As filed with the Securities and Exchange Commission on October 31, 1997.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Delco Remy International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 6719 35-1909253
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
See Table of Additional Registrants Below
2902 Enterprise Drive
Anderson, Indiana 46013
(765) 778-6499
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Susan E. Goldy, Esq.
Vice President and General Counsel
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, Indiana 46013
(765) 778-6799
(Name, address including zip code, and telephone number, including area code,
of agent for service)
With Copies to:
Christopher G. Karras, Esq.
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103
(215) 994-4000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box:
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of Each Class of Proposed Aggregate Amount of
Securities to be Registered Amount Maximum Offering Offering Registration Fee
to be Price Per Unit (1) Price (1)
Registered
10-5/8% Senior Subordinated Notes
Due 2006 $140,000,000 100% $140,000,000 $42,425
Senior Subordinated Guarantees of
10-5/8% Senior Subordinated Notes
Due 2006 of Registrants other than $140,000,000 -- -- None(2)
Delco Remy International, Inc.
- -----------------------
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) No separate fee payable pursuant to Rule 457(n).
</FN>
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Table of Additional Registrants
Name and Address, Including
Zip Code and Telephone State or Other Primary Standard
Number, Including Area Code, Jurisdiction of Classification I.R.S. Employer
of Principal Executive Offices Incorporation Code Number Identification No.
Delco Remy America, Inc. Delaware 3694 35-1909405
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Remy International, Inc. Delaware 3694 35-2004050
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Reman Holdings, Inc. Delaware 3694 52-1910536
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Nabco, Inc. Michigan 3694 38-2105668
591 E. Church Street
P.O. Box 66
Reed City, MI 49677
(616) 832-8104
The A&B Group, Inc. Mississippi 3694 64-0823245
1029 "B" Street
Meridian, MS 39301
(601) 485-8575
A&B Enterprises, Inc. Mississippi 3694 64-0643692
Highway 18, West
P.O. Box 8
Meridian, MS 39153
(601) 782-9922
Dalex, Inc. Mississippi 5013 64-0719018
Bay Springs Industrial Park
P.O. Box 1901
123 Commerce Street
Bay Springs, MS 39422
(601) 764-4168
A&B Cores, Inc. Mississippi 3694 64-0815878
225 White Oak Drive
P.O. Box 339
Raleigh, MS 39153
(601) 782-9922
R&L Tool Company, Inc. Mississippi 3694 64-0701131
R. 1, Box 320
Highway 481, North
Raleigh, MS 39153
(601) 536-2193
MCA, Inc. of Mississippi Mississippi 3694 64-0765216
412 Bay Street
P.O. Box 257
Heidelberg, MS 39439
(601) 787-2688
Power Investments, Inc. Indiana 3714 35-1567602
400 Forsythe Street
P. O. Box 667
Franklin, IN 46131
(317) 738-2117
Franklin Power Products, Inc. Indiana 3714 35-1809762
400 Forsythe Street
P.O. Box 667
Franklin, IN 46131
(317) 738-2117
International Fuel Systems, Inc. Indiana 3714 35-1880654
980 Hurricane Road
Franklin, IN 46131
(317) 738-9408
Marine Drive Systems, Inc. New Jersey 3519 58-0941862
Grisom Aeroplex
1175 N. Hoosier Boulevard
Peru, IN 46970
(765) 689-8176
Marine Corporation of America Indiana 3519 35-1804826
980 Hurricane Road
Franklin, IN 46131
(317) 738-9408
Powrbilt Products, Inc. Texas 3519 75-2398592
617 S. 4th Street
Mansfield, TX 76063
(817) 473-3208
World Wide Automotive, Inc. Virginia 3694 54-1025997
130 Westbrooke Drive
Fort Collier Industrial Park
Winchester, VA 22603
(540) 667-6500
DELCO REMY INTERNATIONAL, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 404(a) and Item 501(b) of Regulation S-K
Showing Location in Prospectus of the Information Required by Part I of Form S-4
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................... Forepart of the Registration Statement; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus
Inside Front Cover Page; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information...................................... Prospectus Summary; Risk Factors; Selected
Consolidated Historical Financial Data
4. Terms of the Transaction.............................. The Exchange Offer; Description of Notes; Certain
Federal Income Tax Consequences; Plan of
Distribution
5. Pro Forma Financial Information....................... Prospectus Summary; Pro Forma Condensed Consolidated
Financial Data; Selected Consolidated
Historical Financial Data
6. Material Contracts With the Company Being Acquired.... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.......... Not Applicable
8. Interests of Named Experts and Counsel................ Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................... Not Applicable
10. Information With Respect to S-3 Registrants........... Not Applicable
11. Incorporation of Certain Information by Reference..... Not Applicable
12. Information With Respect to S-2 or S-3 Registrants.... Not Applicable
13. Incorporation of Certain Information by Reference..... Not Applicable
14. Information With Respect to Registrants Other Than S-2
or S-3 Registrants..................................... Available Information; Prospectus Summary; Risk
Factors: Use of Proceeds; Capitalization; Pro
Forma Condensed Consolidated Financial Data;
Selected Consolidated Historical Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Principal Stockholders;
Description of Indebtedness; Description of
Notes; Plan of Distribution; Legal Matters;
Experts; Financial Statements
15. Information With Respect to S-3 Companies............. Not Applicable
16. Information With Respect to S-2 or S-3 Companies...... Not Applicable
17. Information With Respect to Companies Other Than S-2
or S-3 Companies....................................... Not Applicable
18. Information if Proxies, Consents or Authorizations Are
to be Solicited........................................ Not Applicable
19. Information if Proxies, Consents or Authorizations Are
Not to be Solicited, or in an Exchange Offer........... The Exchange Offer; Management; Principal
Stockholders; Description of Indebtedness;
Description of Notes
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1997
PROSPECTUS
OFFER TO EXCHANGE
10-5/8% Senior Subordinated Notes Due 2006
for all outstanding
10-5/8% Senior Subordinated Notes Due 2006
of
DELCO REMY INTERNATIONAL, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON _______________, 1998, UNLESS EXTENDED
Delco Remy International, Inc., a Delaware corporation (the "Company"),
hereby offers to exchange an aggregate principal amount of up to $140,000,000 of
its 10-5/8% Senior Subordinated Notes Due 2006 (the "Exchange Notes") for a like
principal amount of its 10-5/8% Senior Subordinated Notes Due 2006 (the
"Existing Notes") outstanding on the date hereof upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying letter of
transmittal (the "Letter of Transmittal" and, together with this Prospectus, the
"Exchange Offer"). The Exchange Notes and the Existing Notes are hereinafter
collectively referred to as the "Notes." The terms of the Exchange Notes are
identical in all material respects to those of the Existing Notes, except for
certain transfer restrictions and registration rights relating to the Existing
Notes. The Exchange Notes will be issued pursuant to, and be entitled to the
benefits of, the Indenture (as defined) governing the Existing Notes.
The Exchange Notes will bear interest from and including the date of
consummation of the Exchange Offer. Interest on the Exchange Notes will be
payable semi-annually on February 1 and August 1 of each year, commencing
February 1, 1998. Additionally, interest on the Exchange Notes will accrue from
the last interest payment date on which interest was paid on the Existing Notes
surrendered in exchange therefor.
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all present and future Senior Indebtedness
(as defined) of the Company. The Notes will rank pari passu with all present and
future Senior Subordinated Indebtedness (as defined) of the Company and will
rank senior to all subordinated indebtedness of the Company. The Company is a
holding company that derives all of its operating income and cash flow from its
subsidiaries. The Exchange Notes will be fully and unconditionally guaranteed
(collectively, the "Subsidiary Guaranties") by each Domestic Restricted
Subsidiary (as defined; collectively, the "Subsidiary Guarantors"). In addition,
each of the Subsidiary Guarantors will be a borrower under, or guarantor of, the
Senior Credit Facility (as defined), which ranks senior to the Notes, and the
obligations under the Senior Credit Facility will be secured by substantially
all of the assets of the Company and the Subsidiary Guarantors. See "Description
of Notes" and "Description of Indebtedness."
As of July 31, 1997, on a pro forma basis after giving effect to the
Transactions (as defined), the Company would have had approximately $181.9
million of outstanding Senior Indebtedness and no outstanding Senior
Subordinated Indebtedness (other than the Notes), the Subsidiary Guarantors'
outstanding Senior Indebtedness would have been approximately $91.8 million
(excluding unused commitments under the Senior Credit Facility), the Subsidiary
Guarantors' outstanding Senior Subordinated Indebtedness would have been
approximately $52.8 million (excluding the Subsidiary Guaranties), and all
liabilities and preferred stock of the Company's subsidiaries (excluding the
Subsidiary Guaranties and unused commitments under the Senior Credit Facility)
would have totaled approximately $341.3 million. See "Description of
Notes--Subordination." The indenture under which the Existing Notes were issued
permits the Company and the Subsidiary Guarantors to incur additional
indebtedness, including Senior Indebtedness and indebtedness that will rank pari
passu with the Notes.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Agreement dated July
26, 1996 (the "Registration Agreement") by and among the Company, certain of the
Company's subsidiaries signatories thereto, as Guarantors, and Salomon Brothers
Inc and Smith Barney Inc. (the "Initial Purchasers") with respect to the initial
sale of the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined) for the Exchange Offer. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Existing Notes with respect to the Exchange Offer, the Company will promptly
return such Existing Notes to the holders thereof. See "The Exchange Offer."
The Company is offering the Exchange Notes in reliance on certain
interpretive letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties in unrelated transactions. Based
on such interpretive letters, the Company is of the view that holders of
Existing Notes (other than any holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) who exchange their Existing Notes for Exchange Notes pursuant
to the Exchange Offer generally may offer such Exchange Notes for resale, resell
such Exchange Notes and otherwise transfer such Exchange Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such Exchange Notes are acquired in the ordinary course
of the holders' business and such holders have no arrangement or understanding
with any person to participate in a distribution of such Exchange Notes. If any
holder of Existing Notes is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivery of a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Existing Notes where such Existing Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." Prior to the
Exchange Offer, there has been no public market for the Existing Notes. If a
market for the Exchange Notes should develop, such Exchange Notes could trade at
a discount from their principal amount. The Company currently does not intend to
list the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system, and no active public market
for the Exchange Notes is currently anticipated. There can be no assurance that
an active public market for the Exchange Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
See "Risk Factors" commencing on page 13 for a discussion of certain
factors that holders of Existing Notes should consider in connection with the
Exchange Offer.
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 date of this Prospectus is December _____________, 1997.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to the
Company and the Exchange Offer, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. Although this
Prospectus describes the material terms of certain contracts, agreements and
other documents filed as exhibits to the Registration Statement, with respect to
each such contract, agreement or other document reference is made to the exhibit
for a more complete description of the document or matter involved, and each
description thereof contained in this Prospectus shall be deemed qualified in
its entirety by such reference. The Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web site is:
http://www.sec.gov.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. In
the event the Company ceases to be subject to the informational requirements of
the Exchange Act, the Company will be required under the Indenture, for so long
as any of the Notes remain outstanding, to furnish to the Trustee (as defined),
deliver or cause to be delivered to the holders of the Notes and file with the
Commission (provided that the Commission will accept such filing) copies of its
annual report and the information, documents and other reports which are
required to be filed by U.S. corporations subject to Section 13 or 15(d) of the
Exchange Act.
This Prospectus includes forward-looking statements which involve risks and
uncertainties as to future events. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, those set forth under "Risk
Factors." See "Disclosure Regarding Forward Looking Statements."
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. The disclosure contained throughout this Prospectus which is
identified as being presented on a pro forma ("pro forma") basis has been
prepared as if the following transactions (the "Transactions") occurred (a) for
purposes of statement of operations and cash flow data, on August 1, 1996 and
(b) for purposes of balance sheet data, on July 31, 1997 (except for (i) below,
which is included in the historical balance sheet data): (i) the acquisition by
the Company of World Wide Automotive, Inc. ("World Wide") on May 8, 1997, (ii)
the acquisition by the Company of Ballantrae Corporation ("Ballantrae") for
which the Company has entered into an Agreement and Plan of Merger dated October
, 1997, (iii) issuance by the Company in underwritten public offerings of (x)
$130.0 million principal amount of Senior Notes Due 2007 (the "Senior Note
Offering") and (y) shares of the Company's Class A Common Stock (the "Equity
Offering" and, together with the Senior Notes Offering, the "Offerings"), (iv)
the payment in full by the Company of the 10 1/2% Senior Note due July 31, 2003
to World Subordinated Debt Partners, L.P., (v) the payment in full by the
Company of the 11.50% Subordinated Notes due July 31, 2004 to General Motors
Corporation, (vi) the exchange of the 11% Junior Subordinated Notes due July 31,
2004 (the "Junior Subordinated Notes") for shares of Class A Common Stock, (vii)
the exchange, in accordance with their terms, of the outstanding shares of 8%
preferred stock of Delco Remy America, Inc. ("DRA") to an 8% subordinated
debenture of DRA, (viii) a stock dividend to existing holders of Common Stock
resulting in a -for-one increase in the outstanding shares of Common Stock (the
"Stock Split"), (ix) the payment in full by the Company of subordinated notes
payable to certain former stockholders of A&B Group and Power Investments (as
defined) and (x) the amendment of the Senior Credit Facility (as defined) in
connection with the consummation of the Offerings. For purposes of this
Prospectus, the "Company" shall refer to Delco Remy International, Inc. ("DRI")
and all of its consolidated subsidiaries, unless the context otherwise requires.
The Company
General
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves the
aftermarket and the original equipment manufacturer ("OEM") market, principally
in North America as well as in Europe, Latin America and Asia-Pacific. Net sales
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of EBITDA, with the OEM
market accounting for the balance.
The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar, Freightliner,
PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel, Volvo Trucks,
Mack, Pep Boys, Advance Auto and O'Reilly Automotive.
The Company sells its products principally under the "Delco Remy" brand
name and other major brand names worldwide. In connection with the GM
Acquisition (as defined), the Company obtained perpetual rights to the "Delco
Remy" brand name, which was first used in 1918. The Company also received the
right to use "Delco Remy" as a corporate name until 2004 and the "Remy" name in
perpetuity. In addition, GM entered into a long-term contract to purchase from
the Company substantially all of its North American requirements for automotive
starters and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."
Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division of
GM (the "Former GM Division"), formed the Company for the purpose of acquiring
the assets of the automotive starter and the heavy duty starter and alternator
businesses of the Former GM Division (the "GM Acquisition"). Upon consummation
of the Offerings and the other Transactions, CVC, management of the Company and
other existing stockholders of the Company will beneficially own approximately %
of the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will expand
the Company's drivetrain product position. Through Ballantrae's wholly owned
subsidiary, Tractech Inc. ("Tractech"), the Company will offer high quality
traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.
The Company's expanding aftermarket business benefits from the
non-deferrable nature of the repairs for which many of the Company's products
are used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many of
its aftermarket competitors. The Company believes that its participation in both
OEM and aftermarket businesses and its diversified customer base reduce its
exposure to the cyclicality of the automotive industry. The Company's growth
strategy is designed to capitalize on its position as a consolidator in the
large and highly fragmented remanufacturing aftermarket.
Growth Strategy
The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:
Increasing Aftermarket Presence
Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as an
OEM supplier. The Company plans to strengthen its customer relationships by (i)
continuing to expand its product offerings, (ii) capitalizing on the expansion
of the national automotive retail parts chains and warehouse distributors that
are customers of the Company, (iii) meeting the increasing demands of OEMs and
their dealer networks for high quality remanufactured units, which enable them
to reduce warranty and extended service costs, and (iv) growing sales of
existing and new product lines to OEM dealer networks as dealers continue to
capture an increasing percentage of vehicle repairs, due to longer warranty and
service programs and growing vehicle complexity. Additionally, with the recent
acquisition of World Wide, the Company expanded its product line and now offers
a full line of starters and alternators for domestic and import vehicles. The
acquisition also has improved the Company's distribution capabilities, which now
include a nationwide overnight delivery service.
Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM capabilities,
remanufacturing expertise, full product line, greater access to "cores" and
ability to capitalize on economies of scale, the Company is well positioned to
benefit from the consolidation of the aftermarket.
Expanding Globally
The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly growing foreign
markets. The Company has recently been awarded new business by GM, Volkswagen,
Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe; Daewoo Motors in
India; and Mercedes Benz, Volvo Trucks, John Deere and Dina in Mexico. The
Company intends to supply its existing OEM customers on a global basis as they
expand their operations and require local supply of component parts that meet
their demands for quality, technology, delivery and service. The Company
believes that its global expansion will enable it to gain new international OEM
customers who will also require local production of high quality products. In
addition, the expansion of the Company's OEM business into international markets
has provided the Company with the infrastructure necessary to develop an
aftermarket presence in these countries. The Company has established
manufacturing operations and strategic ventures in Hungary, Korea and Mexico,
and plans to complete a strategic alliance in India and a joint venture in
Brazil in fiscal year 1998. The acquisition of Ballantrae will provide the
Company with a European manufacturing plant which has been in operation since
1983. Aided by this facility, Ballantrae has developed strong relationships with
European customers for traction control systems, especially in the market for
construction equipment.
Introducing Technologically Advanced New Products
As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new products underscore the Company's commitment to developing
state-of-the-art products that address the higher output, lower weight and
increased durability requirements of OEM customers.
Operating Strategy
The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:
"Focus" Factories to Drive Manufacturing Excellence
The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant designed
to facilitate lean manufacturing techniques. The Company has successfully
launched three new focus factories since 1996. When the currently planned shift
to focus factories is completed, the Company will occupy five focus factories
and will have reduced its floor space for OEM production by more than 70%. The
Company believes that the benefits of the focus factories include reduced
overhead costs, enhanced productivity, increased product quality and lower
inventories.
Productivity Improvements
In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the Company
to continue to achieve productivity improvements in the existing and new focus
factories. The increased productivity achieved since the GM Acquisition is due
primarily to continuous improvement initiatives and the significant number of
employees who have exercised their contract rights to return ("flowback") to GM
or to retire.
Product Quality and Continuous Improvement
In July 1997, the Company received the prestigious Supplier of the Year
award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and the Company is a
Ford Authorized Remanufacturer ("Ford FAR") in five of the seven Canadian
provinces. Global purchasing has further enhanced the Company's continuous
improvement efforts. The Company is utilizing its international ventures to
develop new, lower cost sources of materials and is consolidating its vendor
base to fewer, more competitive suppliers.
Recent Developments
On October , 1997, the Company entered into a definitive agreement to
acquire Ballantrae for $49.2 million (including assumed debt). Ballantrae
operates through two subsidiaries: Tractech, a leading producer of traction
control systems for heavy duty OEMs and the aftermarket; and Kraftube, Inc., a
tubing assembly business which sells products to compressor manufacturers for
commercial air conditioners and refrigeration equipment. In fiscal year 1997,
Tractech accounted for approximately 70% of Ballantrae's $37.6 million of net
sales. The Company's acquisition of Ballantrae strengthens the Company's overall
market position by (i) adding traction control systems to the Company's range of
drivetrain products, (ii) increasing sales to existing heavy duty OEM customers
and (iii) expanding the Company's customer base. The acquisition is expected to
be completed at or prior to the consummation of the Offerings. See "Risk
Factors--Acquisition of Ballantrae; Conflicts of Interest," "Company History,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
Other Information
For purposes of the financial information set forth in this Prospectus, (i)
EBITDA represents the sum of income from continuing operations before interest
expense, income taxes, preferred dividend requirement of subsidiary, minority
interest in income of subsidiaries, gain on sale of building and restructuring
charges, plus depreciation, amortization and non-cash post-retirement benefits
other than pensions, and (ii) unless otherwise indicated, all references to
years are to the twelve months ended July 31, the Company's fiscal year end.
The Company's world headquarters are located at 2902 Enterprise Drive,
Anderson, Indiana, 46013, and its telephone number is (765) 778-6499.
The Exchange Offer
Securities Offered......................... Up to $140,000,000 aggregate
principal amount of 10-5/8%
Senior Subordinated Notes Due
2006. The terms of the Exchange
Notes and Existing Notes are
identical in all material
respects, except for certain
transfer restrictions and
registration rights relating to
the Existing Notes.
The Exchange Offer......................... The Exchange Notes are being
offered in exchange for a like
principal amount of Existing
Notes. Existing Notes may be
exchanged only in integral
multiples of $1,000. The issuance
of the Exchange Notes is
intended to satisfy obligations
of the Company contained in the
Registration Agreement.
Expiration Date; Withdrawal of
Tender................................ The Exchange Offer will expire at
5:00 p.m., New York City time, on
__________, 1998, or such later
date and time to which it may
be extended by the Company. The
tender of Existing Notes pursuant
to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any Existing
Notes not accepted for exchange
for any reason will be returned
without expense to the tendering
holder thereof as promptly as
practicable after the expiration
or termination of the Exchange
Offer.
Certain Conditions to the Exchange
Offer................................. The Company's obligation to accept
for exchange, or to issue Exchange
Notes in exchange for, any
Existing Notes is subject to
certain customary conditions
relating to compliance with any
applicable law or any applicable
interpretation by the staff of the
Commission, the receipt of any
applicable governmental approvals
and the absence of any actions or
proceedings of any governmental
agency or court which could
materially impair the Company's
ability to consummate the
Exchange Offer. The Company
currently expects that each of
the conditions will be satisfied
and that no waivers will be
necessary. See "The Exchange
Offer--Certain Conditions to the
Exchange Offer."
Procedures for Tendering Existing
Notes................................. Each holder of Existing Notes
wishing to accept the Exchange
Offer must complete, sign and
date the Letter of Transmittal,
or a facsimile thereof, in
accordance with the instructions
contained herein and therein,
and mail or otherwise deliver
such Letter of Transmittal, or
such facsimile, together with
such Existing Notes and any other
required documentation, to the
Exchange Agent (as defined)
at the address set forth herein.
See "The Exchange Offer--
Procedures for Tendering Existing
Notes."
Use of Proceeds............................ The Company will not receive any
proceeds from the Exchange Offer.
Exchange Agent............................. National City Bank (the "Exchange
Agent") is serving as the Exchange
Agent in connection with the
Exchange Offer.
Federal Income Tax Consequences............ The exchange of Notes pursuant to
the Exchange Offer should not be
a taxable event for federal income
tax purposes. See "Certain Federal
Income Tax Considerations."
Consequences of Exchanging Existing Notes Pursuant to the Exchange Offer
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Existing Notes (other than any holder who is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchange
their Existing Notes for Exchange Notes pursuant to the Exchange Offer generally
may offer such Exchange Notes for resale, resell such Exchange Notes and
otherwise transfer such Exchange Notes without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided such Exchange
Notes are acquired in the ordinary course of the holders' business and such
holders have no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes. If any holder of Existing Notes is an
affiliate of the Company, is engaged in or intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of the Exchange Notes to be acquired in the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the Commission and (ii) must
comply with the registration requirements of the Securities Act in connection
with any resale transaction. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the Exchange Notes may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or in compliance with an available exemption from registration or
qualification. The Company has agreed, pursuant to the Registration Agreement
and subject to certain specified limitations therein, to register or qualify the
Exchange Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Notes reasonably requests in writing. If a
holder of Existing Notes does not exchange such Existing Notes for Exchange
Notes pursuant to the Exchange Offer, such Existing Notes will continue to be
subject to the restrictions on transfer contained in the legend thereon. In
general, the Existing Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. Holders
of Existing Notes do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law in connection with the Exchange Offer. See "The
Exchange Offer--Consequences of Failure to Exchange; Resales of Exchange Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the Exchange Notes will not be eligible for
PORTAL trading.
The Exchange Notes
The terms of the Exchange Notes and the Existing Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Existing Notes.
Exchange Notes.................... $140,000,000 in aggregate principal
amount of 10-5/8% Senior Subordinated
Notes Due 2006.
Maturity.......................... August 1, 2006.
Interest Payment Dates............ February 1 and August 1, commencing
February 1, 1998.
Subsidiary Guaranties............. The Exchange Notes will be
unconditionally guaranteed by each of
the Subsidiary Guarantors under the
Subsidiary Guaranties.
