of the Senior Notes and
the lenders under the New Credit Facility is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
Bankruptcy Law permits the debtor to continue to retain and to use collateral
even though the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection." The meaning
of the term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the secured creditor's interest in
the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. In view of the lack of a precise definition
of the term "adequate protection" and the broad discretionary powers of a
bankruptcy court, it is impossible to predict how long payments under the Senior
Notes could be delayed following commencement of a bankruptcy case, whether or
when the applicable Collateral Agent could repossess or dispose of the
Collateral or whether or to what extent holders of the Senior Notes would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection."
SATISFACTION AND DISCHARGE
Each Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Senior Notes or Senior
Subordinated Notes, as the case may be, as expressly provided for in the
applicable Indenture) as to all outstanding Senior Notes or Senior Subordinated
Notes, as the case may be, when (i) either (a) all the Senior Notes or Senior
Subordinated Notes, as the case may be, theretofore authenticated and delivered
(except lost, stolen or destroyed Senior Notes or Senior Subordinated Notes, as
the case may be, which have been replaced or paid and Senior Notes or Senior
Subordinated Notes, as the case may be, for whose payment funds have been
deposited in trust by the Company and thereafter repaid to the Company or
discharged from such trust) have been delivered to the applicable Trustee for
cancellation or (b) all Senior Notes or Senior Subordinated Notes, as the case
may be, not theretofore delivered to the applicable Trustee for cancellation (x)
have become due and payable, (y) will become due and payable at their Stated
Maturity within one year, or (z) are to be called for redemption within one year
under arrangements satisfactory to the applicable Trustee for the giving of
notice of redemption by the applicable Trustee in the name, and at the expense,
of the Company, and either the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the applicable Trustee as trust funds
in trust an amount sufficient to pay and discharge the entire indebtedness on
the Senior Notes or Senior Subordinated Notes, as the case may be, not
theretofore delivered to the applicable Trustee for cancellation, including
principal of, premium, if any, and accrued interest on such Senior Notes or
Senior Subordinated Notes, as the case may be, at such Maturity; (ii) the
Company and any Guarantor have paid or caused to be paid all other sums payable
under the applicable Indenture by the Company or any Guarantor; and (iii) the
Company and any Guarantor have delivered to the applicable Trustee an officers'
certificate and an opinion of counsel in the United States each stating that all
conditions precedent under the applicable Indenture relating to the satisfaction
and discharge of the applicable Indenture have been complied with, and that such
satisfaction and discharge will not result in a breach or violation of, or
constitute a default under, the applicable Indenture or any other material
agreement or instrument to which the Company is a party or by which the Company
is bound. (Section 1301)
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MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indentures and, in the case of the
Senior Notes, the Pledge Agreement may be made by the Company, any Guarantor, if
any, and the applicable Trustee with the consent of the holders of not less than
a majority in aggregate outstanding principal amount of the Senior Notes or
Senior Subordinated Notes, as the case may be; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of the holder of each
outstanding Senior Note or Senior Subordinated Note, as the case may be,
affected thereby: (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Senior Note or Senior Subordinated Note, as the
case may be, or waive a default in the payment of the principal of, or interest
on any Senior Note or Senior Subordinated Note, as the case may be, or reduce
the principal amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or change the coin or currency in which the
principal of any Senior Note or Senior Subordinated Note, as the case may be, or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof;
(ii) amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with "-- Certain Covenants -- Purchase of Notes Upon a Change of
Control" or make and consummate an Offer in accordance with "-- Certain
Covenants -- Limitation on Sale of Assets", including, in each case, amending,
changing or modifying any of the definitions with respect thereto; (iii) reduce
the percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any such supplemental indenture, or the consent of whose
holders is required for any waiver; (iv) modify any of the provisions relating
to supplemental indentures requiring the consent of holders or relating to the
waiver of past defaults or relating to the waiver of certain covenants, except
to increase the percentage of outstanding Notes required for such actions or to
provide that certain other provisions of such Indenture cannot be modified or
waived without the consent of the holder of each Senior Note or Senior
Subordinated Note, as the case may be, affected thereby; (v) except as otherwise
permitted under "-- Consolidation, Merger, Sale of Assets," consent to the
assignment or transfer by the Company or any Guarantor of any of its rights and
obligations under the Indentures; (vi) amend or modify any of the provisions of
(1) in the case of the Senior Notes, the Senior Note Indenture in any manner
which subordinates the Senior Notes in right of payment to other Indebtedness of
the Company or which subordinates any Guarantee of obligations under the Senior
Note Indenture in right of payment to other Indebtedness of such Guarantor, or
(2) in the case of the Senior Subordinated Notes, the Senior Subordinated Note
Indenture relating to the priority or right of payment of the Senior
Subordinated Notes or any Guarantee in a manner adverse to the holders of the
Senior Subordinated Notes; or (vii) in the case of the Senior Notes, consent to
the release of any Collateral from the Lien created by the Pledge Agreement or
permit the creation of any Lien on the Collateral except in each case in
accordance with the terms of the Senior Note Indenture and the Pledge Agreement.
(Section 902)
The holders of a majority in aggregate principal amount of the Senior Notes
or Senior Subordinated Notes, as the case may be, outstanding may waive
compliance with certain restrictive covenants and provisions of the applicable
Indenture. (Section 1021)
GOVERNING LAW
The Indentures and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
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"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person (or any partner of such
Person) or (ii) any other Person that owns, directly or indirectly, 5% or more
of such Person's (or any partner of such Person's) equity ownership or Voting
Stock or any executive officer or director of either of such Persons. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary; (ii) all or substantially all of the properties and assets of
any division or line of business of the Company or its Subsidiaries; or (iii)
any other properties or assets of the Company or any Subsidiary, other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties and assets (1) that is
governed by the provisions described under "Consolidation, Merger, Sale of
Assets" or (2) that are of the Company to any Wholly Owned Subsidiary, or of any
Subsidiary to the Company or any Wholly Owned Subsidiary in accordance with the
terms of the Indentures.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States Federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Borrowing Base" means the sum of (a) 60% of the inventory owned by the
Company or any Subsidiary and (b) 85% of the trade accounts receivable owned by
the Company or any Subsidiary (less any reserves relating to such receivables)
(in each case as recorded on the books and records of the Company on a
consolidated basis in accordance with GAAP).
"Capital Lease Obligation" of any Person means any obligation of such Person
and its subsidiaries on a Consolidated basis under any capital lease of real or
personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"Change of Control" means the occurrence of any of the following events: (i)
(A) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than the Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
shares of Voting Stock representing the right to vote more than 45% of the
general voting power (the "Voting Power") under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees of the
Company (irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency) and (B) the Permitted Holders own less than 50% of the Voting
Power; (ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election to such Board of Directors or whose nomination for
election by the stockholders of the Company, was approved by a vote of 66 2/3%
of the members of the Board of Directors then still in office who were either
members of the Board of Directors
72
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute at least two-thirds
of such Board of Directors then in office; (iii) the Company consolidates with
or merges with or into any Person or conveys, transfers or leases all or
substantially all of its assets to any Person, or any corporation consolidates
with or into the Company, in any such event pursuant to a transaction in which
the outstanding Voting Stock of the Company is changed into or exchanged for
cash, securities or other property, other than any such transaction (X) where
the outstanding Voting Stock of the Company is not changed or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company) or (Y) where (A) the outstanding Voting Stock of
the Company is changed into or exchanged for (x) Voting Stock of the surviving
corporation or the Company which is not Redeemable Capital Stock or (y) cash,
securities and other property (other than Capital Stock of the surviving
corporation) in an amount which could be paid by the Company as a Restricted
Payment as described under "-- Certain Covenants -- Limitation on Restricted
Payments" (and such amount shall be treated as a Restricted Payment subject to
the provisions in the Indentures described under "Certain Covenants --
Limitation on Restricted Payments") and (B) no "person" or "group" other than
the Permitted Holders owns immediately after such transaction, directly or
indirectly, more than 45% of the total Voting Power of the surviving corporation
or the Permitted Holders own 50% or more of the total Voting Power of the
surviving corporation; or (iv) the Company is liquidated or dissolved or adopts
a plan of liquidation or dissolution other than in a transaction which complies
with the provisions described under "-- Consolidation, Merger, Sale of Assets."
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means the collateral agent under the Pledge Agreement.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if, at any time after the
date of the Indentures such Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income (Loss), in each case for
such period, of such Person and its Consolidated Subsidiaries on a Consolidated
basis, all determined in accordance with GAAP to (b) the sum of (I) Consolidated
Interest Expense of such Person for such period and (II) the product of (x) all
cash dividends (including the payment of accreted or accumulated dividends) paid
on any Preferred Stock of such Person during such period times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory income tax rate (but not
less than zero) of such Person, expressed as a decimal, in each case, on a
Consolidated basis and in accordance with GAAP; PROVIDED that (i) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and (A) bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period and (B) which was not outstanding
during the period for which the computation is being made but which bears, at
the option of the Company, a fixed or floating rate of interest, shall be
computed by applying, at the option of such Person, either the fixed or floating
rate, and (ii) in making such computation, the Consolidated Interest Expense of
such Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" means for any period, as applied to any
Person, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP.
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"Consolidated Interest Expense" of any Person means, without duplication,
for any period, as applied to any Person, the sum of (a) the interest expense of
such Person and its Consolidated Subsidiaries for such period, on a Consolidated
basis, including, without limitation, (i) amortization of debt discount, (ii)
the net cost under Interest Rate Agreements (including amortization of
discounts), and (iii) the interest portion of any deferred payment obligation
plus (b) the interest expense attributable to Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person during such period
in each case as determined in accordance with GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (loss) of such Person and its Consolidated Subsidiaries
for such period as determined in accordance with GAAP, adjusted, to the extent
included in calculating such Consolidated net income (or loss), by excluding,
without duplication, (i) all extraordinary gains and losses, (ii) the portion of
net income (or loss) of such Person and its Consolidated Subsidiaries allocable
to minority interests in unconsolidated Persons to the extent that cash
dividends or distributions have not actually been received by such Person or one
of its Consolidated Subsidiaries, (iii) net income (or loss) of any Person
combined with such Person or any of its Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) aggregate net gains (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, (vi) the net income of any Subsidiary to the extent that the
declaration of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulations applicable to that Subsidiary or its
stockholders and (vii) any gain arising from the acquisition of any securities,
or the extinguishment, under GAAP, of any Indebtedness of such Person.
"Consolidated Net Worth" means, with respect to any Person, the Consolidated
stockholders' equity (excluding Redeemable Capital Stock) of such Person and its
Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, as determined in accordance
with GAAP (excluding any non-cash charge which requires an accrual or reserve
for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the Board of Directors who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of related transactions.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, which are in effect on the date of the Indentures.
"Guarantee" means the guarantee by any Guarantor of the Indenture
Obligations.
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"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness contained in
this Section guaranteed directly or indirectly in any manner by such Person, or
in effect guaranteed directly or indirectly by such Person through an agreement
(i) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to, or in
any other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (iv) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor or (v) otherwise to assure a creditor against loss;
PROVIDED that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business.
"Guarantor" means any guarantor of the Indenture Obligations.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements of such Person (except for
obligations which have been included in the Consolidated Net Income of such
Person other than as Consolidated Interest Expense), (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such
Person, (viii) all Redeemable Capital Stock valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends, and (ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any Indebtedness of the types referred to
in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the applicable Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such fair market value to be
determined in good faith by the Board of Directors of such Person.
"Indenture Obligations" means the obligations of the Company and any other
obligor under either of the Indentures or under the Senior Notes or the Senior
Subordinated Notes, as the case may be, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with either of the
Indentures, the Senior Notes or the Senior Subordinated Notes, as the case may
be, and the performance of all other obligations to the applicable Trustee and
the holders of the Senior Notes or the Senior Subordinated Notes, as the case
may be, under the applicable Indenture and the Senior Notes or the Senior
Subordinated Notes, as the case may be, according to the terms thereof.
75
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by, any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Material Subsidiary" means any Subsidiary of the Company (a) revenues
attributable to which for the then most recently completed four fiscal quarters
constituted 2% or more of the Consolidated revenues of the Company or (b) the
assets of which at the end of such period constituted 2% of the Consolidated
assets of the Company at the end of such period.
"Maturity" when used with respect to any Senior Note or Senior Subordinated
Note means the date on which the principal of such Senior Note or Senior
Subordinated Note becomes due and payable as therein provided or as provided in
the applicable Indenture, whether at Stated Maturity, the Offer Date or any
redemption date and whether by declaration of acceleration, Change of Control
Offer in respect of a Change of Control, Senior Note Offer or Senior
Subordinated Offer in respect of an Asset Sale, call for redemption or
otherwise.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or cash equivalents including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset 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 Asset Sale, all as reflected in an officers'
certificate delivered to the applicable Trustee and (b) with respect to any
issuance or sale of Capital Stock or options, warrants or rights to purchase
Capital Stock, or debt securities or Capital Stock that have been converted into
or exchanged for Capital Stock, as referred to under "-- Certain Covenants --
Limitation on Restricted Payments," the proceeds of such issuance or sale in the
form of cash or cash equivalents, net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Credit Facility" means the Loan Agreement, dated as of ,
1994, among International Controls Corp., Great Dane Trailers, Inc., Great Dane
Trailers Nebraska, Inc., Great Dane Trailers Tennessee, Inc., Great Dane Los
Angeles, Inc., Checker Motors Corporation, Checker Motors Co., L.P., South
Charleston Stamping & Manufacturing Company, NBD Bank, N.A., as agent, and the
lenders party thereto, as such agreement may be amended, renewed, extended,
substituted, refinanced, restructured,
76
replaced, supplemented or otherwise modified from time to time (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplementations or other
modifications of the foregoing).
"Pari Passu Indebtedness" means any Indebtedness of the Company that is PARI
PASSU in right of payment to the Senior Notes or the Senior Subordinated Notes,
as the case may be.
"Permitted Holders" means (i) David R. Markin, Martin L. Solomon, Allan R.
Tessler and Wilmer J. Thomas, Jr. or any one of them, (ii) any trusts created
for the benefit of the persons described in clause (i) or members of any such
person's immediate family; and (iii) in the event of the incompetence or death
of any of the persons described in clause (i), such person's estate, executor,
administrator, committee or other personal representatives or beneficiaries.
"Permitted Indebtedness" means the following:
(i) Indebtedness of the Company or any Subsidiary (including Indebtedness in
respect of which the Company and one or more Subsidiaries are co-obligors) under
the New Credit Facility in an aggregate principal amount not to exceed (a) $50
million under any term loan portion thereof less the amount of any permanent
repayment of Indebtedness thereunder plus (b) the amount of the Borrowing Base
calculated as of the date of incurrence of such Indebtedness (with letters of
credit being deemed to have a principal amount equal to the maximum potential
liability thereunder) under any revolving credit agreement portion thereof; (ii)
Indebtedness of the Company pursuant to the Notes; (iii) Indebtedness of the
Company or any Subsidiary outstanding on the date of the Indentures and listed
on a schedule thereto; (iv) Indebtedness (a) of the Company owing to a
Subsidiary or (b) of a Wholly Owned Subsidiary owing to the Company or another
Wholly Owned Subsidiary (which for purposes of this clause (iv) shall include
SCSM so long as the Company beneficially owns, directly or indirectly, at least
90% of the outstanding capital stock of SCSM); PROVIDED that any such
Indebtedness is made pursuant to an intercompany note in the form attached as an
exhibit to the Indentures and, in the case of Indebtedness of the Company owing
to a Subsidiary, is subordinated in right of payment from and after such time as
the Notes shall become due and payable (whether at Stated Maturity, upon
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Notes; PROVIDED, FURTHER, that (x) any disposition, pledge
or transfer of any such Indebtedness to a Person (other than the Company or a
Wholly Owned Subsidiary and other than a pledge of any such intercompany note to
the agent bank under the New Credit Facility in accordance with the terms of the
New Credit Facility as in effect on the date of this Indenture) shall be deemed
to be an incurrence of such Indebtedness by the obligor not permitted by this
clause (iv) and (y) any transaction pursuant to which any Wholly Owned
Subsidiary, which has Indebtedness owing to the Company or any other Wholly
Owned Subsidiary, ceases to be a Wholly Owned Subsidiary shall be deemed to be
the incurrence of Indebtedness by the Company or such other Wholly Owned
Subsidiary that is not permitted by this clause (iv); (v) any renewals,
extensions, substitutions, refundings, refinancings or replacements
(collectively, a "refinancing") of any Indebtedness described in clauses (i),
(ii) and (iii) of this definition of "Permitted Indebtedness," including any
successive refinancings so long as the aggregate principal amount of
Indebtedness represented thereby is not increased by such refinancing plus the
lesser of (I) the stated amount of any premium or other payment required to be
paid in connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (II) the amount of premium or other payment
actually paid at such time to refinance the Indebtedness, plus, in either case,
the amount of expenses of the Company incurred in connection with such
refinancing and such refinancing does not reduce or advance the Average Life to
Stated Maturity or the Stated Maturity of such Indebtedness; (vi) guarantees by
the Company or any Subsidiary of a line of credit of Checker Taxi Association,
Inc. in an aggregate principal amount outstanding not to exceed at any given
time $1 million; (vii) guarantees of any Subsidiary made in accordance with the
provisions of "-- Certain Covenants -- Limitation on Issuances of Guarantees of
Indebtedness by Subsidiaries" or "-- Limitation on Issuance and Sale of Capital
Stock of Subsidiaries;" (viii) guarantees by Subsidiaries of Indebtedness of
third parties incurred in the ordinary course of business consistent with past
practice in an aggregate principal amount outstanding not to exceed at any given
time $15 million; (ix) earned but unpaid compensation of present and future
directors and
77
executive officers of either the Company or any of its Subsidiaries; and (x)
Indebtedness of the Company and any Subsidiary (including indebtedness in
respect of which the Company and one or more Subsidiaries are co-obligors) in
addition to that described in paragraphs (i) through (ix) of this definition of
"Permitted Indebtedness" in an aggregate principal amount outstanding not to
exceed at any given time $25 million.
"Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary
or Investments by the Company or any Subsidiary in a Person, if as a result of
such Investment (a) such Person becomes a Wholly Owned Subsidiary or (b) such
Person is merged or consolidated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or any
Wholly Owned Subsidiary; (ii) Investments in the Notes; (iii) Indebtedness of
the Company or a Subsidiary described under clause (iv), (vi), (vii) or (viii)
of the definition of "Permitted Indebtedness"; (iv) Temporary Cash Investments;
(v) Investments in existence on the date of the Indentures; and (vi) Investments
by American Country Insurance Company or any other Subsidiary in the ordinary
course of the insurance business and in accordance with the statutes and
governmental regulations regulating its affairs in its domestic jurisdiction.