Subordination of Notes and
Subsidiary Guaranties........ The Exchange Notes and the Subsidiary
Guaranties will be general unsecured
senior subordinated obligations of
the Company and the Subsidiary
Guarantors, as applicable. The Exchange
Notes and the Subsidiary Guaranties
are subordinated in right of payment
to the prior payment in full of all
existing and future Senior lndebtedness,
pari passu with all present and
future Senior Subordinated Indebtedness
and senior to all present and
future subordinated indebtedness of the
Company or the relevant Subsidiary
Guarantors, as applicable. The Exchange
Notes will also be effectively
subordinated to any Secured Indebtedness
(as defined) to the extent of the
value of the assets securing such
Indebtedness. As of July 31, 1997, after
giving pro forma effect to the
Transactions, (i) the Company would have
had approximately $181.9 million of
outstanding Senior Indebtedness and no
outstanding Senior Subordinated
Indebtedness (other than the Notes), (ii)
Senior Indebtedness of the Subsidiary
Guarantors would have been approximately
$91.8 million (excluding unused
commitments under the Senior Credit
Facility), (iii) Senior Subordinated
Indebtedness of the Subsidiary Guarantors
would have been approximately $52.8
million (excluding the Subsidiary
Guaranties), (iv) Secured Indebtedness of
the Company and the Subsidiary Guarantors
would have been approximately $18.1
million (excluding unused commitments
under the Senior Credit Facility) and (iv)
all liabilities and preferred stock of
the Subsidiaries (excluding the
Subsidiary Guaranties and unused
commitments under the Senior Credit
Facility) would have been approximately
$341.3 million.
Sinking Fund...................... None.
Optional Redemption............... The Exchange Notes will be redeemable
at the option of the Company, in
whole or in part, after August 1, 2001,
at the redemption prices set forth
herein plus accrued and unpaid interest,
if any, to the redemption date. In
addition, at any time prior to August 1,
1999, the Company may redeem, at
its option, up to an aggregate amount
of 35% of the original principal
amount of the Notes with the proceeds
of one or more Public Equity Offerings
at a redemption price of 110% of the
principal amount thereof plus accrued
and unpaid interest, if any, to the
redemption date, provided that at least
50% of the original aggregate principal
amount of the Notes remains outstanding
after each such redemption.
Change of Control................. Upon the occurrence of a Change of
Control, each Holder of Notes will have
the right to require the Company to
purchase all or a portion of such
Holder's Notes at a price in cash equal
to 101% of the aggregate principal
amount thereof plus accrued and unpaid
interest, if any, to the date of
purchase. In the event of a Change of
Control, there can be no assurance
that the Company will have the financial
resources or be permitted under
the terms of its other indebtedness to
repurchase or redeem the Notes. See
"Description of Notes--Change of
Control." The degree to which the Company
is leveraged could prevent it from
repurchasing Notes tendered to it upon a
Change of Control. See "Risk Factors--
Substantial Leverage; Potential
Inability to Service Indebtedness and Make
Payments on the Notes."
Certain Covenants................. The indenture relating to the Notes
(the "Indenture") contains certain
covenants that, among other things,
limit the ability of the Company and
its Restricted Subsidiaries to (i) incur
additional indebtedness, (ii) pay
dividends or make other distributions
with respect to Capital Stock (as
defined) of the Company and its Restricted
Subsidiaries, (iii) sell assets of the
Company or its Restricted Subsidiaries,
(iv) issue or sell Restricted Subsidiary
stock, (v) enter into certain trans-
actions with affiliates, (vi) create
certain liens, (vii) enter into certain
mergers and consolidations and (viii)incur
indebtedness which is subordinate to
Senior Indebtedness and senior to the
Notes.
Defaults.......................... An Event of Default is defined in the
Indenture to include (subject to
certain notice and cure provisions)
(i) a default in the payment of
interest, continued for 30 days; (ii) a
default in the payment of principal
when due at maturity; (iii) the failure
of the Company to comply with its
obligations under certain covenants in the
Indenture, subject in some cases to such
failure continuing for certain periods of
time; (iv) the failure by the Company to
repay certain indebtedness within
applicable grace periods after final
maturity, or after acceleration because
of a default by the Company under an
agreement governing such indebtedness,
and such non-payment or acceleration
continues for 10 days; (v) certain events
of bankruptcy, insolvency or
reorganization by, or if certain
judgments are entered against, the
Company; and (vi) the failure of a
Subsidiary Guaranty to remain in full
force and effect in certain cases,
continued for 10 days. See "Description
of Notes--Defaults."
For a more detailed discussion of the Exchange Notes, see "Description of
Notes."
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical financial
data of the Company for the years ended July 31, 1995, 1996 and 1997 and as of
July 31, 1997 and summary consolidated pro forma financial data for the Company
as of and for the year ended July 31, 1997. The statement of operations data for
the years ended July 31, 1995, 1996 and 1997 and the balance sheet data as of
July 31, 1997 were derived from audited Consolidated Financial Statements of the
Company included elsewhere herein. The pro forma consolidated statement of
operations data for the year ended July 31, 1997 were prepared to illustrate the
estimated effect of the Transactions as if they had occurred on August 1, 1996.
The pro forma consolidated balance sheet data were prepared to illustrate the
estimated effect of the Transactions as if they had occurred on July 31, 1997
(other than the acquisition of World Wide, which is reflected in the
consolidated historical balance sheet data). The pro forma data do not purport
to be indicative of the results of operations or the financial position of the
Company that would have been obtained if the Transactions had in fact been
completed as of such dates or to project the results of operations or the
financial position of the Company for any future date or period. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements of the Company, "Pro Forma Condensed Consolidated Financial Data,"
related notes and other financial information included elsewhere in this
Prospectus.
For the Year Ended July 31
---------------------------------------------------------------
Pro Forma
1995 1996 1997 1997
------------- ------------- ------------- -------------
(dollars in thousands, except per share data)
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787 $ 776,368
Gross profit............................. 98,207 126,774 149,553 170,522
Selling, engineering and administrative
expenses............................. 61,206 77,994 89,098 101,567
Restructuring charges.................... -- 8,101 34,500 34,500
Operating income......................... 37,001 40,679 25,955 34,455
Interest expense......................... 18,432 27,367 38,774 35,295
Income (loss) from continuing
operations........................... 9,326 5,796 (10,263) (1,377)
Loss from discontinued operations, net of
tax.................................. 2,363 10,637 1,682 --
Net income (loss)........................ 6,963 (4,841) (14,296) --
Income (loss) from continuing
operations per share................. $ $ $ $
Net income (loss) per share..............
Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323 $ 24,961
Capital expenditures..................... 11,241 32,741 31,888 32,974
EBITDA(a)................................ 55,968 72,087 87,269 99,493
Gross margin............................. 17.1% 19.9% 21.7% 22.0%
Cash flow from operations................ 21,921 (684) 22,537 33,832
EBITDA margin............................ 9.8% 11.3% 12.7% 12.8%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x 2.8x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x 3.4x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c) 1.0x
As of July 31, 1997
------------------------------
Historical Pro Forma
------------- -------------
Balance sheet data:
Working capital.......................................................... $ 155,302 $ 171,023
Total assets............................................................. 570,569 632,060
Total debt............................................................... 363,768 341,294
Total stockholders' (deficit) equity..................................... (8,536) 86,153
<FN>
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. EBITDA should not be construed as
a substitute for income from operations, net income or cash flow from operating
activities for the purpose of analyzing the Company's operating performance,
financial position and cash flows. The Company has presented EBITDA because it
is commonly used by certain investors to analyze and compare companies on the
basis of operating performance and to determine a company's ability to service
debt. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."
(b) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
fixed charges. Fixed charges include preferred dividend requirement of
subsidiary, interest expense and the portion of operating rents that is deemed
representative of an interest factor.
(c) The deficiency of earnings to fixed charges was $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
</FN>
RISK FACTORS
Holders of Existing Notes should carefully consider the risk factors set
forth below, which are generally applicable to the Existing Notes as well as the
Exchange Notes.
Substantial Leverage; Potential Inability to Service Indebtedness and Make
Payments on the Notes
The Company incurred substantial indebtedness in connection with the GM
Acquisition. After adjusting for the Transactions and the application of the net
proceeds therefrom, at July 31, 1997, the Company's total indebtedness would
have been $341.3 million (exclusive of unused commitments and outstanding
letters of credit), and the Company would have had common stockholders' equity
of $86.2 million. The degree to which the Company is leveraged could have
important consequences, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on its existing indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) the Company's operations are
restricted by the agreements governing the Company's long-term indebtedness
which contain certain financial and operating covenants; (iv) certain
indebtedness under the Senior Credit Facility will be at variable rates of
interest, which will cause the Company to be vulnerable to increases in interest
rates; (v) all of the indebtedness outstanding under the Senior Credit Facility
will be secured by substantially all the assets of the Company and that
indebtedness, together with the Senior Subordinated Notes (as defined), will
become due prior to the time the principal on the Notes will become due; (vi)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (vii) the Company's substantial degree of leverage could make it
more vulnerable in the event of a downturn in general economic conditions or in
its business.
The Company may be required to refinance all or a portion of its present
indebtedness, substantially all of which matures prior to the maturity of the
Notes, at or prior to the maturity of such indebtedness. In the event that the
Company is unable to refinance its existing indebtedness or otherwise raise
funds to repay such indebtedness, the Company's financial condition and ability
to fund its operations would be materially adversely affected. See "Description
of Capital Stock," "Description of Indebtedness" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Subordination of Notes and the Subsidiary Guarantees; Asset Encumbrance; Holding
Company Structure
The Notes are subordinated in right of payment to all present and future
Senior Indebtedness of the Company, including the principal, premium (if any)
and interest with respect to the Senior Indebtedness under the Senior Credit
Facility. The Notes rank pari passu with all present and future Senior
Subordinated Indebtedness of the Company and will rank senior to all other
subordinated indebtedness of the Company. In addition, the Subsidiary Guaranties
are subordinated in right of payment to all existing and future Senior
Indebtedness of the Subsidiary Guarantors, rank pari passu with all existing and
future Senior Subordinated Indebtedness of the Subsidiary Guarantors and rank
senior to all other subordinated indebtedness of the Subsidiary Guarantors. As
of July 31, 1997, on a pro forma basis after giving effect to the Transactions,
the Company and the Subsidiary Guarantors would have had approximately $181.9
million of Senior Indebtedness outstanding (excluding unused commitments under
the Senior Credit Facility). Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, assets of the Company will be available to pay obligations of the
Notes only after all Senior Indebtedness of the Company has been paid in full,
and there can be no assurance that there will be sufficient assets to pay
amounts due on all or any of the Notes. See "Description of
Notes--Subordination."
The Notes are also unsecured and will be effectively subordinated to any
Secured Indebtedness of the Company. The indebtedness outstanding under the
Senior Credit Facility is secured by liens on substantially all of the assets of
the Company located within the United States. The ability of the Company to
comply with the provisions of the Senior Credit Facility may be affected by
events beyond the Company's control. The breach of any such provisions could
result in a default under the Senior Credit Facility, in which case such lenders
could elect to declare all amounts borrowed under the Senior Credit Facility,
together with accrued interest, to be due and payable. If the Company were
unable to repay such borrowings, such lenders could proceed against the
collateral. If the maturity of the indebtedness under the Senior Credit Facility
were accelerated, there can be no assurance that the assets of the Company would
be sufficient to repay in full such indebtedness and the other indebtedness of
the Company, including the Notes. See "Description of Indebtedness--Senior
Credit Facility" and "Description of Notes--Subordination."
The Company is a holding company which derives all of its operating income
from its subsidiaries. The holders of the Notes will have no direct claim
against any such subsidiaries other than the claim created against a Domestic
Restricted Subsidiary by the applicable Subsidiary Guaranty, which may be
subject to legal challenge in the event of the bankruptcy of such subsidiary.
See "Risk Factors--Fraudulent Conveyance." If such a challenge were upheld, the
Subsidiary Guaranty would be invalidated and unenforceable. To the extent that
the Subsidiary Guaranty is not enforceable, the rights of holders of the Notes
to participate in any distribution of assets of the applicable Subsidiary
Guarantor upon liquidation, bankruptcy, reorganization or otherwise may, as is
the case with other unsecured creditors of the Company, be subject to prior
claims of creditors of that Subsidiary Guarantor. The Company must rely on
dividends and other payments from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Notes. The Indenture contains covenants that restrict the
ability of the Company's subsidiaries to enter into any agreement limiting
distributions and transfers, including dividends to the Company. The ability of
the Company's subsidiaries to pay dividends and make other payments may be
subject to certain statutory, contractual and other restrictions. See
"Description of Indebtedness."
Dependence on General Motors
GM accounted for approximately 97% of the Company's 1997 pro forma
automotive OEM net sales and approximately 4.5% of the Company's 1997 pro forma
heavy duty OEM net sales. GM SPO accounted for approximately 24.2% of the
Company's 1997 pro forma aftermarket net sales, and GM and GM SPO collectively
accounted for approximately 38.8% of the Company's total 1997 pro forma net
sales. In connection with the GM Acquisition, GM entered into long-term
contracts pursuant to which it has agreed to purchase from the Company 100% of
its North American requirements for automotive starters (other than for Saturn
and Geo) and 100% of its U.S. and Canadian requirements for heavy duty starters
and alternators, in each case to purchase the existing product line (as of
August 1994). GM's obligations to purchase automotive starters and heavy duty
starters and alternators from the Company terminate in 2004 and 2000,
respectively, except for automotive products released in 1996 and 1997, for
which GM's obligation will terminate in 2006 and 2007, respectively. GM's
commitments to purchase products from the Company in the future are subject,
however, to the Company's remaining competitive as to technology, design and
price. See "Business--Customers." There can be no assurance that GM will not
develop alternative sources for components currently produced by the Company and
purchase some or all of its requirements for starters and alternators from these
alternative sources at the expiration of its obligation to purchase such
components from the Company. In addition, GM has been designated as an exclusive
distributor of a significant amount of the Company's automotive and heavy duty
aftermarket products and has agreed to provide the Company with purchasing
support, which enables it to obtain raw materials at competitive prices. The
Company's exclusive distribution arrangements with GM for the Company's heavy
duty aftermarket products and automotive aftermarket products terminate on July
31, 1998 and in 2009, respectively. There can be no assurance that the Company
and GM will negotiate a new arrangement for the distribution of heavy duty
aftermarket products when the current distribution arrangement terminates on
July 31, 1998, or whether the Company or GM will develop alternative
distribution channels.
The loss of GM as a customer of OEM or aftermarket products, the default by
GM on its obligations to act as a distributor or to purchase the Company's OEM
or aftermarket products, a substantial decrease in demand for GM's automobile
models containing the Company's products or the failure of the Company to obtain
supply orders for its products used in GM's new automobile models could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, strikes and work stoppages affecting GM's
operations may postpone GM's need for components produced by the Company, which,
because of the Company's highly leveraged position, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Labor Negotiations."
Relocation of Facilities
The Company is in the process of relocating certain of its manufacturing
facilities. Specifically, the Company has relocated certain production lines
from three of its OEM manufacturing facilities to three focus factories. The
Company has entered into leases for two additional focus factories and will
relocate additional production lines to those facilities and one additional
facility over the next year. At the conclusion of the relocation, the Company
will have vacated the three plants leased from GM. In addition, the Company
expects to relocate certain of its aftermarket facilities due to increased space
requirements and the need for a regional presence. The Company's subsidiaries
have conducted these moves in the past without significant disruption to
operations. While the Company believes that it has prepared for such
relocations, there can be no assurance that the complicated nature of such moves
will not result in unforeseen costs or delays or result in disruptions in the
Company's operations at the affected facilities. In addition, there can be no
assurance that additional moves will not be required in the future. The
restructuring charge recorded by the Company in 1997 does not include startup
costs the Company expects to incur, based on its prior startups, in connection
with the new focus factories. See "Risk Factors--Restructuring Charges; Net
Losses" and "Business--Manufacturing and Facilities."
Concentration of Ownership
Upon completion of the Transactions, CVC will own beneficially
approximately __% of the Company's outstanding Common Stock (including
non-voting Class B Common Stock which, subject to applicable law, is convertible
at the holder's option into voting Class A Common Stock and after giving pro
forma effect to the exchange of the Company's Junior Subordinated Notes for
Class A Common Stock) and members of the management of the Company will own
beneficially approximately % of the Company's outstanding Common Stock. Certain
other existing stockholders of the Company will own beneficially approximately %
of the Company's outstanding Common Stock. If these stockholders were to vote
all of their shares in a similar manner, they would effectively control the
Company. In most circumstances, they would have sufficient voting power to elect
the entire Board of Directors of the Company and, in general, to determine
(without the consent of the Company's other stockholders) the outcome of any
corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or substantially
all of the Company's assets, and to prevent or cause a change in control of the
Company. Further, CVC, certain members of management and other existing
stockholders have entered into a Stockholders' Agreement (as defined) whereby
they have agreed to vote their shares in such a manner as to elect the entire
Board of Directors of the Company. See "Principal Stockholders--Stockholders'
Agreement."
Restructuring Charges; Net Losses
The Company incurred restructuring charges totaling $34.5 million and $8.1
million in fiscal years 1997 and 1996, respectively. These charges contributed
to a loss from continuing operations and a net loss in fiscal year 1997 of $10.3
million and $14.3 million, respectively, and to a net loss in fiscal year 1996
of $4.8 million. These charges substantially reduced the Company's stockholders'
equity. For a discussion of these charges and other factors contributing to such
losses, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations." There can be no assurance that the Company will be able
to realize the benefits it anticipates from the restructurings or that the
Company will not incur additional charges in the future in connection with these
restructurings or other actions. See "Risk Factors--Relocation of Facilities"
and "Risk Factors--Labor Negotiations."
Restrictive Debt Covenants
The agreements governing the Company's bank and other indebtedness include
certain covenants that, among other things, restrict the Company's ability to:
(i) pay dividends and make certain other restricted payments; (ii) incur
additional indebtedness; (iii) grant liens, other than liens created pursuant to
such agreements and certain permitted liens; and (iv) sell material assets. The
Senior Credit Facility also requires the Company to maintain certain financial
ratios, including interest coverage and leverage ratios, and to maintain a
minimum level of consolidated cash flow. There can be no assurance that these
requirements will be met in the future. If they are not, the holders of the
indebtedness under such agreements would be entitled to declare such
indebtedness immediately due and payable. See "Description of Capital Stock" and
"Description of Indebtedness."
Dependence on Automotive Industry; Cyclical Business
The sale of a significant portion of the Company's products is directly
related to the overall level of automobile, truck and heavy duty vehicle
production in North America, which is cyclical. Consequently, a decline in the
demand for new automobiles and trucks, particularly in North America, could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company has not yet operated during a general
economic downturn, and historical financial information for the Company during
adverse economic conditions is not available.
Risk Relating to Acquisitions
To expand its markets and take advantage of the consolidation trend in the
automotive parts industry, the Company's business strategy includes growth
through acquisitions. Although the Company believes that the operations of the
five companies it has acquired since the GM Acquisition are being successfully
integrated with the Company's operations, there can be no assurance that such
integration will continue to be successful, that future acquisitions can be
consummated on acceptable terms or that any acquired companies can be
successfully integrated into the Company's operations. The Company currently has
no commitments, understandings or arrangements with respect to any specific
acquisitions (other than for Ballantrae). However, the Company has entered into
strategic joint ventures in Mexico and Korea and expects to complete a strategic
alliance in India and a joint venture in Brazil in fiscal year 1998 and is
continually investigating opportunities for domestic and foreign acquisitions.
The Company's ability to make future acquisitions may also be constrained by its
ability to obtain financing. To the extent the Company uses equity to finance
future acquisitions, there is a risk of dilution to holders of Class A Common
Stock. See "Risk Factors--Substantial Leverage; Potential Inability to Service
Indebtedness and Make Payments on the Notes," "Risk Factors--Restrictive Debt
Covenants," "Risk Factors--Acquisition of Ballantrae; Conflicts of Interest,"
"Business--Business Strategy" and "Description of Indebtedness."
In addition, acquisitions may involve a number of special risks, including:
initial reductions in the Company's reported operating results; diversion of
management's attention; unanticipated problems or legal liabilities; and a
possible reduction in reported earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels that
exceed the fair market value of net tangible assets. Some or all of these items
could have a material adverse effect on the Company. There can be no assurance
that businesses acquired in the future will achieve sales and profitability that
justify the investment therein. In addition, to the extent that consolidation
becomes more prevalent in the industry, the prices for attractive acquisition
candidates may increase to unacceptable levels.
Labor Negotiations
As of July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 of the Company's hourly workers are
represented by the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America ("UAW") under a master agreement
between DRA (a wholly owned subsidiary of the Company) and the UAW. The Company
and the UAW agreed to a new master agreement in March 1997 when the agreement
that had been assumed by the Company expired. Wage and benefit increases under
the new contract generally follow the same pattern of the prior agreement and
continue to track the wages and benefits paid by GM and, as a result, the
Company will experience higher wage and benefit rates in future periods. In
addition, grow-in provisions under the new agreement will require the Company to
move lower wage and benefit employees to higher wage and benefit levels. There
can be no assurance that the Company will be able to effect cost reductions or
productivity improvements to offset such increased wage and benefit levels or
that the Company's labor costs will not increase significantly, in which case
the Company's competitive position and results of operations would be adversely
affected. The master agreement between the UAW and DRA will expire on March 22,
2001.
As of July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively.
As of July 31, 1997, approximately 246 of Autovill's 366 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three months'
notice from either party.
The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize any of the Company's facilities.
There can be no assurance that there will not be any labor union efforts to
organize employees at facilities that are not currently unionized.
Since the GM Acquisition, the Company has not experienced any organized
work stoppages. There can be no assurance, however, that any actions taken by
the Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
Competition
The motor vehicle parts industry in which the Company operates is highly
competitive. Some of the Company's OEM competitors are divisions or subsidiaries
of companies that are larger and have substantially greater resources than the
Company. There can be no assurance that the Company will be able to compete
successfully with its competitors. See "Business--Competition."
Availability of Cores
In its remanufacturing operations, the Company obtains used components,
commonly known as "cores," from various sources, principally the Company's
existing customers. The Company also obtains cores from brokers who specialize
in buying and selling cores. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to meet
demand and expand production in the remanufacturing business.
A sufficient supply of cores may not always be available to the Company to
permit it to respond fully to customer demands for the Company's remanufactured
products. Shortages of cores could result from, among other things, (i) a time
lag between the initial customer order for a remanufactured product and the
return of cores for such products, (ii) an inability to salvage cores for reuse
due to excessive wear or deterioration or (iii) an inability of the Company to
acquire cores because of loss or significant deterioration of the Company's
relationships with its customers. Although the Company believes that its
relationships with several of its customers will continue to provide it with
access to cores, there can be no assurance that the Company will continue to
have an adequate supply of cores for its remanufactured products.
Acquisition of Ballantrae; Conflicts of Interest
On October , 1997, the Company entered into an Agreement and Plan of Merger
to acquire Ballantrae (the "Ballantrae Acquisition Agreement"). Although the
Company has entered into the Ballantrae Acquisition Agreement and completed its
due diligence, the consummation of the transactions contemplated thereby are
subject to customary closing conditions for a transaction of this type,
including termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the lack of any material
adverse change in the business of Ballantrae. Although the Company does not
currently foresee any impediments to the consummation of the acquisition of
Ballantrae, the Company cannot offer any assurances that the acquisition will be
consummated. Even if consummated, the Company cannot guarantee that the
businesses conducted by Ballantrae can be effectively integrated into the
Company's other operations or that the Company will realize the benefits it
expects to achieve through the acquisition of Ballantrae. The Company has
incurred due diligence, legal and other expenses in anticipation of the
acquisition of Ballantrae. If the acquisition is not consummated, these expenses
will have to be written off as non-recurring charges. See "Company History,"
"Business--Acquisition of Ballantrae," and "Certain Transactions."
The terms of the Ballantrae Acquisition Agreement were not negotiated on an
arm's-length basis. As of July 31, 1997, CVC owned, on a fully-diluted basis,
71.9% of the outstanding common stock and 74.7% of the outstanding preferred
stock of Ballantrae. At that date, CVC also owned 47.5% of the Company's Common
Stock. See "Risk Factors--Concentration of Ownership." The Company believes,
however, that the terms of such agreement are fair to the Company and has
obtained a fairness opinion from Salomon Brothers Inc. The Company's directors,
excluding Messrs. Delaney, Cashin and Gerrity, have determined that the
acquisition of Ballantrae is in the best interests of the Company and its
stockholders and have approved the acquisition of Ballantrae. Because Mr.
Gerrity is a director of Ballantrae and as of July 31, 1997 owned, on a
fully-diluted basis, 15.0% of Ballantrae's common stock and 10.4% of its
preferred stock and Messrs. Delaney and Cashin are directors of Ballantrae, as
well as each being a stockholder and director of the Company, there is a
conflict of interest with respect to the acquisition of Ballantrae. As a
consequence, their economic interest in the transaction may result in decisions
that do not reflect the interests of the Company. Any damages which the Company
may suffer which result from a breach of the Ballantrae Acquisition Agreement
will be subject to a $10 million cap and the Company will only be able to
recover approximately % and % of its damages from CVC and Mr. Gerrity,
respectively (in each case including their affiliates). See "Company History,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
Environmental Risks
The Company's operations and properties are subject to federal, state,
local and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of liabilities or claims with
respect to environmental matters, including off-site disposal matters, and there
can be no assurance that material costs will not be incurred in connection with
such liabilities or claims or that the indemnities provided by the sellers of
the various businesses acquired will be applicable or available.
Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition and
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition and results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material. See
"Business--Regulatory Matters."
Fraudulent Conveyance
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring the indebtedness, including the Notes,
and that, at the time of such incurrence, the Company (i) was insolvent, (ii)
was rendered insolvent by reason of such incurrence or grant, (iii) was engaged
in a business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
then such court, subject to applicable statutes of limitations, could void the
Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with the intent to hinder, delay or defraud creditors. In
addition, a court could subordinate the indebtedness, including the Notes, to
the claims of all existing and future creditors on similar grounds. The Company
believes that, after giving effect to the Offerings, the Company will be (i)
neither insolvent nor rendered insolvent by the incurrence of indebtedness in
connection with the Offerings, (ii) in possession of sufficient capital to run
its business effectively and (iii) incurring debts within its ability to pay as
the same mature or become due.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the GM
Acquisition, any of the Company's other acquisitions or the sale of the Notes or
that, regardless of the method of valuation, a court would not determine that
the Company was insolvent upon consummation of the GM Acquisition or any of the
other acquisitions or the sale of the Notes.
In addition, any Subsidiary Guaranty may be subject to review under
relevant federal and state fraudulent conveyance and similar laws in a
bankruptcy or reorganization case or a lawsuit brought by or on behalf of
creditors of the applicable Subsidiary Guarantor. In such a case, the analysis
set forth above would generally apply, except that the Subsidiary Guaranty could
also be subject to the claim that, since the Subsidiary Guaranty was incurred
for the benefit of the Company (and only indirectly for the benefit of the
Subsidiary Guarantor), the obligations of the Subsidiary Guarantor thereunder
were incurred for less than reasonably equivalent value or fair consideration. A
court could void the Subsidiary Guarantor's obligation under the Subsidiary
Guaranty, subordinate the Subsidiary Guaranty to other indebtedness of the
Subsidiary Guarantor or take other action detrimental to the holders of the
Notes.
Change of Control
Upon a Change of Control, each holder of the Notes will have the right to
require the Company to repurchase all or any part of such Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. The occurrence of certain of the events that
constitute a Change of Control would constitute a default under the Senior
Credit Facility and would entitle the holders of the Company's Senior
Subordinated Notes (as defined) to require the Company to repurchase all or any
part of such Notes. The Company's failure to purchase the Notes would result in
a default under the Indenture. The inability to repay the indebtedness under the
Senior Credit Facility or the Senior Subordinated Notes, if their maturity is
accelerated, would also constitute an event of default under the Indenture,
which could have adverse consequences for the Company and the holders of the
Notes. In the event of a Change of Control, there can be no assurance the
Company would have sufficient financial resources available to satisfy all of
its obligations under the Senior Credit Facility, the Notes and the Senior
Subordinated Notes. See "Description of Indebtedness" and "Description of
Notes--Change of Control."
Lack of Public Market
The Existing Notes are currently eligible for trading in the PORTAL Market.
The Exchange Notes are new securities for which there is no established market.
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes. However, the Initial Purchasers are not obligated to do
so and any market making may be discontinued at any time without notice. There
can be no assurance as to the development of any market or the liquidity of any
market that may develop for the Exchange Notes. See "Description of Notes."
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Company.
COMPANY HISTORY
The Company was formed in November 1993 for the purpose of acquiring
certain assets of the automotive starter business and the heavy duty starter and
alternator business of the Former GM Division, which businesses the Company
acquired in July 1994.
Between January 1995 and May 1997, the Company completed five strategic
acquisitions and two international joint ventures. On January 6, 1995, the
Company acquired all of the capital stock of Nabco, Inc. ("Nabco") (the "Nabco
Acquisition"), a producer of remanufactured automotive starters and alternators.
In addition to selling its products to national automotive parts chains
(primarily Western Auto), prior to its acquisition by the Company, Nabco
supplied remanufactured parts in bulk (known as "kits") to the Company and GM
for final assembly and distribution.
On March 31, 1995, the Company acquired all of the capital stock of The A&B
Group, Inc. ("A&B Group") (the "A&B Acquisition"), a remanufacturer of
automotive starters, heavy duty starters and alternators and related
subcomponents and parts. Prior to its acquisition by the Company, the A&B Group
was the Company's contract supplier of all heavy duty and certain automotive
remanufactured products.
On April 14, 1995, the Company acquired 96% of the capital stock of
Autovill, RT Ltd. ("Autovill") (the "Autovill Acquisition and, together with the
Nabco Acquisition and the A&B Acquisition, the "1995 Acquisitions"), a Budapest,
Hungary-based producer of new and remanufactured heavy duty starters and
alternators both for the OEM market and the aftermarket in Western and Eastern
Europe. Principal customers of Autovill include Caterpillar and Mercedes Benz.
The remaining 4% of the capital stock of Autovill is owned by current and former
employees of Autovill.
On February 6, 1996, the Company acquired 82.5% of the capital stock of
Power Investments, Inc. ("Power Investments") (the "Power Investments
Acquisition"), a remanufacturer of diesel and gasoline engines, transmissions,
fuel systems, alternators and starters for medium and heavy duty trucks and
automobiles; and, to a lesser extent, a remanufacturer of brakes, water pumps,
power steering pumps and various other truck parts and assemblies. Power
Investments has 15 facilities located in the United States and in five provinces
of Canada and is designated as a Ford FAR in such provinces. The remaining 17.5%
of the capital stock of Power Investments is owned by current management of
Power Investments, subject to put/call arrangements at a formula price for the
purchase by the Company of the remaining 17.5% of the shares of Power
Investments beginning in 2001.
In December 1996, the Company formed a 50/50 joint venture in Korea with
individual Korean investors to purchase the assets related to the starter motor
operations of the Company's former Korean licensee. In April 1997, the Company
and its former Mexican licensee, Sistemas y Electricos Componetos ("Sistemas"),
formed a joint venture, 76% of which is owned by the Company and 24% of which is
owned by an affiliate of Sistemas. Each of these joint ventures will manufacture
starters and alternators for the OEM market.
On May 8, 1997, the Company acquired 82.5% of the capital stock of World
Wide (the "World Wide Acquisition"), a remanufacturer and distributor of import
automotive starters and alternators. World Wide sells its products to national
automotive parts chains, including Auto Zone, Pep Boys, Advance Auto and
Discount Auto. The remaining 17.5% of the capital stock of World Wide is owned
by current management of World Wide, subject to put/call arrangements at a
formula price for the purchase by the Company of the remaining 17.5% of the
shares beginning in 2000.
On October__, 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire Ballantrae for $49.2 million (including assumed debt).
Ballantrae operates through two subsidiaries: Tractech, a leading producer of
traction control systems for heavy duty OEMs and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year 1997, Tractech accounted for approximately 70% of Ballantrae's $37.6
million of net sales. The Company will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19 million for the equity of Ballantrae and will repay
approximately $30 million of Ballantrae's debt. The Common Stock of the Company
received by Ballantrae's existing stockholders in the acquisition will be
subject to resale restrictions under applicable securities laws. The acquisition
is expected to be completed at or prior to the consummation of the Offerings.
See "Risk Factors--Acquisition of Ballantrae; Conflicts of Interest,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds to the Company from the sale of the Existing Notes of $135.2 million
were used (i) to repay all indebtedness under the Senior Credit Facility
outstanding at the time of the offering of the Existing Notes, plus accrued and
unpaid interest thereon (approximately $103.5 million); (ii) to prepay one of
the Power Investments Seller Notes (as defined), plus accrued and unpaid
interest thereon (approximately $16.0 million); and (iii) for general corporate
purposes.
CAPITALIZATION
The following table sets forth the current portion of the long-term debt
and the consolidated capitalization of the Company as of July 31, 1997 and pro
forma to give effect to the Transactions. This table should be read in
conjunction with the unaudited "Pro Forma Condensed Consolidated Financial
Data," "Selected Consolidated Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus. See also "Description of Capital Stock" and
"Description of Indebtedness."
As of July 31, 1997
-------------------------------------
Historical Pro Forma
----------------- ----------------
(in thousands)
Current portion of long-term debt.................................. $ 507 $ 507
================= ================
Long-term debt:
Senior Credit Facility........................................ $ 34,963 $ 34,963
Power Investments Seller Notes................................ 8,300 --
World Note.................................................... 75,000 --
% Senior Notes Due 2007................................ -- 130,000
Senior Subordinated Notes..................................... 140,000 140,000
GM Acquisition Note........................................... 59,155 --
8% Subordinated Debenture..................................... -- 17,942(a)
A&B Seller Notes.............................................. 3,500 --
Ballantrae Subordinated Debt.................................. -- 750
Other, including capital lease obligations.................... 17,132 17,132
Junior Subordinated Notes..................................... 25,211 --
----------------- ----------------
Total long-term debt...................................... 363,261 340,787
Minority interest.................................................. 8,032 8,032
Redeemable exchangeable preferred stock of subsidiary.............. 16,071(a) --
Stockholders' (deficit) equity:
Class A Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 525,477 historical, pro forma) 5 5
Class B Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 385,523 historical, pro forma). 4 4
Additional paid-in capital.................................... 10,194 109,455
Retained (deficit) earnings................................... (12,174) (16,746)
Cumulative translation adjustment............................. (1,752) (1,752)
Stock purchase plan........................................... (4,813) (4,813)
----------------- ----------------
Total stockholders' (deficit) equity...................... (8,536) 86,153
----------------- ----------------
Total capitalization...................................... $ 378,828 $ 434,972
================= ================
<FN>
(a) Reflects the exchange of the redeemable exchangeable preferred stock of
subsidiary to the 8% Subordinated Debenture as permitted by the terms of
such preferred stock. For details regarding this exchange, see footnote (d)
to the "Unaudited Pro Forma Condensed Consolidated Statement of
Operations."
</FN>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company for and as of the years ended July 31, 1995, 1996 and 1997.
The statement of operations data for the years ended July 31, 1995, 1996 and
1997 and the balance sheet data as of July 31, 1995, 1996 and 1997 were derived
from audited Consolidated Financial Statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and related notes and the other financial information included elsewhere in this
Prospectus.
For the Year Ended July 31
-----------------------------------------------------------
1995 1996 1997
----------------- --------------- -----------------
(dollars in thousands, except per share data)
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787
Gross profit............................. 98,207 126,774 149,553
Selling, engineering and administrative
expense.............................. 61,206 77,994 89,098
Restructuring charges.................... -- 8,101 34,500
Operating income......................... 37,001 40,679 25,955
Interest expense......................... 18,432 27,367 38,774
Income (loss) from continuing operations. 9,326 5,796 (10,263)
Loss from discontinued operations, net of
tax benefit.......................... 2,363 10,637 1,682
Net income (loss)........................ 6,963 (4,841) (14,296)
Income (loss) from continuing operations
per share............................ $ $ $
Net income (loss) per share..............
Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323
Capital expenditures..................... 11,241 32,741 31,888
EBITDA(a)................................ 55,968 72,087 87,269
Cash flow from operations................ 21,921 (684) 22,537
Gross margin............................. 17.1% 19.9% 21.7%
EBITDA margin............................ 9.8% 11.3% 12.7%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c)
Balance sheet data (at end of period):
Working capital.......................... $ 61,268 $ 113,801 $ 155,302
Total assets............................. 322,527 475,082 570,569
Total debt............................... 196,988 298,796 363,768
Redeemable exchangeable preferred stock of
subsidiary........................... 12,903 14,420 16,071
Total stockholders' equity (deficit)..... 8,430 1,589 (8,536)
See Accompanying Notes
<FN>
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. EBITDA should not be construed as
a substitute for income from operations, net income or cash flow from operating
activities for the purpose of analyzing the Company's operating performance,
financial position and cash flows. The Company has presented EBITDA because it
is commonly used by certain investors to analyze and compare companies on the
basis of operating performance and to determine a company's ability to service
debt. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."
(b) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
fixed charges. Fixed charges include preferred dividend requirement of
subsidiary, interest expense (which includes amortization of deferred financing
costs) and the portion of operating rents that is deemed representative of an
interest factor.
(c) Earnings were insufficient to cover fixed charges by $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
</FN>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial data are
based on the Consolidated Financial Statements included elsewhere in this
Prospectus, adjusted to give effect to the Transactions.
The unaudited pro forma condensed consolidated statement of operations for
the year ended July 31, 1997 have been adjusted to give effect to the
Transactions as if they had occurred on August 1, 1996. The unaudited pro forma
condensed consolidated balance sheet at July 31, 1997 has been adjusted to give
effect to the Transactions as if they had occurred on July 31, 1997 (other than
the acquisition of World Wide, which is reflected in the historical balance
sheet data).
The unaudited pro forma financial data do not purport to be indicative of
the results of operations or the financial position that would actually have
been obtained if the Transactions had occurred on the dates indicated or of the
results of operations or the financial position that may be obtained in the
future. The unaudited pro forma financial data are presented for comparative
purposes only. The pro forma adjustments, as described in the accompanying data,
are based on available information and certain assumptions that management
believes are reasonable. The unaudited pro forma financial data should be read
in conjunction with the Consolidated Financial Statements of the Company and
related notes thereto included elsewhere in this Prospectus.
The unaudited pro forma financial data with respect to the acquisitions of
World Wide and Ballantrae are based on the historical financial statements of
the businesses acquired and have been accounted for using the purchase method of
accounting. The purchase price, including the related fees and expenses, have
been allocated to the tangible and identifiable intangible assets and
liabilities of the acquired businesses based upon the Company's estimates of
their fair value, with the remainder allocated to goodwill. The pro forma
adjustments directly attributable to the acquisitions of World Wide and
Ballantrae include adjustments to interest expense related to the financing,
charges for amortization of intangible assets and depreciation of property and
equipment relating to the allocation of the purchase price and the related tax
effects.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended July 31, 1997
(in thousands)
Adjustments Pro Forma
for the for the
Acquisitions Acquisitions Adjustments Pro Forma
of of for Other for
Historical World Wide World Wide Transactions Transactions
and and
Ballantrae(a) Ballantrae
------------ -------------- ------------- ------------- --------------
Net sales $689,787 $ 86,581 $776,368 $ -- $ 776,368
Cost of goods sold......... 540,234 65,612 605,846 -- 605,846
------------ -------------- ------------- ------------- --------------
Gross profit 149,553 20,969 170,522 -- 170,522
Selling, engineering, and administrative
expenses 89,098 12,469 101,567 -- 101,567
Restructuring charges...... 34,500 -- 34,500 -- 34,500
------------ -------------- ------------- ------------- --------------
Operating income 25,955 8,500 34,455 -- 34,455
Other income (expense):
Gain on sale of building... 2,082 -- 2,082 -- 2,082
Interest expense.. (38,774) (4,905) (43,679) 8,384(b) (35,295)
------------ -------------- ------------- ------------- --------------
(Loss) income from continuing operations before income taxes, preferred dividend
requirement of subsidiary, and minority interest...
(10,737) 3,595 (7,142) 8,384 1,242
Minority interest in income of subsidiary 892 -- 892 -- 892
Income taxes (benefit)..... (3,014) 1,387 (1,627) 3,354(c) 1,727
Preferred dividend requirement of subsidiary 1,648 -- 1,648 (1,648)(d) --
------------ -------------- ------------- ------------- --------------
(Loss) income from continuing operations $(10,263) $ 2,208 $ (8,055) $ 6,678 $ (1,377)
============ ============== ============= ============= ==============
Loss from continuing operations per share $
==============
See Accompanying Notes
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands)
(a) The adjustments for the acquisitions of World Wide and Ballantrae
represent the effects on the statement of operations of such acquisitions as if
they occurred on August 1, 1996. These adjustments are summarized in the
following table:
World Wide Ballantrae Combined
-------------- --------------- ---------------
Net sales.................................................. $ 49,014 $ 37,567 $ 86,581
Cost of goods sold......................................... 40,935 24,677 65,612
-------------- --------------- ---------------
Gross profit............................................... 8,079 12,890 20,969
Selling, engineering, and administrative expenses.......... 6,319 6,150 12,469
-------------- --------------- ---------------
Operating income........................................... 1,760 6,740 8,500
Interest expense........................................... (2,280) (2,625) (4,905)
Income taxes (benefit)..................................... (47) 1,434 1,387
-------------- --------------- ---------------
(Loss) income from continuing operations................... $ (473) $ 2,681 $ 2,208
============== =============== ===============
(b) Reflects decreases (or increases) in interest expense and amortization
of deferred financing costs as if the Transactions occurred on August 1, 1996 as
follows:
For the
Year Ended
July 31, 1997
-----------------
Reduced interest from the amendment of the Senior Credit Facility...... $ 190
Amortization of deferred financing costs associated with the amendment
to the Senior Credit Facility...................................... (30)
Repayment of Power Investments Seller Notes............................... 818
Repayment of World Note................................................... 7,875
Reversal of 1997 amortization of deferred financing costs associated
with repayment of World Note........................................ 454
Interest expense for the % Senior Notes Due 2007................... (11,050)
Amortization of deferred financing costs associated with % Senior
Notes Due 2007...................................................... (400)
Repayment of GM Acquisition Note......................................... 6,552
Repayment of A&B Seller Notes............................................ 350
Repayment of Ballantrae Senior Bank Debt................................. 1,552
Repayment of Ballantrae Subordinated Debt................................ 1,073
Exchange of Junior Subordinated Notes.................................... 2,593
Interest expense relating to the 8% Subordinated Debenture exchanged
for the redeemable exchangeable preferred stock of subsidiary....... (1,593)
--------
Net reduction in interest expense....................................... $ 8,384
=========
The interest rate on the % Senior Notes Due 2007 is assumed to be 8 1/2%.
For each 1/4% difference in the interest rate the annual interest expense would
change by $325.
(c) Represents the income tax expense related to the pro forma interest
expense reduction at an assumed marginal tax rate of 40%.
(d) Represents the reversal of preferred dividend requirement of subsidiary
recorded in 1997 which results from the assumed exchange of the preferred stock
for the 8% Subordinated Debenture effective August 1, 1996.
A deemed preferred dividend of subsidiary arises from the exchange of
the redeemable exchangeable preferred stock of subsidiary for the excess of the
fair value of the 8% Subordinated Debenture over the carrying value of the
redeemable exchangeable preferred stock of subsidiary as shown below. This
nonrecurring charge, which has not been reflected in the pro forma condensed
consolidated statement of operations, will be charged against the income of the
Company in the period of exchange. Upon completion of the exchange no further
dividends will occur.
For the
Year Ended
July 31, 1997
---------------
Fair value of the 8% Subordinated Debenture.................................... $ 17,942
Carrying value of the redeemable exchangeable preferred stock of subsidiary.... 16,071
---------------
Deemed preferred dividend of subsidiary arising from exchange.................. $ 1,871
===============
Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1997
(in thousands)
Adjustments Pro Forma Adjustments Pro Forma
for for for Other for
Historical Ballantrae Ballantrae Transactions Transactions
Acquisition(a) Acquisition
------------- ------------- -------------- ------------- --------------
Assets:
Current Assets:
Cash and cash equivalents........ $ 10,050 $ 347 $ 10,397 $ 2,635(b) $ 13,032
Trade accounts receivable........ 110,184 5,838 116,022 -- 116,022
Other receivables................ 10,487 -- 10,487 -- 10,487
Recoverable income tax........... 2,889 -- 2,889 1,801(g) 4,690
Inventories...................... 164,417 10,127 174,544 -- 174,544
Deferred income taxes............ 21,474 -- 21,474 -- 21,474
Other current assets............. 4,643 55 4,698 -- 4,698
------------- ------------- -------------- ------------- --------------
Total current assets............. 324,144 16,367 340,511 4,436 344,947
Property and equipment............... 147,222 16,834 164,056 -- 164,056
Less accumulated depreciation........ 26,858 -- 26,858 -- 26,858
------------- ------------- -------------- - ------------- --------------
120,364 16,834 137,198 -- 137,198
Deferred financing costs............. 8,803 -- 8,803 1,958(c) 10,761
Goodwill (less accumulated
amortization).................... 86,612 21,168 107,780 -- 107,780
Net assets held for disposal......... 25,279 -- 25,279 -- 25,279
Investment in affiliate.............. 3,119 -- 3,119 -- 3,119
Other assets......................... 2,248 728 2,976 -- 2,976
------------- ------------- -------------- ------------- --------------
Total assets......................... $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============= ============= ============== ============= ==============
Liabilities and stockholders'
(deficit) equity:
Current liabilities:
Accounts payable................. $ 88,578 $ 2,398 $ 90,976 -- $ 90,976
Accrued interest payable......... 3,107 2,078 5,185 -- 5,185
Accrued restructuring charges.... 37,377 -- 37,377 -- 37,377
Liabilities related to
discontinued operations 3,324 -- 3,324 -- 3,324
Other liabilities and accrued
expenses......................... 35,949 606 36,555 -- 36,555
Current portion of long-term debt 507 -- 507 -- 507
------------- ------------- -------------- ------------- --------------
Total current liabilities........ 168,842 5,082 173,924 -- 173,924
Deferred income taxes................ 1,556 265 1,821 -- 1,821
Long-term debt, less current 363,261 30,750 394,011 (53,224) 340,787
portion(d).......................
Post-retirement benefits other than
pension.......................... 12,677 -- 12,677 -- 12,677
Accrued pension benefit.............. 4,542 -- 4,542 -- 4,542
Other non-current liabilities........ 4,124 -- 4,124 -- 4,124
Minority interest in subsidiary...... 8,032 -- 8,032 -- 8,032
Redeemable exchangeable preferred
stock of subsidiary.............. 16,071 -- 16,071 (16,071)(e) --
Stockholders' (deficit) equity:
Common Stock:....................
Class A Shares................ 5 -- 5 -- 5
Class B Shares................ 4 -- 4 -- 4
Paid-in capital(f)............... 10,194 19,000 29,194 80,261(f) 109,455
Retained earnings (deficit)...... (12,174) -- (12,174) (4,572)(g) (16,746)
Cumulative translation adjustment (1,752) -- (1,752) -- (1,752)
Stock purchase plan.............. (4,813) -- (4,813) -- (4,813)
------------- ------------- -------------- ------------- --------------
Stockholders' (deficit) equity....... (8,536) 19,000 10,464 75,689 86,153
------------- ------------- -------------- ------------- --------------
Total liabilities and stockholders'
(deficit) equity................. $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============= ============= ============== ============= ==============
See Accompanying Notes
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands)
(a) Represents the adjustments for the Ballantrae acquisition as if it had
occurred as of July 31, 1997. The acquisition will be accounted for by the
purchase method of accounting. Using the purchase method of accounting, the
total purchase price will be allocated to tangible and intangible assets and
liabilities of Ballantrae based upon the Company's estimates of their respective
fair values at the date of the acquisition.
(b) Represents the sources and uses of cash in connection with the
Transactions as follows:
As of
July 31, 1997
---------------
Estimated proceeds from the Offerings (net of underwriting
discounts and commissions)............................... $ 182,550
Senior Credit Facility refinancing fee........................ (210)
Repayment of Power Investments Seller Notes................... (8,300)
Repayment of World Note....................................... (77,250)
Repayment of GM Acquisition Note.............................. (59,155)
Repayment of A&B Seller Notes................................. (3,500)
Repayment of Ballantrae Senior Bank Debt...................... (20,750)
Repayment of Ballantrae Subordinated Debt..................... (9,250)
Other fees and expenses of the Offerings...................... (1,500)
---------------
Cash available for general corporate purposes................. $ 2,635
===============
(c) Represents the change in the deferred financing costs and related tax
benefit with respect to the World Note as follows:
As of
July 31, 1997
---------------
Deferred financing costs related to the Offerings............. $ 4,000
Deferred financing costs related to the Senior Credit Facility
refinancing.............................................. 210
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
---------------
$ 1,958
===============
(d) Details regarding the changes to long-term debt are as follows:
Total long-term debt (historical).................. $ 363,261
Ballantrae Senior Bank Debt........................ 20,750
Ballantrae Subordinated Debt....................... 10,000
--------------
Pro forma for Ballantrae Acquisition............... 394,011
--------------
Power Investments Seller Notes..................... (8,300)
World Note......................................... (75,000)
GM Acquisition..................................... (59,155)
A&B Seller Notes................................... (3,500)
Ballantrae Senior Bank Debt........................ (20,750)
Ballantrae Subordinated Debt....................... (9,250)
Junior Subordinated Notes.......................... (25,211)
% Senior Notes Due 2007...................... 130,000
8% Subordinated Debenture.......................... 17,942
--------------
Adjusted for other Transactions.................... (53,224)
--------------
Pro forma for Transactions......................... $ 340,787
==============
(e) Elimination of redeemable exchangeable preferred stock of subsidiary
exchanged for the 8% Subordinated Debenture.