"Permitted Liens" means the following:
(i) any Lien existing, or provided for under arrangements existing, as of
the date of the Indentures; (ii) any Lien arising by reason of (1) any judgment,
decree or order of any court or other governmental authority, if 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; (2)
taxes, assessments or similar charges not yet delinquent or which are being
contested in good faith; (3) security for the payment of workers' compensation,
unemployment insurance, other social security benefits or other
insurance-related obligations (including but not limited to in respect of
deductibles, self-insured retention amounts and premiums and adjustments
thereto); (4) deposits or pledges in connection with bids, tenders, leases and
contracts (other than contracts for the payment of money); (5) zoning
restrictions, easements, licenses, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor irregularities
of title (and with respect to leasehold interests, mortgages, obligations, liens
and other encumbrances incurred, created, assumed or permitted to exist and
arising by, through or under a landlord or owner of the leased property, with or
without consent of the lessee), none of which materially impairs the use of any
parcel of property material to the operation of the business of the Company and
its Subsidiaries taken as a whole or the value of such property for the purpose
of such business; (6) deposits or pledges to secure public or statutory
obligations, progress payments, surety and appeal bonds or other obligations of
like nature incurred in the ordinary course of business; (7) certain surveys,
exceptions, title defects, encumbrances, easements, reservations of, or rights
of others for, rights of way, sewers, electric lines, telegraph or telephone
lines or other similar purposes or zoning or other restrictions as to the use of
real property not materially interfering with the ordinary conduct of the
business of the Company and its Subsidiaries taken as a whole; or (8) operation
of law in favor of landlords, mechanics, carriers, warehousemen, materialmen,
laborers, employees, suppliers or the like, incurred in the ordinary course of
business for sums which are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings which suspend the collection
thereof; (iii) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary, which Indebtedness is permitted
under the provisions of "-- Certain Covenants -- Limitation on Indebtedness";
(iv) any Lien securing Indebtedness incurred under the New Credit Facility; (v)
any Lien on the Collateral securing Indebtedness incurred under the Senior Notes
and Senior Note Indenture; (vi) any Lien created by Subsidiaries to secure
Indebtedness of such Subsidiaries to the Company; (vii) any Lien securing
Purchase Money Obligations and Capital Lease Obligations incurred pursuant to
the provisions of "-- Certain Covenants -- Limitation on Indebtedness"; (viii)
any Lien securing Indebtedness incurred pursuant to paragraph (x) of the
definition of Permitted Indebtedness;(ix) any Lien securing Permitted Subsidiary
Indebtedness; (x) any Lien in favor of the agent bank under the New Credit
Facility securing an
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intercompany note issued pursuant to paragraph (iv) of the definition of
Permitted Indebtedness; and (xi) any extension, renewal, refinancing or
replacement, in whole or in part, of any Lien described in the foregoing clauses
(i), (iii) and (v) so long as (1) the amount of security is not increased
thereby, (2) the aggregate amount of Indebtedness or other obligations secured
by the Lien after such extension, renewal, refinancing or replacement does not
exceed the aggregate amount of the Indebtedness or other obligations secured by
the existing Lien prior to such extension, renewal, refinancing or replacement
plus an amount equal to the lesser of (a) the stated premium required to be paid
in connection with such an extension, renewal, refinancing or replacement
pursuant to the terms of the Indebtedness or (b) the amount of any premium
actually paid by the Company to accomplish such extension, renewal, refinancing
or replacement and (3) the Indebtedness secured by such Lien (other than
Permitted Indebtedness) is permitted under the provisions of "-- Certain
Covenants -- Limitation on Indebtedness."
"Permitted Subsidiary Indebtedness" means Indebtedness of the Subsidiaries
of the Company in the aggregate principal amount outstanding not to exceed $25
million at any given time under any agreement providing for subsidized financing
from any federal or state governmental agency.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"Pledge Agreement" means the pledge and intercreditor agreement dated the
date of the Senior Note Indenture between the Company, the Senior Note Trustee
and NBD Bank, N.A., as collateral agent, as amended from time to time as
permitted thereby.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Capital
Stock of any other class in such Person.
"Public Offering" means an underwritten initial public offering of Qualified
Capital Stock (other than Preferred Stock) of the Company pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act which results in gross cash proceeds to the
Company of not less than $25 million.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or its Subsidiaries, and any
additions and accessions thereto, which are purchased by the Company or any
Subsidiary at any time after the Notes are issued; PROVIDED, that (i) the
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets is created (collectively, a "Purchase
Money Security Agreement") shall be entered into within 90 days after the
purchase or substantial completion of the construction of such assets and shall
at all times be confined solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom, (ii) at no time
shall the aggregate principal amount of the outstanding Indebtedness secured
thereby be increased, except in connection with the purchase of additions and
accessions thereto and except in respect of fees and other obligations in
respect of such Indebtedness and (iii)(A) the aggregate outstanding principal
amount of Indebtedness secured thereby (determined on a per asset basis in the
case of any additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100% of the purchase price to the
Company or any Subsidiary of the assets subject thereto or (B) the Indebtedness
secured thereby shall be with recourse solely to the assets so purchased or
acquired, any additions and accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is, or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
79
Notes or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity at the option of the
holder thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Note Indenture" means the indenture, dated as of ,
1994, among the Company and First Fidelity Bank, National Association, as
trustee, as such agreement may be amended, renewed, extended, substituted,
refinanced, replaced, supplemented or otherwise modified from time to time
(including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing).
"Senior Notes" means the Company's % Senior Secured Notes due 2002 issued
pursuant to the Senior Note Indenture.
"Senior Subordinated Note Indenture" means the indenture, dated as of
, 1994, among the Company and Marine Midland Bank, as trustee, as
such agreement may be amended, renewed, extended, substituted, refinanced,
replaced, supplemented or otherwise modified from time to time (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplementations or other
modifications of the foregoing).
"Senior Subordinated Notes" means the Company's % Senior Subordinated
Notes due 2004 issued pursuant to the Senior Subordinated Note Indenture.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company subordinated
in right of payment to the Senior Notes.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit or money market deposit,
maturing not more than one year after the date of acquisition, issued by, or
time deposit of, a commercial banking institution that is a member of the
Federal Reserve System and that has combined capital and surplus and undivided
profits of not less than $250,000,000, whose debt has a rating, at the time as
of which any investment therein is made, of "P-1" (or higher) according to
Moody's Investors Service, Inc. ("Moody's") or any successor rating agency, or
"A-1" or higher according to Standard & Poor's Corporation ("S&P") or any
successor rating agency, (iii) commercial paper, maturing not more than 180 days
after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Company) organized and
existing under the laws of the United States of America with a rating, at the
time as of which any investment therein is made, of "P-1" (or higher) according
to Moody's or any successor rating agency or "A-1" (or higher) according to S&P
or any successor rating agency and (iv) any repurchase obligation with a term of
not more than 90 days for direct obligations of the United States of America
entered into with a bank meeting the qualifications described in clause (ii)
above.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have in respect of a corporation, the general voting power under
ordinary circumstances to elect at least a
80
majority of the board of directors, managers or trustees of a corporation
(irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).
"Wholly Owned Subsidiary" means a corporate Subsidiary all the outstanding
Capital Stock (other than directors' qualifying shares) or a partnership
Subsidiary all the equity interest of which are owned by the Company or another
Wholly Owned Subsidiary.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences expected to result to holders from the purchase, ownership and
disposition of Senior Notes, Senior Subordinated Notes and Warrants. The summary
is based on current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "IRS") will not take a contrary view, and no ruling from
the IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the federal income tax
consequences to holders of Senior Notes, Senior Subordinated Notes or Warrants.
The following summary is for general information only. The tax treatment of
a holder of Senior Notes, Senior Subordinated Notes or Warrants may vary
depending on such holder's particular situation. This discussion does not
address the federal income tax consequences of the ownership of Senior Notes,
Senior Subordinated Notes or Warrants that are not held as capital assets within
the meaning of Section 1221 of the Code, nor does it discuss the effect of any
state, local or foreign tax law on the holder of Senior Notes, Senior
Subordinated Notes or Warrants. Certain holders (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. EACH PURCHASER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF SENIOR NOTES, SENIOR
SUBORDINATED NOTES OR WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS.
STATED INTEREST ON SENIOR NOTES AND SENIOR SUBORDINATED NOTES
Holders of Senior Notes and Senior Subordinated Notes will be required to
include stated interest in gross income for federal income tax purposes in
accordance with the holder's method of accounting for federal income tax
purposes. Holders using the accrual method of tax accounting must include stated
interest in income as it accrues and holders using the cash method of tax
accounting must include stated interest in income as it is actually or
constructively received by them.
ORIGINAL ISSUE DISCOUNT ON THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes will be issued with original issue discount,
and each holder of Senior Subordinated Notes will be required to include in its
gross income original issue discount income as described below.
Original issue discount on each Senior Subordinated Note will equal the
excess of the stated redemption price at maturity of the Senior Subordinated
Note over its issue price. A holder of a Senior Subordinated Note issued with
original issue discount must include original issue discount in income as
ordinary interest income as the original issue discount accrues on the basis of
a constant yield to maturity, regardless of whether the holder uses the cash or
accrual method of tax accounting. Generally, original issue discount must be
included in income in advance of the receipt of cash representing such income.
In general, the "issue price" of a Senior Subordinated Note is determined by
allocating the "issue price" of the Unit to the Senior Subordinated Note and
Warrant comprising such Unit on the basis of the proportion which the fair
market value of each such element of the Unit bears to the sum of the fair
market value of both elements in the Unit. The "issue price" of a Unit is the
initial offering price to the
81
public (excluding underwriters, placement agents and wholesalers) at which a
substantial amount of Units are first sold. The Company has allocated $______
and $______ to be the issue price of a Senior Subordinated Note and a Warrant,
respectively, and this allocation is binding on each holder of a Unit, other
than a holder that explicitly discloses that its allocation of the "issue price"
of the Unit is different from the Company's allocation. Such disclosure
generally must be made on a statement attached to such holder's timely filed
federal income tax return for its taxable year that includes the acquisition
date of the Unit. However, the Company's allocation is not binding on the IRS.
The stated redemption price at maturity of a Senior Subordinated Note will
equal the sum of all payments other than any "qualified stated interest"
payments. Qualified stated interest is stated interest that is unconditionally
payable in cash or in property (other than debt instruments of the issuer) at
least annually at a single fixed rate.
The holder of a Senior Subordinated Note issued with original issue discount
must include in gross income, for all days during its taxable year on which it
holds such Senior Subordinated Note, the sum of the "daily portions" of original
issue discount. The amount of original issue discount includible in income by a
holder will be computed by allocating to each day during a taxable year a pro
rata portion of the original issue discount that accrued during the relevant
accrual period. The accrual periods for a Senior Subordinated Note may be of any
length and may vary in length over the Senior Subordinated Note's term, provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs either on the final day of an accrual period or
on the first day of an accrual period. The amount of original issue discount
that will accrue during an accrual period is the excess, if any, of (i) the
product of the "adjusted issue price" of the Senior Subordinated Note at the
beginning of the accrual period and its original yield to maturity (determined
on the basis of compounding at the end of each accrual period and properly
adjusted for the length of the particular accrual period) over (ii) the amount
of any qualified stated interest allocable to the accrual period. There are
special rules for determining the original issue discount allocable to an
accrual period where an interval between payments of qualified stated interest
contains more than one accrual period. The adjusted issue price of a Senior
Subordinated Note at the beginning of any accrual period is the sum of its issue
price, plus prior accruals of original issue discount, reduced by the total
payments made with respect to such Senior Subordinated Note in all prior
periods, other than qualified stated interest payments.
The Company will make annual reports to the IRS and holders of the Senior
Subordinated Notes regarding the amount of original issue discount accrued on
the Senior Subordinated Notes during the year on the basis of __ accrual
periods.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL INTEREST DISCOUNT
In general, a holder may elect to treat all interest on any Senior Note or
Senior Subordinated Note as original issue discount and calculate the amount
includible in gross income under the constant yield method described above. For
the purposes of this election, interest includes, among other items, stated
interest, original issue discount, market discount, and DE MINIMIS market
discount, as adjusted by any amortizable bond premium or acquisition premium.
The election is to be made for the taxable year in which the holder acquired the
Senior Note or Senior Subordinated Note and may not be revoked without the
consent of the IRS. As discussed below, this election may affect the tax
treatment of other debt instruments held by a holder. Therefore, holders should
consult with their own tax advisors about this election.
ACQUISITION PREMIUM
If a holder purchases a Senior Subordinated Note at an "acquisition
premium," the holder reduces the amount of original issue discount includible in
income in each taxable year by the portion of acquisition premium allocable to
that year. A Senior Subordinated Note is purchased at an acquisition premium if
immediately after the purchase, the purchaser's adjusted basis in the Senior
Subordinated Note is greater than the Senior Subordinated Note's adjusted issue
price but not greater than the sum of all amounts payable on the Senior
Subordinated Note after the purchase date, other than payments of qualified
stated interest. In general, the reduction in original issue discount includible
in income in a
82
taxable year is determined by multiplying the daily portion of original issue
discount by a fraction the numerator of which is the excess of the adjusted
basis of the Senior Subordinated Note immediately after the acquisition over the
adjusted issue price of the Senior Subordinated Note and the denominator of
which is the excess of the sum of all amounts payable on the Senior Subordinated
Note after the purchase date, other than payments of qualified stated interest,
over its adjusted issue price. Rather than using the above fraction, the holder,
may, as discussed above, elect to treat all interest, including for this
purpose, acquisition premium, as original issue discount.
MARKET DISCOUNT
If a Senior Note or a Senior Subordinated Note is acquired at a "market
discount," some or all of any gain realized on a sale or other disposition,
partial principal payment or payment at maturity, of the Senior Note or the
Senior Subordinated Note may be treated as ordinary income (generally, as
interest income), as described below. For this purpose, "market discount" is the
excess of (i) the stated redemption price at maturity of a Senior Note or the
adjusted issue price of a Senior Subordinated Note over (ii) the holder's tax
basis in the Senior Note or Senior Subordinated Note subject to a statutory DE
MINIMIS exception. Under the statutory DE MINIMIS exception, market discount
will be considered to be zero if it is less than 1/4 of 1% of the stated
redemption price at maturity of the Senior Note or the Senior Subordinated Note,
as the case may be, multiplied by the number of complete years to maturity of
the Note from the date the holder purchased it. Unless a holder has elected to
include the market discount in income as it accrues, any gain realized on any
subsequent disposition of the Senior Note or the Senior Subordinated Note (other
than in connection with certain nonrecognition transactions) or any partial
principal payment or payment at maturity with respect to the Senior Note or the
Senior Subordinated Note will be treated as ordinary income to the extent of the
market discount that is treated as having accrued during the period the Senior
Note or the Senior Subordinated Note was held. In addition, if the Senior Note
or the Senior Subordinated Note is disposed of in any transaction other than a
sale, exchange, or involuntary conversion (E.G., a gift), ordinary income will
be recognized to the extent of accrued market discount as if such Senior Note or
Senior Subordinated Note had been sold at its then fair market value.
The amount of market discount treated as having accrued will be determined
either (i) on a ratable basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the Senior Note or the
Senior Subordinated Note was held by the holder and the denominator of which is
the total number of days after the date such holder acquired the Senior Note or
the Senior Subordinated Note up to and including the date of its maturity, or
(ii) if the holder so elects, on a constant interest rate method. A holder may
make this election with respect to any Senior Note or Senior Subordinated Note
and such election is irrevocable.
A holder of a Senior Note or a Senior Subordinated Note may elect to include
market discount in income currently, through the use of either the ratable
inclusion method or the elective constant interest rate method. If such an
election is made, a holder will not be required to recharacterize gain on the
disposition of, and certain payments in respect of, the Senior Note or the
Senior Subordinated Note to the extent of accrued market discount. Once made,
the election to include market discount in income currently applies to all
Senior Notes, Senior Subordinated Notes and other obligations of the holder that
are purchased at a market discount during the first taxable year for which the
election is made, and during all subsequent taxable years of the holder, unless
the IRS consents to a revocation of the election. If an election is made to
include market discount in income currently, the holder's basis for the Senior
Note or the Senior Subordinated Note will be increased by the market discount
thereon as it is included in income.
If a holder makes the election (discussed above) to treat as original issue
discount all interest on a debt instrument that has market discount, the holder
is deemed to have made the election to accrue currently market discount using a
constant interest rate method on all other debt instruments with
83
market discount. In addition, if the holder has previously made the election to
accrue market discount currently, the conformity requirements of that election
are satisfied for debt instruments with respect to which the holder elects to
treat all interest as original issue discount.
Unless a holder who acquires a Senior Note or a Senior Subordinated Note at
a market discount elects to include market discount in income currently, such
holder may be required to defer all or a portion of any interest expense that
may otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry the Senior Note or the Senior Subordinated Note.
AMORTIZABLE BOND PREMIUM
If a holder purchases a Senior Note or a Senior Subordinated Note and,
immediately after the purchase, the adjusted basis of the Senior Note or the
Senior Subordinated Note exceeds the sum of all amounts payable on the Senior
Note or the Senior Subordinated Note after the purchase date, other than
qualified stated interest, the Senior Note or the Senior Subordinated Note has
"premium." A holder that purchases a Senior Subordinated Note at a premium is
not required to include original issue discount in income. A holder may elect to
amortize the premium over the remaining term of the Senior Note or the Senior
Subordinated Note (or, in certain circumstances, until an earlier call date).
In the case of a debt instrument that may be called at a premium prior to
maturity, an earlier call date of the debt instrument is treated as the maturity
date of the debt instrument and the amount of bond premium is determined by
treating the amount payable on such call date as the amount payable at maturity
if such a calculation produces a smaller amortizable bond premium than the
method described in the preceding paragraph. If the debt instrument is not
redeemed on such call date, the remaining bond premium may be amortized to a
later call date or to maturity under the rules set forth above. If a debt
instrument purchased at a premium is redeemed prior to its maturity, a purchaser
who has elected to amortize bond premium may deduct any remaining unamortized
bond premium as an ordinary loss in the taxable year of the redemption.
If premium is amortized, except as provided in Treasury Regulations, the
amount of interest that must be included in the holder's income for each period
ending on an interest payment date or stated maturity, as the case may be, will
be reduced by the portion of premium allocable to the interest payment based on
the yield to maturity of the Senior Note or the Senior Subordinated Note under a
constant interest rate method. If such an election to amortize premium is not
made, a holder must include the full amount of each interest payment in income
in accordance with the holder's regular method of tax accounting and will
include the premium in its tax basis for the Senior Note or Senior Subordinated
Note for purposes of computing its gain or loss on the sale or other disposition
or payment of the principal amount of the Senior Note or the Senior Subordinated
Note.
An election to amortize premium would apply to amortizable premium on all
Senior Notes, Senior Subordinated Notes and other bonds the interest on which is
includible in the holder's gross income held at the beginning of the holder's
first taxable year to which the election applies or thereafter acquired, and may
be revoked only with the consent of the IRS. The election to treat all interest,
including for this purpose amortizable premium, as original issue discount is
deemed to be an election to amortize premium under Section 171(c) of the Code
for purposes of the conformity requirements of that section. In addition, if the
holder has already made an election to amortize premium, the conformity
requirements will be deemed satisfied with respect to any Senior Notes or Senior
Subordinated Notes for which the holder makes an election to treat all interest
as original issue discount.
DISPOSITION OF THE SENIOR NOTES AND SENIOR SUBORDINATED NOTES
In general, upon a disposition of a Senior Note or a Senior Subordinated
Note by sale, exchange, redemption or other taxable disposition, a holder will
recognize gain or loss equal to the difference between (i) the amount realized
on the disposition (other than amounts received attributable to accrued
interest) and (ii) the holder's tax basis in the Senior Note or the Senior
Subordinated Note. A holder's tax basis in a Senior Note or a Senior
Subordinated Note generally will equal the cost to the holder of the Senior Note
or the Senior Subordinated Note (net of accrued interest), which, in the case of
an initial
84
holder of a Senior Subordinated Note, is the portion of the issue price of a
Unit allocated to the Senior Subordinated Note, increased by amounts includible
in income as original issue discount or market discount (if the holder elects to
include market discount in income on a current basis) and reduced by any
amortized premium and any payments other than payments of qualified stated
interest made on the Senior Note or the Senior Subordinated Note.
Assuming that the Senior Note or the Senior Subordinated Note is held as a
capital asset, such gain or loss (except to the extent that the market discount
rules otherwise provide) will generally constitute capital gain or loss, and
will be long-term capital gain or loss if the holder has held the Senior Note or
the Senior Subordinated Note for longer than one year at the time of the
disposition.
EXERCISE, OWNERSHIP, DISPOSITION AND EXPIRATION OF WARRANTS
No gain or loss will be recognized by a holder of a Warrant on the purchase
of the Company's Common Stock for cash on the exercise of the Warrant (except
with respect to any cash paid in lieu of the issuance of fractional shares of
Common Stock). A holder's tax basis in the Warrant prior to exercise will be
added to the Exercise Price of the Warrant and will constitute the holder's tax
basis in the Company's Common Stock received on the exercise of the Warrant. The
holding period of the Company's Common Stock so received will not include the
time during which the holder held the Warrant.
Adjustments to the Exercise Price of the Warrants, or a failure to make such
adjustments, pursuant to the antidilution provisions of the Warrants may result
in taxable distributions to holders of Warrants or to holders of the Company's
Common Stock, respectively, under Section 305 of the Code to the extent of the
Company's current or accumulated earnings and profits, regardless of whether
there is a distribution of cash or property.