(f) Details regarding the changes to equity, exchange of equity, issuance
of Common Stock and exchange of Junior Subordinated Notes are as follows:
Paid in capital (historical).................................... $ 10,194
Common Stock issued in Ballantrae acquisition................... 19,000
-------------
Pro forma for Ballantrae acquisition............................ 29,194
-------------
Equity Offering................................................. 55,800
Exchange of Junior Subordinated Notes........................... 25,211
Fees for Equity Offering........................................ (750)
--------------
Adjusted from other transactions................................ 80,261
--------------
Pro forma for Transactions...................................... $ 109,455
=============
(g) Represents the extraordinary loss relating to the early extinguishment
of the World Note net of taxes at a marginal rate of 40% and the deemed
preferred dividend of subsidiary arising from the exchange of the redeemable
exchangeable preferred stock of subsidiary as follows:
As of
July 31, 1997
---------------
Early extinguishment penalty on World Note.................... $ (2,250)
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
Tax effect of early extinguishments........................... 1,801
Deemed dividend of preferred stock of subsidiary.............. (1,871)
---------------
Net charge to retained earnings (deficit)..................... $ (4,572)
===============
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company sells its products in the aftermarket and the OEM market,
principally in North America and also in Europe, Latin America and Asia-Pacific.
In addition to purchasing newly manufactured parts for use in new vehicle
production, OEMs are also significant customers of the Company's aftermarket
products. These aftermarket products are distributed through the OEMs'
affiliated dealer networks.
The aftermarket is highly fragmented and competitive. The Company believes
that consolidation of aftermarket suppliers is occurring due, in part, to higher
quality standards for remanufactured products, which may be more expensive or
technically difficult for smaller remanufacturers to meet. The Company plans to
continue to increase its penetration of the aftermarket through internal growth
and strategic acquisitions.
The demand for components in the OEM market is cyclical. The Company
believes that opportunities for growth in the OEM market will come primarily
through the introduction of new products and expansion of the Company's global
operations. The Company believes that its aftermarket and OEM businesses are
complementary and provide the Company with a competitive advantage in meeting
customer needs and maintaining the high levels of expertise necessary to compete
successfully in both markets. The high capability necessary to meet the
stringent requirements for OEM technology and quality are transferable by the
Company to its aftermarket operations.
For 1997, the aftermarket accounted for approximately 45.2% of the
Company's net sales and approximately 62.8% of the Company's EBITDA (as
defined). Net sales and EBITDA attributable to the OEM market accounted for the
remainder.
The primary components of cost of goods sold in the Company's aftermarket
business include the cost of cores and component parts, labor costs and
overhead. While the availability and cost of cores fluctuate based on supply and
demand, the Company's relationships with dealers and other customers have
historically provided it with sufficient access to cores at favorable prices.
The primary components of cost of goods sold in the Company's OEM business
include material, labor and overhead. The Company's domestic OEM labor force is
represented primarily by the UAW. In March 1997, the Company signed a new master
agreement with the UAW. Wage and benefit increases under the new agreement
generally follow the same pattern as the prior agreement and continue to track
the wages and benefits paid by GM and, as a result, the Company will experience
higher wage and benefit rates in future periods. In addition, grow-in provisions
under the new agreement will require the Company to move lower wage and benefit
employees to higher wage and benefit levels. Under provisions of the national
agreement, the UAW and the Company have recently developed a special program of
incentives for hourly employees who agree to leave the Company. The cost of this
program is included in the restructuring charges for fiscal year 1997 described
below. The Company is in the process of shifting OEM production to focus
factories which the Company believes can reduce costs.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. These acquisitions and joint
ventures have broadened the Company's product line, expanded its remanufacturing
capability, extended its participation in international markets and increased
its penetration of the retail automotive parts channel. As a result of these
acquisitions, joint ventures and the Company's focus on increasing its
participation in the aftermarket, the Company's reliance on GM has declined
since the Company's formation. Net sales to customers other than GM increased
from 41.0% in fiscal year 1995 to 56.1% in fiscal year 1997.
The portion of the Company's net sales derived from the aftermarket have
increased significantly over the past two years, from approximately 19.2% in
fiscal year 1995 to 45.2% in fiscal year 1997. For fiscal year 1997, GM
accounted for approximately 43.7% of the Company's total net sales, of which
30.3% were to GM's OEM businesses and 13.4% were to GM SPO. Substantially all of
the Company's fiscal year 1997 automotive OEM sales were to GM.
In connection with the GM Acquisition, GM entered into long-term contracts
(the "Supply Agreements") pursuant to which it has agreed to purchase from the
Company 100% of its North American requirements for automotive starters (other
than for Saturn and Geo) and 100% of its U.S. and Canadian requirements for
heavy duty starters and alternators, in each case with respect to the Company's
existing product line. In addition, GM has been designated as an exclusive
distributor of a significant amount of the Company's automotive and heavy duty
aftermarket products and has agreed to provide the Company with purchasing
support, which enables it to obtain raw materials at competitive prices. GM's
obligations to purchase the Company's automotive starters and heavy duty
starters and alternators under the Supply Agreements are subject to such
products remaining competitive as to price, technology and design. However, GM
may not terminate the Supply Agreement for the Company's prices of automotive
products for failing to be so competitive prior to July 31, 2001. The Supply
Agreements will terminate (i) with respect to automotive products, on July 31,
2004 (except that GM's obligations with respect to automotive products
introduced in 1996 and 1997 will terminate on July 31, 2006 and July 31, 2007,
respectively), and (ii) with respect to heavy duty products, July 31, 2000. GM's
obligations to distribute the Company's heavy duty aftermarket products
terminate on July 31, 1998, and GM's obligations to distribute the Company's
automotive aftermarket products terminate on July 31, 2009. See
"Business--Customers." Although the Company expects that its automotive and
heavy duty products will remain competitive throughout the term of the
agreements with GM, there can be no assurance that GM will not develop
alternative sources for such components and purchase some or all of its
requirements from these sources prior to or following the expiration of the
agreements. See "Risk Factors--Dependence on General Motors."
In fiscal year 1997, the Company decided to restructure its OEM
manufacturing operations, incurring a restructuring charge of $34.5 million and
establishing a reserve for that amount. The Company's OEM business has seven
principal manufacturing operations, two in Meridian, Mississippi and five in
Anderson, Indiana. The Company has announced its intention to close its two
facilities in Meridian, Mississippi by the end of the 1998 fiscal year,
including one facility leased from GM at the time of the GM Acquisition. The
balance of the Company's OEM facilities are located in Anderson, Indiana. Two of
the Anderson facilities are leased from GM and will be vacated by the end of
1999. The Company is operating three new focus factories and intends to have a
total of five in operation by the end of 1999. This restructuring will provide a
reduction of over 70% in square footage from the Company's existing plants to
the focus factories due to streamlining of manufacturing processes, phasing out
of certain manufacturing equipment and elimination of excess unutilized floor
space or floor space used by GM in each of the existing facilities. The
restructuring reserve does not include approximately $3 million in startup costs
the Company expects to incur, based on its prior focus factory startups, in
connection with the two additional focus factories.
The restructuring plan included accelerating the Company's move to focus
factories and closing the Company's operations in three old,
vertically-integrated factories. These decisions resulted in the impairment of
certain production assets with a carrying amount of $30.3 million, which the
Company plans to dispose of. The Company has estimated the loss on disposal
including related costs at $26.3 million. In addition, the Company has estimated
a cost of $8.2 million for reducing its workforce through several transition
programs related to the restructuring of the operations. The results of
operations for the products which will be discontinued are not separately
identifiable. The 1997 restructuring reserve is expected to be utilized
throughout 1998 and 1999. In 1998, the Company expects to reduce the 1997
restructuring reserve balance to approximately $12.1 million through cash
payments of $5.8 million and other charges of $16.6 million. The remaining
balance is expected to be completely utilized in 1999 through cash payments of
$4.5 million and other charges of $7.6 million. See "Risk Factors--Restructuring
Charges; Net Losses."
In fiscal year 1996, the Company decided to eliminate the production of
certain parts and certain straight drive starter motors and offered a voluntary
retirement transition program to certain eligible salaried employees resulting
in the recognition of a restructuring charge of $8.1 million. The Company
purchased new, more efficient equipment for use in the production of certain
heavy duty alternators resulting in the impairment of certain production
equipment with a carrying amount of approximately $5.2 million, which the
Company plans to dispose of at an estimated loss of $4.4 million, including
disposal costs. The retirement transition program, which was charged to
operations for $3.7 million in 1996, was offered in conjunction with a similar
plan offered by GM which allowed employees special additional benefits not
typically provided upon retirement. These additional benefits included salaried
payments for six months and future supplemental payments under the salaried
retirement plan. Cost savings have been identified and realized in the decisions
to eliminate specific parts and motors and implement the voluntary retirement
transition program. The results of operations for the parts and straight drive
starter motors for which production will be discontinued are not separately
identifiable.
In fiscal year 1996, cash payments of $1.7 million and other charges of
$0.9 million reduced the outstanding balance of the restructuring reserves to
$5.5 million as of July 31, 1996. In 1997, cash payments of $0.8 million and
other charges of $1.8 million further reduce the outstanding balance to $2.9
million as of July 31, 1997.
This remaining balance is expected to be completely utilized during 1998.
The following table sets forth certain statement of operations data
expressed as a percentage of sales:
For the Year Ended July 31
----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................... 82.9 80.1 78.3
Gross profit..................................................... 17.1 19.9 21.7
Selling, engineering and administrative expenses................. 10.7 12.2 12.9
Restructuring charges............................................ -- 1.3 5.0
Operating income................................................. 6.5 6.4 3.8
Other income (expense):
Gain on sale of building.................................... -- -- 0.3
Interest expense............................................ (3.2) (4.3) (5.6)
------------- ------------- -------------
Income (loss) from continuing operations before minority interest,
income taxes and preferred divided requirement
of subsidiary............................................... 3.2 2.1 (1.6)
Minority interest................................................ -- 0.0 0.1
Income taxes..................................................... 1.4 0.9 (0.4)
Preferred dividend requirement of subsidiary..................... 0.2 0.2 0.2
------------- ------------- -------------
Income (loss) from continuing operations......................... 1.6 0.9 (1.5)
Discontinued operations:
Loss from operations of discontinued businesses
(less applicable income tax benefit).................... 0.4 0.2 0.1
Loss on disposal of businesses
(less applicable income tax benefit).................... -- 1.4 0.1
Extraordinary item:
Write-off of debt issuance costs (less applicable income tax
benefit).................................................... -- -- 0.3
------------- ------------- -------------
Net income (loss)................................................ 1.2% (0.8)% (2.0)%
============= ============= =============
Fiscal Year Ended July 31, 1997 Compared to Fiscal Year Ended July 31, 1996
Net Sales. Net sales were $689.8 million for 1997, an increase of $52.9
million, or 8.3%, over the prior year. The increase resulted from the inclusion
of the net sales of World Wide from its acquisition date and Power Investments
for the entire 1997 fiscal year. These sales increases were partially offset by
the absence in 1997 of orders for the initial stocking of stores that occurred
when the Company added a new retail customer and one of its existing retail
customers made significant acquisitions.
Gross Profit. Gross profit was $149.6 million for 1997, an increase of
$22.8 million, or 18.0%, over the prior year. As a percentage of net sales,
gross profit increased to 21.7% for the year ended July 31, 1997 from 19.9% for
the prior year. This increase was primarily attributable to the higher gross
profit margins of the Power Investments Acquisition and the World Wide
Acquisition as well as improved productivity and cost reductions in the
Company's OEM operations. These profitability improvements and cost reductions
represent the benefits from the restructuring actions begun in 1996 and were
partially offset by start-up costs for the focus factories. The Company also
launched a family of new gear reduction starters that initially generate lower
margins than those of the mature straight drive starters. The continued
replacement of the straight drive starter with the new gear reduction starter is
expected to have a less adverse effect on gross profit margin in 1998.
Selling, Engineering and Administrative Expenses. Selling, engineering and
administrative ("SE&A") expenses were $89.1 million for 1997, an increase of
$11.1 million, or 14.2%, over the prior year. As a percentage of net sales, SE&A
expenses increased to 12.9% for 1997 from 12.2% during the prior year. The
increase in SE&A expense as a percent of net sales resulted primarily from
higher SE&A expense as a percent of net sales for the acquired companies,
start-up costs for the focus factories and costs for information systems.
Operating Income. Operating income was $26.0 million for 1997, a decrease
of $14.7 million, or 36.2%, from the prior year. As a percent of net sales,
operating income decreased to 3.8% for the year ended July 31, 1997 from 6.4%
for the prior year. This decrease was attributable to the inclusion of $34.5
million of restructuring charges, as compared to restructuring charges of $8.1
million in 1996, as discussed above. Excluding the restructuring charges,
operating income was 8.8% of sales in 1997 and 7.7% in 1996.
Interest Expense. Interest expense was $38.8 million for 1997, an increase
of $11.4 million, or 41.7%, over the prior year. The increase was due primarily
to the additional debt incurred to finance acquisitions and increased borrowings
to fund working capital requirements.
Income Taxes. The Company had an income tax benefit of $3.0 million in 1997
as compared to income tax expense of $5.7 million for 1996. The tax benefit was
28.1% of the loss from continuing operations before tax in 1997, and the income
tax expense was 43.1% of income from continuing operations before tax for the
prior year. Due to continuing tax planning initiatives, the Company expects its
effective tax rate to be approximately 38% in future years.
Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $1.7 million for 1997 relates to the Company's plan to divest its
large bore diesel remanufacturing operations and its marine operations. These
operations were not part of the Company's core strategic focus. The loss
reflects the direct costs of production and identifiable SE&A expense expected
to be incurred by these businesses from the date the Company decided to dispose
of them until the expected disposal date, and a loss on disposal of assets and
an allocation of interest expense based on capital employed by the business.
Net Income (Loss). As a result of the foregoing factors, the net loss was
$14.3 million for 1997, compared to a loss of $4.8 million in the prior year.
Excluding restructuring charges and loss on discontinued operations, the
Company's net income for 1997 was $10.5 million and $10.7 million for 1996.
Fiscal Year Ended July 31, 1996 Compared to Fiscal Year Ended July 31, 1995
Net Sales. Net sales were $636.9 million for 1996, an increase of $63.4
million, or 11.1%, over the prior year. The increase resulted from the inclusion
of the net sales of the 1995 Acquisitions for the entire 1996 fiscal year and
the net sales of the Power Investments Acquisition for the last six months of
the 1996 fiscal year. Sales increases from these newly-acquired subsidiaries
were partially offset by decreased sales to GM as a result of certain work
actions at GM, GM's high inventory levels at the beginning of 1996, and an
industry-wide softening of OEM heavy duty truck production.
Gross Profit. Gross profit was $126.8 million for 1996, an increase of
$28.6 million, or 29.1%, over the prior year. As a percentage of net sales,
gross profit increased to 19.9% for the year ended July 31, 1996 from 17.1% for
the prior year. This increase was attributable primarily to the higher gross
profit margins of the businesses acquired as well as improved productivity and
cost reductions in the OEM operations. These benefits were partially offset by
decreased sales to GM which negatively affected gross profit margins at certain
of the Company's OEM operations.
Selling, Engineering and Administrative Expenses. SE&A expenses were $78.0
million for 1996, an increase of $16.8 million, or 27.4%, over the prior year.
As a percentage of net sales, SE&A expenses increased to 12.2% for 1996 from
10.7% during the prior year. The increase in SE&A expenses as a percent of net
sales reflects the relatively higher SE&A expenses the acquired businesses
incurred in order to service the aftermarket.
Operating Income. Operating income was $40.7 million for 1996, an increase
of $3.7 million, or 9.9%, over the prior year. As a percentage of net sales,
operating income decreased slightly to 6.4% for the year ended July 31, 1996
from 6.5% for the prior year. This decrease was attributable to the inclusion of
restructuring charges of $8.1 million, as discussed above. Excluding the
restructuring charges, operating income was 7.7% of sales in 1996.
Interest Expense. Interest expense was $27.4 million for 1996, an increase
of $8.9 million, or 48.5% over the prior year. The increase was due primarily to
the additional debt incurred to finance acquisitions and increased borrowings to
fund working capital requirements.
Income Taxes. Income taxes were $5.7 million for 1996, a decrease of $2.1
million from the prior year. The Company's effective tax rate was 43.1% for 1996
and 42.3% for the prior year. The increase in the effective tax rate was due, in
part, to the inclusion of Power Investments and higher tax rates in foreign
operations.
Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $10.6 million for 1996 relates principally to the Company's Powder
Metal Forge ("PMF") business. PMF manufactures products that are not part of the
Company's core business. This loss reflects the direct costs of production and
identifiable SE&A expense incurred by the PMF business, and estimated losses
from operations during a transition period from the date the Company decided to
dispose of PMF until production is relocated to the seller's facility, as well
as a loss on disposal of assets and an allocation of interest expense based on
capital employed by the business.
Net Income (Loss). Net loss was $4.8 million for 1996, an earnings decrease
of $11.8 million from the prior year. The decrease in net income was
attributable to the restructuring charges and the loss on discontinued
operations discussed above. Excluding loss from discounted operations and
restructuring charges, net income was $10.7 million in 1996.
Quarterly Results of Operations
The following table sets forth, for the periods shown, certain statements
of operations data for the Company (in millions):
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- -------------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
Net sales.................. $ 156.7 $ 147.8 $ 164.5 $ 167.9 $ 167.6 $ 164.9 $ 180.4 $ 176.9
Gross profit............... 31.1 28.3 34.1 33.4 38.8 32.0 38.4 40.2
SE&A....................... 17.8 17.5 21.4 21.3 24.1 20.4 23.3 21.3
Restructuring charges...... -- -- -- 8.1 -- -- -- 34.5
Operating income........... 13.3 10.8 12.6 4.0 14.7 11.6 15.1 (15.4)
EBITDA..................... 17.9 15.5 17.4 21.3 22.6 18.6 21.9 24.2
The following table sets forth, for the periods shown, certain statement of
operations data for the Company, expressed as a percent of sales:
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- -------------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.............. 19.8% 19.1% 20.7% 19.9% 23.2% 19.4% 21.3% 22.7%
SE&A...................... 11.4% 11.8% 13.0% 12.7% 14.4% 12.3% 12.9% 12.0%
Restructuring charges..... -- -- -- 4.8% -- -- -- 19.5%
Operating income.......... 8.5% 7.3% 7.7% 2.4% 8.8% 7.0% 8.4% (8.7)%
EBITDA.................... 11.4% 10.5% 10.6% 12.7% 13.5% 11.3% 12.1% 13.7%
Liquidity and Capital Resources
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures. The Company does not
currently have any significant maturities of long-term debt prior to 2006 other
than the Senior Credit Facility, any potential payments under the GM Contingent
Note and the 8% Subordinated Debenture. See "Description of Indebtedness." The
Company anticipates temporary additional working capital requirements for
increased inventories at its existing facilities in connection with the
relocation to focus factories.
The Company estimates that net proceeds from the Offerings will be
approximately $181.1 million, net of fees and related costs and assuming no
exercise of the over-allotment option in the Equity Offering. The net proceeds
will be used to repay (i) the World Note with a principal amount of $75.0
million at a price equal to 103% of the principal amount, (ii) the GM
Acquisition Note of $59.2 million, (iii) the Power Investments Seller Notes and
the A&B Seller Notes of in an aggregate of $11.8 million, (iv) the Ballantrae
Senior Bank Debt of $20.8 million and (v) the Ballantrae Subordinated Debt of
$9.3 million. Any accrued and unpaid interest on such indebtedness will also be
repaid with the proceeds of the Offerings. See "Use of Proceeds."
In connection with the Offerings, the Company will amend and restate its
Senior Credit Facility to provide up to $180 million of revolving credit
availability. Each of the Company's domestic operating subsidiaries will be
parties to the Senior Credit Facility. The obligations under the Senior Credit
Facility of each domestic operating subsidiary will be unconditionally
guaranteed by each other domestic operating subsidiary and each of the Company
and its domestic subsidiaries which are holding companies.
Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, all of
which will be available for general corporate purposes including acquisitions
(with a sub-limit for letters of credit equal to the lesser of the Commitment
Amount at the time of issuance of a letter of credit and $30 million). Beginning
with the thirteenth quarter following the date of the Senior Credit Facility,
the Commitment Amount will decrease by $11.25 million at the end of each quarter
through the twenty-eighth such quarter, at which time the Senior Credit Facility
terminates. As of July 31, 1997, after giving pro forma effect to the
Transactions, approximately $35.0 million in borrowings would have been
outstanding under the Senior Credit Facility, together with approximately $11.6
million in outstanding stand-by letters of credit thereunder.
Cash interest expense for 1995, 1996 and 1997 was $10.3 million, $19.5
million and $30.8 million, respectively. The portion of total interest
represented by non-cash interest for the three years was $8.1 million, $7.9
million and $7.9 million for 1995, 1996 and 1997 respectively. Interest payments
under the Company's indebtedness will continue to result in significant
liquidity requirements for the Company. Following the Offerings, all of the
Company's interest payments must be made in cash.
The Company's capital expenditures were $31.9 million in 1997 and are
expected to be $22.5 million in 1998. Planned capital expenditures consist
primarily of new capacity to accommodate the introduction of several new
products, including additional gear reduction starters for automotive
applications and alternators with enhanced features for the medium and heavy
duty truck market, as well as production equipment for the Company's new focus
factories. Cost reduction programs account for a significant portion of planned
capital expenditures and include upgrades in machinery technology, new quality
standards and environmental compliance. The Company's ability to make capital
expenditures is subject to certain restrictions under the Senior Credit
Facility.
The Company granted put/call options in connection with the acquisitions of
Power Investments and World Wide that become exercisable in March 2001 for Power
Investments and November 2000 for World Wide. The exercise prices of the
put/call options are based on an earnings formula and cannot now be estimated.
See "Company History."
The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Senior Credit
Facility. The Company's cash position increased to $10.0 million at year end
1997 compared to $3.4 million at year end 1996. Cash provided by operating
activities was $22.5 million in 1997 as compared to cash used in operating
activities of $684,000 in 1996. Non-cash items in 1997, including $22.0 million
of depreciation and amortization and the $32.9 million restructuring reserve,
more than offset the Company's net loss and increased working capital
requirements. From July 31, 1996 to July 31, 1997, the Company's inventory
increased by $40.8 million. The increase in inventory was attributable primarily
to the Company's expanding aftermarket business, including inventory associated
with the World Wide acquisition as well as higher levels of finished goods
inventory required to service aftermarket customers. Cash used in investing
activities of $74.1 million in 1997 was composed of $42.2 million for the
acquisition of World Wide and $31.9 million of capital expenditures. Cash
provided by financing activities in 1997 was $57.8 million, as debt issuances
exceeded debt repayments. The components of net cash from operating activities
are detailed in the Consolidated Financial Statements and related notes.
Under the terms of the GM Acquisition, GM retained the liability for
post-retirement benefits earned by the Company's employees while employed by GM.
In addition, GM retained the liability for post-retirement benefits for all of
the Company's employees that return to GM pursuant to contractual arrangements
at the time of the GM Acquisition. Since relatively senior employees have
returned to GM and have been replaced by the Company with employees who have
later retirement dates, the Company's actual cash expenditures for
post-retirement benefits will be significantly less than the amount recorded as
an expense over the next ten years. The excess of the amount accrued over the
cash paid for post-retirement benefits during 1995, 1996 and 1997 was $4.4
million, $3.8 million and $4.5 million, respectively.
The Company believes that cash generated from operations, together with the
amounts available under the Senior Credit Facility, will be adequate to meet its
debt service requirements, capital expenditures and working capital needs for at
least the next twelve months, although no assurance can be given in this regard.