Assuming that the Common Stock would be held as a capital asset by a holder,
the redemption of a Warrant by the Company, the sale or other taxable
disposition of a Warrant by such holder other than to the Company and the
expiration of an unexercised Warrant, generally will be treated as a sale or
exchange of a capital asset and any gain or loss recognized will generally be
capital gain or loss and will be long-term capital gain or loss if the holder
has held the Warrant for longer than one year at the time of the redemption,
disposition or expiration. In the case of a redemption, sale or other taxable
disposition of a Warrant, the amount of the gain or loss recognized will be
equal to the difference between the amount realized on the redemption, sale or
other taxable disposition and the holder's tax basis in the Warrant. In the case
of the expiration of an unexercised Warrant, the holder will recognize loss
equal to the holder's tax basis in the Warrant. As discussed above, an initial
holder's tax basis in a Warrant will be equal to the portion of the issue price
of the Unit allocated to the Warrant.
BACKUP WITHHOLDING
A holder of Senior Notes, Senior Subordinated Notes or Warrants may be
subject to backup withholding at the rate of 31% with respect to interest paid
on, original issue discount accrued on and gross proceeds of a sale or
redemption of Senior Notes, Senior Subordinated Notes or Warrants, unless (i)
the holder is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) the holder provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of a Senior Note, a Senior Subordinated Note or a
Warrant who does not provide the Company with his or her correct taxpayer
identification number may be subject to penalties imposed by the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PURCHASER OF
SENIOR NOTES, SENIOR SUBORDINATED NOTES OR WARRANTS SHOULD CONSULT HIS OR HER
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OR HER OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF SENIOR NOTES, SENIOR SUBORDINATED
NOTES OR WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
85
UNDERWRITING
Subject to certain terms and conditions of the Underwriting Agreement, Alex.
Brown & Sons Incorporated and SPP Hambro & Co. (the "Underwriters") have agreed
to purchase from the Company the following respective principal amounts of
Senior Notes and Units:
PRINCIPAL AMOUNT NUMBER OF
UNDERWRITERS OF SENIOR NOTES UNITS
- ----------------------------------------------------------------------- ----------------- -----------
Alex. Brown & Sons Incorporated........................................ $
SPP Hambro & Co........................................................
----------------- -----------
Total.............................................................. $ 165,000,000 100,000
----------------- -----------
----------------- -----------
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent.
The Underwriting Agreement also provides that the Company will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or will contribute to payments that the Underwriters
may be required to make in respect thereof. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the Senior Notes
and Units if any Senior Notes and Units are purchased.
The Underwriters propose to offer the Senior Notes and Units directly to the
public initially at the public offering prices set forth on the cover page of
this Prospectus. After the initial public offering of the Senior Notes and
Units, the offering prices and other selling terms may be changed by the
Underwriters.
There is no existing trading market for the Securities and there can be no
assurance as to the liquidity of any market that may develop for the Securities.
The Underwriters have advised the Company that they currently intend to make a
market in the Senior Notes and the Units until the Separation Date and in the
Notes and Warrants thereafter. However, the Underwriters are not obligated to do
so, and any such market making may be discontinued at any time without notice.
The Company has agreed not to issue, sell or offer any debt securities or
shares of Common Stock or securities convertible into Common Stock without the
prior consent of the Underwriters for a period of 90 days after the date of this
Prospectus.
NBD Bank, N.A. will receive a fee of $ from the Company for acting as the
Company's financial advisor in connection with the Offering.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by Hutton
Ingram Yuzek Gainen Carroll & Bertolotti, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York. As to certain matters concerning the laws of the State of
Florida, Hutton Ingram Yuzek Gainen Carroll & Bertolotti and Fried, Frank,
Harris, Shriver & Jacobson will rely upon the opinions of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1993
and 1992, and for each of the three years in the period ended December 31, 1993,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
86
The following consolidated financial statements of International Controls
Corp. and subsidiaries are submitted herewith:
PAGE
---------
Index To Financial Statements Covered By Report Of Independent Auditors
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1993 and 1992............................................. F-3
Consolidated Statements of Shareholders' Deficit for the Years Ended December 31, 1993, 1992 and 1991.... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1992
and 1991............................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992
and 1991............................................................................................... F-6
Notes to Consolidated Financial Statements -- December 31, 1993.......................................... F-7
Index to Financial Statements (Unaudited):
Consolidated Balance Sheets at March 31, 1994, and December 31, 1993..................................... F-25
Consolidated Statements of Operations for the Three Months Ended March 31, 1994, and March 31, 1993...... F-26
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1994, and March 31, 1993...... F-27
Notes to Consolidated Financials Statements -- March 31, 1994............................................ F-28
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
International Controls Corp.
We have audited the accompanying consolidated balance sheets of
International Controls Corp. and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended December 31, 1993.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International Controls Corp. and subsidiaries at December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes I and K to the consolidated financial statements, the
Company changed its methods of accounting for postretirement benefits other than
pensions and income taxes in the year ended December 31, 1993.
/s/ ERNST & YOUNG
Kalamazoo, Michigan
March 1, 1994
F-2
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
--------------------
1992 1993
--------- ---------
Cash and cash equivalents............................................................... $ 42,199 $ 40,078
Accounts receivable, less allowance for doubtful accounts of $623 (1992) and $748 (1993)
(Note G)............................................................................... 64,115 75,701
Current portion of finance lease receivables............................................ 2,352 764
Inventories (Notes D and G)............................................................. 71,861 94,112
Other current assets.................................................................... 8,897 11,059
--------- ---------
TOTAL CURRENT ASSETS................................................................ 189,424 221,714
Property, plant and equipment, net (Notes E, G and H)................................... 119,492 122,355
Insurance Subsidiary's investments (Note F)............................................. 84,616 90,838
Noncurrent finance lease receivables (Notes C and H).................................... 2,863 575
Insurance Subsidiary's reinsurance receivable........................................... 17,366 11,378
Cost in excess of net assets acquired, net of accumulated amortization of $5,002 (1992)
and $6,252 (1993)...................................................................... 44,993 43,743
Trademark, net of accumulated amortization of $1,400 (1992) and $1,750 (1993)........... 12,046 11,696
Other assets............................................................................ 22,963 15,037
--------- ---------
TOTAL ASSETS........................................................................ $ 493,763 $ 517,336
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable........................................................................ $ 56,684 $ 77,876
Notes payable (Note G).................................................................. 5,000 5,000
Income taxes payable (Note K)........................................................... 6,739 7,726
Accrued compensation.................................................................... 13,729 15,838
Accrued interest........................................................................ 11,596 11,746
Other accrued liabilities............................................................... 28,833 38,071
Current portion of long-term debt....................................................... 15,752 14,321
--------- ---------
TOTAL CURRENT LIABILITIES........................................................... 138,333 170,578
Long-term debt, excluding current portion (Note G):
Shareholders.......................................................................... 30,000 30,000
Other................................................................................. 259,616 246,952
--------- ---------
289,616 276,952
Insurance Subsidiary's unpaid losses and loss adjustment expenses....................... 75,780 71,179
Unearned insurance premiums............................................................. 10,463 9,547
Deferred income taxes................................................................... 11,187 9,803
Postretirement benefits other than pensions (Note I).................................... -- 49,609
Other noncurrent liabilities............................................................ 33,654 39,053
Minority interest (Notes H and J)....................................................... 41,026 40,132
--------- ---------
TOTAL LIABILITIES................................................................... 600,059 666,853
Shareholders' deficit (Notes A, F and G):
Common stock, par value $0.01:
Authorized 15,000,000 shares
Outstanding 9,036,700 shares........................................................ 90 90
Additional paid-in capital............................................................ 14,910 14,910
Retained earnings (deficit)........................................................... 7,045 (36,217)
Unrealized appreciation on Insurance Subsidiary's investments in equity securities.... 32 73
Notes receivable from shareholders.................................................... (625) (625)
Amount paid in excess of Checker's net assets......................................... (127,748) (127,748)
--------- ---------
TOTAL SHAREHOLDERS' DEFICIT......................................................... (106,296) (149,517)
Commitments and contingencies (Note H)..................................................
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT......................................... $ 493,763 $ 517,336
--------- ---------
--------- ---------
See notes to consolidated financial statements.
F-3
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
UNREALIZED
APPRECIATION AMOUNT PAID
(DEPRECIATION) NOTES IN EXCESS OF
ADDITIONAL ON INVESTMENTS RECEIVABLE CHECKER'S
COMMON PAID-IN RETAINED IN EQUITY FROM NET ASSETS
STOCK CAPITAL EARNINGS SECURITIES SHAREHOLDERS (NOTE A)
------------- ----------- ---------- --------------- ----------------- ------------
BALANCES AT JANUARY 1, 1991.......... $ 90 $ 14,910 $ 10,418 $ (1,790) $ (625) $ (127,748)
Unrealized appreciation on investment
in equity securities................ -- -- -- 2,189 -- --
Net income........................... -- -- 4,182 -- -- --
--- ----------- ---------- ------- ------ ------------
BALANCES AT DECEMBER 31, 1991........ 90 14,910 14,600 399 (625) (127,748)
Unrealized depreciation on investment
in equity securities................ -- -- -- (367) -- --
Net loss............................. -- -- (7,555) -- -- --
--- ----------- ---------- ------- ------ ------------
BALANCES AT DECEMBER 31, 1992........ 90 14,910 7,045 32 (625) (127,748)
Unrealized appreciation on investment
in equity securities................ -- -- -- 41 -- --
Net loss............................. -- -- (43,262) -- -- --
--- ----------- ---------- ------- ------ ------------
BALANCES AT DECEMBER 31, 1993........ $ 90 $ 14,910 $ (36,217) $ 73 $ (625) $ (127,748)
--- ----------- ---------- ------- ------ ------------
--- ----------- ---------- ------- ------ ------------
See notes to consolidated financial statements.
F-4
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------------------
1991 1992 1993
------------ ------------ ------------
REVENUES:
Trailer manufacturing and distribution................................ $ 400,196 $ 536,336 $ 711,862
Automotive products manufacturing..................................... 84,401 112,631 127,925
Vehicular operations including rental income of $39,946 (1991);
$37,382 (1992); and $38,360 (1993)................................... 43,527 40,580 42,103
Insurance premiums earned............................................. 27,142 27,186 27,436
------------ ------------ ------------
555,266 716,733 909,326
COST OF REVENUES:
Cost of sales......................................................... (428,949) (561,546) (728,471)
Cost of vehicular operations.......................................... (30,801) (30,120) (30,916)
Cost of insurance operations.......................................... (20,793) (19,204) (19,418)
------------ ------------ ------------
(480,543) (610,870) (778,805)
------------ ------------ ------------
GROSS PROFIT............................................................ 74,723 105,863 130,521
Operating expenses:
Selling, general and administrative expense........................... (72,032) (76,877) (83,176)
Interest expense........................................................ (47,425) (42,726) (41,614)
Interest income......................................................... 11,634 8,895 7,396
Other income (expense), net............................................. (1,078) (2,023) 3,494
Special charge -- Note H................................................ -- -- (7,500)
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY EQUITY, INCOME TAXES, EXTRAORDINARY ITEMS
AND ACCOUNTING CHANGES................................................. (34,178) (6,868) 9,121
Minority equity (Note J)................................................ 1,931 -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND ACCOUNTING
CHANGES................................................................ (32,247) (6,868) 9,121
Income tax benefit (expense) (Note K)................................... 5,241 (687) (5,757)
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND ACCOUNTING CHANGES......... (27,006) (7,555) 3,364
Extraordinary items (Note L)............................................ 31,188 -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE ACCOUNTING CHANGES................................. 4,182 (7,555) 3,364
Accounting changes (Notes I and K)...................................... -- -- (46,626)
------------ ------------ ------------
Net income (loss)....................................................... $ 4,182 $ (7,555) $ (43,262)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of shares used in per share computations........ 9,037 9,037 9,037
------------ ------------ ------------
------------ ------------ ------------
INCOME (LOSS) PER SHARE:
Loss before extraordinary items and accounting changes................ $ (2.99) $ (0.84) $ 0.37
Extraordinary items (Note L).......................................... 3.45 -- --
Accounting changes (Notes I and K).................................... -- -- (5.16)
------------ ------------ ------------
NET INCOME (LOSS) PER SHARE......................................... $ 0.46 $ (0.84) $ (4.79)
------------ ------------ ------------
------------ ------------ ------------
See notes to consolidated financial statements.
F-5
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................... $ 4,182 $ (7,555) $ (43,262)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Accounting changes...................................................... -- -- 46,626
Extraordinary items..................................................... (31,188) -- --
Depreciation and amortization........................................... 20,931 21,054 23,295
Deferred income tax expense (benefit)................................... 3,288 (4,311) (8,512)
Amortization of cost in excess of net assets acquired................... 1,250 1,250 1,250
Amortization of debt discount........................................... 1,045 1,181 1,372
Net loss on sale of property, plant and equipment....................... 275 217 207
Investment losses (gains)............................................... 1,646 (690) (1,079)
Decrease in minority equity............................................. (1,992) -- --
Other noncash charges................................................... 3,980 6,386 7,562
Changes in operating assets and liabilities:
Accounts receivable................................................... 7,647 (12,788) (11,970)
Finance lease receivables............................................. 7,213 5,131 4,408
Inventories........................................................... (784) (7,820) (22,251)
Insurance Subsidiary's reinsurance receivable......................... 11,731 (5,634) 5,988
Unbilled tooling charges.............................................. 35,181 -- --
Other assets.......................................................... 536 -- (5,309)
Accounts payable...................................................... (1,129) 8,281 21,193
Income taxes.......................................................... (17,398) 4,489 824
Unpaid losses and loss adjustment expenses............................ 2,204 5,046 (4,601)
Unearned insurance premiums........................................... (347) 4,673 (917)
Postretirement benefits other than pension............................ -- -- 4,497
Other liabilities..................................................... (10,460) 6,288 11,359
---------- ---------- ----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES.............................. 37,811 25,198 30,680
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................ (16,457) (17,549) (20,006)
Proceeds from disposal of property, plant and equipment and other
productive assets........................................................ 2,685 2,783 2,599
Purchase of investments................................................... (19,228) (32,190) (64,052)
Proceeds from sale of investments......................................... 18,732 31,617 65,019
---------- ---------- ----------
NET CASH FLOW USED IN INVESTING ACTIVITIES.................................. (14,268) (15,339) (16,440)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................................................. 20,530 32,090 2,500
Repayments of borrowings.................................................. (43,610) (39,772) (17,967)
Return of limited partner's capital....................................... (821) (1,035) (894)
---------- ---------- ----------
NET CASH FLOW USED IN FINANCING ACTIVITIES.................................. (23,901) (8,717) (16,361)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (358) 1,142 (2,121)
Beginning cash and cash equivalents......................................... 41,415 41,057 42,199
---------- ---------- ----------
ENDING CASH AND CASH EQUIVALENTS............................................ $ 41,057 $ 42,199 $ 40,078
---------- ---------- ----------
---------- ---------- ----------
See notes to consolidated financial statements.
F-6
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE A -- ORGANIZATION
The Company has two operating subsidiaries, Great Dane Trailers, Inc.
("Great Dane") and Checker Motors Corporation ("Checker"). During 1989, the
Company purchased all of the common stock of Checker, the general partner of
Checker Motors Co., L.P. (the "Partnership"), a Delaware limited partnership
(the "Checker acquisition").
Immediately after the Checker acquisition, substantially all of Checker's
former shareholders purchased, through Checker Holding Corp. ("Holding"), all of
the outstanding common stock of the Company (the "Holding buyout"). Holding was
created solely for the purpose of acquiring the stock of the Company and was
subsequently merged into the Company. The Holding buyout has been accounted for
as if Checker acquired the Company (a "reverse acquisition"), since there was no
significant change in control of Checker.
Under generally accepted accounting principles for reverse acquisitions, the
net assets of Checker acquired in the Checker acquisition cannot be revalued to
estimated fair value. Accordingly, the $127.7 million excess of the amount paid
over the historical book value of Checker's net assets has been accounted for as
a separate component reducing shareholders' equity and is not subject to
amortization. The fair value of Checker's net assets, as estimated by
management, is significantly greater than historical book value, but no
appraisal of fair value is available.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of International Controls Corp. and its subsidiaries, including a
wholly-owned trailer leasing company, other greater than 50% owned companies,
the Partnership and the Partnership's wholly-owned subsidiaries, including
American Country Insurance Company ("Insurance Subsidiary"). All significant
intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS: The Company considers all highly liquid investments,
other than Insurance Subsidiary investments, with a maturity of three months or
less when purchased to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. The
cost of inventories is determined principally on the last-in, first-out ("LIFO")
method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is provided based on the assets' estimated useful lives,
principally by the straight-line method.
Estimated depreciable lives are as follows:
Buildings...................................................... 10-40 years
Transportation equipment....................................... 2-6 years
Machinery, equipment, furniture and fixtures................... 3-12 years
INTANGIBLE ASSETS: Intangible assets, principally cost in excess of net
assets acquired, noncompete agreements and a trademark, are being amortized on
the straight-line basis over periods of 4 to 40 years.
MINORITY INTEREST: Minority interest represents the limited partner's
allocable share of the Partnership's net assets (see Notes H and J) and the
limited partner's allocable share of net assets of South Charleston Stamping &
Manufacturing Company ("SCSM").
REVENUE RECOGNITION: Revenues from sales of trailers that are manufactured
in response to customers' orders are recorded when such products are completed
and invoiced. Finance income is recognized as other income over the term of the
finance leases by applying the simple interest method to scheduled monthly
collections. Rental income from vehicle leases is recognized as earned. Vehicles
are generally
F-7
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
leased on a daily or weekly basis to unaffiliated operators. Insurance
Subsidiary premiums are recognized as income ratably over the period covered by
the policies. Unearned premium reserves are calculated on the monthly pro-rata
basis. Realized gains and losses on investments are determined on a specific
identification basis and are included in the determination of net income.
DEBT ISSUE EXPENSE: Expenses incurred in connection with the issuance of
debt are capitalized and amortized as interest expense over the life of the
debt.
LOSSES AND LOSS ADJUSTMENT EXPENSES: The Insurance Subsidiary's liability
for unpaid losses and loss adjustment expenses represents an estimate of the
ultimate net costs of all losses which are unpaid at the balance sheet dates,
and is determined using case-basis evaluations and statistical analysis. These
estimates are continually reviewed and any adjustments which become necessary
are included in current operations. Since the liability is based on estimates,
the ultimate settlement of losses and the related loss adjustment expenses may
vary from the amounts included in the consolidated financial statements.
INSURANCE SUBSIDIARY REINSURANCE: During 1993, the Company adopted the
provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts" ("SFAS No. 113"). Because of the type of
insurance contracts the Company's Insurance Subsidiary provides, the adoption of
this statement had no impact on earnings; however, it requires the
disaggregation of various balance sheet accounts. For financial reporting
purposes, the 1992 balance sheet and the 1991 and 1992 statements of cash flows
have been restated as if this statement were adopted as of the beginning of the
earliest period presented.
RECLASSIFICATION: Certain 1991 and 1992 amounts have been reclassified to
conform to the 1993 presentation.
NOTE C -- TRAILER LEASING OPERATIONS
Great Dane, through a wholly-owned leasing subsidiary, leases trailers under
operating and sales-type leases ("finance lease receivables"). The following is
a summary of the components of the subsidiary's net investment in finance lease
receivables (dollars in thousands):
DECEMBER 31,
--------------------
1992 1993
--------- ---------
Minimum lease payments receivable............................................. $ 6,563 $ 1,678
Less: Unearned income......................................................... (669) (180)
Allowance for doubtful accounts........................................... (679) (159)
--------- ---------
5,215 1,339
Less amounts reflected as current............................................. (2,352) (764)
--------- ---------
Noncurrent portion............................................................ $ 2,863 $ 575
--------- ---------
--------- ---------
Minimum lease payments are receivable as follows: $1.0 million in 1994, $0.3
million in 1995 and $0.4 million in 1996.
Trailers subject to operating leases are included in transportation
equipment in the accompanying consolidated balance sheets. The cost and
accumulated depreciation of such trailers were $1.5 million and $0.6 million,
respectively, at December 31, 1992, and $0.5 million and $0.2 million,
respectively, at December 31, 1993.
F-8
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE D -- INVENTORIES
Inventories are summarized below (dollars in thousands):
DECEMBER 31,
--------------------
1992 1993
--------- ---------
Raw materials................................................................. $ 44,005 $ 53,105
Work-in-process............................................................... 8,803 10,956
Finished goods................................................................ 19,053 30,051
--------- ---------
$ 71,861 $ 94,112
--------- ---------
--------- ---------
Inventories would not differ materially if the first-in, first-out costing
method were used for inventories costed by the LIFO method.