The Company's future operating performance and ability to extend or refinance
its indebtedness will be dependent on future economic conditions and financial,
business and other factors that are beyond the Company's control.
Seasonality
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during July.
In addition, the Company typically has shut down its own operations for one week
each July, depending on backlog, scheduled maintenance and inventory buffers, as
well as an additional week during the December holidays. Consequently, the
Company's second and fourth quarter results reflect the effects of these
shutdowns.
Effects of Inflation
The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency. The
Company has provisions in many of its contracts which provide for the pass
through of fluctuations in the price of certain raw materials, such as copper
and aluminum.
Foreign Sales
Approximately 15.9%, 12.4% and 21.1% of the Company's 1995, 1996 and 1997
net sales, respectively, were derived from sales made to customers in foreign
countries. Because of these foreign sales, the Company's business is subject to
the risks of doing business abroad, including currency exchange rate
fluctuations, limits on repatriation of funds, compliance with foreign laws and
other economic and political uncertainties.
Accounting Pronouncements
For a discussion of pending accounting pronouncements that may affect the
Company, see Note 2 to the Consolidated Financial Statements included elsewhere
in this Prospectus.
THE EXCHANGE OFFER
Purpose And Effect Of The Exchange Offer
The Existing Notes were sold by the Company to the Initial Purchasers on
July 26, 1996 (the "Issue Date"). The Initial Purchasers subsequently sold the
Existing Notes to qualified institutional buyers in reliance on Rule 144A under
the Securities Act and to a limited number of institutional "accredited
investors" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act. Because the Existing Notes are subject to certain transfer restrictions, as
an inducement to the Initial Purchasers the Company, the Subsidiary Guarantors
and the Initial Purchasers entered into a registration agreement dated July 26,
1996 (the "Registration Agreement"), pursuant to which the Company agreed (i) to
prepare and file with the Commission the Registration Statement of which this
Prospectus is a part not later than October 31, 1997 and (ii) to cause the
Registration Statement to become effective under the Securities Act not later
than December 31, 1997. The Registration Statement is intended to satisfy in
part the Company's obligations with respect to the Existing Notes under the
Registration Agreement.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, management believes that the
Exchange Notes will be freely transferable by holders other than affiliates of
the Company after the Exchange Offer without further registration under the
Securities Act if the holder of the Exchange Notes represents that it is
acquiring the Exchange Notes in the ordinary course of its business, that it has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the Commission; provided, however,
that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in
the Exchange Offer will have a prospectus delivery requirement with respect to
resales of such Exchange Notes. In interpretive letters issued to third parties
in unrelated transactions, the Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to exchange notes (other than a resale of an unsold allotment from
the original sale of existing notes) with the prospectus contained in the
registration statement pursuant to which such exchange notes were registered.
Based on those interpretive letters, the Company is of the view that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes with this Prospectus, although the Commission
has expressed no opinion in this regard. Under the Registration Agreement, the
Company is required to allow Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements to use this Prospectus in
connection with the resale of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Existing Notes,
where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a Prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."
Terms Of The Exchange Offer; Period For Tendering Existing Notes
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Existing Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1998; provided, however, that if the Company has extended
the period of time for which the Exchange Offer is open, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $140.0 million aggregate principal
amount of the Existing Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about ____________________,
1997 to all holders of Existing Notes known to the Company. The Company's
obligation to accept Existing Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions as set forth under "--Certain Conditions to the
Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Existing Notes, by giving
notice of such extension to the holders thereof. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Existing Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Existing Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give notice of any extension, amendment, non-acceptance
or termination to the holders of the Existing Notes as promptly as practicable,
such notice in the case of any extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
Holders of Existing Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the Exchange
Offer.
Procedures For Tendering Existing Notes
The tender to the Company of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Existing Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to National City Bank at one
of the addresses set forth below under "Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Existing Notes
must be received by the Exchange Agent along with the Letter of Transmittal, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Existing Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility" or the "Depositary") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or the holder must comply with the guaranteed delivery
procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instruction" or "Special Delivery Instruction" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined below). In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case maybe, are required to be guaranteed, such guarantees must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Existing Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Existing
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by the Company in its sole discretion, duly executed by, the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration
Date(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder of Existing Notes will represent to the Company
in writing that, among other things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
holder and any beneficial holder, that neither the holder nor any such
beneficial holder has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and that neither the
holder nor any such other person is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company. If the holder is not a broker-dealer, the
holder must represent that it is not engaged in nor does it intend to engage in
a distribution of the Exchange Notes. If the holder is a broker-dealer, the
holder must represent that it will receive Exchange Notes for its own account in
exchange for Existing Notes that were acquired as a result of market-making
activities or other trading activities. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (an "Exchanging Dealer"), must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
Acceptance Of Existing Notes For Exchange; Delivery Of Exchange Notes
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Existing Note. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Existing Notes for exchange
when, as and if the Company has given oral and written notice thereof to the
Exchange Agent.
In all cases, issuance of Exchange Notes for Existing Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Existing Notes or
a timely Book-Entry Confirmation of such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Existing Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Existing Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Existing Notes will be returned without expense to the tendering
holder thereof(or, in the case of Existing Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described below, such non-exchanged
Existing Notes will be credited to an account maintained with such Book-Entry
Transfer Facility) as promptly as practicable after the expiration of the
Exchange Offer.
Book-Entry Transfer
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Existing Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
The Company understands that the Exchange Agent has confirmed with the
Book-Entry Transfer Facility that any financial institution that is a
participant in the Book-Entry Transfer Facility's system may utilize the
Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") to tender
Existing Notes. The Company further understands that the Exchange Agent will
request, within two business days after the date the Exchange Offer commences,
that the Book-Entry Transfer Facility establish an account with respect to the
Existing Notes for the purpose of facilitating the Exchange Offer, and any
participant may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility's ATOP
procedures for transfer. However, the exchange of the Existing Notes so tendered
will only be made after timely confirmation (a "Book-Entry Confirmation") of
such book-entry transfer and timely receipt by the Exchange Agent of an Agent's
Message (as defined in the next sentence), an appropriate Letter of Transmittal
with any required signature guarantee, and any other documents required. The
term "Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility and received by the Exchange Agent and forming part of Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from a participant tendering Existing Notes which are the
subject of such Book-Entry Confirmation and that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal and that the
Company may enforce such agreement against such participant.
Guaranteed Delivery Procedures
If a registered holder of the Existing Notes desires to tender such
Existing Notes and the Existing Notes are not immediately available, or time
will not permit such holder's Existing Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company(by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Existing Notes
and the amount of Existing Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Existing Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the name of the person having tendered the Existing Notes to be withdrawn,
identify the Existing Notes to be withdrawn (including the principal amount of
such Existing Notes), and (where certificates for Existing Notes have been
transmitted) specify the name in which such Existing Notes are registered, if
different from that of the withdrawing holder. If certificates for Existing
Notes have been delivered or otherwise identified to the Exchange Agent, then,
prior to the release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Existing Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Existing
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Existing Notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Existing Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or in the case of Existing Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Existing Notes will
be credited to an account maintained with such Book-Entry Transfer Facility for
the Existing Notes) as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Existing Notes" above at any time on or prior to the Expiration Date.
Certain Conditions To The Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue Exchange Notes in
exchange for, any Existing Notes and may terminate or amend the Exchange Offer
if at anytime before the acceptance of such Existing Notes for exchange or the
exchange of Exchange Notes for such Existing Notes, the Company determines that
(i) the Exchange Offer does not comply with any applicable law or any applicable
interpretation of the staff of the Commission, (ii) the Company has not received
all applicable governmental approvals or (iii) any actions or proceedings of any
governmental agency or court exist which could materially impair the Company's
ability to consummate the Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). In any such event the Company is
required to use every reasonable effort to obtain the withdrawal of any stop
order at the earliest possible time.
Exchange Agent
National City Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED
BY HAND: MAIL: BY OVERNIGHT COURIER:
National City Bank National City Bank National City Bank
4100 West 150th Street P.O. Box 94720 4100 West 150th Street
3rd Floor North Annex - Corporate Cleveland, OH 44101-4720 3rd Floor North Annex - Corporate
Trust Operations Trust Operations
Cleveland, OH 44135 Cleveland, OH 44135
BY FACSIMILE:
National City Bank
(216) 476-8508
CONFIRM BY TELEPHONE:
(800) 622-6757
Delivery other than as set forth above will not constitute a valid
delivery.
Fees And Expenses
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying amount as the
Existing Notes, which is the principal amount as reflected in the Company's
accounting records on the date of the exchange and, accordingly, no gain or loss
will be recognized. The debt issuance costs will be capitalized and amortized to
interest expense over the term of the Exchange Notes.
Transfer Taxes
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register Exchange Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
Consequences Of Failure To Exchange; Resales Of Exchange Notes
Holders of Existing Notes who do not exchange their Existing Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of, the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
accrue interest at 10-5/8% per annum and will otherwise remain outstanding in
accordance with their terms. Holders of Existing Notes do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law in connection
with the Exchange Offer. In general, the Existing Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Existing Notes under the Securities Act. However, (i) if any
Initial Purchaser so requests with respect to Existing Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer and held by it following
consummation of the Exchange Offer or (ii) if any holder of Existing Notes(other
than an Exchanging Dealer) is not eligible to participate in the Exchange Offer
or, in the case of any holder of Existing Notes (other than an Exchanging
Dealer) that participates in the Exchange Offer, does not receive Exchange Notes
in exchange for Existing Notes that may be sold without restriction under state
and federal securities laws (other than due solely to the status of such holder
as an affiliate of the Company within the meaning of the Securities Act), the
Company is obligated to file a shelf registration statement on the appropriate
form under the Securities Act relating to the Existing Notes held by such
persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold or otherwise transferred by holders thereof (other than (i) any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or (ii) any broker-dealer that purchases Notes from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes. If any holder has any arrangement or understanding with respect
to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. A broker-dealer who holds Existing Notes that were
acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes. Each such broker-dealer that receives Exchange Notes for its own account
in exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." The Company has not requested the staff of the Commission to
consider the Exchange Offer in the context of a no-action letter, and there can
be no assurance that the staff would take positions similar to those taken in
the interpretive letters referred to above if the Company were to make such a
no-action request.
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Agreement and subject to certain specified
limitations therein, to register or qualify the Exchange Notes for offer or sale
under the securities or blue sky laws of such jurisdictions in the United States
as any selling holder of the Notes reasonably requests in writing.
BUSINESS
General
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves the
aftermarket and the original equipment manufacturer ("OEM") market, principally
in North America as well as in Europe, Latin America and Asia-Pacific. Net sales
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of EBITDA, with the OEM
market accounting for the balance.
The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar, Freightliner,
PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel, Volvo Trucks,
Mack, Pep Boys, Advance Auto and O'Reilly Automotive.
The Company sells its products principally under the "Delco Remy" brand
name and other major brand names worldwide. In connection with the GM
Acquisition (as defined), the Company obtained perpetual rights to the "Delco
Remy" brand name, which was first used in 1918. The Company also received the
right to use "Delco Remy" as a corporate name until 2004 and the "Remy" name in
perpetuity. In addition, GM entered into a long-term contract to purchase from
the Company substantially all of its North American requirements for automotive
starters and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."
Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division of
GM (the "Former GM Division"), formed the Company for the purpose of acquiring
the assets of the automotive starter and the heavy duty starter and alternator
businesses of the Former GM Division (the "GM Acquisition"). Upon consummation
of the Offerings and the other Transactions, CVC, management of the Company and
other existing stockholders of the Company will beneficially own approximately %
of the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will expand
the Company's drivetrain product position. Through Ballantrae's wholly owned
subsidiary, Tractech Inc. ("Tractech"), the Company will offer high quality
traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.
The Company's expanding aftermarket business benefits from the
non-deferrable nature of the repairs for which many of the Company's products
are used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many of
its aftermarket competitors. The Company believes that its participation in both
OEM and aftermarket businesses and its diversified customer base reduce its
exposure to the cyclicality of the automotive industry. The Company's growth
strategy is designed to capitalize on its position as a consolidator in the
large and highly fragmented remanufacturing aftermarket.
Growth Strategy
The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:
Increasing Aftermarket Presence
Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as an
OEM supplier. The Company plans to strengthen its customer relationships by (i)
continuing to expand its product offerings, (ii) capitalizing on the expansion
of the national automotive retail parts chains and warehouse distributors that
are customers of the Company, (iii) meeting the increasing demands of OEMs and
their dealer networks for high quality remanufactured units, which enable them
to reduce warranty and extended service costs, and (iv) growing sales of
existing and new product lines to OEM dealer networks as dealers continue to
capture an increasing percentage of vehicle repairs, due to longer warranty and
service programs and growing vehicle complexity. Additionally, with the recent
acquisition of World Wide, the Company expanded its product line and now offers
a full line of starters and alternators for domestic and import vehicles. The
acquisition also has improved the Company's distribution capabilities, which now
include a nationwide overnight delivery service.
Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM capabilities,
remanufacturing expertise, full product line, greater access to "cores" and
ability to capitalize on economies of scale, the Company is well positioned to
benefit from the consolidation of the aftermarket.
Expanding Globally
The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly growing foreign
markets. The Company has recently been awarded new business by GM, Volkswagen,
Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe; Daewoo Motors in
India; and Mercedes Benz, Volvo Trucks, John Deere and Dina in Mexico. The
Company intends to supply its existing OEM customers on a global basis as they
expand their operations and require local supply of component parts that meet
their demands for quality, technology, delivery and service. The Company
believes that its global expansion will enable it to gain new international OEM
customers who will also require local production of high quality products. In
addition, the expansion of the Company's OEM business into international markets
has provided the Company with the infrastructure necessary to develop an
aftermarket presence in these countries. The Company has established
manufacturing operations and strategic ventures in Hungary, Korea and Mexico,
and plans to complete a strategic alliance in India and a joint venture in
Brazil in fiscal year 1998. The acquisition of Ballantrae will provide the
Company with a European manufacturing plant which has been in operation since
1983. Aided by this facility, Ballantrae has developed strong relationships with
European customers for traction control systems, especially in the market for
construction equipment.
Introducing Technologically Advanced New Products
As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new products underscore the Company's commitment to developing
state-of-the-art products that address the higher output, lower weight and
increased durability requirements of OEM customers.
Operating Strategy
The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:
"Focus" Factories to Drive Manufacturing Excellence
The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant designed
to facilitate lean manufacturing techniques. The Company has successfully
launched three new focus factories since 1996. When the currently planned shift
to focus factories is completed, the Company will occupy five focus factories
and will have reduced its floor space for OEM production by more than 70%. The
Company believes that the benefits of the focus factories include reduced
overhead costs, enhanced productivity, increased product quality and lower
inventories.
Productivity Improvements
In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the Company
to continue to achieve productivity improvements in the existing and new focus
factories. The increased productivity achieved since the GM Acquisition is due
primarily to continuous improvement initiatives and the significant number of
employees who have exercised their contract rights to return ("flowback") to GM
or to retire.
Product Quality and Continuous Improvement
In July 1997, the Company received the prestigious Supplier of the Year
award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and the Company is a
Ford Authorized Remanufacturer ("Ford FAR") in five of the seven Canadian
provinces. Global purchasing has further enhanced the Company's continuous
improvement efforts. The Company is utilizing its international ventures to
develop new, lower cost sources of materials and is consolidating its vendor
base to fewer, more competitive suppliers.
Acquisition of Ballantrae
Pursuant to the Ballantrae Acquisition Agreement, the Company will acquire
all of the capital stock of Ballantrae in a merger of Ballantrae and a
subsidiary of the Company in which Ballantrae will be the surviving corporation.
The aggregate cost will be $49.2 million, subject to a working capital
adjustment and including assumed debt. Ballantrae operates through two
subsidiaries: Tractech, a leading producer of traction control systems for heavy
duty OEMs and the aftermarket; and Kraftube, Inc., a tubing assembly business
which sells products to compressor manufacturers for commercial air conditioners
and refrigeration equipment. In fiscal year 1997, Tractech accounted for 70% of
Ballantrae's $37.6 million of net sales. The Company will exchange shares of its
Common Stock with a value (at the initial public offering price in the Equity
Offering) of approximately $19 million for the equity of Ballantrae and will
repay approximately $30 million of Ballantrae's debt. The Common Stock of the
Company received by Ballantrae's existing stockholders in the merger will be
subject to resale restrictions under applicable securities laws. The merger is
expected to be completed at or prior to the consummation of the Offerings. The
Company will pay up to an aggregate of $ in respect of any dissenters' rights
exercised by existing stockholders of Ballantrae. Any damages which the Company
may suffer which result from a breach of the Ballantrae Acquisition Agreement
will be subject to a $10 million cap and the Company will only be able to
recover approximately % and % of its damages from CVC and James R. Gerrity,
respectively (in each case including their affiliates). The Company's
acquisition of Ballantrae strengthens the Company's overall market position by
(i) adding traction control systems to the Company's range of drivetrain
products, (ii) increasing sales to existing heavy duty OEM customers and (iii)
expanding the Company's customer base. The acquisition is expected to be
completed at or prior to the consummation of the Offerings. See "Risk
Factors--Acquisition of Ballantrae; Conflicts of Interest," "Company History"
and "Certain Transactions."
Industry Overview
In general, the Company's business is influenced by the underlying trends
of the automotive industry. The Company's focus on expanding its remanufacturing
capabilities, however, heightens the importance of the aftermarket.
Aftermarket. The aftermarket consists of the production and sale of both
new and remanufactured parts used in the maintenance and repair of automobiles,
trucks and other vehicles. Remanufacturing is a process through which used
components ("cores") are disassembled into their subcomponents, cleaned,
inspected, tested, combined with new subcomponents and reassembled into finished
products. A remanufactured product can be produced at lower cost than a
comparable individually repaired unit due to effective salvage technology
methods, high volume precision manufacturing techniques and rigorous inspection
and testing procedures. The ability to procure cores is critical to the
remanufacturing process. See "Business--Manufacturing and Facilities."
Aftermarket parts are supplied principally through three distribution
channels: (i) car and truck dealers that obtain parts either through an OEM
parts organization (e.g., GM SPO, Ford Parts & Service, Chrysler Mopar,
Navistar, etc.) or directly from an OEM-authorized remanufacturer; (ii) retail
automotive parts chains and mass merchandisers; and (iii) wholesale distributors
and jobbers who supply independent service stations, specialty and general
repair shops, farm equipment dealers, car dealers and small retailers.
The Company believes that the aftermarket has been and will continue to be
impacted by the following trends: (i) the increasing number and average age of
vehicles in use and the number of miles driven annually; (ii) the increasing
demands of customers that their aftermarket suppliers meet high quality
standards; (iii) the increasing use of remanufactured parts for OEM warranty and
extended service programs; (iv) the growth and consolidation of large retail
automotive parts chains; and (v) particularly with respect to many of the
Company's products, the increasing engine output and durability demands related
to the high temperatures at which engines operate.
According to R. L. Polk, as of 1996, there were approximately 198 million
cars and light trucks registered in the United States, as compared with 162
million cars and light trucks in 1986. The average age for cars and light trucks
in 1996 was 8.5 years, as compared with an average car age of 7.9 years in 1986.
The use of remanufactured components for warranty and extended service
repairs has increased in recent years as OEMs have offered extended warranty and
extended service coverage and dealers have begun to provide extended service
plans and warranties on used vehicles. OEMs have sought to reduce warranty and
extended service costs by using remanufactured components, which generally offer
the same degree of quality and reliability as OEM products at a lower cost. This
trend has resulted in aftermarket customers requiring higher quality standards
for remanufactured products.
Recently, large retail automotive parts chains offering a broad range of
new and remanufactured products have experienced rapid growth at the expense of
small, independent retail stores. The Company has significantly grown its sales
to this channel and believes that further increasing its sales to retail chains
offers a significant opportunity for growth. Retail chains generally prefer to
deal with large, national suppliers capable of meeting their cost, quality,
volume and service requirements. See "Business--Growth Strategy."
OEM Market. The OEM market consists of the production and sale of new
component parts for use in the manufacture of new vehicles. The OEM market
includes two major classes of customers: (i) automobile and light truck
manufacturers; and (ii) medium and heavy duty truck and engine manufacturers and
other heavy duty vehicle manufacturers.
The OEM market has been impacted by recent fundamental changes in the OEMs'
sourcing strategies. OEMs are consolidating their supplier base, demanding that
their suppliers provide technologically advanced product lines, greater systems
engineering support and management capabilities, just-in-time sequenced delivery
and lower system costs. As a result, each OEM has selected its own preferred
suppliers. OEMs are increasingly requiring that their preferred suppliers
establish global production capabilities to meet their needs as they expand
internationally and increase platform standardization across multiple markets.
OEMs continue to outsource component manufacturing of non-strategic parts.
Outsourcing has taken place in response to competitive pressures on OEMs to
improve quality and reduce capital outlays, production costs, overhead and
inventory levels. In addition, OEMs are increasingly purchasing integrated
systems from suppliers who provide the design, engineering, manufacturing and
project management support for a complete package of integrated products. By
purchasing complete systems, OEMs are able to shift design, engineering and
product management to fewer and more capable suppliers. Integrated systems
suppliers are generally able to design, manufacture and deliver components at a
lower cost than the OEMs due to (i) their lower labor costs and other
manufacturing efficiencies, (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs and
(iii) other economies of scale inherent in high volume manufacturing such as the
ability to automate and leverage global purchasing capabilities.
Products
Aftermarket. The Company's aftermarket product line includes a diverse
array of remanufactured and new products sold as replacement parts under the
"Delco Remy" brand name or under a private-label brand name specified by the OEM
or the automotive parts retailer. The Company remanufactures parts for both
domestic and imported vehicles.
Products remanufactured by the Company include starters, alternators,
engines, fuel injectors, injection pumps and turbo chargers (fuel systems),
transmissions, torque converters, water pumps, rack and pinions, power steering
pumps and gears and clutches. The Company also remanufactures subcomponents,
such as automotive armatures, rotors and solenoids, as well as component parts
shipped in bulk ("kits") for future assembly. These subcomponents are either
used internally in the remanufacturing process by the Company or sold to outside
customers.
OEM. The Company's starters are used in all cars and trucks manufactured by
GM in North America (except Saturn and Geo). The Company manufactures two types
of starters: straight drive starters and gear reduction starters. Since the
beginning of 1994, the Company has been transitioning its production line from
straight drive starters to more technologically advanced gear reduction
starters. For the 1997 model year, the Company's gear reduction starters were
used on 44% of GM's North American automotive platforms (other than Saturn and
Geo). The balance of GM North American automotive platforms (other than Saturn
and Geo) will be converted to the Company's gear reduction starters by the end
of the 1998 model year, at which time the Company expects to discontinue OEM
production of straight drive starters. The Company's gear reduction starters are
globally competitive and offer greater output at lower weight than comparable
straight drive designs. For example, the Company's principal PG-260 gear
reduction starter offers the highest power to mass ratio in the industry,
producing the same power at 7.7 pounds as a comparable straight drive design
weighing 13.6 pounds. The Company has begun development of a small gear
reduction starter that will enable the Company to offer its OEM customers an
application on their world car platforms. Reduced component weight is important
to OEMs, as total vehicle weight is a critical factor in each OEM's ability to
achieve federal Corporate Average Fuel Economy standards (CAFEs).
The Company manufactures a full line of heavy duty starters and alternators
for use primarily with large diesel engines. The Company's starters and
alternators are specified as part of the standard electrical system by most
North American heavy duty truck and engine manufacturers. The Company's starters
cover a broad range of torque and speed requirements. The Company manufactures a
full line of alternators, some of which utilize premium design features that
yield increased durability and a longer service life. Certain of the Company's
automotive starters are also currently being produced under technology licenses
by manufacturers in China and India, and by the Company's joint ventures in
Mexico and Korea.
The Company has recently developed several new products for heavy duty
applications, including a high output, premium heavy duty brushless alternator
for high vibration applications; a new large frame alternator designed to meet
the increasing demands in the upper power ranges of new heavy duty vehicles; and
a small heavy duty alternator for use in low output, high durability and severe
environmental applications, which the Company expects will be used principally
for agricultural and construction vehicles. The Company's OEM customers and
major truck fleet operators designate it as an electrical system supplier that
provides value-added systems such as the "Road Gang." The Road Gang system
includes a premium starter and brushless alternator produced by the Company and
premium batteries produced by GM and offered by the Company under a long-term
agreement with GM. Engineered as a package, these products provide increased
performance, reliability and durability.