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below (dollars in thousands):
DECEMBER 31,
------------------------
1992 1993
----------- -----------
Land and buildings......................................................... $ 46,131 $ 54,167
Transportation equipment................................................... 37,392 32,830
Machinery, equipment, furniture and fixtures............................... 106,261 125,067
----------- -----------
189,784 212,064
Less accumulated depreciation and amortization............................. (70,292) (89,709)
----------- -----------
$ 119,492 $ 122,355
----------- -----------
----------- -----------
NOTE F -- INVESTMENTS
Insurance Subsidiary investments, which are generally reserved for Insurance
Subsidiary operations, are as follows (dollars in thousands):
DECEMBER 31,
--------------------
1992 1993
--------- ---------
Fixed maturities (bonds and notes) -- at cost, adjusted for amortization of
premium or discount and other than temporary declines in market value........ $ 75,950 $ 77,229
Equity securities (common and non-redeemable preferred stocks) -- at current
market value (cost $8,634 in 1992 and $13,536 in 1993 )...................... 8,666 13,609
--------- ---------
$ 84,616 $ 90,838
--------- ---------
--------- ---------
F-9
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE F -- INVESTMENTS (CONTINUED)
The amortized cost, gross unrealized gains and losses and estimated market
values of fixed-maturity investments held by the Insurance Subsidiary as of
December 31, 1993, are as follows (dollars in thousands):
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ------ ---- -------
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies..................... $7,276 $ 283 $-- $7,559
Obligations of states and political subdivisions.......... 21,984 561 -- 22,545
Mortgage-backed securities................................ 2,873 156 -- 3,029
Corporate and other debt securities....................... 45,096 3,119 103 48,112
------- ------ ---- -------
$77,229 $4,119 $103 $81,245
------- ------ ---- -------
------- ------ ---- -------
The amortized cost and estimated market value of fixed-maturity investments
at December 31, 1993, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
ESTIMATED
AMORTIZED MARKET
COST VALUE
-------- --------
Due in one year or less.................................................... $11,998 $12,209
Due after one year through five years...................................... 24,918 25,880
Due after five years through ten years..................................... 21,989 23,313
Due after ten years........................................................ 15,451 16,814
-------- --------
74,356 78,216
Mortgage-backed securities................................................. 2,873 3,029
-------- --------
$77,229 $81,245
-------- --------
-------- --------
Proceeds from sales of fixed-maturity investments were $21.7 million for
1992 and $57.2 million for 1993. Gross gains of $0.6 million and no gross losses
were realized during 1992 and gross gains of $1.2 million and gross losses of
$0.2 million were realized during 1993.
Bonds with an amortized cost of $2.2 million at December 31, 1993, were on
deposit to meet certain regulatory requirements.
F-10
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE F -- INVESTMENTS (CONTINUED)
Realized gains (losses) for 1991, 1992 and 1993, including other than
temporary declines in market value and unrealized appreciation (depreciation) on
fixed maturities and equity security investments of the Insurance Subsidiary,
are summarized as follows (dollars in thousands):
FIXED EQUITY
MATURITIES SECURITIES TOTAL
----------- ----------- ---------
1991
Realized losses.................................................. $ (897) $ (730) $ (1,627)
Unrealized appreciation.......................................... -- 1,847 1,847
----------- ----------- ---------
$ (897) $ 1,117 $ 220
----------- ----------- ---------
----------- ----------- ---------
1992
Realized gains................................................... $ 34 $ 656 $ 690
Unrealized depreciation.......................................... -- (367 ) (367)
----------- ----------- ---------
$ 34 $ 289 $ 323
----------- ----------- ---------
----------- ----------- ---------
1993
Realized gains................................................... $ 983 $ 95 $ 1,078
Unrealized appreciation.......................................... -- 41 41
----------- ----------- ---------
$ 983 $ 136 $ 1,119
----------- ----------- ---------
----------- ----------- ---------
NOTE G -- BORROWINGS
Long-term debt is summarized below (dollars in thousands):
DECEMBER 31,
------------------------
1992 1993
----------- -----------
12 3/4% Senior Subordinated Debentures less debt discount of $12,330 in
1992 and $11,124 in 1993.................................................. $ 119,710 $ 120,916
14 1/2% Subordinated Discount Debentures less debt discount of $6,697 in
1992 and $6,531 in 1993................................................... 54,650 54,816
Notes payable to shareholders.............................................. 30,000 30,000
Great Dane term loan payable............................................... 26,167 21,511
Great Dane Revolving credit line........................................... 17,620 17,132
Partnership term loan payable.............................................. 28,500 22,500
Equipment term loan........................................................ 7,300 5,500
Economic Development term loan............................................. 11,389 10,909
Installment notes.......................................................... 5,079 979
Other debt................................................................. 4,953 7,010
----------- -----------
305,368 291,273
Less current portion....................................................... (15,752) (14,321)
----------- -----------
$ 289,616 $ 276,952
----------- -----------
----------- -----------
Interest on the $132 million face value of 12 3/4% Senior Subordinated
Debentures is payable semiannually at the stated rate. The recorded debt
discount is being amortized as interest expense over the expected life of the
debentures using an imputed interest rate of approximately 15% compounded
semiannually. Under the terms of the debentures, the Company's payment of
dividends is limited to, among other things, 50% of consolidated net income
subsequent to June 30, 1986, plus $12 million. At
F-11
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE G -- BORROWINGS (CONTINUED)
December 31, 1993, the Company was restricted from paying a dividend. The
debentures are redeemable at the option of the Company in whole or in part at a
decreasing premium. The debentures are subject to redemptions through a sinking
fund whereby the Company is required to make five annual sinking fund payments
of $18 million commencing August 1, 1996, with the final payment due August 1,
2001.
Interest on the $61 million face value of 14 1/2% Subordinated Discount
Debentures is payable semiannually at the stated rate. The recorded debt
discount is being amortized as interest expense over the expected life of the
debentures using an imputed interest rate of approximately 16.7% compounded
semiannually. The 14 1/2% debentures are subject to redemption through a sinking
fund whereby the Company is required to redeem, at their face value, on January
1 in each of the years 1997 through 2005, 7 1/2% of the principal amount of the
debentures outstanding on January 1, 1997. The balance of debentures are due
January 1, 2006. The debentures are callable any time at their face value and
are subordinated to all present or future indebtedness of the Company not
expressly subordinated to, or on a parity with, the debentures.
The notes payable to shareholders are due September 30, 1997, or upon the
earlier payment in full of obligations under both the 1992 Partnership Loan and
Guaranty Agreement and the 1990 Great Dane loan and security agreement and bear
interest payable quarterly in arrears at an annual rate equal to the prime rate
of a New York bank (5.5% at December 31, 1993) plus 3 1/2%.
In March 1990, Great Dane entered into a five year loan and security
agreement ("Agreement") with certain banks. The Agreement made available to
Great Dane a $33 million five-year term loan and a $47 million revolving credit
line. In 1993, the maximum revolving credit line was increased to $65 million.
The amount available under the revolving credit line is based upon the amount of
Great Dane's eligible trade accounts receivable and inventory as defined in the
Agreement. The additional amount available under the revolving credit line under
the borrowing base terms of the Agreement totaled $32.3 million at December 31,
1993. The term loan is payable in equal monthly installments of $0.34 million
plus interest at the bank's prime interest rate (6% at December 31, 1993) plus
1 1/2%, with the balance due in March 1995. The revolving credit line is due in
1995 and requires interest payments at the bank's prime rate (6% at December 31,
1993) plus 1 1/2%.
All borrowings under the Agreement are fully secured by substantially all of
the Great Dane assets not pledged elsewhere. The Agreement requires Great Dane
to, among other things, comply with certain financial covenants, and limits
additional loans to the Company, limits additions to and sales of Great Dane's
fixed assets and limits additional Great Dane borrowings. Under the most
restrictive covenant, no additional transfers of funds to the Company are
available until after December 31, 1993.
During 1992, the Partnership entered into a Loan and Guaranty Agreement with
a bank pursuant to which the bank provided a $30 million term loan to the
Partnership. The term loan requires twenty quarterly principal payments of $1.5
million, plus interest at the bank's prime rate (6% at December 31, 1993) plus
1 1/4%, which payments commenced December 31, 1992. The term loan is secured by
substantially all of the Partnership's assets, excluding the stock of the
Insurance Subsidiary. The term loan agreement, which is guaranteed by Checker,
requires Checker to, among other things, comply with certain financial covenants
and limits additional loans to Checker.
The equipment term loan requires quarterly payments of $0.5 million plus
interest at the bank's prime rate (6% at December 31, 1993) plus 1 1/4%. The
obligation is secured by certain machinery and equipment with a net carrying
amount of $6.5 million at December 31, 1993.
F-12
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE G -- BORROWINGS (CONTINUED)
In connection with the Partnership term loan and the equipment term loan,
Checker is required to comply with certain financial covenants.
The economic development term loan, which is guaranteed by Checker, is
payable by SCSM to the West Virginia Economic Development Authority, and
requires monthly payments of $0.1 million, including interest at 5% with the
unpaid balance due 2008. The interest rate will be adjusted in April 1998 and
2003, so as to remain equal to 75% of the base rate, as defined, plus 1/2%. The
loan is secured by certain machinery and equipment with a net carrying amount of
$25.1 million at December 31, 1993.
The installment notes are secured by the Company's finance lease receivables
and by the Company's rights under certain operating leases. The notes bear
interest at various fixed rates averaging approximately 10.9% and are payable in
varying monthly installments through 1995.
Maturities of long-term debt for the four years subsequent to 1994 are as
follows: $44.4 million in 1995, $9.1 million in 1996, $54.1 million in 1997 and
$19.6 million in 1998.
Interest paid totaled $43.3 million in 1991, $42.4 million in 1992 and $39.8
million in 1993.
SCSM has a line of credit with a bank totaling $7.5 million at December 31,
1993. Borrowing under the line ($5.0 million at December 31, 1993) bears
interest at the bank's prime rate (6% at December 31, 1993) plus 1%.
The Partnership has a $5.0 million line of credit with a bank. Borrowings
under the line ($0 at December 31, 1993) bear interest at the bank's prime rate
(6% at December 31, 1993) plus 1%.
In February 1994, the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission in connection with an overall
refinancing of the Company's outstanding indebtedness. The proposed refinancing,
as described in the registration statement, involves the Company entering into a
credit facility consisting of a $60 million term loan and a revolving credit
facility which would provide up to $115 million, subject to the Company's
ability to meet certain financial tests (the term loan and the revolving credit
facility being known as the "New Credit Facility"). Additionally, the Company is
proposing to offer $265 million (adjusted from $225 million) of new Senior
Secured Notes (the "Senior Notes"). If the refinancing is successfully
completed, the proceeds from the new Credit Facility would be utilized to redeem
substantially all of the currently outstanding indebtedness of the Company's
subsidiaries and the proceeds from the offering of the Senior Notes would be
used to redeem parent company indebtedness and to redeem the Minority Interest
held by ELIC, in each case together with any accrued interest and transaction
fees and expenses. A successful completion of the refinancing, the terms of
which are still subject to change, is expected to help the Company achieve
increased liquidity from reduced principal debt amortization requirements, the
removal of certain restrictions on the use of cash from the Company's
subsidiaries and more flexible and efficient cash management at the holding
company level.
NOTE H -- COMMITMENTS AND CONTINGENCIES
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-119MA, United States District Court for the District
of Oregon. In that lawsuit, Boeing sought damages and declaratory relief for
past and future costs resulting from alleged groundwater contamination at a
location in Gresham, Oregon, where the three prior subsidiaries of the Company
formerly conducted business operations. On December 22, 1993, the Company
entered into a settlement with Boeing, settling all claims asserted by Boeing in
the lawsuit. Pursuant to the settlement terms, the Company will pay Boeing $12.5
million over the course of five years, $5 million of which has been committed by
certain insurance companies in the
F-13
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE H -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
form of cash or irrevocable letters of credit. Accordingly, no further
adjustment is necessary to the $7.5 million special charge which was recorded in
the quarter ended June 30, 1993, to provide for the cost associated with this
legal proceeding. In accordance with the settlement agreement, Boeing will move
to dismiss its claims against the Company and the three former subsidiaries and
will release and indemnify the Company with respect to certain claims.
On March 4, 1992, Checker received notice that the Insurance Commissioner of
the State of California, as Conservator and Rehabilitator of ELIC, a limited
partner of the Partnership, had filed an Amendment to the Application for Order
of Conservation filed in Superior Court of the State of California for the
County of Los Angeles. The amendment seeks to add to the Order, dated April 11,
1991, Checker, the Partnership and Checker Holding Corp. III, a limited partner
of the Partnership. The amendment alleges that the action by Checker invoking
provisions of the Partnership Agreement that alter ELIC's rights in the
Partnership upon the occurrence of certain events is improper and constitutes an
impermissible forfeiture of ELIC's interest in the Partnership and a breach of
fiduciary duty to ELIC. The amend-ment seeks (a) a declaration of the rights of
the parties in the Partnership and (b) damages in an unspecified amount. The
Partnership believes that it has meritorious defenses to the claims of ELIC. The
Partnership has been in litigation on these issues for almost three years with
each party seeking, among other things, a declaration of its rights under the
Partnership Agreement. The Company has offered to redeem ELIC's minority
interest in the Partnership and SCSM for $32 million. If ELIC's rights under the
Partnership Agreement had not been altered, net income for 1991, 1992 and 1993
would have been reported at $3.3 million, $0.7 million and $0.6 million less,
respectively, than the amounts reported (see Note J).
In 1988, Great Dane entered into an operating agreement with the purchaser
of a previously wholly-owned finance company ("Finance"). Under the terms of the
agreement, the purchaser is given the opportunity to finance certain sales of
Great Dane. The 1988 operating agreement requires that Great Dane, among other
things, (i) not finance the sale of its products for the first eight years and
(ii) maintain a minimum net worth as defined in the agreement. In addition,
under this operating agreement, Great Dane is liable to the purchaser for 50% of
losses incurred in connection with the realization of certain new receivables
financed by the purchaser subsequent to the sale of Finance subject to certain
maximums. Failure to comply with these requirements of the agreement would
result in Great Dane having to repay the purchaser varying amounts reducing to
$5 million during the year ending September 8, 1996. At December 31, 1993, Great
Dane was in compliance with the provisions of the operating agreement.
In addition, the Company's installment notes are payable to Finance. At
December 31, 1993, the Company was directly liable for the installment notes and
has guaranteed the realization of receivables of approximately $4.8 million in
connection with the sale of Finance and is partially responsible for the
realization of new receivables of approximately $121.3 million financed by the
purchaser under the operating agreement subject to certain maximums. In addition
to Great Dane's guarantee, these receivables are also collateralized by a
security interest in the respective trailers originally sold by Great Dane. A
loss reserve of $3.1 million, for potential losses that may be incurred on the
ultimate realization of these receivables, is included in other accrued
liabilities in the December 31, 1993, consolidated balance sheet.
To secure certain obligations, the Company and its subsidiaries had
outstanding letters of credit aggregating approximately $9.3 million at December
31, 1992, and $3.4 million at December 31, 1993, which letters of credit were
fully secured by cash deposits included in other assets in the consolidated
balance sheets. In addition, Great Dane has standby letters of credit
aggregating approximately $7.5 million outstanding at December 31, 1993.
F-14
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE H -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and its subsidiaries lease real estate and equipment. Certain
leases are renewable and provide for monthly rentals, real estate taxes and
other operating expenses. The Company believes that, in the normal course of
business, leases that expire will be renewed or replaced by other leases. Rental
expense under operating leases was approximately $3.6 million in 1991, $3.8
million in 1992 and $4.8 million in 1993. Minimum rental obligations for all
noncancelable operating leases at December 31, 1993 are as follows: $2.9 million
in 1994, $2.7 million in 1995, $2.6 million in 1996, $2.5 million in 1997, $2.4
million in 1998 and $16.5 million thereafter.
Management believes that none of the above legal actions, guarantees or
commitments will have a material adverse effect on the Company's consolidated
financial position.
NOTE I -- RETIREMENT PLANS
The Company and its subsidiaries have defined benefit pension plans
applicable to substantially all employees. The contributions to these plans are
based on computations by independent actuarial consultants. The Company's
general funding policy is to contribute amounts required to maintain funding
standards in accordance with the Employee Retirement Income Security Act.
Employees' benefits are based on years of service and the employees' final
average earnings, as defined by the plans.
Net periodic pension cost includes the following components (dollars in
thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
--------- --------- ---------
Service cost -- benefits earned (normal cost)......................... $ 1,527 $ 1,473 $ 1,752
Interest on projected benefit obligation.............................. 3,404 3,565 3,972
Return on investments................................................. (2,761) (2,718) (2,867)
Net amortization and deferral......................................... 322 129 328
Curtailment loss...................................................... 456 -- --
--------- --------- ---------
Net periodic pension cost charged to expense.......................... $ 2,948 $ 2,449 $ 3,185
--------- --------- ---------
--------- --------- ---------
During 1991, as a result of the effect of the continued economic recession
on the automotive industry, the number of active pension plan participants in
one of the subsidiaries' defined benefit plans was substantially reduced during
1991, resulting in a $0.5 million curtailment loss.
Gains and losses and prior service cost are amortized over periods ranging
from seven to fifteen years. Other assumptions used in the calculation of the
actuarial present value of the projected benefit obligation were as follows:
1991 AND 1992 1993
--------------- -------------
Discount rate........................................................ 8 1/4% 7 1/2%
Rate of increase in compensation levels.............................. 4% - 5% 4% - 4 1/4%
Long-term rate of return on assets................................... 5% - 9 1/2% 5% - 9 1/2%
F-15
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE I -- RETIREMENT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets (dollars in thousands):
DECEMBER 31,
----------------------
1992 1993
---------- ----------
Actuarial present value of benefit obligations:
Vested benefit obligations................................................ $ 37,181 $ 41,846
---------- ----------
---------- ----------
Accumulated benefit obligation............................................ $ 39,503 $ 44,731
---------- ----------
---------- ----------
Plan assets (principally guaranteed investment contracts with insurance
companies)................................................................. $ 33,191 $ 37,174
Projected benefit obligation................................................ 46,771 54,568
---------- ----------
Projected benefit obligation in excess of plan assets....................... (13,580) (17,394)
Unrecognized prior service cost............................................. 963 1,115
Unrecognized net loss....................................................... 1,046 6,177
Minimum liability........................................................... (1,722) (1,450)
Unrecognized net obligation at transition................................... 2,048 1,819
---------- ----------
Pension liability recognized in the balance sheets.......................... (11,245) (9,733)
Less Noncurrent liability................................................... 6,857 6,442
---------- ----------
Current pension liability................................................... $ (4,388) $ (3,291)
---------- ----------
---------- ----------
Relative positions and undertakings in multiemployer pension plans covering
certain of the Partnership's employees are not presently determinable.
Expense related to defined contribution plans, which is based on a
stipulated contribution for hours worked or employee contributions, approximated
$0.4 million in 1991, $0.5 million in 1992 and $0.7 million in 1993.
The Company and its subsidiaries provide postretirement health care and life
insurance benefits to eligible retired employees. The Company's policy is to
fund the cost of medical benefits as paid. Prior to 1993, the Company recognized
expense in the year the benefits were provided. The amount charged to expense
for these benefits was approximately $2.0 million in 1991 and $2.5 million in
1992. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This statement
requires the accrual of the cost of providing postretirement benefits, including
medical and life insurance coverage, during the active service period of the
employee. The Company recorded a charge of $29.7 million (net of taxes of $16.5
million), or $3.29 per share, during 1993 to reflect the cumulative effect of
this change in accounting principle.
F-16
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE I -- RETIREMENT PLANS (CONTINUED)
The following table sets forth the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheet at December 31,
1993 (in thousands):
Accumulated postretirement obligation:
Retirees............................................................... $ (34,040)
Fully eligible active plan participants................................ (4,319)
Other active plan participants......................................... (11,218)
---------
(49,577)
Unrecognized net loss.................................................. 1,119
Unrecognized prior service cost........................................ (3,432)
---------
Accrued postretirement benefit liability recorded in balance sheet..... (51,890)
Less Noncurrent portion................................................ 49,609
---------
Current portion of postretirement benefit liability.................... $ (2,281)
---------
---------
Net periodic postretirement benefit cost for the year ended December 31,
1993, includes the following components (in thousands):
Service cost............................................... $ 634
Interest cost.............................................. 3,888
---------
$ 4,522
---------
---------
The health care cost trend rate ranges from 13.6% down to 5.0% over the next
14 years and remains level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1993, by $4.0 million. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% at
December 31, 1993.