Ballantrae's Tractech subsidiary produces traction control systems for use
in construction, industrial and agricultural equipment and in medium duty
trucks. The traction control systems business combines valuable product
engineering skills with strong machining and fabrication capabilities to
manufacture products with custom designed applications.
Quality Standards. The Company is required to meet numerous quality
standards in order to qualify as a supplier to major OEMs and their dealer
networks, as well as certain automotive parts retailers. The Company has
achieved significant recognition by its customers for its continuous commitment
to quality. In July 1997, the Company received the prestigious Supplier of the
Year award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's aftermarket operations that produce products for Ford have received
the Q-1 rating, which is Ford's highest quality rating. Moreover, the Company is
a Ford FAR in five of the seven Canadian provinces. The Company also has been
awarded Navistar's highest quality rating for its engine remanufacturing
operations. In addition, the Company has received quality awards from certain of
its other customers, including Caterpillar, Cummins, OshKosh and Teledyne.
Ford, Chrysler and GM have initiated quality standards (QS9000) applicable
to suppliers such as the Company. International and domestic automobile and
truck manufacturers developed the QS9000 standards to ensure that their
suppliers meet consistent quality standards that can be independently audited.
These quality standards, which are required by customers to be in place by
December 1997, impose processes and procedures in addition to those in effect
prior to December 1997. Management also believes that these standards may have
the effect of accelerating consolidation in the remanufacturing industry, as
smaller remanufacturers may be unable to meet or afford the cost of complying
with these new quality standards. The Company has received QS9000 certification
at nine of its manufacturing and remanufacturing facilities, and expects the
balance to be certified by the end of fiscal 1998.
Ballantrae's traction control systems unit has received several quality
awards, has been designated a Caterpillar "Certified Supplier" in every year
since 1985 and holds an ISO9002 certification.
Engineering and Development. The Company's engineering staff works
independently and with OEMs to design new products, improve performance and
technical features of existing products and develop methods to lower
manufacturing costs. The Company's engineering staff includes application
engineers, manufacturing engineers and advanced engineers. Application engineers
are assigned to various platforms or geographic regions to work directly with
customers on product design changes and corrective actions. Manufacturing
engineers are responsible for the planning, layout, design, equipment selection
and global implementation of production capacity for the Company's domestic and
foreign manufacturing facilities. Advanced engineers work in conjunction with
the customer's forward planning or advanced powertrain engineers on product
design and development for products with a five to ten year planning horizon.
In support of its engineering efforts, the Company has formed technical
alliances with a select number of engineering and technology firms to identify
long-term engineering advances and opportunities. In January 1996, the Company
entered into a joint development agreement with SatCon Technology Corporation
with the goal of developing an alternator with substantially higher power output
than the current generation of alternators. The Company has also formed
technical alliances with EcoAir Corp. and Arthur D. Little to support the
Company's advanced research and development of starters and alternators.
Customers
Aftermarket. The Company's principal aftermarket customers include OEM
dealer networks of GM, Navistar, Ford, Freightliner, Caterpillar and PACCAR and
leading automotive parts retain chains such as Auto Zone, Western Auto, Pep
Boys, Advance Auto, O'Reilly Automotive and Discount Auto. The Company's
products are also used for warranty replacement under procedures established by
certain of the Company's OEM customers.
In connection with the GM Acquisition, the Company entered into a long-term
agreement pursuant to which it designated GM, through GM SPO, as its exclusive
distributor of "Delco Remy" brand remanufactured automotive and heavy duty
starters and alternators within North America to specified customers, including
certain GM dealers, direct GM accounts, certain warehouse distributors and, with
respect to automotive products, certain retail chains. In consideration of its
being granted the foregoing exclusive distribution rights, GM agreed to purchase
from the Company 100% of its requirements for automotive starters and heavy duty
starters and alternators for sale in the aftermarket and has further agreed not
to sell any competitive products in the aftermarket channels specified above
during the term of the distribution agreement. Sales to GM SPO under the
distribution agreement accounted for approximately 24.2% of the Company's
aftermarket 1997 pro forma net sales. With respect to heavy duty starters and
alternators, the term of the current agreement will end on July 31, 1998. As to
automotive starters, the agreement terminates on July 31, 2009. The agreement,
with respect to either heavy duty or automotive products, may be terminated
prior to the end of the applicable term (i) by mutual agreement of the parties,
(ii) by either party upon a material breach by the other party, (iii) by the
Company if GM fails to achieve certain goals and objectives for reasons other
than a general decline in the economy and (iv) by GM to the extent the Company
fails to meet certain quality standards. See "Risk Factors--Dependence on
General Motors."
Ballantrae's traction control systems are offered on an aftermarket basis
for sport utility vehicles ("SUV") through independent wholesale distributors
for installation by the end user after the original vehicle purchase.
Aftermarket sales represent approximately 25% of Tractech's total sales.
OEM. The Company's principal customers in its OEM automotive business are
GM's North American Operations and various GM International affiliates, who
collectively accounted for substantially all of the Company's OEM 1997 pro forma
automotive starter sales, approximately 54.7% of total OEM 1997 pro forma net
sales and approximately 29.7% of total 1997 pro forma net sales. The GM
International affiliates to which the Company sells products include GM Brazil,
GM Holden (Australia), GM Mexico and Isuzu. Beginning with the 2001 model year,
the Company will also sell products to GM Europe. Remy Korea, a joint venture in
which the Company has a 50% interest, sells automotive starters using the
Company's technology to Daewoo Motors, Kia Motors, Asia Motors and Ssangyong
Motors. The Company will also sell automotive starters to Opel in Europe and,
through its licensee, to Daewoo Motors in India.
Principal customers of the Company's heavy duty OEM business include
Navistar, Freightliner, Cummins, Caterpillar, PACCAR, Detroit Diesel, GM, Ford,
Mack and Volvo Trucks, with the top ten customers accounting for approximately
59% of heavy duty pro forma net sales in 1997. The Company has long-term
agreements, with terms typically ranging from three to five years, to supply
starters and alternators to GM, Navistar, Freightliner, PACCAR, Cummins, Volvo
Trucks and Mack. In addition, the Company is the specified supplier of heavy
duty starters and alternators for trucks manufactured for several major North
American truck fleet operators, including Penske Truck Leasing, Ryder System,
Inc., Yellow Freight System and J.B. Hunt Transport.
Pursuant to long-term supply agreements, GM has agreed to purchase from the
Company 100% of its North American automotive starter requirements (other than
Saturn and Geo) and 100% of its U.S. and Canadian requirements for heavy duty
starters and alternators, in each case with respect to the Company's existing
product line as of August 1994. GM's commitments to purchase such products from
the Company in the future are subject, however, to the Company remaining
competitive as to technology, design and price. Nonetheless, GM may not
terminate the automotive starter supply agreement for failure of the Company to
be price, technology or design competitive prior to July 31, 2001. GM's
obligations to purchase automotive starters and heavy duty starters and
alternators from the Company terminate on July 31, 2004 and 2000, respectively,
except for automotive products released in 1996 and 1997, for which GM's
obligation will terminate on July 31, 2006 and 2007, respectively. GM may cancel
either agreement in the event that 35% of the Company's voting shares become
owned, directly or indirectly, by another manufacturer of passenger cars or
light trucks. During the term of the relevant supply agreement, GM has granted
the Company the right to bid on starter and alternator supply contracts for GM's
operations worldwide. See "Risk Factors--Dependence on GM."
Ballantrae's principal customers for traction control systems include OEMs
of construction, industrial and agricultural equipment and medium duty trucks.
Ballantrae's principal traction control systems customers include Caterpillar,
John Deere, Eaton, Dana, Rockwell and Clark Hurth.
The Company employs its own direct sales force, which develops and
maintains sales relationships with major North American truck fleet operators as
well as its OEM customers worldwide. These sales efforts are supplemented by a
network of field service engineers and product service engineers.
Manufacturing and Facilities
Aftermarket. The Company's aftermarket business has operations located
principally in 33 production facilities and seven warehouses in the United
States and Canada.
In its remanufacturing operations, the Company obtains used starters,
alternators, engines and related components, commonly known as cores, which are
sorted by make and model and either placed into immediate production or stored
until needed. During remanufacturing, the cores are completely disassembled into
their component parts. Components which can be incorporated into the
remanufactured product are thoroughly cleaned, tested and refinished. All
components subject to major wear as well as those which cannot be remanufactured
are replaced by new components. The unit is then reassembled into a finished
product. Inspection and testing are conducted at various stages of the
remanufacturing process, and each finished product is inspected and tested on
equipment designed to simulate performance under operating conditions.
The majority of the cores remanufactured by the Company are obtained from
customers in exchange for remanufactured units and are credited against the
purchase prices of these units. When the Company has an insufficient number of
components from salvageable cores, the Company's remanufacturing operations may
purchase new parts from the Company's OEM operations. Core prices fluctuate on
the basis of several economic factors, including market availability and demand
and core prices then being paid by other remanufacturers and brokers.
OEM. The Company's OEM business has seven principal manufacturing
operations, two in Meridian, Mississippi and five in Anderson, Indiana. The
Company has announced its intention to close its two facilities in Meridian,
Mississippi by the end of the 1998 fiscal year, including one facility leased
from GM at the time of the GM Acquisition. The balance of the Company's OEM
facilities are located in Anderson, Indiana. Two of the Anderson facilities are
leased from GM and will be vacated by the end of 1999. The Company is operating
three new focus factories and intends to have a total of five in operation by
the end of 1999. This restructuring will provide a reduction of over 70% in
square footage from the Company's existing plants to the focus factories due to
streamlining of manufacturing processes, phasing out of certain manufacturing
equipment and elimination of excess unutilized floor space or floor space used
by GM in each of the existing facilities. The restructuring reserve does not
include the startup costs the Company expects, based on its three prior focus
factory startups, to incur in connection with the two new focus factories.
The manufacturing process of the focus plants varies significantly from the
traditional process flow of existing plants. The Company utilizes a flexible
cell-based manufacturing approach to the production of all new and/or
re-engineered product lines within the focus plants as contrasted with the
existing vertically integrated, primarily synchronous process used in
traditional factories. The cell-based manufacturing system provides flexibility
by allowing efficient changes to the number of operations each operator performs
and is capable of both low- and high-volume production runs. When compared to
the more traditional, less flexible assembly line process, cell manufacturing
allows the Company to match its production output better to customers'
requirements while reducing required inventory levels and improving quality.
The Company's focus plants generally produce one product line in a plant
design based on cell-based, semi-automated manufacturing utilizing kaizen
techniques. The focus plant process creates a team-based environment of involved
workers who better understand and control the manufacturing process. In
addition, the Company has worked with the Company's unions to reduce the number
of job classifications so that workers can be shifted among various work areas
as production demands dictate. The Company is presently expanding lean
manufacturing techniques to its aftermarket facilities.
Ballantrae's traction control systems manufacturing facilities are located
in the Detroit suburb of Warren, Michigan, and in Sligo, Ireland. These
facilities have used cellular manufacturing for more than seven years.
The Company utilizes frequent communication meetings at all levels of
manufacturing to provide training and instruction as well as to assure a
cohesive, focused effort toward common goals. The Company encourages employee
involvement in all production activity and views such involvement as a key
element toward the success of the Company.
Competition
Aftermarket. The aftermarket is highly fragmented and competitive.
Competition is based primarily on quality of products, service, delivery,
technical support and price. The Company's principal aftermarket competitors
include Arrow, Automotive Parts Exchange (APE), Champion, Genuine Parts
(Rayloc), Motorcar Parts & Accessories (MPA), Prestolite and Unit Parts.
OEM. The automotive parts market is highly competitive. Competition is
based primarily on quality of products, service, delivery, technical support and
price. Most OEMs source parts from one or two suppliers. The Company competes
with a number of companies who supply automobile manufacturers throughout the
world. In the North American automotive market, the Company's principal
competitors include Nippondenso, Valeo, Mitsubishi and Bosch. GM purchases
automotive starters from the Company pursuant to its long-term supply agreement
with the Company. See "Business--Customers." Chrysler has eliminated production
of its own starters and currently purchases starters from independent suppliers.
Ford continues to produce certain parts for the majority of its domestic and
international applications and purchases the remainder from independent
suppliers.
The heavy duty parts market is characterized by one or two dominant
suppliers in each major geographic region of the world. No competitor has a
substantial share in all regions. In the North American heavy duty market, where
the Company is the largest manufacturer, the Company's principal competitors
include Prestolite, Nippondenso and Bosch.
Employees
As of July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 of the Company's hourly workers are
represented by the UAW under an agreement between the Company and the UAW, the
applicable provisions of which were assumed by the Company in connection with
the GM Acquisition. The Company and the UAW agreed to a new master agreement in
March 1997 when the agreement that had been assumed by the Company expired. Wage
and benefit increases under the new contract generally follow the same pattern
of the prior agreement and continue to track the wages and benefits paid by GM
and, as a result, the Company will experience higher labor costs in the future.
In addition, grow-in provisions under the new agreement will require the Company
to move lower wage and benefit employees to higher wage and benefit levels.
There can be no assurance that the Company will be able to effect cost
reductions or productivity improvements to offset such increased wage and
benefit levels or that the Company's labor costs will not increase
significantly, in which case the Company's competitive position and results of
operations would be adversely affected. The agreement between the UAW and the
Company expires on September 14, 2000 which will require negotiation of new
agreements.
As of July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively, which will require
negotiation of new agreements.
As of July 31, 1997, approximately 246 of Autovill's 366 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three months'
notice from either party.
The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize. There can be no assurance that there
will not be any labor union efforts to organize employees at facilities that are
not currently unionized.
Since the GM Acquisition, the Company has not experienced any organized
work stoppages. There can be no assurance, however, that any actions taken by
the Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
Patents, Trademarks and Licenses
Pursuant to a Trademark Agreement between the Company and GM, GM has
granted the Company an exclusive license to use the "Delco Remy" trademark on
and in connection with automotive starters and heavy duty starters and
alternators until July 31, 2004, extendible indefinitely at the Company's option
upon payment of a fixed $100,000 annual licensing fee to GM. The Company has
also been granted a perpetual, royalty-free license to use the "Remy" trademark.
The "Delco Remy" and "Remy" trademarks are registered in the United States,
Canada and Mexico and in most major markets worldwide. GM has agreed with the
Company that, upon the Company's request, GM will register the trademarks in any
jurisdiction where they are not currently registered.
The Company has also been granted an exclusive license to use the "Delco
Remy" name as a tradename and corporate name worldwide until July 31, 2004
pursuant to a Tradename License Agreement between the Company and GM. In
addition, GM has granted the Company a perpetual license to use the "Remy" name
as a tradename and corporate name worldwide.
The Company owns and has obtained licenses to various domestic and foreign
patents and patent applications related to its products and processes. The
patents expire at various times over the next 16 years. While these patents and
patent applications in the aggregate are important to the Company's competitive
position, no single patent or patent application is material to the Company.
Raw Materials
Principal raw materials for the Company's business include bare copper
strap, insulated copper, aluminum castings, forgings, outer frames, nomex paper,
steel coils, steel bars, copper tube, copper wire, flat steel, coil steel, bar
steel, gray iron castings, ductile iron castings, copper cross-section coils,
magnets, steel shafts, steel cores, steel wire and molding material. All
materials are readily available from a number of suppliers, and management does
not foresee any difficulty in obtaining adequate inventory supplies. The Company
and GM have entered into a long-term worldwide purchasing support agreement that
allows the Company to purchase copper wire and steel, which are used in the
manufacture of starters sold to GM, at prices that the Company believes
generally to be lower than those that would otherwise be obtainable by the
Company. This agreement expires on July 31, 2004, or earlier, upon termination
of the automotive and heavy duty supply OEM agreements between the Company and
GM. The Company generally follows the North American industry practice of
passing on to its customers the costs or benefits of fluctuation in copper and
aluminum prices on an annual or semi-annual basis. See "Business--Customers."
Backlog
The majority of the Company's products are not on a backlog status. They
are produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated 1998 sales volumes.
Properties
The world headquarters of the Company are located at 2902 Enterprise Drive,
Anderson, Indiana 46013. The Company leases its headquarters.
The following table sets forth certain information regarding manufacturing
and certain other facilities operated by the Company as of August 31, 1997. The
designation "F" indicates a focus plant. See "Business--Manufacturing and
Facilities."
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
Anderson, IN Headquarters Office 70,000 2000
Anderson, IN OEM Manufacturing 597,000 2004
Anderson, IN OEM Manufacturing 430,000 2004
Anderson, IN OEM(F) Manufacturing 117,000 2001
Anderson, IN OEM(F) Manufacturing 51,000 2001
Anderson, IN OEM(F) Manufacturing 36,695 2006
Anderson, IN OEM Manufacturing 33,500 2007
Anderson, IN OEM/Aftermarket Testing 15,000 2001
Anderson, IN Aftermarket Warehouse 20,220 2000
Anderson, IN Aftermarket Warehouse 50,220 2000
Bay Springs, MS Aftermarket Manufacturing 73,000 2003
Budapest, Hungary Aftermarket Leased to 3rd party 55,709 Owned
Chantilly, VA Aftermarket Manufacturing 120,000 2014
Edmonton, Canada Aftermarket Manufacturing 141,300 Owned
Etobicoke, Canada Aftermarket Manufacturing 114,120 2002
Findlay, OH Aftermarket Manufacturing 6,400 Owned
Franklin, IN Aftermarket Manufacturing 48,400 Owned
Franklin, IN Aftermarket Manufacturing 16,625 Owned
Franklin, IN Aftermarket Manufacturing 15,580 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 *
Heidelberg, MS Aftermarket Manufacturing 45,000 2003
Heidelberg, MS Aftermarket Manufacturing 5,000 2003
Indianapolis, IN Aftermarket Manufacturing 5,500 1999
Kaleva, MI Aftermarket Manufacturing 82,000 2000
Mansfield, TX Aftermarket Manufacturing 43,000 2000
Marion, MI Aftermarket Manufacturing 59,400 2000
Memphis, TN Aftermarket Warehouse 7,500 2002
Meridian, MS Aftermarket Office 2,400 2003
Meridian, MS Aftermarket Manufacturing 15,000 1998
Meridian, MS OEM Manufacturing 319,000 2004
Meridian, MS OEM(F) Manufacturing 68,000 2000
Meridian, MS Aftermarket Manufacturing 12,000 2003
Mezokovesd, Hungary Aftermarket Manufacturing 175,598 Owned
Mezokovesd, Hungary Aftermarket Warehouse 8,612 Owned
Peru, IN Aftermarket Manufacturing 30,000 2003
Peru, IN Aftermarket Manufacturing 14,111 2003
Raleigh, MS Aftermarket Manufacturing 43,000 2003
Raleigh, MS Aftermarket Manufacturing 75,000 2003
Raleigh, MS Aftermarket Manufacturing 8,000 Own
Reed City, MI Aftermarket Manufacturing 92,000 2000
Reed City, MI Aftermarket Manufacturing 34,000 2000
Reed City, MI Aftermarket Manufacturing 26,000 2000
Reed City, MI Aftermarket Warehouse 7,350 1999
Reed City, MI OEM/Aftermarket Manufacturing 90,000 Owned**
and Office
San Luis Potosi, Mexico OEM Manufacturing 37,000 2001
Sligo, Ireland OEM/Aftermarket Manufacturing 53,400 2018**
St. Laurent, Canada Aftermarket Warehouse 17,000 1997
Sylvarena, MS Aftermarket Manufacturing 1,300 *
Taylorsville, MS Aftermarket Manufacturing 27,000 2003
Toledo, OH Aftermarket Manufacturing 4,500 2000
Toronto, Canada Aftermarket Manufacturing 36,778 1997
Warren, MI OEM/Aftermarket Manufacturing 100,049 Owned**
and Office
Winchester, VA Aftermarket Warehouse 55,000 2000
Winchester, VA Aftermarket Office/Whse 55,000 2000
Winnepeg, Canada Aftermarket Manufacturing 38,000 Owned
- -------------------------
<FN>
* Leased on a month-to-month basis.
** Ballantrae facilities.
</FN>
Legal Proceedings
From time to time, the Company is party to various legal actions in the
normal course of its business. The Company believes it is not currently party to
any litigation that, if adversely determined, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Regulatory Matters
The Company's facilities and operations are subject to a wide variety of
federal, state, local and foreign environmental laws, regulations and
ordinances, including those related to air emissions, wastewater discharges and
chemical and hazardous waste management and disposal ("Environmental Laws"). The
Company's operations also are governed by laws relating to workplace safety and
worker health, primarily the Occupational Safety and Health Act, and foreign
counterparts to such laws ("Employee Safety Laws"). The Company believes that
its operations are in compliance in all material respects with current
requirements under Environmental Laws and Employee Safety Laws, with the
exception of certain matters of which the Company is aware, including: (i)
failure to submit certain filings pursuant to the New Jersey Industrial Site
Recovery Act ("ISRA") in connection with the closure of the Company's former
Edison, New Jersey plant; (ii) air permits or registration requirements at
certain facilities; and (iii) one isolated instance of noncompliance with import
requirements of the Hazardous Materials Transportation Act (relating to shipment
of lead-acid batteries) now under review by the United States Department of
Transportation. The Company believes that any costs it may incur to resolve such
matters will not be material. The nature of the Company's operations, however,
exposes it to the risk of liabilities or claims with respect to environmental
and worker health and safety matters. There can be no assurance that material
costs will not be incurred in connection with such liabilities or claims.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition or
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition or results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material.
Certain Environmental Laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Because of its operations, the long history of industrial uses at
some of its facilities, the operations of predecessor owners or operators of
certain of the businesses, and the use, production and release of Hazardous
Substances at these sites, the Company is affected by such liability provisions
of Environmental Laws. Various of the Company's facilities have experienced some
level of regulatory scrutiny in the past and are or may be subject to further
regulatory inspections, future requests for investigation or liability for past
disposal practices.
During the environmental due diligence performed in connection with the GM
Acquisition, GM and the Company identified certain on-site pre-closing
environmental conditions including the presence of certain Hazardous Substances
in the soil at the Company's Meridian, Mississippi property and in the soil and
groundwater at the Company's Anderson, Indiana property. GM has reported the
presence of these substances in the groundwater to the United States
Environmental Protection Agency ("EPA") and the Indiana Department of
Environmental Management ("IDEM") and has notified residents who live
downgradient of the affected GM properties. GM conducted further investigation,
which included the sampling of the residents' water wells and the installation
of an additional well offsite, and is working with EPA to resolve this issue.
Based on the Company's experience to date, the terms of the indemnification in
the GM Acquisition agreement and GM's continuing performance in responding to
these conditions, the Company does not believe that it will expend material
costs in responding to these on-site environmental conditions.
In connection with its acquisition of facilities and businesses from GM,
Nabco, A&B Group, Autovill, Power Investments, and World Wide, the Company
obtained various indemnities for certain claims related to on-site and off-site
environmental conditions and violations of Environmental Laws which arose prior
to such acquisitions. The environmental indemnities are subject to certain
deductibles, caps, cost sharing and time limitations depending on the nature and
timing of the environmental claim.
The Comprehensive Environmental Response, Compensation, and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), provides for responses to and joint and several liability for
releases of certain Hazardous Substances into the environment. The Company has
received requests for information or notifications of potential liability from
EPA under CERCLA for certain off-site locations. The Company has not incurred
any significant costs relating to these matters, and based on the existence of
certain indemnification agreements from its predecessors and their assumption of
liabilities to date and other legal defenses, believes that it will not incur
material costs in the future in responding to conditions at these sites.
The Company's Meridian, Mississippi facility has been designated by EPA as
requiring no further action under CERCLA and has since been "delisted" from the
Comprehensive Environmental Response, Compensation, and Liability Information
System ("CERCLIS") (a list of sites which may require investigation or
remediation under CERCLA). Although this does not assure that expenditures would
not be required under other federal and/or state programs, as a result of the
indemnifications in the GM Acquisition agreement, the Company does not believe
that it will expend material costs for this site under the CERCLA program or for
any other environmental conditions at this site.
The Resource Conservation and Recovery Act ("RCRA") and the regulations
thereunder and similar state counterparts to this law regulate hazardous wastes.