The effect of adopting SFAS No. 106 decreased 1993 pre-tax income by $2.0
million as compared to 1992.
NOTE J -- MINORITY EQUITY
On April 11, 1991, ELIC was placed in conservatorship. In accordance with
the provisions of the Partnership Agreement, the Partnership continues, but
ELIC's interest in the Partnership and rights under the Partnership Agreement
are limited to the right to receive the balance of its capital account as
calculated and on the terms set forth in the Partnership Agreement. For
financial reporting purposes, partnership earnings had previously been allocated
to ELIC's capital account based on book income and the minority equity amount
was calculated accordingly (the "GAAP Capital Account Amount"). The Partnership
Agreement, however, provides for allocations of the partnership earnings to
ELIC's capital account on a basis that differs from book income and calculation
of the minority equity amount thereunder is to be made accordingly (the
"Partnership Agreement Capital Account Amount"). Because the provisions of the
Partnership Agreement require that ELIC's capital account be fixed and
calculated as of April 11, 1991, minority equity for the year ended December 31,
1991, includes a $2.3 million credit representing the adjustment of ELIC's
capital account from the GAAP Capital Account Amount as of April 11, 1991, to
the Partnership Agreement Capital Account Amount as of the same date (the "Final
Capital Account"). The Final Capital Account, which totaled $40.1 million at
December 31, 1993, is being paid out in level quarterly installments of $0.9
million, including interest at 7% per annum, through the year 2013.
F-17
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE K -- INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes." As
permitted under the new rules, prior years financial statements have not been
restated. The Company recorded a charge of $16.9 million, or $1.87 per share,
during 1993 to reflect the cumulative effect of this change in accounting
principle. Application of FAS 109 decreased 1993 pre-tax income by approximately
$1.5 million primarily because of FAS 109's requirement to record assets
acquired in prior business combinations at pre-tax amounts. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1993 are as follows (dollars in thousands):
Deferred tax liabilities:
Property, plant and equipment........................................... $ 31,646
Finance lease receivables............................................... 517
Debenture discount...................................................... 4,647
Intangible assets....................................................... 5,249
Inventory............................................................... 3,624
Other................................................................... 645
---------
46,328
Deferred tax assets:
Other postretirement benefits........................................... 18,961
Pension................................................................. 3,377
Reserves................................................................ 10,986
Bad debt reserve........................................................ 1,601
Other................................................................... 5,555
---------
40,480
Valuation allowance....................................................... (1,000)
---------
39,480
---------
Net Deferred Tax Liabilities.............................................. $ 6,848
---------
---------
The components of income tax benefit (expense) before extraordinary items
are as follows (dollars in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------
LIABILITY
DEFERRED METHOD METHOD
-------------------- ----------
1991 1992 1993
--------- --------- ----------
Current taxes:
Federal............................................................ $ 9,261 $ (3,296) $ (10,244)
State.............................................................. (732) (1,702) (4,025)
--------- --------- ----------
8,529 (4,998) (14,269)
Deferred taxes..................................................... (3,288) 4,311 8,512
--------- --------- ----------
Income tax benefit (expense)....................................... $ 5,241 $ (687) $ (5,757)
--------- --------- ----------
--------- --------- ----------
F-18
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE K -- INCOME TAXES (CONTINUED)
The components of the deferred tax benefit (expense) are as follows (dollars
in thousands):
YEAR ENDED DECEMBER
31,
--------------------
1991 1992
--------- ---------
Tax depreciation less than (in excess of) book depreciation..................... $ (2,215) $ 1,742
Finance leases.................................................................. (17) (37)
Deferred compensation........................................................... (4) (1)
Inventory reserves.............................................................. 15 505
Financing costs................................................................. (22) (75)
Warranty reserves............................................................... 17 22
Other reserves.................................................................. (660) 602
Partnership allocation.......................................................... 1,485 1,469
Alternative minimum tax......................................................... (2,223) --
Other........................................................................... 336 84
--------- ---------
Deferred tax benefit (expense).................................................. $ (3,288) $ 4,311
--------- ---------
--------- ---------
Income tax benefit (expense) differs from the amount computed by applying
the statutory federal income tax rate to income (loss) before income taxes and
extraordinary items. The reasons for these differences are as follows (dollars
in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
LIABILITY
DEFERRED METHOD METHOD
-------------------- ---------
1991 1992 1993
--------- --------- ---------
Computed expected tax benefit (expense)............................... $ 10,964 $ 2,335 $ (3,192)
(Increase) decrease in taxes resulting from:
State income taxes, net of federal income tax benefit............... (483) (1,123) (2,616)
Appraisal depreciation.............................................. (1,033) (1,024) --
Amortization of goodwill and other items............................ (530) (530) (643)
Nontaxable Partnership income....................................... 1,400 574 446
Increase in tax accruals............................................ (4,527) (319) --
Other............................................................... (550) (600) 248
--------- --------- ---------
Actual tax benefit (expense).......................................... $ 5,241 $ (687) $ (5,757)
--------- --------- ---------
--------- --------- ---------
Income taxes paid totaled $8.6 million in 1991, $3.9 million in 1992 and
$13.4 million in 1993.
NOTE L -- EXTRAORDINARY ITEMS
During 1991, the Company repurchased $66.2 million face value ($58.7 million
net carrying value) of the 14 1/2% Subordinated Discount Debentures at an
average cost of 36% of face value. Additionally, the Company repurchased $7.6
million face value ($6.8 million net carrying value) of the 12 3/4% Senior
Subordinated Debentures at an average cost of 40% of face value. The resulting
gain of $23.2 million on these repurchases, net of taxes of $14.8 million, has
been classified as an extraordinary item. Upon the completion of the
Corporation's 1990 federal income tax return, management elected to treat
certain extraordinary gains under an alternative election available under the
Internal Revenue Code, which resulted in these gains, on which deferred income
taxes had been provided in prior periods, not being subject to tax. This change
in estimate had the effect of increasing the extraordinary gain and net income
by $8 million in the year ended December 31, 1991 resulting in a total gain of
$31.2 million.
F-19
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE M -- RELATED PARTY TRANSACTIONS
An officer of Checker is the owner of a taxicab association established in
1988 in the City of Chicago to which both Company affiliated and independent
taxi drivers may belong for a fee, and through which the members may obtain
automobile liability insurance from the Insurance Subsidiary and other
maintenance and rental services. The association purchases services from various
Checker operations and reimburses the operations for certain management, general
and administrative costs. Amounts received from the association totaled $2.6
million in 1991, $3.3 million in 1992 and $4.4 million in 1993. At December 31,
1993, Checker has guaranteed certain of the association's obligations totaling
$0.7 million.
The Company leases an airplane owned by a corporation of which a director is
the sole shareholder. Lease expenses totaled $0.7 million each year in 1991,
1992 and 1993.
Each of the Company's directors provides consulting services. Annual
expenses incurred relating to these consulting services totaled $1.4 million
each year in 1991, 1992 and 1993.
NOTE N -- INDUSTRY SEGMENT INFORMATION
The Company operates in four principal segments:
TRAILER MANUFACTURING SEGMENT -- Manufacturing and distribution of
highway truck trailers.
AUTOMOTIVE PRODUCTS SEGMENT -- Manufacturing metal stampings and
assemblies and coordination of related tooling production for motor vehicle
manufacturers.
VEHICULAR OPERATIONS SEGMENT -- Leasing taxicabs.
INSURANCE OPERATIONS SEGMENT -- Providing property and casualty
insurance coverage to the Partnership and to outside parties.
Trailer Manufacturing segment sales to J. B. Hunt totaled approximately $1.2
million in 1991, $50.0 million in 1992 and $92.3 million in 1993.
Automotive product net sales to General Motors Corporation totaled
approximately $80.3 million in 1991, $109.1 million in 1992 and $121.5 million
in 1993 (includes accounts receivable and unbilled tooling charges of $5.7
million, $8.9 million and $8.9 million at December 31, 1991, 1992 and 1993,
respectively).
F-20
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE N -- INDUSTRY SEGMENT INFORMATION (CONTINUED)
Industry segment data is summarized as follows (dollars in thousands):
TRAILER AUTOMOTIVE VEHICULAR INSURANCE
MANUFACTURING PRODUCTS OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------- ------- ------- -------- ---------
1991
Revenues:
Outside customers............. $400,196 $84,401 $43,527 $27,142 $ -- $555,266
Intersegment sales............ -- 5 3,635 12,735 (16,375) --
--------- ------- ------- ------- -------- ---------
$400,196 $84,406 $47,162 $39,877 $(16,375) $555,266
--------- ------- ------- ------- -------- ---------
--------- ------- ------- ------- -------- ---------
Operating profit (loss)......... $ 7,059 $(4,237) $7,139 $(2,872) $ 7,089
Corporate expenses.............. (4,398)
Interest income:
Segment....................... 2,255 6,917 9,172
Corporate..................... 2,462
Interest expense:
Segment....................... (8,061) (8,061)
Corporate..................... (39,364)
Other expenses, net............. (1,078)
Minority equity................. 1,931
---------
Loss before income taxes and
extraordinary items............ $(32,247)
---------
---------
Identifiable assets............. $227,551 $67,258 $28,357 $112,016 $435,182
Partnership assets.............. 31,531
Corporate assets................ 14,592
---------
Total assets at December 31,
1991........................... $481,305
---------
---------
Depreciation and amortization:
Segment....................... $ 5,910 $4,237 $10,369 $ 367 $ 20,883
Other......................... 48
Capital expenditures............ 3,208 1,190 10,181 1,878 16,457
F-21
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE N -- INDUSTRY SEGMENT INFORMATION (CONTINUED)
TRAILER AUTOMOTIVE VEHICULAR INSURANCE
MANUFACTURING PRODUCTS OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------- ------- ------- -------- ---------
1992
Revenues:
Outside customers............. $536,336 $112,631 $40,580 $27,186 $ -- $716,733
Intersegment sales............ -- 1 4,043 13,161 (17,205) --
--------- ------- ------- ------- -------- ---------
$536,336 $112,632 $44,623 $40,347 $(17,205) $716,733
--------- ------- ------- ------- -------- ---------
--------- ------- ------- ------- -------- ---------
Operating profit (loss)......... $ 17,590 $11,622 $5,727 $(1,557) $ 33,382
Corporate expenses.............. (4,396)
Interest income:
Segment....................... 1,168 6,321 7,489
Corporate..................... 1,406
Interest expense:
Segment....................... (5,852) (5,852)
Corporate..................... (36,874)
Other expenses, net............. (2,023)
---------
Loss before income taxes and
extraordinary items............ $ (6,868)
---------
Identifiable assets............. $230,465 $66,561 $25,516 $117,960 $440,502
Partnership assets.............. 38,712
Corporate assets................ 14,549
---------
Total assets at December 31,
1992........................... $493,763
---------
---------
Depreciation and amortization:
Segment....................... $ 6,303 $4,148 $10,099 $ 462 $ 21,012
Other......................... 42
Capital expenditures............ 4,996 1,889 10,412 252 17,549
F-22
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE N -- INDUSTRY SEGMENT INFORMATION (CONTINUED)
TRAILER AUTOMOTIVE VEHICULAR INSURANCE
MANUFACTURING PRODUCTS OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------- ------- ------- -------- ---------
1993
Revenues:
Outside customers............. $711,862 $127,925 $42,103 $27,436 $ -- $909,326
Intersegment sales............ -- -- 4,346 13,400 (17,746) --
--------- ------- ------- ------- -------- ---------
$711,862 $127,925 $46,449 $40,836 $(17,746) $909,326
--------- ------- ------- ------- -------- ---------
--------- ------- ------- ------- -------- ---------
Operating profit (loss)......... $ 32,381 $15,306 $6,251 $(1,947) $ -- $ 51,991
Corporate expense............... (4,646)
Interest income:
Segment....................... 428 5,877 6,305
Corporate..................... 1,091
Interest expense:
Segment....................... (4,811) (4,811)
Corporate..................... (36,803)
Special charge.................. (7,500)
Other income, net............... 3,494
---------
Income before income taxes and
extraordinary items............ $ 9,121
---------
---------
Identifiable assets............. $259,837 $67,937 $20,493 $116,692 $464,959
Partnership assets.............. 37,701
Corporate assets................ 14,676
---------
Total assets at December 31,
1993........................... $517,336
---------
---------
Depreciation and amortization... $ 8,280 $4,991 $9,530 $ 494 $ 23,295
Capital expenditures............ 7,265 4,728 7,913 100 20,006
Intersegment sales are accounted for at prices comparable to normal unaffiliated
customer sales. Corporate and Partnership assets consist of short-term
investments, savings deposits and certain other assets. Insurance Operations
identifiable assets for 1991 and 1992 have been restated to reflect the adoption
of SFAS No. 113.
NOTE O -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
the fair value of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
FINANCE LEASE RECEIVABLES: The fair values of the Company's finance lease
receivables are estimated using discounted cash flow analyses based on current
market rates for similar types of financing.
INDEBTEDNESS: The carrying amounts of the Company's notes payable to
shareholders, Great Dane term loan payable, Great Dane revolving credit line,
Partnership term loan payable, equipment term
F-23
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE O -- FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
loan, economic development term loan and line of credit approximate their fair
value. The fair values of the Company's 12 3/4% Senior Subordinated Debentures
and 14 1/2% Subordinated Discount Debentures are based on quoted market prices.
The fair values of the Company's other indebtedness is estimated using
discounted cash flow analyses based on current market rates.
The carrying amounts and fair values of the Company's finance lease
receivables and indebtedness at December 31, 1993, are as follows (dollars in
thousands):
CARRYING AMOUNT FAIR VALUE
----------------- -----------
Finance lease receivables............................................ $ 1,339 $ 1,339
Long-term debt and notes payable..................................... $ 296,273 $ 300,940
NOTE P -- SELECTED QUARTERLY DATA (UNAUDITED)
1992 QUARTER ENDED 1993 QUARTER ENDED
---------------------------------------------- ---------------------------------------------
SEPTEMBER DECEMBER SEPTEMBER DECEMBER
MARCH 31 JUNE 30 30 31 MARCH 31 JUNE 30 30 31
--------- -------- --------- --------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues........... $166,079 $185,070 $177,453 $188,131 $204,933 $225,407 $230,655 $248,331
Gross profit....... 24,437 27,551 26,115 27,760 29,302 33,808 31,126 36,285
Income (loss)
before accounting
changes........... (2,885) 105 (4,307) (468) (744) 1,350 (536) 3,294
Accounting
changes........... -- -- -- -- (46,626) -- -- --
Net income
(loss)............ (2,885) 105 (4,307) (468) (47,370) 1,350 (536) 3,294
Income (loss) per
share:
Income (loss)
before
accounting
changes......... $ (0.32) $ 0.01 $ (0.48) $ (0.05) $ (0.08) $ 0.15 $ (0.06) $ 0.36
Accounting
changes......... -- -- -- -- (5.16) -- -- --
Net income
(loss).......... (0.32) 0.01 (0.48) (0.05) (5.24) 0.15 (0.06) 0.36
F-24
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
MARCH 31,
DECEMBER 31, 1994
1993 (UNAUDITED)
-------------- ------------
Cash and cash equivalents.......................................................... $ 40,078 $ 32,608
Accounts receivable, less allowance for doubtful accounts of
$748 (1993) and $883 (1994)...................................................... 75,701 100,819
Inventories....................................................................... 94,112 86,060
Other current assets.............................................................. 11,823 13,344
-------------- ------------
TOTAL CURRENT ASSETS............................................................ 221,714 232,831
Property, plant and equipment, net................................................ 122,355 123,111
Insurance Subsidiary's investments................................................ 90,838 89,134
Insurance Subsidiary's reinsurance receivable..................................... 11,378 11,405
Cost in excess of net assets acquired, net of accumulated amortization of $6,252
(1993) $6,565 (1994)............................................................. 43,743 43,430
Trademark, net of accumulated amortization of
$1,750 (1993) $1,838 (1994)...................................................... 11,696 11,608
Other assets...................................................................... 15,612 15,639
-------------- ------------
TOTAL ASSETS...................................................................... $ 517,336 $ 527,158
-------------- ------------
-------------- ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable................................................... $ 77,876 $ 77,932
Notes payable...................................................... 5,000 5,000
Income taxes payable............................................... 7,726 12,466
Accrued compensation............................................... 15,838 16,435
Accrued interest................................................... 11,746 6,018
Other accrued liabilities.......................................... 38,071 37,647
Current portion of long-term debt.................................. 14,321 46,994
----------- -----------
TOTAL CURRENT LIABILITIES...................................... 170,578 202,492
Long-term debt, excluding current portion:
Shareholders................................................... 30,000 30,000
Other.......................................................... 246,952 210,119
----------- -----------
276,952 240,119
Insurance Subsidiary's unpaid losses and loss adjustment
expenses.......................................................... 71,179 72,077
Unearned insurance premiums........................................ 9,547 16,239
Deferred income taxes.............................................. 9,803 9,950
Postretirement benefits other than pensions........................ 49,609 50,012
Other noncurrent liabilities....................................... 39,053 39,909
Minority interest.................................................. 40,132 39,898
----------- -----------
TOTAL LIABILITIES.............................................. 666,853 670,696
Shareholders' deficit:
Common stock, par value $0.01:
Authorized 15,000,000 shares
Outstanding 9,036,700 shares................................... 90 90
Additional paid-in capital....................................... 14,910 14,910
Retained earnings deficit........................................ (36,217) (29,831)
Unrealized appreciation (depreciation) on Insurance Subsidiary's
investments in certain debt and equity securities -- Note E..... 73 (334)
Notes receivable from shareholders............................... (625) (625)
Amount paid in excess of Checker's net assets.................... (127,748) (127,748)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT.................................... (149,517) (143,538)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT........................ $ 517,336 $ 527,158
----------- -----------
----------- -----------
See notes to consolidated financial statements.
F-25
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH
31,
--------------------------
1993 1994
------------ ------------
Revenues.............................................................................. $ 204,933 $ 271,680
Cost of revenues...................................................................... (175,631) (230,835)
------------ ------------
GROSS PROFIT.......................................................................... 29,302 40,845
Selling, general and administrative expense........................................... (19,986) (21,454)
Interest expense...................................................................... (10,465) (10,044)
Interest income....................................................................... 2,018 1,660
Other income, net..................................................................... 991 604
------------ ------------
Income before income taxes and accounting changes..................................... 1,860 11,611
Income tax expense.................................................................... (2,604) (5,225)
------------ ------------
INCOME (LOSS) BEFORE ACCOUNTING CHANGES............................................... (744) 6,386
Accounting changes, net of income taxes............................................... (46,626) --
------------ ------------
NET INCOME (LOSS)..................................................................... $ (47,370) $ 6,386
------------ ------------
------------ ------------
Weighted average number of shares used in per share computations...................... 9,037 9,037
------------ ------------
------------ ------------
Income (loss) per share:
Before accounting changes........................................................... $ (0.08) $ 0.71
Accounting changes.................................................................. (5.16) --
------------ ------------
NET INCOME (LOSS) PER SHARE........................................................... $ (5.24) $ 0.71
------------ ------------
------------ ------------
See notes to consolidated financial statements.
F-26
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1993 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................................... $ (47,370) $ 6,386
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Accounting changes................................................................... 46,626 --
Depreciation and amortization........................................................ 5,571 5,631
Deferred income tax benefit.......................................................... (1,834) (581)
Amortization of cost in excess of net assets acquired................................ 312 313
Amortization of debt discount........................................................ 324 393
Net (gain) loss on sale of property, plant and equipment............................. (18) --
Investment gains..................................................................... (103) (274)
Other noncash charges................................................................ 1,446 2,626
Changes in operating assets and liabilities:
Accounts receivable................................................................ (21,933) (25,281)
Inventories........................................................................ (7,084) 8,052
Insurance Subsidiary's reinsurance receivable...................................... 5,101 (27)
Other assets....................................................................... (3,477) (1,149)
Accounts payable................................................................... 8,533 56
Income taxes....................................................................... 1,523 5,840
Unpaid losses and loss adjustment expenses......................................... (4,898) 897
Unearned insurance premiums........................................................ 2,999 6,692
Postretirement benefits other than pension......................................... -- 403
Other liabilities.................................................................. (433) (7,791)
---------- ----------
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES................................. (14,715) 2,186
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................................. (7,843) (6,903)
Proceeds from disposal of property, plant and equipment and other productive assets.... 1,466 516
Purchase of investments available for sale............................................. -- (3,901)
Purchase of investments held to maturity............................................... (6,789) (20,493)
Proceeds from sale of investments available for sale................................... -- 346
Proceeds from maturities and redemption of investments held to maturity................ 13,845 25,423
Other.................................................................................. 54 143
---------- ----------
NET CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES................................. 733 (4,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................................................... 15,091 --
Repayments of borrowings............................................................... (4,755) (4,553)
Return of limited partner's capital.................................................... (217) (234)
---------- ----------
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES................................. 10,119 (4,787)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS.................................................... (3,863) (7,470)
Beginning cash and cash equivalents...................................................... 42,199 40,078
---------- ----------
ENDING CASH AND CASH EQUIVALENTS......................................................... $ 38,336 $ 32,608
---------- ----------
---------- ----------
See notes to consolidated financial statements.
F-27
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements of International Controls
Corp. and Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In Management's
opinion, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1994, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1994. For further
information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1993.
NOTE B -- PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of International
Controls Corp. and its subsidiaries, including a wholly-owned trailer leasing
company, Checker Motors Co., L.P. ("Partnership") and the Partnership's
wholly-owned subsidiaries, including American Country Insurance Company
("Insurance Subsidiary").
NOTE C -- INVENTORIES
Inventories are summarized below (dollars in thousands):
DECEMBER 31, MARCH 31,
1993 1994
-------------- -----------
Raw materials and supplies.................................... $ 53,105 $ 53,457
Work-in-process............................................... 10,956 12,619
Finished goods................................................ 30,051 19,984
-------------- -----------
$ 94,112 $ 86,060
-------------- -----------
-------------- -----------
NOTE D -- INCOME TAXES
The Company's estimated effective tax rate differs from the statutory rate
because of state income taxes as well as the impact of the reporting of certain
income and expense items in the financial statements which are not taxable or
deductible for income tax purposes. The values of assets and liabilities
acquired in a transaction accounted for as a purchase are recorded at estimated
fair values which result in an increase in the net asset value over the tax
basis for such net assets.
NOTE E -- ACCOUNTING CHANGES
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with this statement,
prior period financial statements have not been restated to reflect the change
in accounting principle. The opening balance of shareholders' deficit was
decreased by $1.4 million (net of $0.8 million in deferred income taxes) to
reflect the net unrealized holding gains on securities classified as
available-for-sale previously carried at amortized cost or lower of cost or
market.
Insurance company management evaluated the investment portfolio and, based
on the Insurance Subsidiary's ability and intent, has classified securities
between the held-to-maturity and available-for-sale categories. Held-to-maturity
securities are stated at amortized cost. Debt securities not classified as held-
to-maturity and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' deficit.
F-28
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31,1994
(UNAUDITED)
NOTE E -- ACCOUNTING CHANGES (CONTINUED)
Following is a summary of held-to-maturity and available-for-sale securities
as of March 31, 1994:
HELD-TO-MATURITY
----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------------- ------------- -----------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies..................................... $ 4,297 $ 154 $ 35 $ 4,416
Obligations of states and political sub-divisions.............. 11,338 144 178 11,304
Mortgage-backed securities..................................... 3,659 28 35 3,652
Corporate and other debt securities............................ 25,178 592 381 25,389
--------- ----- ----- -----------
Total held to maturity....................................... $ 44,472 $ 918 $ 629 $ 44,761
--------- ----- ----- -----------
--------- ----- ----- -----------
AVAILABLE-FOR-SALE
------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----------- ----------- -----------
Obligations of states and political sub-divisions.............. $ 10,287 $ 29 $ 279 $ 10,037
Corporate and other debt securities............................ 19,253 1,023 499 19,777
--------- ----------- ----------- -----------
Total debt securities........................................ 29,540 1,052 778 29,814
Equity securities.............................................. 15,773 371 1,296 14,848
--------- ----------- ----------- -----------
Total available for sale..................................... $ 45,313 $ 1,423 $ 2,074 $ 44,662
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
F-29
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31,1994
(UNAUDITED)
NOTE E -- ACCOUNTING CHANGES (CONTINUED)
The amortized cost and estimated market value of debt and marketable equity
securities at March 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
HELD-TO-MATURITY
----------------------
ESTIMATED
COST FAIR VALUE
--------- -----------
Due in one year or less............................................ $ 5,448 $ 5,508
Due after one year through five years.............................. 24,904 25,178
Due after five years through ten years............................. 8,032 8,062
Due after ten years................................................ 2,429 2,360
--------- -----------
40,813 41,108
Mortgage-backed securities......................................... 3,659 3,653
--------- -----------
$ 44,472 $ 44,761
--------- -----------
--------- -----------
AVAILABLE-FOR-SALE
----------------------
ESTIMATED
COST FAIR VALUE
--------- -----------
Due in one year or less............................................ $ 550 $ 577
Due after one year through five years.............................. 645 673
Due after five years through ten years............................. 15,381 15,432
Due after ten years................................................ 12,964 13,132
--------- -----------
29,540 29,814
Equity securities.................................................. 15,773 14,848
--------- -----------
$ 45,313 $ 44,662
--------- -----------
--------- -----------
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
112, "Employers' Accounting for Postemployment Benefits." The adoption of this
SFAS did not affect net income. In accordance with this Statement, prior period
financial statements have not been restated to reflect the change in accounting
method.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The Company recorded a charge of $29.7 million (net of taxes of $16.5 million),
or $3.29 per share, during the quarter ended March 31, 1993 to reflect the
cumulative effect of this change in accounting principle.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes." The Company recorded a charge of $16.9
million, or $1.87 per share, during the quarter ended March 31, 1993, to reflect
the cumulative effect of this change in accounting principle.
During the quarter ended March 31, 1993, the Company adopted the provisions
of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short Duration and
Long Duration Contracts". Because of the type of insurance contracts the
Company's Insurance Subsidiary provides, the adoption of this statement had no
impact on earnings; however, it requires the disaggregation of various balance
sheet accounts.
F-30
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31,1994
(UNAUDITED)
NOTE F -- CONTINGENCIES
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-119MA, United States District Court for the District
of Oregon. In that lawsuit, Boeing sought damages and declaratory relief for
past and future costs resulting from alleged groundwater contamination at a
location in Gresham, Oregon, where the three prior subsidiaries of the Company
formerly conducted business operations. On December 22, 1993, the Company
entered into a settlement with Boeing, settling all claims asserted by Boeing in
the lawsuit. Pursuant to the settlement terms, the Company will pay Boeing $12.5
million over the course of five years, $5 million of which has been committed by
certain insurance companies in the form of cash or irrevocable letters of
credit. In accordance with the settlement agreement, Boeing's claims against the
Company and the three former subsidiaries have been dismissed with prejudice and
Boeing has released and indemnified the Company with respect to certain claims.
On March 4, 1992, Checker received notice that the Insurance Commissioner of
the State of California, as Conservator and Rehabilitator of Executive Life
Insurance Company of California ("ELIC"), a limited partner of the Partnership,
had filed an Amendment to the Application for Order of Conservation filed in
Superior Court of the State of California for the County of Los Angeles (the
"Court"). The amendment seeks to add to the Order, dated April 11, 1991,
Checker, the Partnership and Checker Holding Corp. III ("Holding III"), a
limited partner of the Partnership. The amendment alleges that the action by
Checker invoking provisions of the Partnership Agreement that alter ELIC's
rights in the Partnership upon the occurrence of certain events is improper and
constitutes an impermissible forfeiture of ELIC's interest in the Partnership
and a breach of fiduciary duty to ELIC. The amendment seeks (a) a declaration of
the rights of the parties in the Partnership and (b) damages in an unspecified
amount. The Partnership believes that it has meritorious defenses to the claims
of ELIC. On April 15, 1994, the Company and the Conservator entered into a
letter agreement pursuant to which the Company agreed to purchase ELIC's
interest in the Partnership for $37 million, subject to completion of the
refinancing described under the caption, "Item 2 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations." The letter agreement
has been submitted to the Court for approval.
F-31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER
ISSUER OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF EITHER ISSUER SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
--------------
TABLE OF CONTENTS
PAGE
----
Available Information.......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 12
Proposed Refinancing........................... 17
Use of Proceeds................................ 18
Dividends...................................... 18
Capitalization................................. 19
The Company.................................... 20
Selected Consolidated Financial Data........... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business....................................... 27
Management..................................... 39
Certain Relationships and Related
Transactions.................................. 45
Ownership of Common Stock...................... 46
Description of New Credit Facility............. 46
Description of Units........................... 48
Description of Warrants........................ 48
Descripton of Capital Stock.................... 50
Description of Notes........................... 51
Certain Federal Income Tax
Consequences.................................. 81
Underwriting................................... 86
Legal Matters.................................. 86
Experts........................................ 86
Index to Financial Statements.................. F-1
$265,000,000
INTERNATIONAL
CONTROLS CORP.
$165,000,000 % Senior Secured Notes due 2002
100,000 Units Consisting of
$100,000,000 % Senior
Subordinated Notes due 2004
and
Warrants to Purchase Shares of Common Stock
-------------
PROSPECTUS
-------------
ALEX. BROWN & SONS
INCORPORATED
SPP HAMBRO & CO.
, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration Fee................................................... $ 91,380
NASD Filing Fee.................................................... 30,500
Legal Fees and Expenses*........................................... **
Blue Sky Fees and Expenses......................................... 11,500
Accounting Fees and Expenses*...................................... **
Printing*.......................................................... **
Trustees' Fees and Expenses*....................................... **
Rating Agency Fees*................................................ **
Transfer Agent Fees*............................................... **
Miscellaneous...................................................... **
---------
Total.......................................................... $ **
---------
---------
<FN>
- --------------
* Estimated
** To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Florida corporation. Section 607.0850 of the Business
Corporation Act ("Act") provides that a Florida corporation has the power to
indemnify its officers and directors in certain circumstances.
Subsection (1) of Section 607.0850 of the Act empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party to any proceeding (other than an action by or in the right of the
corporation), by reason of the fact that he was a director or officer of the
corporation, against liability incurred in connection with such action, suit or
proceeding provided that such director or officer acted in good faith in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such director or officer had no cause to believe his conduct was unlawful.
Subsection (2) of Section 607.0850 empowers a corporation to indemnify any
director or officer, or former director or officer who was or is a party to any
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person acted in any of the capacities set
forth above, against certain expenses paid in settlement of such action or suit
provided that such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such director or officer shall have been adjudged to
be liable to the corporation, and only to the extent that the court in which
such action was brought shall determine that despite the adjudication of
liability such director or officer is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 607.0850 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (1) and (2) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 607.0850 shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled; and that the
corporation shall have the power to purchase and maintain insurance on behalf of
a director or officer of the corporation against any liability asserted against
him or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liability under Section 607.0850.
II-1
Article V of the By-Laws of the Company provides for indemnification of the
officers and directors of the Company as follows:
"Section 1. The corporation shall indemnify any person made a party or
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding:
(a) Whether civil, criminal, administrative, or investigative, other
than one by or in the right of the corporation to procure a judgment in
its favor, brought to impose a liability or penalty on such person for an
act alleged to have been committed by such person in his capacity of
director, officer, employee or agent of the corporation, or of any other
corporation, partnership, joint venture, trust or other enterprise which
he served as such at the request of the corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred as a result of such
action, suit or proceeding, or any appeal therein, if such person acted
in good faith in the reasonable belief that such action was in the best
interests of the corporation, and in criminal actions or proceedings,
without reasonable ground for belief that such action was unlawful. The
termination of any such action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not in itself create a presumption that any such
director or officer did not act in good faith in the reasonable belief
that such action was in the best interests of the corporation or that he
had reasonable grounds for belief that such action was unlawful.
(b) By or in the right of the corporation to procure a judgment in
its favor by reason of his being or having been a director, officer,
employee, or agent of the corporation, or of any other corporation,
partnership, joint venture, trust or other enterprise which he served as
such at the request of the corporation, against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in
connection with an appeal therein, if such person acted in good faith in
the reasonable belief that such action was in the best interests of the
corporation. Such person shall not be entitled to indemnification in
relation to matters as to which such person has been adjudged to have
been guilty of negligence or misconduct in the performance of his duty to
the corporation unless and only to the extent that the court,
administrative agency, or investigative body before which such action,
suit or proceeding is held shall determine upon application that despite
the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnification
for such expense which such tribunal shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraph (a) or (b), or in
any defense of any claim, issue or matter therein, he shall be
indemnified against the reasonable expenses, including attorney's fees,
actually and necessarily incurred by him in connection therewith.
(d) In order for indemnification to be made under paragraph (a) or
(b), a determination must first be made that indemnification of the
director, officer, employee or agent is proper in the circumstances
because such person has met the applicable standard of conduct set forth
in paragraph (a) or (b), unless indemnification is ordered by the
tribunal before which such action, suit or proceeding is held. Such
determination shall be made either (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) by the stockholders who were not
parties to such action, suit or proceeding.
Section 2. The corporation shall pay expenses incurred in defending any
action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding as authorized in the manner provided in paragraph
(d) of Section 1 of this Article upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in Sections 1 through 4 of this
Article.
II-2
Section 3. The corporation shall indemnify any person, if the
requirements of Sections 1 and 2 of this Article are met, without affecting
any other rights to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent of the
corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 4. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the
corporation is obligated to indemnify him against such liability under the
provisions of Section 1 of this Article."
In addition, the Company and/or its subsidiaries have entered into
employment agreements with David Markin, Jay Harris and Jeffrey Feldman which
require the Company to indemnify Messrs. Markin, Harris and Feldman against
certain liabilities that may arise by reason of their status or service as
directors or officers of, or consultants to, of the Company or its subsidiaries
(other than liabilities arising from gross negligence or willful misconduct) to
the full extent permitted by law.
Reference is made to Section 7 of the Underwriting Agreement, a copy of
which is filed as Exhibit 1.1 hereto, which provides for indemnification of the
directors and officers of the Registrant who sign the Registration Statement by
the Underwriters against certain liabilities, including those arising under the
Securities Act, in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement among Alex. Brown & Sons Incorporated, SPP Hambro & Co. and
International Controls Corp. (the "Registrant") with respect to the % Senior Secured Notes due
2002 of the Registrant and the Units consisting of the % Senior Subordinated Notes due 2004 of
the Registrant and Warrants to purchase common stock of the Registrant.**
3.1 Restated Articles of Incorporation of Registrant
3.2 By-Laws of Registrant as effective May 13, 1991 (incorporated herein by reference to Exhibit 3.3 of
the Registrant's Annual Report of Form 10-K for the year ended December 31, 1992 (the 1992 10-K)).
4.1 Form of Indenture between Registrant and First Fidelity Bank, National Association ("First
Fidelity"), New Jersey, as Trustee, relating to the 12 3/4% Senior Subordinated Debentures due
August 1, 2001 of Registrant (incorporated herein by reference to Exhibit 4.1 to Registration
Statement No. 33-7212 filed with the Securities and Exchange Commission on July 15, 1986).
4.2 Form of Indenture between Registrant and Midlantic National Bank, as Trustee, relating to the
14 1/2% Subordinated Discount Debentures due January 1, 2006 of Registrant (incorporated herein by
reference to Exhibit 4.1 to Registration Statement No. 33-1788 filed with the Securities and
Exchange Commission on November 26, 1985).
4.3 Form of Indenture between Registrant and First Fidelity Bank, National Association, as Trustee,
relating to the % Senior Secured Notes due 2002.**
II-3
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
4.4 Agreement to furnish additional documents upon request by the Securities and Exchange Commission
(incorporated herein by reference to Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989 (the "1989 10-K")).
4.5 Form of Indenture between the Registrant and Marine Midland Bank, as Trustee, relating to the %
Senior Subordinated Notes due 2004.**
4.6 Form of Warrant Agreement between the Registrant and American Stock Transfer & Trust Company.**
5.1 Opinion of Hutton Ingram Yuzek Gainen Carroll & Bertolotti regarding the legality of certain of the
securities being registered.*
10.1 Amended and Restated Agreement of Limited Partnership of Checker L.P. (incorporated herein by
reference to Exhibit 10.17 to the 1989 10-K).
10.2 Amendment, dated July 28, 1989, to Amended and Restated Agreement of Limited Partnership of Checker
L.P. (incorporated herein by reference to Exhibit 19.1 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 (the "1991 10-K")).
10.3 Amendment, dated June 25, 1991, to Amended and Restated Agreement of Limited Partnership of Checker
L.P. (incorporated herein by reference to Exhibit 19.2 to the 1991 10-K).
10.4 Amended and Restated Employment Agreement, dated as of November 1, 1985, between Motors and David R.
Markin ("Markin Employment Agreement") (incorporated herein by reference to Exhibit 10.17 to the
1989 10-K).
10.5 Amendment, dated as of March 4, 1992, to Markin Employment Agreement (incorporated herein by
reference to Exhibit 10.3 to the 1991 10-K).
10.6 Extension, dated July 12, 1993, of Amended and Restated Employment Agreement Between Checker and
David R. Markin (incorporated herein by reference to Exhibit 10.6 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993 (the "1993 10-K")).
10.7 Amended and Restated Employment Agreement, dated as of June 1, 1992, between Yellow Cab and Jeffrey
Feldman (incorporated herein by reference to Exhibit 28.2 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992 (the "June 1992 10-Q").
10.8 Form of Stated Benefit Salary Continuation Agreement (incorporated herein by reference to Exhibit
10.17 to the 1989 10-K).
10.9 Employment Agreement, dated as of July 1, 1992, between Registrant and Jay H. Harris (incorporated
herein by reference to Exhibit 28.1 to the June 1992 10-Q).
10.10 Loan and Guaranty Agreement, dated September 17, 1992, by and among Checker L.P., Motors, SCSM and
NBD Bank, N.A. (incorporated herein by reference to Exhibit 28.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1992 (the "September 1992 10-Q")).
10.11 First Amendment, dated as of November 1, 1993, to Loan and Guaranty Agreement.
10.12 Credit and Guaranty Agreement, dated as of August 1, 1989, by and among SCSM, Motors, Checker L.P.
and NBD Bank, N.A. (the "Credit Agreement") (incorporated herein by reference to Exhibit 10.10 to
the 1992 10-K).
10.13 First Amendment, dated as of June 1, 1990, to the Credit Agreement (incorporated herein by reference
to Exhibit 10.11 of the 1992 10-K).
II-4
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
10.14 Second Amendment, dated as of January 2, 1991, to the Credit Agreement (incorporated herein by
reference to Exhibit 10.12 of the 1992 10-K).
10.15 Third Amendment, dated as of November 1, 1993, to the Credit Agreement.
10.16 Supplemental Agreement, dated as of April 20, 1992, among SCSM, Motors, Checker L.P. and NBD Bank,
N.A. (incorporated herein by reference to Exhibit 10.13 of the 1992 10-K).
10.17 Second Supplemental Agreement, dated as of September 17, 1992, among SCSM, Motors, Checker L.P. and
NBD Bank, N.A. (incorporated herein by reference to Exhibit 28.2 of the June 1991 10-Q).
10.18 Lease, dated December 1, 1988, between SCSM and Park Corporation (incorporated herein by reference
to Exhibit 10.17 to the 1989 10-K).
10.19 Loan and Security Agreement dated as of March 21, 1990, by and among Great Dane, Great Dane Trailers
Indiana, Inc., Great Dane Trailers Nebraska, Inc., Great Dane Trailers Tennessee, Inc., certain
lending institutions and Security Pacific Business Credit Inc., as Agent (the "Security Pacific
Agreement") (incorporated herein by reference to Exhibit 10.17 to the 1989 10-K).
10.20 First Amendment, dated as of March 30, 1990, to the Security Pacific Agreement (incorporated herein
by reference to Exhibit 19.3 to the 1991 10-K).