The Company's Anderson, Indiana facilities were once part of a larger industrial
complex owned and operated by GM (the "GM Complex"). Since 1990 (when owned by
GM), the GM Complex has been undergoing corrective action under RCRA. In
connection with the RCRA corrective action requirements, GM is required to
investigate various solid waste management units ("SWMUs") and areas of concern
("AOCs") identified in the federal and state RCRA permits. Some of these SWMUs
and AOCs are located on portions of the Anderson, Indiana properties leased by
the Company from GM and certain SWMUs are used by the Company. The costs of
responding to releases, if any, from those SWMUs used by the Company would
presumptively be borne by the Company. To date, no claims for any such liability
have been made, and GM continues to respond to EPA and IDEM with respect to the
investigation of these AOCs and SWMUs. Subject to the terms and conditions of
GM's environmental indemnity provided in connection with the GM Acquisition, GM
is indemnifying the Company with respect to certain of these areas.
One of the Company's facilities in Franklin, Indiana is undergoing a RCRA
site investigation and clean-up of volatile organic compounds ("VOCs") in the
soil and groundwater pursuant to an EPA Administrative Order on Consent ("EPA
Order") issued to both Franklin Power Products, one of the subsidiaries of the
Company, and Amphenol Corporation, a prior owner of the property. Pursuant to
the EPA Order, Franklin Power Products and Amphenol Corporation have jointly
submitted corrective measures studies which have been approved by EPA, and the
parties expect to enter into a new EPA Administrator Order on Consent in the
near future setting forth the selected remedy (including further investigation).
Amphenol indemnified Franklin Power Products for certain liabilities associated
with the EPA Order and Amphenol has satisfied and continues to satisfy the
requirements of the EPA Order. Based on the Company's experience to date and the
indemnities from Amphenol and the sellers of Franklin Power Products to the
Company, the Company believes that future costs associated with this site will
not have a material adverse effect on the Company's results of operations,
business or financial condition.
The Company's Marion, Michigan facility was listed on Michigan's state list
of sites pursuant to the Michigan version of CERCLA (the "Michigan SCL") in 1993
because of suspected releases of Hazardous Substances, primarily volatile
organic compounds (mineral spirits), to the soils and groundwater at the
facility. An investigation conducted by Nabco prior to its acquisition by the
Company determined that the levels of volatile organic compounds in the soils
and groundwater are below the applicable state clean-up levels. Although the
Company proposed no further action at this facility, the Michigan environmental
authorities are requiring further investigation. Even if the Michigan
environmental authorities were to require remedial action with respect to this
site, the Company does not believe that it will expend material costs in
connection with the conditions giving rise to this Michigan SCL.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position of each of the
directors and senior officers of the Company. Each director of the Company will
hold office until the next annual meeting of stockholders of the Company or
until his successor has been elected and qualified. Officers of the Company and
its subsidiaries serve at the discretion of their respective Boards of
Directors.
Name Age Positions
---- --- ---------
Harold K. Sperlich (1)........... 67 Chairman of the Board of Directors
Thomas J. Snyder (2)............. 53 President, Chief Operating Officer and Director
David L. Harbert................. 55 Executive Vice President and Chief Financial Officer
Susan E. Goldy................... 43 Vice President and General Counsel
Joseph P. Felicelli.............. 51 Group Vice President, Aftermarket
M. Lawrence Parker............... 49 Senior Vice President, Quality & Heavy Duty Systems, Delco Remy
America
Richard L. Stanley............... 41 Senior Vice President, Automotive Systems Division, Delco Remy
America
Roderick English................. 45 Senior Vice President, Human Resources and Communications,
Delco Remy America
Thomas R. Jennett................ 45 Senior Vice President and General Manager, Aftermarket Division
Patrick Mobouck.................. 43 Vice President-Managing Director, Europe
John M. Mayfield................. 43 President of A&B Group
Nicholas J. Bozich............... 53 President of Nabco
J. Michael Jarvis................ 53 President of Power Investments
Richard L. Keister............... 51 President of World Wide
Ralph E. McGee................... 59 President of Tractech
E.H. Billig (1).................. 70 Vice Chairman of the Board of Directors
Richard M. Cashin, Jr. (2)....... 44 Director
James R. Gerrity (2)............. 56 Director
Michael A. Delaney (1)........... 43 Director
Robert J. Schultz................ 67 Director
<FN>
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
</FN>
Harold K. Sperlich, Chairman of the Board of Directors. Mr. Sperlich has
been Chairman of the Board of Directors since the Company's inception in 1994.
Since retiring from Chrysler Corporation in 1988, having served as its
President, Mr. Sperlich has served as a consultant to the automotive industry.
Before joining Chrysler in 1977, Mr. Sperlich held several senior administrative
and operating posts with Ford Motor Company.
Thomas J. Snyder, President, Chief Operating Officer and Director. Mr.
Snyder has been President and Chief Operating Officer since the Company's
inception in 1994. From 1962 to 1994, Mr. Snyder held several aftermarket and
OEM executive positions with the Delco Remy Division of GM, most recently as
Product Manager, Heavy Duty Systems. He is a member of the board of St. John's
Health Systems and a Director of CLARK Material Handling Company.
David L. Harbert, Executive Vice President and Chief Financial Officer. Mr.
Harbert has been the Executive Vice President and Chief Financial Officer of the
Company since October 1994. Before joining the Company, Mr. Harbert was Senior
Vice President and Chief Financial Officer of Applied Power Inc. since 1992 and,
prior to that, served as Vice President and Chief Financial Officer of System
Software, Inc. since 1990.
Susan E. Goldy, Esquire, Vice President and General Counsel. Ms. Goldy has
been Vice President and General Counsel since February 1997. Before joining the
Company, she was an associate, and since 1993, was a partner in the law firm of
Dechert Price & Rhoads.
Joseph P. Felicelli, Group Vice President, Aftermarket. Mr. Felicelli has
been Group Vice President since September 1997. Prior to joining the Company,
Mr. Felicelli served in various management positions for Cooper Industries.
M. Lawrence Parker, Sr. Vice President, Quality and Heavy Duty Systems,
Delco Remy America. Mr. Parker has been the Senior Vice President, Quality and
Heavy Duty Systems since June 1995 and, prior to that, was Senior Vice
President, Quality and Customer Satisfaction beginning with the Company's
inception in 1994. Before joining the Company, Mr. Parker served in a number of
executive positions at Ford Motor Company since 1967 and at Chrysler Corporation
since 1984, most recently as Director, Corporate Quality Programs since 1991.
Richard L. Stanley, Sr. Vice President, Automotive Systems Division, Delco
Remy America. Mr. Stanley has been Senior Vice President, Automotive Systems
since the Company's inception in 1994. Mr. Stanley joined the Delco Remy
Division of GM in 1978, serving most recently as Director of Customer Programs
since 1992 and as European Chief Engineer since 1988.
Roderick English, Sr. Vice President, Human Resources and Communications,
Delco Remy America. Mr. English has been Senior Vice President of Human
Resources and Communications since the Company's inception in 1994. Mr. English
joined the Delco Remy Division of GM in 1976 and became Plant Manager of plant
17 in 1993. Prior to that, Mr. English served as Divisional Manager of Labor
Relations since 1989.
John M. Mayfield, President of A&B Group. Mr. Mayfield has been President
of A&B Group since its acquisition by the Company in March 1995. Mr. Mayfield
joined A&B Group in 1988 as Controller and became its Operations Director in
1991.
Nicholas J. Bozich, President, Nabco. Mr. Bozich has been President of
Nabco since March, 1997. Before joining the Company, Mr. Bozich was with General
Motors for 34 years in various managerial positions, most recently with the
Saturn Division.
J. Michael Jarvis, President, Power Investments. Mr. Jarvis has been
President of Power Investments since its formation in 1983.
Richard L. Keister, President, World Wide. Mr. Keister has been President
of World Wide since its formation in 1976.
Ralph F. McGee, President, Tractech. Mr. McGee started as Sales and
Marketing Manager of TracTech in 1968. He was appointed President in 1980, a
position he has held since then except for two years when he served in corporate
level development positions for Titan Wheel, Inc.
Thomas R. Jennett, Senior Vice President and General Manager, Aftermarket
Division. Mr. Jennett joined the Company in October 1996. Prior to such time he
held various management positions with Prestolite Electric Inc. since 1974,
including President of the Aftermarket Division and the Leece-Neville Heavy Duty
Division.
Patrick Mobouck, Vice President-Managing Director-Europe and Vice
President. Mr. Mobouck has been Vice President and General Manager Europe since
August 1997. He has also been Chairman of Autovill since August 1997. Before
joining the Company, Mr. Mobouck was with Monroe Auto Equipment since 1988, most
recently as Managing Director-Europe, Middle East and Africa.
E.H. Billig, Vice Chairman of the Board of Directors. Mr. Billig has been
Vice Chairman of the Board of Directors since the Company's inception in 1994.
He was former President and Chief Operating Officer of MascoTech Automotive
Systems Group, Inc., where he continues to serve as Vice Chairman. He is also a
director of Emco Limited, Titan Wheel International, Inc. and OEA, Inc.
Richard M. Cashin, Jr., Director. Mr. Cashin has been a director since the
Company's inception in 1994. Mr. Cashin has been President since 1994, and a
Managing Director for more than the past five years, of CVC. In addition, Mr.
Cashin serves as a director of Levitz Furniture Incorporated and Titan Wheel
International Inc.
James R. Gerrity, Director. Mr. Gerrity has been a director since the
Company's inception in 1994. From 1986 to 1993, Mr. Gerrity was President and a
director of Dyneer Corporation. Mr. Gerrity currently is a director of Palomar
Technologies Corporation, Wescor Graphics, Inc. and Ballantrae Corporation.
Michael A. Delaney, Director. Mr. Delaney has been a director since the
Company's inception in 1994. Mr. Delaney has been a Vice President of CVC since
1989. From 1986 through 1989, he was Vice President of Citicorp Mergers and
Acquisitions. Mr. Delaney is also a director of Sybron Chemicals, Inc., CVC
Holdings, JAC Holdings, CORT Business Services, Inc., Palomar Technologies,
Inc., Enterprise Media Inc., FF Holdings Corporation, SC Processing, Inc.,
Triumph Holdings, Inc. and AmeriSource Health Corporation.
Robert J. Schultz, Director. Mr. Schultz became a director in 1997. Mr.
Schultz retired as Vice Chairman and a member of the Board of Directors of GM in
1993. Mr. Schultz joined GM in 1955 and served as Group Executive of
Chevrolet-Pontiac-GM of Canada and General Manager of GM's Delco Electronic's
Division. Mr. Schultz is also a member of the Board of Trustees of California
Institute of Technology and a director of OEA, Inc. and Texco Communications.
Director Compensation and Arrangements*
Any outside director of the Company is paid an annual fee of $ for service
as a director of the Company, plus an additional fee of $ for attendance at each
meeting of the Board of Directors in excess of annually and $ per telephonic
meeting of the board of directors. [There are no fees paid for attendance at
committee meetings.] Certain outside directors of the Company may also be
entitled to receive stock options for Class A Common Stock pursuant to the stock
option plan the Company intends to adopt prior to the consummation of the
Offerings. See "Management--Stock Option Plan." CVC, certain members of
management and other Existing Stockholders have entered into a Stockholders'
Agreement whereby they have agreed to vote their shares in such a manner so as
to elect the entire Board of Directors of the Company. See "Principal
Stockholders--Stockholders' Agreement."
Executive Compensation*
The following table sets forth, for the fiscal year ending July 31, 1997,
certain information regarding the cash compensation paid by the Company, as well
as certain other compensation paid or accrued for such year, to each of the
executive officers of the Company named below, in all capacities in which they
served:
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
Harold K. Sperlich $ $ $
Chairman of the Board
Thomas J. Snyder $ $ $
President and
Chief Operating Officer
$ $ $
$ $ $
$ $ $
- -------------------
<FN>
* Table to be completed by amendment.
</FN>
Stock Option Plan. The Company expects to adopt a stock option plan
immediately prior to the consummation of the Offerings.
401(k) Plan. The Company established the Salaried 401(k) Savings Plan (the
"401(k) Plan") to allow eligible employees to help meet their long-term savings
needs. Except for eligible employees who transferred to DRA directly from GM and
began immediate participation, generally all employees who are compensated on a
salaried basis are eligible to participate in the 401(k) Plan after completing
six months of continuous employment. The 401(k) Plan is a defined contribution,
tax-qualified plan under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), with employer and employee pre-tax contributions
deductible by the Company for income tax purposes for the year contributed, and
such contributions and earnings thereon are not taxable to employees until paid
to them.
An employee in the 401(k) Plan may elect to have from 1% to 15% of base
salary contributed from pay to the 401(k) Plan on a pre-tax, after-tax, or
combination of pre-tax and after-tax, basis, and receive a 25% matching
contribution on the sum of the employee's pre-tax and after-tax contributions up
to 6% of base salary. Except for certain GM employees who transferred employment
to DRA, employees also receive a 1% of base salary contribution for their
retiree medical care account under the 401(k) Plan. Under the Code, the total
contributions allocated to an employee's accounts for a plan year cannot exceed
the lesser of $30,000 or 25% of the employee's compensation, and the employee's
pre-tax contributions are limited in a calendar year to $9,500 (subject to cost
of living increases under the Code).
Employees are immediately 100% vested in their 401(k) Plan benefits except
for the matching and retiree medical care contributions, which vest after the
earliest of five years of service, death, attaining age 65, or attaining an
early retirement date under the Retirement Plan. Any forfeitures which may
result under the 401(k) Plan are used to reduce future contributions of the
companies. Employees generally may withdraw their vested benefits from the
401(k) Plan on termination of employment, retirement, or death, and may also
under certain circumstances withdraw benefits while still employed (including
certain financial hardship, plan loan and pre-and post-age 59(OMEGA),
withdrawals). Until fully withdrawn, employees may direct the investment of
their 401(k) Plan benefits among a broad range of investment funds.
Retirement Plan. The Company established the Retirement Plan primarily to
provide eligible employees with a monthly pension benefit after retirement for
life. Except for eligible employees who transferred to DRA directly from GM and
began immediate participation, generally all employees of the Company who are
compensated on a salaried basis are eligible to participate in the Retirement
Plan after completing one year of service and attaining age 21. The Retirement
Plan is a defined benefit, tax-qualified plan under section 401(a) of the Code,
and contributions to the Plan generally are deductible by the companies for
income tax purposes for the year contributed, and benefits are not taxable to
employees until paid.
The standard retirement benefit under the Retirement Plan is a monthly,
single life annuity starting at age 65, equal to 1.25% of an employee's average
monthly pay multiplied by the employee's years of service with the companies.
Average monthly pay is generally based on the employee's 60-consecutive month
highest average base pay during the ten-year period before retirement. The
benefit for certain long-service GM employees who transferred to DRA, however,
is not less than $60 times their years of service with the Company. Under the
Code the annual benefit provided by the Retirement Plan cannot exceed the lesser
of $125,000 or 100% of compensation (subject to certain further limitations
under the Retirement Plan and Code). Eligible employees generally may retire on
or after age 55 with 10 years of service, with their monthly Retirement Plan
benefit actuarially reduced if payment actually starts prior to age 62.
Employees who terminate with less than five years of service forfeit any
benefits which they may have accrued, and such forfeitures are used to offset
future contributions otherwise required to fund the Plan. Certain death and
disability benefits also may be paid under the Retirement Plan.
Supplemental Executive Retirement Plan. The Company established and
maintains the Supplemental Executive Retirement Plan ("SERP") to provide
additional retirement benefits to a select group of management who experience
reductions in their 401(k) Plan and Retirement Plan benefits due to limitations
imposed by the Code. The SERP is a non-qualified deferred compensation "top hat"
plan with a defined benefit formula, is generally exempt from most of the
federal pension laws applicable to tax-qualified deferred compensation plans,
and SERP benefits are unsecured and paid from the general assets of the
companies when due. The Delco Remy International, Inc. Executive Benefit
Committee selects the group of eligible management employees and the date as of
which each individual may participate.
The benefit under the SERP is 2% of the employee's final plan compensation
multiplied by the employee's years of service with the companies, with such
benefit not less than 25% nor more than 50% of such final plan compensation,
payable in quarterly installments over five years. The employee's final plan
compensation for this purpose generally is the employee's base compensation
(subject to certain adjustments and limitations) which is in excess of the
applicable compensation limit in effect under Code Section 401(a)(17) (currently
$160,000). The SERP benefit generally is payable when a participant terminates
employment after completing five years of service or dies. However, the SERP
benefit may be forfeited under certain circumstances, including termination for
cause or engaging in prohibited competition.
The following table sets forth the estimated annual benefits payable upon
retirement:*
Remuneration Years of Service
- ---------------------------------------------- -----------------------------
* To be completed by amendment.
Executive Incentive Plan. The Company's executives participate in an
Executive Incentive Plan by which they are entitled to receive certain
percentages of their base compensation as a bonus if a designated target or
objective is met. Designated targets related to earnings and/or cash flow are
set at the beginning of each year, based on the prior year's results. The
Executive Incentive Plan provides that if a target is exceeded, then any bonus
payable under the plan is commensurately increased, subject to a cap. The
Company expects to continue the Executive Incentive Plan and has established a
Compensation Committee made up of non-management directors who will fix the
target objectives for each executive for each year.
Insurance and Indemnification
The Company has obtained customary directors' and officers' insurance
against certain liabilities such persons may incur on behalf of the Company. For
a discussion of the limitations on liability of the Company's directors and the
indemnification by the Company of such directors set forth in the Company's
Restated Certificate of Incorporation, see "Description of Capital
Stock--Limitation on Liability and Indemnification."
Employment Agreements
The Company has entered into an Employment Agreement with Thomas J. Snyder
which provides for his employment until 1999. Mr. Snyder receives an annual base
salary of $ * . The agreement provides that the executive may not engage in any
business competitive with the Company while employed by the Company and for a
period of one year thereafter.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors during fiscal year
1997 was composed of Messrs. Delaney, Sperlich and Billig. Upon completion of
the Offerings, the Compensation Committee will be composed of the same
individuals.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of October 1, 1997 with
respect to shares of each class of Common Stock beneficially owned by (i) each
person or group that is known to the Company to be the beneficial owner of more
than 5% of each class of outstanding Common Stock, (ii) each director and senior
officer of the Company and (iii) all directors and senior officers of the
Company as a group. Unless otherwise specified, all shares are directly held.
Each share of Class A Common Stock is convertible into one share of Class B
Common Stock, and each share of Class B Common Stock is convertible into one
share of Class A Common Stock. See "Description of Capital Stock."
Class A Common Stock
Percent of Class Percent of Class
Before the Equity After the Equity
Offering, Senior Offering, Senior
Amount of Note Offering and Note Offering and
Beneficial Owner Ownership(1)(2) Transactions(1) Transactions(1)
---------------- --------------- ----------------- -----------------
Citicorp Venture Capital Ltd.(3).................. 19.8%
399 Park Avenue
New York, NY 10043
MascoTech Automotive Systems Group, Inc........... 30.7
275 Rex Boulevard
Auburn Hills, MI 48326
World Equity Partners, L.P........................ 17.0
399 Park Avenue
New York, NY 10043
Harold K. Sperlich(5)............................. 10.2
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
Thomas J. Snyder.................................. 5.1
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
James R. Gerrity(6)............................... 3.1
E.H. Billig(7).................................... 3.1
Richard M. Cashin, Jr.(8)......................... 2.2
Michael A. Delaney................................ *
Robert J. Schultz................................. *
All directors and senior officers as a group 36.2
(19 persons)......................................
- -------------------
<FN>
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class B Common Stock
convertible into Class A Common Stock.
(2) Includes shares issuable upon exercise of the Warrants which are
exercisable within 60 days of the stated date.
(3) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(4) Represents Warrants to acquire Class A Common Stock.
(5) Held as trustee under agreement dated February 4, 1985, as amended, with
Harold K. Sperlich, as Settlor.
(6) Held as trustee under Living Trust dated March 16, 1990.
(7) Held by The Billig Family Limited Partnership.
(8) Does not include shares beneficially held by CVC or World Equity Partners,
L.P., which may be deemed to be beneficially owned by Messrs. Delaney and
Cashin. Messrs. Delaney and Cashin disclaim beneficial ownership of shares
held by CVC or World Equity Partners, L.P.
</FN>
Class B Common Stock
Amount of Percent of
Beneficial Owner Ownership(1) Class(1)
---------------- ------------ ----------
Citicorp Venture Capital Ltd.(2)............. 86.5%
399 Park Avenue
New York, NY 10043
CCT Partners I, L.P.......................... 10.0
399 Park Avenue
New York, NY 10043
Michael A. Delaney(3)........................ *
Richard M. Cashin, Jr.(3).................... *
All directors and senior officers as a group *
(19 persons)(2)..............................
- ------------------------
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class A Common Stock
convertible into Class B Common Stock.
(2) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(3) Does not include shares held by CVC and CCT Partners I, L.P. which may be
deemed to be beneficially owned by Messrs. Delaney and Cashin. Messrs.
Delaney and Cashin disclaim beneficial ownership of such shares.
Stockholders' Agreement
In connection with the GM Acquisition, certain stockholders of the Company,
including CVC, World Equity Partners, L.P. ("WEP"), MascoTech Automotive Systems
Group, Inc. ("MascoTech"), Harold K. Sperlich, James R. Gerrity and the
individuals named therein as management investors (the "Management Investors")
(collectively the "Investors"), entered into a Securities Purchase and Holders
Agreement (the "Stockholders' Agreement") for a ten-year term containing certain
agreements among such stockholders with respect to the capital stock and
corporate governance of the Company. The following is a summary description of
the principal terms of the Stockholders' Agreement and is subject to and
qualified in its entirety by reference to the Stockholders' Agreement, which has
been filed as an exhibit to the Registration Statement which includes this
Prospectus.
Pursuant to the Stockholders' Agreement, the Investors agreed to vote their
shares in favor of the Board of Directors of the Company being composed of six
to nine directors as follows: Harold K. Sperlich (so long as he continues to
serve as chairman of the Board of Directors); one individual designated by
MascoTech; two individuals designated by CVC; James R. Gerrity (so long as he
continues to serve as an officer or a consultant to the Company); and Thomas J.
Snyder (so long as he continues to serve as President of the Company and, when
he ceases to serve in such office, his successor in such office). CVC also has
the right to nominate up to 3 independent directors.
If CVC elects not to nominate any such nominees, no other persons will be
nominated or elected to such independent director positions. So long as CVC or
its affiliates own at least 5% of the outstanding shares of the Company's Common
Stock, CVC also has the right pursuant to the Stockholders' Agreement to
designate two observers to attend meetings of the Company's Board of Directors
and committees thereof. The Investors have agreed to vote their shares in favor
of any proposal by CVC or MascoTech (a) to remove directors nominated by CVC or
MascoTech or (b) to fill directorships vacated by directors nominated by CVC or
MascoTech.
Following the Equity Offering, the Investors will beneficially own over 50%
of the outstanding shares of Class A Common Stock and, pursuant to the foregoing
described provisions, will be able to elect the entire Board of Directors of the
Company. The Stockholders' Agreement contains similar provisions regarding the
control by the Investors of DRA and its Board of Directors.
Each Investor has agreed in the Stockholders' Agreement not to vote in
favor of any amendment or other modification to the Company's Restated
Certificate of Incorporation or By-laws unless CVC votes in favor of such
amendment or modification. CVC has agreed not to vote in favor of any such
amendment that adversely affects MascoTech's right to designate one individual
to the Company's Board of Directors.
The Stockholders' Agreement contains certain provisions which restrict,
with certain exceptions, the ability of the Investors from transferring any
shares of Common Stock or warrants to purchase Common Stock unless such transfer
is approved by Investors holding at least 40% of the outstanding Common Stock
and otherwise complies with the terms of the Stockholders' Agreement. If the
Board of Directors of the Company and holders of more than 50% of the shares of
Common Stock then outstanding approve the sale of the Company (an "Approved
Sale"), each Investor has agreed to consent to such sale and, if such sale
includes the sale of stock, each Investor has agreed to sell all of such
Investor's Common Stock on the terms and conditions approved by the Board of
Directors and holders of a majority of the shares of Common Stock then
outstanding. If the holders of at least 66% of the shares of Common Stock then
outstanding approve the sale of the Company (a "Required Sale"), each Investor
has agreed to consent to such sale and, if the sale is structured as a sale of
stock, each Investor has agreed to sell all of such Investor's Common Stock on
the terms and conditions approved by the holders of at least 66% of the shares
of Common Stock then outstanding. CVC holds a right of first refusal to purchase
MascoTech's shares in the event that MascoTech receives a bona fide offer to
sell its shares. If CVC elects to purchase less than all of MascoTech's shares
under CVC's right of first refusal, then the Company may be obligated to
purchase the remainder of MascoTech's shares.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer by Management Investors, including, subject to certain
exemptions, the right of the Company to repurchase shares held by Management
Investors upon termination of employment prior to July 31, 1999, at a formula
price, and the grant of a right of first refusal in favor of the Company in the
event a Management Investor elects to transfer such Management Investor's shares
of Common Stock.