10.21 Second Amendment, dated as of April 30, 1990, to the Security Pacific Agreement (incorporated herein
by reference to Exhibit 19.4 to the 1991 10-K).
10.22 Third Amendment, dated as of August 14, 1990, to the Security Pacific Agreement (incorporated herein
by reference to Exhibit 19.5 to the 1991 10-K).
10.23 Fourth Amendment, dated as of February 28, 1991, to the Security Pacific Agreement (incorporated
herein by reference to Exhibit 19.6 to the 1991 10-K).
10.24 Waiver and Fifth Amendment, dated as of September 3, 1991, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.7 to the 1991 10-K).
10.25 Waiver, Consent and Sixth Amendment, dated April 30, 1992, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 28 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1992).
10.26 Seventh Amendment, dated as of July 10, 1992, to the Security Pacific Agreement (incorporated herein
by reference to the June 1992 10-Q).
10.27 Eighth Amendment, dated as of February 19, 1993, to the Security Pacific Agreement (incorporated
herein by reference to Exhibit 10.24 of the 1992 10-K).
10.28 Waiver, Consent and Ninth Amendment, dated March 26, 1993, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 10.29 of the 1992 10-K).
10.29 Tenth Amendment, dated as of November 1, 1993, to the Security Pacific Agreement.
10.30 Assumption Agreement dated as of August 1, 1989, by and between Motors and the West Virginia
Economic Development Authority (incorporated herein by reference to Exhibit 10.12 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990).
10.31 Agreement, dated as of September 1, 1991, between Checker L.P. and Jerry E. Feldman (incorporated
herein by reference to Exhibit 10.12 to the 1991 10-K).
10.32 Form of Checker Motors Corporation Excess Benefit Retirement Plan, effective January 1, 1983
(incorporated herein by reference to Exhibit 19.9 to the 1991 10-K).
II-5
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
10.33 Amended and Restated License Agreement, dated December 30, 1992, between Checker Motors Corporation
and Checker Taxi Association, Inc. (incorporated herein by reference to Exhibit 10.28 of the 1992
10-K).
10.34 Employment Agreement, dated as of January 1, 1994 between Registrant and David R. Markin.
10.35 Eleventh Amendment, dated as of March 11, 1994, to the Security Pacific Agreement (incorporated
herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994).
10.36 Employment Agreement dated as of November 4, 1991, between Great Dane and Willard R. Hildebrand.
10.37 Form of Escrow Deposit Agreement between the Registrant and First Fidelity, dated as of ,
1994.**
10.38 Settlement Agreement, dated as of June 21, 1994, among John Garamendi, as Insurance Commissioner of
the State of California, Base Assets Trust, Checker L.P., Motors, Checker Holding Corp. III and the
Company.**
10.39 Form of Loan Agreement, dated as of , 1994, by and among the Company, Great Dane,
Motors, Checker L.P., SCSM, Great Dane Trailers Nebraska, Inc., Great Dane Trailers Tennessee,
Inc., Great Dane Los Angeles, Inc., NBD Bank, N.A., as agent, and the lenders named therein.*
10.40 Form of Pledge and Intercreditor Agreement, dated as of , 1994, entered into by the Company, the
Senior Note Trustee and NBD Bank, N.A., as collateral agent, for the benefit of the lenders named
therein.*
10.41 Form of Pledge Agreement and Irrevocable Proxy, dated as of , 1994, entered into by Motors in favor
of NBD Bank, N.A., as collateral agent, for the benefit of the lenders named therein.*
10.42 Form of Pledge Agreement and Irrevocable Proxy, dated as of , 1994, entered into by Great Dane in
favor of NBD Bank, N.A., as collateral agent, for the benefit of the lenders named therein.*
10.43 Form of Security Agreement entered into by the Company and the Co-Obligors in favor of NBD Bank,
N.A., as agent, for the benefit of the lenders named therein.*
10.44 Form of Taxi Medallion Security Agreement*
12.1 Statements regarding computation of ratios.
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young**
23.2 Consent of Hutton Ingram Yuzek Gainen Carroll & Bertolotti -- see Exhibit 5.1.
24.1 Power of Attorney.
25.1 Statement of eligibility of Trustee for the Senior Notes.**
25.2 Statement of eligibility of Trustee for the Senior Subordinated Notes.**
28.1 Schedule P of Annual Statements provided by Country to Illinois Regulatory Authorities.
<FN>
- --------------
* To be filed by amendment
** Filed herewith
II-6
(b) Financial Statement Schedules
The following financial statement schedules are filed as part of the
Registration Statement.
Schedule I -- Marketable Securities -- Other Investments
Schedule II -- Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees Other Than Related Parties
Schedule III -- Condensed Financial Information of Registrant
Schedule IV -- Indebtedness of and to Related Parties -- Not Current
Schedule VIII -- Valuation and Qualifying Accounts
Schedule IX -- Short-Term Borrowings
Schedule X -- Supplementary Income Statement Information
Schedule XIV -- Supplemental Information Concerning Property-Casualty Insurance Operations
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(b) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the 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 June 15, 1994.
INTERNATIONAL CONTROLS CORP.
By:_ ________________**_______________
------------------------------------
David R. Markin, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
** Chairman of the Board June 15,
- ------------------------------------------- 1994
Allan R. Tessler
** President, Chief Executive June 15,
- ------------------------------------------- Officer 1994
David R. Markin and Director
/s/ JAY H. HARRIS Executive Vice President and June 15,
- ------------------------------------------- Chief Operating 1994
Jay H. Harris Officer
Treasurer (Principal Financial June 15,
** Officer and Principal 1994
- ------------------------------------------- Accounting
Marlan R. Smith Officer)
** Vice Chairman of the Board and June 15,
- ------------------------------------------- Secretary 1994
Martin L. Solomon
** Vice Chairman of the Board June 15,
- ------------------------------------------- 1994
Wilmer J. Thomas, Jr.
**By:/s/ JAY H. HARRIS
- -------------------------------------------
Jay H. Harris
ATTORNEY IN FACT
II-8
INDEX TO FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
Report of Independent Auditors................................................................. S-2
Schedule I -- Marketable Securities -- Other Investments........................... S-3
Schedule II -- Amounts Receivable from Related Parties and Underwriters, Promoters
and Employees Other Than Related Parties............................. S-6
Schedule III -- Condensed Financial Information of Registrant........................ S-7
Schedule IV -- Indebtedness of and to Related Parties -- Not Current................ S-10
Schedule VIII -- Valuation and Qualifying Accounts.................................... S-11
Schedule IX -- Short-Term Borrowings................................................ S-12
Schedule X -- Supplementary Income Statement Information........................... S-13
Schedule XIV -- Supplemental Information Concerning Property-Casualty Insurance
Operations........................................................... S-14
S-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
International Controls Corp.
We have audited the consolidated financial statements of International
Controls Corp. and subsidiaries as of December 31, 1993 and 1992, and for each
of the three years in the period ended December 31, 1993, and have issued our
report thereon dated March 1, 1994 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed in
Item 16(b) of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG
Kalamazoo, Michigan
March 1, 1994
S-2
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------- ---------------- ----------- ----------- ---------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
SECURITY
NUMBER OF ISSUES AND EACH
SHARES OR MARKET OTHER SECURITY
UNITS -- VALUE OF ISSUE CARRIED
PRINCIPAL EACH ISSUE IN
AMOUNT OF COST OF AT BALANCE THE BALANCE
NAME OF ISSUER AND TITLE OF EACH ISSUE BONDS AND NOTES EACH ISSUE SHEET DATE SHEET
- -------------------------------------------- ---------------- ----------- ----------- ---------------
FIXED MATURITIES:
U. S. Government obligations.............. $ 7,320 $ 7,267 $ 7,559 $ 7,276
Obligations of various state and
territorial possessions.................. 1,920 1,911 1,959 1,920
Obligations of political subdivisions of
states................................... 10,745 10,748 11,064 10,760
Special revenue obligations of political
subdivisions of states................... 9,290 9,313 9,522 9,304
Public utility obligations:
American Telephone & Telegraph.......... 850 835 907 837
Bell South Telecom, Inc................. 1,000 1,004 1,050 1,003
Chesapeake & Potomac Telephone &
Telegraph.............................. 532 450 543 455
Citizen Utilities....................... 500 499 550 499
Consolidated Edison..................... 550 547 563 548
Illinois Bell Telephone Company......... 300 287 306 288
National Rural Utilities................ 400 403 400 400
New England Telephone & Telegraph....... 400 419 404 419
New York Telephone Company.............. 400 382 412 383
Northern Telecom, Ltd................... 350 357 340 356
Oklahoma Gas & Electric................. 525 514 560 519
Pacific Bell............................ 500 491 500 492
Pacific Gas & Electric.................. 700 696 728 696
Potomac Electric Power Company.......... 350 343 396 345
Southwestern Bell Telephone Company..... 550 550 528 550
Miscellaneous other public utility
obligations............................ 2,036 1,931 2,128 1,956
----------- ----------- -------
Total public utility obligations.......... $ 9,708 $ 10,315 $ 9,746
Industrial and miscellaneous corporate
obligations:
Anheuser Busch Company, Inc............. 350 366 403 363
Associates Corporation of North
America................................ 755 770 762 759
Banc One Corporation.................... 340 343 412 342
Bank America Corporation................ 850 881 917 878
Bankers Trust of New York............... 500 496 531 497
B. P. America........................... 550 566 629 562
Cargill Inc............................. 300 302 366 301
Chevron Capital USA, Inc................ 350 339 382 344
Citicorp................................ 400 400 405 400
S-3
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS -- CONTINUED
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------- ---------------- ----------- ----------- ---------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
SECURITY
NUMBER OF ISSUES AND EACH
SHARES OR MARKET OTHER SECURITY
UNITS -- VALUE OF ISSUE CARRIED
PRINCIPAL EACH ISSUE IN
AMOUNT OF COST OF AT BALANCE THE BALANCE
NAME OF ISSUER AND TITLE OF EACH ISSUE BONDS AND NOTES EACH ISSUE SHEET DATE SHEET
- -------------------------------------------- ---------------- ----------- ----------- ---------------
FIXED MATURITIES -- Continued
Industrial and miscellaneous corporate
obligations -- Continued:
Coca Cola Enterprises................... $ 500 $ 497 $ 523 $ 498
Comerica Bank -- Detroit................ 500 500 509 500
Commercial Credit Group, Inc............ 450 442 466 449
Corestate Capital Corp.................. 300 298 303 298
Dow Capital Corporation................. 350 350 357 350
Dow Chemical Company.................... 400 399 480 399
E. I. DuPont DeNemours & Company........ 700 658 751 666
Eastman Kodak Company................... 450 451 494 451
Enhance Financial Services.............. 900 900 900 900
European Investment Bank................ 300 303 303 303
Ford Motor Credit Corporation........... 750 749 779 751
Gannett Inc. Notes...................... 500 500 490 500
General Electric Capital Corporation.... 1,350 1,454 1,395 1,350
General Electric Credit Corp............ 500 500 500 500
General Motors Acceptance Corporation... 500 496 575 497
General Motors Corporation.............. 300 300 306 300
H. J. Heinz Company..................... 500 499 510 499
Hertz Corporation....................... 300 300 315 300
IBM Credit Corporation.................. 300 304 301 304
IBM Corporation......................... 500 496 525 497
ICI Wilmington, Inc..................... 300 309 321 306
ITT Financial Corporation............... 400 404 416 400
J. P. Morgan & Co....................... 700 721 770 712
The Limited Corporation................. 650 652 748 652
Marathon Oil Company.................... 600 602 606 600
Matsushita Electric Inc., Ltd........... 400 400 424 400
MBIA Inc................................ 450 443 495 443
Merrill Lynch & Co...................... 300 296 309 299
Motorola, Inc........................... 300 300 357 300
Natwest Capital Corporation............. 300 320 363 318
Pepsico, Inc............................ 950 944 1,034 945
Phillip Morris & Co., Inc............... 1,450 1,450 1,548 1,450
Pitney Bowes Credit Corporation......... 377 379 420 373
Ralston Purina Company.................. 500 501 540 500
Republic National Bank, New York........ 500 499 505 499
Salomon, Inc............................ 500 502 554 501
Seagram, Joseph E., & Sons.............. 750 768 815 757
Sears Roebuck & Co...................... 500 530 500 500
S-4
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS -- CONTINUED
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------- ---------------- ----------- ----------- ---------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
SECURITY
NUMBER OF ISSUES AND EACH
SHARES OR MARKET OTHER SECURITY
UNITS -- VALUE OF ISSUE CARRIED
PRINCIPAL EACH ISSUE IN
AMOUNT OF COST OF AT BALANCE THE BALANCE
NAME OF ISSUER AND TITLE OF EACH ISSUE BONDS AND NOTES EACH ISSUE SHEET DATE SHEET
- -------------------------------------------- ---------------- ----------- ----------- ---------------
FIXED MATURITIES -- Continued
Industrial and miscellaneous corporate
obligations -- Continued:
Shearson Lehman Bros. Bldgs. Inc.......... $ 350 $ 350 $ 350 $ 350
Suntrust Bank, Inc........................ 300 304 309 301
Texaco Capital, Inc....................... 450 451 495 450
The Funding Corporation................... 400 409 424 403
United States Banknote Corp............... 300 300 300 300
United Technologies....................... 300 304 327 302
USX Corporation........................... 400 405 372 405
Wal Mart Stores, Inc...................... 1,150 1,154 1,250 1,155
Witco Corporation......................... 500 489 575 489
Xerox Credit Corporation.................. 439 422 469 427
Miscellaneous other industrial and
miscellaneous corporate obligations...... 8,913 9,068 9,641 8,928
----------- ----------- -------
TOTAL INDUSTRIAL AND MISCELLANEOUS CORPORATE
OBLIGATIONS................................ 38,535 40,826 38,223
----------- ----------- -------
TOTAL FIXED MATURITIES...................... $ 77,482 $ 81,245 $ 77,229
EQUITY SECURITIES:
Banks, trusts and insurance companies
preferred stock.......................... 85,000 shares $ 2,136 $ 2,221 $ 2,221
Public utilities preferred stock.......... 45,340 shares 1,545 1,637 1,637
Industrial and miscellaneous preferred
stock.................................... 127,314 shares 3,559 3,601 3,601
Public utilities common stock............. 534,400 shares 1,401 1,536 1,536
Banks, Trusts and Insurance Companies
Common Stocks............................ 24,547 shares 599 537 537
Industrial and miscellaneous common
stock.................................... 133,951 shares 4,296 4,077 4,077
----------- ----------- -------
TOTAL EQUITY SECURITIES..................... 13,536 13,609 13,609
----------- ----------- -------
TOTAL INVESTMENTS........................... $ 92,062 $ 94,853 $ 90,838
----------- ----------- -------
----------- ----------- -------
S-5
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------- ----------- ----------- ------------------------------ --------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
------------------------------
BALANCE AT (1) (2) --------------------------
BEGINNING AMOUNTS AMOUNTS WRITTEN (1) (2)
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CURRENT NOT CURRENT
- ------------------------------------------- ----------- ----------- ------------- --------------- ----------- -------------
YEAR ENDED DECEMBER 31, 1991
David R. Markin (1)...................... $ 124 $ 0 $ 0 $ 0 $ 0 $ 124
Allan R. Tessler (1)..................... 167 0 0 0 0 167
Wilmer J. Thomas, Jr. (1)................ 167 0 0 0 0 167
Martin L. Solomon (1).................... 167 0 0 0 0 167
-- --
----------- ----- ----- -----
$ 625 $ 0 $ 0 $ 0 $ 0 $ 625
-- --
-- --
----------- ----- ----- -----
----------- ----- ----- -----
YEAR ENDED DECEMBER 31, 1992
David R. Markin (1)...................... $ 124 $ 0 $ 0 $ 0 $ 0 $ 124
Allan R. Tessler (1)..................... 167 0 0 0 0 167
Wilmer J. Thomas, Jr. (1)................ 167 0 0 0 0 167
Martin L. Solomon (1).................... 167 0 0 0 0 167
King Cars, Inc. (2)...................... 0 398 0 0 398 0
-- --
----------- ----- ----- -----
$ 625 $ 398 $ 0 $ 0 $ 398 $ 625
-- --
-- --
----------- ----- ----- -----
----------- ----- ----- -----
YEAR ENDED DECEMBER 31, 1993
David R. Markin (1)...................... $ 124 $ 0 $ 0 $ 0 $ 0 $ 124
Allan R. Tessler (1)..................... 167 0 0 0 0 167
Wilmer J. Thomas, Jr. (1)................ 167 0 0 0 0 167
Martin L. Solomon (1).................... 167 0 0 0 0 167
King Cars, Inc. (2)...................... 398 24 0 0 422 0
-- --
----------- ----- ----- -----
$ 1,023 $ 24 $ 0 $ 0 $ 422 $ 625
-- --
-- --
----------- ----- ----- -----
----------- ----- ----- -----
<FN>
- --------------
(1) Obligation is non-interest bearing demand obligation.
(2) Obligation is a promissory note due on December 31, 1994, bearing a 6.5%
interest rate.
S-6
INTERNATIONAL CONTROLS CORP.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------
1992 1993
----------- -----------
Assets:
Cash and cash equivalents.......................................................... $ 4,930 $ 1,468
Accounts receivable................................................................ 107 566
Other current assets............................................................... 3,734 4,345
----------- -----------
Total Current Assets............................................................. 8,771 6,379
Intercompany accounts with subsidiaries............................................ 9,657 --
Investments in subsidiaries........................................................ 110,308 91,388
Other assets....................................................................... 12,430 16,331
----------- -----------
Total Assets......................................................................... $ 141,166 $ 114,098
----------- -----------
----------- -----------
Liabilities and Shareholders' Deficit:
Accounts payable................................................................... $ 143 $ 34
Income taxes payable (recoverable)................................................. 8,442 (1,702)
Accrued compensation............................................................... 256 256
Accrued interest................................................................... 11,467 11,468
Other accrued liabilities.......................................................... 3,340 9,565
----------- -----------
Total Current Liabilities........................................................ 23,648 19,621
Long-term debt..................................................................... 204,360 205,732
Other noncurrent liabilities....................................................... 19,486 31,713
Intercompany accounts with subsidiaries............................................ -- 6,622
Shareholders' deficit:
Common stock..................................................................... 90 90
Paid-in capital.................................................................. 14,910 14,910
Retained earnings (deficit)...................................................... 7,045 (36,217)
Amount paid in excess of Checker's net assets.................................... (127,748) (127,748)
Notes receivable from shareholders............................................... (625) (625)
----------- -----------
Total Shareholders' Deficit...................................................... (106,328) (149,590)
----------- -----------
Total Liabilities and Shareholders' Deficit.......................................... $ 141,166 $ 114,098
----------- -----------
----------- -----------
S-7
INTERNATIONAL CONTROLS CORP.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- CONTINUED
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
---------- ---------- ----------
Selling, general and administrative expenses.................................. $ (4,398) $ (4,396) $ (4,646)
Interest expense.............................................................. (32,018) (30,138) (30,216)
Equity in earnings of subsidiaries............................................ 166 14,959 29,376
Other income (expense)........................................................ 857 (99) 211
Special charge................................................................ -- -- (7,500)
Intercompany income:
Corporate charges........................................................... 1,008 1,008 1,008
Interest.................................................................... 394 305 --
---------- ---------- ----------
Loss before income taxes, extraordinary items and
accounting changes........................................................... (33,991) (18,361) (11,767)
Income tax benefit............................................................ 6,985 10,806 15,131
---------- ---------- ----------
Income (loss) before extraordinary items and accounting changes............... (27,006) (7,555) 3,364
Extraordinary items, net of income taxes...................................... 31,188 -- --
---------- ---------- ----------
Income (loss) before accounting changes....................................... 4,182 (7,555) 3,364
Accounting changes............................................................ -- -- (46,626)
---------- ---------- ----------
Net Income (Loss)............................................................. $ 4,182 $ (7,555) $ (43,262)
---------- ---------- ----------
---------- ---------- ----------
S-8
INTERNATIONAL CONTROLS CORP.
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
---------- ---------- ----------
Net cash flow used in operating activities.................................... $ (25,202) $ (20,973) $ (47,640)
Cash flows from investing activities:
Other....................................................................... (1,456) (334) 5,900
---------- ---------- ----------
Net cash flow provided by (used in) investing activities...................... (1,456) (334) 5,900
Cash flows from financing activities:
Repayments of debt.......................................................... (27,187) -- --
Advances from subsidiaries.................................................. 52,630 21,284 38,278
---------- ---------- ----------
Net cash flow provided by financing activities................................ 25,443 21,284 38,278
---------- ---------- ----------
Decrease in cash and cash equivalents......................................... (1,215) (23) (3,462)
Beginning cash and cash equivalents........................................... 6,168 4,953 4,930
---------- ---------- ----------
Ending cash and cash equivalents.............................................. $ 4,953 $ 4,930 $ 1,468
---------- ---------- ----------
---------- ---------- ----------
The Registrant's subsidiaries declared dividends totaling $13.1 million in 1991,
$120.9 million in 1992 and $22 million in 1993. These dividends were declared to
offset certain intercompany account balances at the respective dates.
S-9
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE IV -- INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I
- ------------------------------ ---------- --------- ---------- ------- ---------- --------- ---------- -------
-- INDEBTEDNESS OF -- -- INDEBTEDNESS TO --
------------------------------------------ ------------------------------------------
BALANCE AT BALANCE BALANCE AT BALANCE
NAME OF PERSON BEGINNING ADDITIONS DEDUCTIONS AT END BEGINNING ADDITIONS DEDUCTIONS AT END
- ------------------------------ ---------- --------- ---------- ------- ---------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 1991
David R. Markin............. $ -- $ -- $ -- $ -- $ 7,500 $ -- $ -- $ 7,500
Martin L. Solomon........... -- -- -- -- 7,500 -- -- 7,500
Allan R. Tessler............ -- -- -- -- 7,500 -- -- 7,500
Wilmer J. Thomas, Jr........ -- -- -- -- 7,500 -- -- 7,500
---------- --------- ---------- ------- ---------- --------- ---------- -------
$ -- $ -- $ -- $ -- $ 30,000 $ -- $ -- $30,000
---------- --------- ---------- ------- ---------- --------- ---------- -------
---------- --------- ---------- ------- ---------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 1992
David R. Markin............. $ -- $ -- $ -- $ -- $ 7,500 $ -- $ -- $ 7,500
Martin L. Solomon........... -- -- -- -- 7,500 -- -- 7,500
Allan R. Tessler............ -- -- -- -- 7,500 -- -- 7,500
Wilmer J. Thomas, Jr........ -- -- -- -- 7,500 -- -- 7,500
---------- --------- ---------- ------- ---------- --------- ---------- -------
$ -- $ -- $ -- $ -- $ 30,000 $ -- $ -- $30,000
---------- --------- ---------- ------- ---------- --------- ---------- -------
---------- --------- ---------- ------- ---------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 1993
David R. Markin............. $ -- $ -- $ -- $ -- $ 7,500 $ -- $ -- $ 7,500
Martin L. Solomon........... -- -- -- -- 7,500 -- -- 7,500
Allan R. Tessler............ -- -- -- -- 7,500 -- -- 7,500
Wilmer J. Thomas, Jr........ -- -- -- -- 7,500 -- -- 7,500
---------- --------- ---------- ------- ---------- --------- ---------- -------
$ -- $ -- $ -- $ -- $ 30,000 $ -- $ -- $30,000
---------- --------- ---------- ------- ---------- --------- ---------- -------
---------- --------- ---------- ------- ---------- --------- ---------- -------
NOTE:The above amounts relate to amounts loaned to the Company to complete the
Holding buyout as described in Note A of the notes to consolidated
financial statements.
S-10
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------- ----------- -------------------------- ------------- -----------
ADDITIONS CHARGED TO:
BALANCE AT -------------------------- BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ------------------------------------------------- ----------- ------------- ----------- ------------- -----------
YEAR ENDED DECEMBER 31, 1991:
Deducted from assets:
Allowance for doubtful accounts -- trade..... $ 808 $ 210 $ -- $ (412 ) $ 606
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Allowance for doubtful accounts -- finance
lease receivables........................... $ 842 $ (7 ) $ 292 $ (183 ) $ 944
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Contract & warranty reserves................... $ 10,796 $ 1,274 $ -- $ (3,807 ) $ 8,263
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Workers' compensation.......................... $ 242 $ 836 $ -- $ (813 ) $ 265
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Claims......................................... $ 2,500 $ 1,047 $ -- $ (830 ) $ 2,717
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
YEAR ENDED DECEMBER 31, 1992:
Deducted from assets:
Allowance for doubtful accounts -- trade..... $ 606 $ 183 $ -- $ (166 ) $ 623
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Allowance for doubtful accounts -- finance
lease receivables........................... $ 944 $ 52 $ -- $ (317 ) $ 679
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Contract & warranty reserves................... $ 8,263 $ 3,564 $ -- $ (3,452 ) $ 8,375
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Workers' compensation.......................... $ 265 $ 4,584 $ -- $ (3,008 ) $ 1,841
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Claims......................................... $ 2,717 $ 783 $ -- $ (168 ) $ 3,332
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
YEAR ENDED DECEMBER 31, 1993:
Deducted from assets:
Allowance for doubtful accounts -- trade..... $ 623 $ 234 $ -- $ (109 ) $ 748
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Allowance for doubtful accounts -- finance
lease receivables........................... $ 679 $ 52 $ -- $ (572 ) $ 159
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Contract & warranty reserves................... $ 8,375 $ 5,439 $ -- $ (3,429 ) $ 10,385
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Workers' compensation.......................... $ 1,841 $ 1,200 $ -- $ (1,927 ) $ 1,114
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Claims......................................... $ 3,332 $ 1,103 $ -- $ (1,106 ) $ 3,329
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
<FN>
- --------------
(1) Reclassification to other reserves and utilization of reserves.
S-11
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------- ----------- --------------- ----------- ----------- ------------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
AMOUNT AMOUNT INTEREST
BALANCE AT WEIGHTED OUTSTANDING OUTSTANDING RATE DURING
END OF AVERAGE DURING THE DURING THE THE
CATEGORY OF AGGREGATE SHORT-TERM BORROWINGS PERIOD INTEREST RATE PERIOD PERIOD(1) PERIOD(2)
- ----------------------------------------------- ----------- --------------- ----------- ----------- ------------
BANK BORROWINGS:
Year ended December 31, 1991................. $ 4,000 7.00% $ 4,000 $ 2,053 8.38%
Year ended December 31, 1992................. 5,000 7.00% 5,000 4,350 6.71%
Year ended December 31, 1993................. 5,000 7.25% 5,000 4,998 7.25%
<FN>
- --------------
(1) Amount of loan divided by number of days in year, times the number of days
outstanding during the year.
(2) Total interest expense during the period divided by the average amount
outstanding during the period.
S-12
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTAL INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS)
COLUMN B
-------------------------------------------------------
CHARGED TO CONTINUING OPERATIONS' COST AND EXPENSES
-------------------------------------------------------
COLUMN A DECEMBER 31, 1991 DECEMBER 31, 1992 DECEMBER 31, 1993
- -------------------------------------------------------- ----------------- ----------------- -----------------
Maintenance and repairs................................. $ 9,543 $ 9,646 $ 15,663
------ ------ -------
Depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals (1).......... $ -- $ -- $ --
------ ------ -------
Taxes other than payroll and income taxes (1)........... $ -- $ -- $ --
------ ------ -------
Royalties (1)........................................... $ -- $ -- $ --
------ ------ -------
Advertising costs (1)................................... $ -- $ -- $ --
------ ------ -------
<FN>
- --------------
(1) Amounts for these expenses are not presented as such amounts are less than
1% of total revenues in the year indicated.
S-13
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SCHEDULE XIV -- SUPPLEMENTAL INFORMATION CONCERNING PROPERTY -- CASUALTY
INSURANCE OPERATIONS
(DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E COL. F COL. G
- ---------------------- ----------- ----------- ----------- ----------- ----------- -------------
RESERVES
FOR
UNPAID
DEFERRED CLAIMS DISCOUNT,
POLICY AND CLAIM IF ANY, NET
AFFILIATION WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INVESTMENT
REGISTRANT COSTS EXPENSE(1) COLUMN C PREMIUMS(2) PREMIUMS(3) INCOME
- ---------------------- ----------- ----------- ----------- ----------- ----------- -------------
WHOLLY-OWNED INSURANCE SUBSIDIARY:
Year Ended:
December 31, 1991... $ 2,073 $ 64,952 $ -- $ 11,619 $ 39,877 $ 7,061
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
December 31, 1992... $ 1,832 $ 75,780 $ -- $ 10,463 $ 40,347 $ 8,227
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
December 31, 1993... $ 1,893 $ 71,179 $ -- $ 9,547 $ 40,836 $ 7,838
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
COL. A COL. H COL. I COL. J COL. K
- ---------------------- ------------------- ----------- ----------- ---------
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES
INCURRED RELATED
TO: AMORTIZATION PAID
------------------- OR DEFERRED CLAIMS
(1) (2) POLICY AND CLAIM
AFFILIATION WITH CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUM
REGISTRANT YEAR YEARS COSTS EXPENSES WRITTEN
- ---------------------- -------- --------- ----------- ----------- ---------
WHOLLY-OWNED INSURANCE
Year Ended:
December 31, 1991... $ 31,852 $ 1,676 $ (341) $ 26,208 $ 39,530
-------- --------- ----------- ----------- ---------
-------- --------- ----------- ----------- ---------
December 31, 1992... $ 30,322 $ 2,043 $ (241) $ 27,319 $ 39,238
-------- --------- ----------- ----------- ---------
-------- --------- ----------- ----------- ---------
December 31, 1993... $ 33,193 $ (454) $ 61 $ 30,832 $ 40,732
-------- --------- ----------- ----------- ---------
-------- --------- ----------- ----------- ---------
<FN>
- --------------
(1) Includes reinsurance recoverable on unpaid claims and claims adjustment
expense of $8,106, $13,888 and $7,380 in 1991, 1992 and 1993, respectively,
in connection with the restatement of the balance sheet loss reserve amounts
as reported in accordance with SFAS No. 113.
(2) Includes net ceded premiums of $333, $286 and $(526) in 1991, 1992 and 1993,
respectively, in connection with the restatement of the balance sheet
unearned premium amounts as reported in accordance with SFAS No. 113.
(3) Includes premiums earned of $12,735, $13,161 and $13,400 in 1991, 1992 and
1993, respectively, in connection with coverage provided to other entities
in the consolidated group which have been eliminated in consolidation.
S-14
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
1.1 Form of Underwriting Agreement among Alex. Brown & Sons Incorporated, SPP Hambro &
Co. and International Controls Corp. (the "Registrant") with respect to the %
Senior Secured Notes due 2002 of the Registrant and the Units consisting of the %
Senior Subordinated Notes due 2004 of the Registrant and Warrants to purchase
common stock of the Registrant.**
3.1 Restated Articles of Incorporation of Registrant
3.2 By-Laws of Registrant as effective May 13, 1991 (incorporated herein by reference
to Exhibit 3.3 of the Registrant's Annual Report of Form 10-K for the year ended
December 31, 1992 (the 1992 10-K)).
4.1 Form of Indenture between Registrant and First Fidelity Bank, National Association
("First Fidelity"), New Jersey, as Trustee, relating to the 12 3/4% Senior
Subordinated Debentures due August 1, 2001 of Registrant (incorporated herein by
reference to Exhibit 4.1 to Registration Statement No. 33-7212 filed with the
Securities and Exchange Commission on July 15, 1986).
4.2 Form of Indenture between Registrant and Midlantic National Bank, as Trustee,
relating to the 14 1/2% Subordinated Discount Debentures due January 1, 2006 of
Registrant (incorporated herein by reference to Exhibit 4.1 to Registration
Statement No. 33-1788 filed with the Securities and Exchange Commission on
November 26, 1985).
4.3 Form of Indenture between Registrant and First Fidelity Bank, National
Association, as Trustee, relating to the % Senior Secured Notes due 2002.**
4.4 Agreement to furnish additional documents upon request by the Securities and
Exchange Commission (incorporated herein by reference to Exhibit 4.3 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (the
"1989 10-K")).
4.5 Form of Indenture between the Registrant and Marine Midland Bank, as Trustee,
relating to the % Senior Subordinated Notes due 2004.**
4.6 Form of Warrant Agreement between the Registrant and American Stock Transfer &
Trust Company.**
5.1 Opinion of Hutton Ingram Yuzek Gainen Carroll & Bertolotti regarding the legality
of certain of the securities being registered.*
10.1 Amended and Restated Agreement of Limited Partnership of Checker L.P.
(incorporated herein by reference to Exhibit 10.17 to the 1989 10-K).
10.2 Amendment, dated July 28, 1989, to Amended and Restated Agreement of Limited
Partnership of Checker L.P. (incorporated herein by reference to Exhibit 19.1 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991
(the "1991 10-K")).
10.3 Amendment, dated June 25, 1991, to Amended and Restated Agreement of Limited
Partnership of Checker L.P. (incorporated herein by reference to Exhibit 19.2 to
the 1991 10-K).
10.4 Amended and Restated Employment Agreement, dated as of November 1, 1985, between
Motors and David R. Markin ("Markin Employment Agreement") (incorporated herein
by reference to Exhibit 10.17 to the 1989 10-K).
10.5 Amendment, dated as of March 4, 1992, to Markin Employment Agreement (incorporated
herein by reference to Exhibit 10.3 to the 1991 10-K).
10.6 Extension, dated July 12, 1993, of Amended and Restated Employment Agreement
Between Checker and David R. Markin (incorporated herein by reference to Exhibit
10.6 of the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (the "1993 10-K")).
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
10.7 Amended and Restated Employment Agreement, dated as of June 1, 1992, between
Yellow Cab and Jeffrey Feldman (incorporated herein by reference to Exhibit 28.2
of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1992 (the "June 1992 10-Q").
10.8 Form of Stated Benefit Salary Continuation Agreement (incorporated herein by
reference to Exhibit 10.17 to the 1989 10-K).
10.9 Employment Agreement, dated as of July 1, 1992, between Registrant and Jay H.
Harris (incorporated herein by reference to Exhibit 28.1 to the June 1992 10-Q).
10.10 Loan and Guaranty Agreement, dated September 17, 1992, by and among Checker L.P.,
Motors, SCSM and NBD Bank, N.A. (incorporated herein by reference to Exhibit 28.1
to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (the "September 1992 10-Q")).
10.11 First Amendment, dated as of November 1, 1993, to Loan and Guaranty Agreement.
10.12 Credit and Guaranty Agreement, dated as of August 1, 1989, by and among SCSM,
Motors, Checker L.P. and NBD Bank, N.A. (the "Credit Agreement") (incorporated
herein by reference to Exhibit 10.10 to the 1992 10-K).
10.13 First Amendment, dated as of June 1, 1990, to the Credit Agreement (incorporated
herein by reference to Exhibit 10.11 of the 1992 10-K).
10.14 Second Amendment, dated as of January 2, 1991, to the Credit Agreement
(incorporated herein by reference to Exhibit 10.12 of the 1992 10-K).
10.15 Third Amendment, dated as of November 1, 1993, to the Credit Agreement.
10.16 Supplemental Agreement, dated as of April 20, 1992, among SCSM, Motors, Checker
L.P. and NBD Bank, N.A. (incorporated herein by reference to Exhibit 10.13 of the
1992 10-K).
10.17 Second Supplemental Agreement, dated as of September 17, 1992, among SCSM, Motors,
Checker L.P. and NBD Bank, N.A. (incorporated herein by reference to Exhibit 28.2
of the June 1991 10-Q).
10.18 Lease, dated December 1, 1988, between SCSM and Park Corporation (incorporated
herein by reference to Exhibit 10.17 to the 1989 10-K).
10.19 Loan and Security Agreement dated as of March 21, 1990, by and among Great Dane,
Great Dane Trailers Indiana, Inc., Great Dane Trailers Nebraska, Inc., Great Dane
Trailers Tennessee, Inc., certain lending institutions and Security Pacific
Business Credit Inc., as Agent (the "Security Pacific Agreement") (incorporated
herein by reference to Exhibit 10.17 to the 1989 10-K).
10.20 First Amendment, dated as of March 30, 1990, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.3 to the 1991 10-K).
10.21 Second Amendment, dated as of April 30, 1990, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.4 to the 1991 10-K).
10.22 Third Amendment, dated as of August 14, 1990, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.5 to the 1991 10-K).
10.23 Fourth Amendment, dated as of February 28, 1991, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.6 to the 1991 10-K).
10.24 Waiver and Fifth Amendment, dated as of September 3, 1991, to the Security Pacific
Agreement (incorporated herein by reference to Exhibit 19.7 to the 1991 10-K).
10.25 Waiver, Consent and Sixth Amendment, dated April 30, 1992, to the Security Pacific
Agreement (incorporated herein by reference to Exhibit 28 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992).
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
10.26 Seventh Amendment, dated as of July 10, 1992, to the Security Pacific Agreement
(incorporated herein by reference to the June 1992 10-Q).
10.27 Eighth Amendment, dated as of February 19, 1993, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 10.24 of the 1992 10-K).
10.28 Waiver, Consent and Ninth Amendment, dated March 26, 1993, to the Security Pacific
Agreement (incorporated herein by reference to Exhibit 10.29 of the 1992 10-K).
10.29 Tenth Amendment, dated as of November 1, 1993, to the Security Pacific Agreement.
10.30 Assumption Agreement dated as of August 1, 1989, by and between Motors and the
West Virginia Economic Development Authority (incorporated herein by reference to
Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.31 Agreement, dated as of September 1, 1991, between Checker L.P. and Jerry E.
Feldman (incorporated herein by reference to Exhibit 10.12 to the 1991 10-K).
10.32 Form of Checker Motors Corporation Excess Benefit Retirement Plan, effective
January 1, 1983 (incorporated herein by reference to Exhibit 19.9 to the 1991
10-K).
10.33 Amended and Restated License Agreement, dated December 30, 1992, between Checker
Motors Corporation and Checker Taxi Association, Inc. (incorporated herein by
reference to Exhibit 10.28 of the 1992 10-K).
10.34 Employment Agreement, dated as of January 1, 1994 between Registrant and David R.
Markin.
10.35 Eleventh Amendment, dated as of March 11, 1994, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994).
10.36 Employment Agreement dated as of November 4, 1991, between Great Dane and Willard
R. Hildebrand.
10.37 Form of Escrow Deposit Agreement between the Registrant and First Fidelity, dated
as of , 1994.**
10.38 Settlement Agreement, dated as of June 21, 1994, among John Garamendi, as
Insurance Commissioner of the State of California, Base Assets Trust, Checker
L.P., Motors, Checker Holding Corp. III and the Company.**
10.39 Form of Loan Agreement, dated as of , 1994, by and among the
Company, Great Dane, Motors, Checker L.P., SCSM, Great Dane Trailers Nebraska,
Inc., Great Dane Trailers Tennessee, Inc., Great Dane Los Angeles, Inc., NBD
Bank, N.A., as agent, and the lenders named therein.*
10.40 Form of Pledge and Intercreditor Agreement, dated as of , 1994, entered into by
the Company, the Senior Note Trustee and NBD Bank, N.A., as collateral agent, for
the benefit of the lenders named therein.*
10.41 Form of Pledge Agreement and Irrevocable Proxy, dated as of , 1994, entered into
by Motors in favor of NBD Bank, N.A., as collateral agent, for the benefit of the
lenders named therein.*
10.42 Form of Pledge Agreement and Irrevocable Proxy, dated as of , 1994, entered into
by Great Dane in favor of NBD Bank, N.A., as collateral agent, for the benefit of
the lenders named therein.*
10.43 Form of Security Agreement entered into by the Company and the Co-Obligors in
favor of NBD Bank, N.A., as agent, for the benefit of the lenders named therein.*
10.44 Form of Taxi Medallion Security Agreement.*
12.1 Statements regarding computation of ratios.
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
21.1 Subsidiaries of Registrant.
23.1 Consent of Ernst & Young**
23.2 Consent of Hutton Ingram Yuzek Gainen Carroll & Bertolotti -- see Exhibit
5.1.
24.1 Power of Attorney.
25.1 Statement of eligibility of Trustee for the Senior Notes.**
25.2 Statement of eligibility of Trustee for the Senior Subordinated Notes.**
28.1 Schedule P of Annual Statements provided by Country to Illinois Regulatory
Authorities.
<FN>
- --------------
* To be filed by amendment
** Filed herewith