Registration Rights Agreement
In connection with the GM Acquisition, the Company entered into a
Registration Rights Agreement with the Investors covering all of the _________
shares of Common Stock held by the Investors ("Registration Rights Agreement").
The following description of the Registration Rights Agreement is subject to and
qualified in its entirety by reference to the Registration Rights Agreement,
which has been filed as an exhibit to the Registration Statement which includes
this Prospectus. CVC and, upon consummation of the Equity Offering, WEP and
WEP's permitted transferees have been granted the right one or more times to
require the Company to file one or more registration statements with the
Securities and Exchange Commission (the "Commission") registering the shares
held by them. The Investors have been granted the right, subject to certain
restrictions, to require the Company to include shares held by the Investors in
any registration statements filed by the Company with the Commission subject to
certain limited exceptions. The Company has agreed to pay certain expenses
relating to any registration of shares effected pursuant to the Registration
Rights Agreement and to indemnify the Investors against certain liabilities in
connection with any such registration.
Lock-Up Agreements
In connection with the Equity Offering, the Investors and certain other
stockholders have agreed, subject to certain exceptions, not to register for
sale or offer, sell or transfer any shares of Common Stock for a period of 180
days after the date of the Equity Offering, without the prior written consent of
Morgan Stanley & Co. Incorporated. This agreement covers all of the ______
shares of Common Stock held by the Investors and approximately __________ shares
of Common Stock held by other stockholders.
CERTAIN TRANSACTIONS
CVC and James R. Gerrity, each of whom is an existing stockholder of the
Company, beneficially own approximately 71.9% and 15.0% of Ballantrae's issued
and outstanding common stock, on a fully-diluted basis, respectively, and 74.7%
and 10.4% of Ballantrae's issued and outstanding preferred stock, respectively.
The Ballantrae Acquisition Agreement provides that CVC and Mr. Gerrity and their
affiliates will receive in connection with the acquisition of Ballantrae
__________ and __________ additional shares of the Company's Common Stock,
respectively, based on an assumed offering price in the Equity Offering of $____
per share of Class A Common Stock (the "Merger Consideration"); however such
stock will be subject to certain restrictions against transfer under applicable
securities laws. The Company believes that the Ballantrae Acquisition Agreement
and in particular the Merger Consideration to be received by CVC and Mr. Gerrity
and their affiliates are commercially reasonable. The Company's Board of
Directors has received a fairness opinion from Salomon Brothers Inc. Messrs.
Delaney, Gerrity and Cashin, directors of the Company, have served as directors
of Ballantrae since its formation in 1996. See "Company History," "Risk
Factors--Acquisition of Ballantrae; Conflicts of Interest" and
"Business--Acquisition of Ballantrae."
The Company currently leases eight properties in Mississippi from entities
controlled by family members of John M. Mayfield, President of A&B Group. These
leases were entered into in connection with the acquisition of A&B Group by the
Company in March 1995. All leases are triple net leases, five of which expire on
March 31, 2003 and three of which expire on March 31, 2000, each subject to
renewal. Aggregate annual rent payments for these leases for fiscal year 1997,
not including tax and maintenance expenses constituting additional rent, equaled
approximately $646,200.
Mr. Richard L. Keister, President of World Wide, borrowed $90,000 from the
Company to purchase 10,000 shares of Class A Common Stock from the Company in
May 1997. Interest on the loan accrues at a rate of % and the loan is due .
In 1997, Mr. Nicholas J. Bozich, President of Nabco, borrowed $15,000 and
$80,000 from the Company to purchase 1,500 shares of Class A Common Stock and to
purchase a home, respectively. Interest on the loans accrues at a rate of ____%
and _____%, respectively, and the loans are due in ______________________ and
_____________________, respectively.
The Company will exchange the Junior Subordinated Notes for
_________________ shares of the Company's Class A Common Stock. The Junior
Subordinated Notes were issued in an aggregate principal amount of $18.2 million
to CVC, certain employees and former employees of CVC and MascoTech in
connection with the GM Acquisition. The exchange ratio will be based upon the
initial public offering price of the Class A Common Stock of the Company for the
Equity Offering less underwriting discounts and commissions.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation, which has been filed as an exhibit to the Registration
Statement which includes this Prospectus.
The Company may issue ___,000,000 shares of Common Stock, divided into two
classes consisting of ___,000,000 shares of Class A Common Stock, par value $.01
per share, and ___,000,000 shares of Class B Common Stock, par value $.01 per
share.
As of July 31, 1997, giving effect to the Transactions, there were _____
shares of Class A Common Stock outstanding, held of record by _____ holders, and
_____ shares of Class B Common Stock outstanding. In addition, _____ Warrants to
purchase _____ shares of Class A Common Stock were issued and outstanding and
_____ shares of Class A Common Stock were available to be issued pursuant to the
stock option plan which the Company expects to adopt prior to the consummation
of the Offerings.
Class A Common Stock
Holders of Class A Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders and have
no cumulative voting rights. Holders of Class A Common Stock do not have
preemptive rights pursuant to the Restated Certificate of Incorporation. Holders
of Class A Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Company's Board of Directors out of
legally available funds therefor; provided, however, that if dividends are
declared that are payable in shares of Class A Common Stock or Class B Common
Stock, dividends must be declared which are payable at the same rate on each
class of Common Stock and the dividends payable in shares of Class A Common
Stock must be paid to holders of Class A Common Stock and the dividends payable
in shares of Class B Common Stock must be paid to holders of Class B Common
Stock. All outstanding shares of Class A Common Stock are fully-paid and
nonassessable. Shares of Class A Common Stock are convertible at any time at the
election of the holder thereof into shares of Class B Common Stock on a
one-for-one basis.
Upon liquidation, dissolution or winding up of the Company, holders of
Class A Common Stock, together with holders of Class B Common Stock, are
entitled to a pro rata share of the distribution of assets remaining after the
payment of debts and expenses and after payment of the liquidation preference
accorded to the holders of any preferred stock of the Company which may be
issued in the future. Each share of Class A Common Stock has the same rights,
privileges and preferences as every other share of Class A Common Stock.
Class B Common Stock
The rights of holders of Class B Common Stock and holders of Class A Common
Stock are identical and entitle the holders thereof to the same rights,
privileges, benefits and notices, except as otherwise described herein. Holders
of Class B Common Stock generally do not possess the right to vote on any
matters to be voted upon by the stockholders of the Company, except as provided
by law. Under Section 242(b)(2) of the Delaware General Corporation Law
("DGCL"), the holders of the Class B Common Stock shall be entitled to vote as a
class upon any proposed amendment to the Company's Restated Certificate of
Incorporation, if such amendment would increase or decrease the number of shares
or the par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Holders of Class B Common Stock may elect at any time to convert any
and all of such shares into Class A Common Stock, on a share-for-share basis, to
the extent the holder thereof is permitted pursuant to applicable law to hold
the total number of shares of voting securities such holder would hold after
giving effect to such conversion.
Warrants
On July 31, 1994, the Company issued to WEP warrants to purchase from the
Company __________ shares of the Company's Class A Common Stock for an exercise
price of $. per share (the "Warrants"). The Warrants can be exercised in whole
or in part at any time prior to July 31, 2004. The exercise price and the number
of shares of Common Stock issuable upon exercise are subject to adjustment upon
the occurrence of certain events.
Dividends
The holders of the Company's Class A Common Stock and Class B Common Stock
are entitled to share ratably in dividends declared by the Board of Directors of
the Company out of funds legally available therefor. The Company's ability to
pay dividends is dependent on the ability of the Company's subsidiaries,
including DRA, to pay dividends to the Company. The ability of the Company's
subsidiaries to pay dividends and make other payments are subject to certain
statutory, contractual and other restrictions. The terms of the Company's
indebtedness, including the Senior Credit Facility, will restrict the payment of
dividends by the Company. The Company does not expect to declare or pay cash
dividends to holders of its Class A Common Stock or Class B Common Stock in the
foreseeable future.
Delaware Anti-Takeover Law
Section 203 of the DGCL provides, with certain exceptions, that a Delaware
corporation may not engage in certain business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date such person became an interested stockholder
unless: (i) the transaction resulting in the acquiring person's becoming an
interested stockholders, or the business combination, is approved by the board
of directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66-2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholders. An "interested
stockholder" is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock at any time within the three-year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder. As permitted by the DGCL, the Company has elected not to be
governed by Section 203.
Limitation of Liability and Indemnification
As permitted by the DGCL, the Company's Restated Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to prohibited
dividends or distributions or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit. In
addition, the Company's bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act, may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Agency.
DESCRIPTION OF INDEBTEDNESS
The following is a summary of the material debt instruments of the Company
and its subsidiaries which will remain outstanding following completion of the
Offerings and the application of the net proceeds thereof. See "Use of
Proceeds." To the extent such summary contains descriptions of credit documents,
such descriptions do not purport to be complete and are subject to and qualified
in their entirety by reference to such documents, which are filed as exhibits to
the Registration Statement which includes this Prospectus.
Senior Credit Facility
General. The Company intends to enter into an amended and restated credit
agreement with a syndicate of lenders led by Bank One, Indianapolis, N.A. ("Bank
One") concurrently with the consummation of the Offerings, providing for up to
$180 million of revolving credit availability (the "Senior Credit Facility").
Each of the Company's domestic operating subsidiaries (the "Senior Credit
Obligors") will be parties to the Senior Credit Facility. The obligations under
the Senior Credit Facility of each Senior Credit Obligor (the "Obligations")
will be unconditionally guaranteed by each other Senior Credit Obligor and each
of the Company and its domestic subsidiaries which are holding companies (the
"Senior Credit Guaranties"). The Obligations will be secured by a first lien on
substantially all the assets of the Company and its domestic subsidiaries,
including a pledge of the stock of such subsidiaries. The Obligations and the
Senior Credit Guaranties will rank pari passu with the Senior Notes and will
rank senior to the Exchange Notes and all other indebtedness of the Company.
Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, which
will be available for general corporate purposes (including acquisitions).
Beginning with the thirteenth quarter following the date of the Senior Credit
Facility, the Commitment Amount will decrease by $11.25 million at the end of
each quarter until July 2003, at which time the Senior Credit Facility
terminates. There is a sub-limit for letters of credit equal to the lesser of
the Commitment Amount at the time of the issuance of a letter of credit and $30
million.
Interest Rates. Interest on outstanding borrowings under the Senior Credit
Facility will be payable monthly and will accrue at an annual rate equal to
either (i) the Prime Rate (as defined in the Senior Credit Facility) or (ii) the
London Interbank Offered Rate plus the Applicable Spread (a "LIBOR-based Rate"),
at the option of the Company. The Applicable Spread will be based upon the
Company's trailing four quarter Ratio of Total Funded Debt to EBITDA (as defined
in the Senior Credit Facility) as follows:
Ratio of Total Funded Debt to EBITDA Over LIBOR
- -------------------------------------------------- --------------------
4.00x or above.................................... 200 basis points
3.50-3.99......................................... 175 basis points
3.00-3.49......................................... 150 basis points
2.50-2.99......................................... 125 basis points
Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility will mature on July 1, 2003, except that the aggregate principal amount
outstanding may not exceed the Commitment Amount at any time. Borrowings under
the Senior Credit Facility will be prepayable at any time without premium or
penalty, except that any prepayment of a LIBOR-based Rate loan that is made
prior to the end of the applicable interest period will be subject to
reimbursement of breakage costs.
Covenants. The Senior Credit Facility will contain certain customary
covenants, including reporting and other affirmative covenants; financial
covenants, including ratio of senior funded debt to EBITDA, ratio of funded debt
to EBITDA, ratio of EBIT to cash interest, fixed charge coverage ratio, minimum
current ratio and minimum net income excluding extraordinary items (each as
defined in and calculated pursuant to the Senior Credit Facility); and negative
covenants, including restrictions on incurrence of other indebtedness, payment
of cash dividends and other distributions to stockholders, liens in favor of
parties other than the lenders under the Senior Credit Facility, certain
guaranties of obligations of or advances to others, sales of material assets not
in the ordinary course of business, certain acquisitions of assets, making of
certain investments and capital expenditures.
Events of Default. The Senior Credit Facility will contain customary events
of default including non-payment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties; cross-default to certain
other indebtedness including the Notes; bankruptcy; a change of control of the
Company or certain domestic subsidiaries; and any failure to apply proceeds of
an underwritten public offering of equity securities of the Company as required
by the Senior Credit Facility.
Fees. The Company will pay, on a quarterly basis, a per annum fee on the
unused Commitment Amount ranging from 3/20% to 1/2% based on certain financial
ratios of the Company.
Senior Notes
The ____% Senior Notes Due 2007 issued in the Senior Notes Offering are in
an aggregate principal amount of $130 million, accrue interest at the rate of
____% per annum and are due _____________, 2007. Interest on the Notes is
payable in cash semi-annually. The Senior Notes are fully and unconditionally
guaranteed on a senior basis by each of the Company's domestic Restricted
Subsidiaries (as defined). The indenture governing the Senior Notes contains
certain covenants by the Company in favor of the holders of the Senior Notes
("Senior Note Holders"), including but not limited to certain restrictions on
the ability of the Company and certain of its subsidiaries to: (i) incur
indebtedness, except for permitted indebtedness; (ii) pay dividends or purchase
or redeem their stock or repay before maturity any obligation subordinate to the
Senior Notes; (iii) incur future restrictions on their ability to pay dividends
and transfer assets; (iv) sell assets and capital stock of their subsidiaries;
(v) engage in transactions with their affiliates; (vi) incur or permit to exist
liens on their assets, except for permitted liens; and (vii) engage in mergers,
consolidations or transfers of all or substantially all their assets. The Senior
Notes are effectively subordinate in right of payment to all senior secured
indebtedness of the Company, including the Senior Credit Facility, and rank
senior to the Exchange Notes and all other indebtedness of the Company. The
Notes are redeemable in whole or in part at the option of the Company at any
time on or after _______________, 2002, at a price beginning at ____% of the
aggregate principal amount to be redeemed, declining ratably to 100% on and
after __________, 2005, and up to 40% of the original principal amount of the
Senior Notes may be redeemed by the Company at any time prior to __________,
2000, with the proceeds of certain public equity offerings, at a price equal to
_____% of such principal amount provided that at least 50% of the original
principal amount of the Notes remains outstanding. Upon the occurrence of
certain changes in control of the Company, each Senior Note Holder has the right
to require the Company to purchase all or a portion of such Senior Note Holder's
notes at a price equal to 101% of the aggregate principal amount thereof. The
failure of the Company and certain of its subsidiaries to pay certain
indebtedness when due constitutes, among other things, an event of default under
the Notes and can lead to the acceleration of the payment of the Senior Notes.
GM Contingent Purchase Price Note
In connection with the GM Acquisition, DRA issued to GM a Contingent
Purchase Price Note. The principal amount of the Contingent Purchase Price Note
(the "Contingent Payment") is calculated by (A) multiplying five by (i) the
three-year average EBIT (as defined) of the Company for the years ending
December 31, 2001, 2002 and 2003 minus (ii) the average three-year Imputed
Return (as defined) on Additional Investments (as defined) made after July 31,
1994 and on the Company's balance sheet at December 31, 2001, 2002 and 2003, (B)
subtracting therefrom the Senior Obligations (as defined) outstanding on
December 31, 2003 and (C) multiplying the result by the percentage obtained by
dividing 100,000 (as adjusted for stock splits, reverse splits and stock
dividends) by the total number of shares of all classes of Common Stock
outstanding on a fully diluted basis as of the date of determination, excluding
any shares issued subsequent to July 31, 1994 to the extent the proceeds
therefrom have been accounted for as an Additional Investment. The Contingent
Payment, if any, shall be paid in five equal consecutive annual installments
commencing on July 31, 2004. No interest accrues on the Contingent Payment. The
GM Contingent Purchase Price Note is subordinated in right of payment to the
Senior Credit Facility pursuant to the terms of a Subordination Agreement by and
among DRA and the lenders under the Senior Credit Facility (the "GM
Subordination Agreement"). Pursuant to the terms of the GM Subordination
Agreement, DRA may make payments of interest and principal on the GM Acquisition
Note when due unless a representative of the lenders under the Senior Credit
Facility gives a notice to GM that an event of default has occurred under the
Senior Credit Facility (a "Suspension Notice"). GM may not receive any payments
or take any legal action for the collection of the GM Contingent Purchase Note
during the 179-day period following the receipt of a Suspension Notice (or such
shorter period if such event of default under the Senior Credit Facility shall
have been waived or cured).
8% Subordinated Debenture of DRA
In connection with the Offerings, DRA issued to GM an 8% Subordinated
Debenture in the principal amount of $17.9 million (the "8% Subordinated
Debenture") in exchange for Series A 8% Preferred Stock of DRA held by GM. The
8% Subordinated Debenture is due July 31, 2004 and bears interest, payable in
cash, at the rate of 8% per year. DRA will be able to prepay the 8% Subordinated
Debenture at any time in whole or in part without premium or penalty. The 8%
Subordinated Debenture is subordinate in right of payment to the Senior Credit
Facility, the Senior Notes and the Exchange Notes. The 8% Subordinated Debenture
contains default provisions in the event that DRA fails to pay principal or
interest on the 8% Subordinated Debenture when due or upon the occurrence of
certain bankruptcy events.
Ballantrae Subordinated Debt
In 1996, Tractech issued a note in the original principal amount of $10
million in favor of Dyneer Corporation ("Dyneer") that matures on October 31,
2006 (the "Ballantrae Subordinated Debt"). The Ballantrae Subordinated Debt
bears interest at a rate of 11% per annum. Tractech may prepay the Ballantrae
Subordinated Debt at any time in whole or in part without premium or penalty.
Tractech has the right to set-off $750,000 against the outstanding amount of the
Ballantrae Subordinated Debt within thirty days of the entry of a final
non-appealable order by a court of competent jurisdiction in certain patent
litigation, if such order fails to grant Tractech the unfettered and exclusive
right to make, manufacture, have made, market and sell the E-Z Locker line of
differentials without geographic or other restrictions and without cash
payments. The Company expects that Tractech will prepay with proceeds of the
Offerings all of the outstanding principal amount of the Ballantrae Subordinated
Debt except for $750,000. Tractech's obligations under the Ballantrae
Subordinated Debt are guaranteed by Ballantrae, and the Ballantrae Subordinated
Debt is subject to the Subordination Agreement dated as of October 24, 1996
among Tractech, Dyneer, Ballantrae and Bank One.
DESCRIPTION OF NOTES
General
The Existing Notes were issued under an Indenture dated as of August 1,
1996 (the "Indenture"), among the Company, the Subsidiary Guarantors and
National City Bank, as Trustee (the "Trustee"). The terms of the Indenture apply
to the Existing Notes and to the Exchange Notes to be issued in exchange
therefor pursuant to the Exchange Offer (all such Notes being referred to herein
collectively as the "Notes"). the terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act.
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes is available upon request
to the Company at the address set forth under "Available Information." The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. Capitalized terms used herein and not otherwise defined have the
meanings set forth in the section "--Certain Definitions."
Principal of, premium, if any, and interest on the Notes are payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Company, which, unless otherwise provided by the Company, will be the offices of
the Trustee. At the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the Note
register.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
Terms of the Notes
The Notes are unsecured senior subordinated obligations of the Company,
limited to $140 million aggregate principal amount, and will mature on August 1,
2006. The Notes bear interest at 10-5/8% per annum from the most recent date to
which interest has been paid or provided for, payable semi-annually to Holders
of record at the close of business on the January 15 or July 15 immediately
preceding the interest payment date on February 1 and August 1 of each year. The
Company will pay interest on overdue principal at 1% per annum in excess of such
rate, and it will pay interest on overdue installments of interest at such
higher rate to the extent lawful.
The interest rate on the Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Registered Exchange Offer on a timely basis, if the registration statement
is not declared effective on a timely basis or if certain other conditions are
not satisfied, all as further described under "Exchange Offer; Registration
Rights."
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to August 1, 2001. Thereafter, the
Notes are redeemable, at the Company's option, in whole or in part, at any time
or from time to time, upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
August 1 of the years set forth below:
Redemption
Period Price
------ --------
2001............................................... 105.313%
2002............................................... 103.542
2003............................................... 101.771
2004 and thereafter................................ 100.000
In addition, at any time and from time to time prior to August 1, 1999, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 110% plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 50% of the original aggregate principal amount
of the Notes must remain outstanding after each such redemption.
Selection
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
Subsidiary Guaranties
Each of the Company's Domestic Restricted Subsidiaries, as primary obligors
and not merely as sureties, will irrevocably and unconditionally Guarantee on an
unsecured senior subordinated basis the performance and punctual payment when
due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Company under the Indenture and the Notes, whether for
payment of principal of or interest on the Notes, expenses, indemnification or
otherwise (all such obligations guaranteed by the Subsidiary Guarantors being
herein called the "Guaranteed Obligations"). The Subsidiary Guarantors will
agree to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or the
Holders in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary
Guaranty will be limited in amount to an amount not to exceed the maximum amount
that can be Guaranteed by the applicable Subsidiary Guarantor without rendering
such Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. After the Issue Date, the Company will cause each new
Domestic Restricted Subsidiary to execute and deliver to the Trustee a
supplemental indenture pursuant to which such new Domestic Restricted Subsidiary
will Guarantee payment of the Notes. See "Certain Covenants--Future Subsidiary
Guarantors" below.
Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed
Obligations,(b) be binding upon each Subsidiary Guarantor and (c) inure to the
benefit of and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns.
A Subsidiary Guaranty will be released upon the sale of all the capital
stock, or all or substantially all of the assets, of the applicable Subsidiary
Guarantor if such sale is made in compliance with the Indenture.
Subordination
The indebtedness evidenced by the Notes and the Subsidiary Guaranties are
senior subordinated obligations of the Company and the Subsidiary Guarantors, as
the case may be. The payment of the principal of, premium (if any) and interest
on the Notes and the payment of any Subsidiary Guaranty is subordinate in right
of payment, as set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness of the Company or the relevant Subsidiary Guarantor, as the
case may be, whether outstanding on the Issue Date or thereafter incurred,
including the obligations of the Company and such Subsidiary Guarantor under the
Senior Credit Facility and the World Senior Debt. The Notes and the Subsidiary
Guaranties will also be effectively subordinated to any Secured Indebtedness of
the Company and the Subsidiary Guarantors to the extent of the value of the
assets securing such Indebtedness and to any liabilities of Subsidiaries other
than the Subsidiary Guarantors.
As of July 31, 1997, after giving pro forma effect to the Transactions, (i)
the Company would have had approximately $181.9 million of outstanding Senior
Indebtedness and no outstanding Senior Subordinated Indebtedness (other than the
Notes), (ii) Senior Indebtedness of the Subsidiary Guarantors would have been
approximately $91.8 million (excluding unused commitments under the Senior
Credit Facility), (iii) Senior Subordinated Indebtedness of the Subsidiary
Guarantors would have been approximately $52.8 million (excluding the Subsidiary
Guaranties and unused commitments under the Senior Credit Facility), (iv)
Secured Indebtedness of the Company and the Subsidiary Guarantors would have
been approximately $18.1 million and (iv) all liabilities and preferred stock of
the Subsidiaries (excluding the Subsidiary Guaranties) would have been
approximately $341.3 million. Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company and its Restricted
Subsidiaries may incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness. See "Certain Covenants--Limitation on Indebtedness."
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guaranty will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. The Company and each Subsidiary Guarantor has agreed in the
Indenture that it will not Incur, directly or indirectly, any Indebtedness that
is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinated or junior to Secured
Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid
when due or (ii) any other default on any such Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full. However, the Company may pay the Notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of the Senior Indebtedness with respect to which either of
the events set forth in clause (i) or (ii) of the immediately preceding sentence
has occurred and is continuing. During the continuance of any default (other
than a default described in clause (i) or (ii) of the second preceding sentence)
with respect to any Senior Indebtedness pursuant to which the maturity thereof
may be accelerated immediately without further notice (except such notice as may
be required to effect such acceleration) or the expiration of any applicable
grace periods, the Company may not pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness or
the Representative of such holders has accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after the end of such Payment Blockage Period. The Notes shall not be subject to
more than one Payment Blockage Period in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
Noteholders are entitled to receive any payment, and, until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
payment or distribution is made to Noteholders that, due to the subordination
provisions, should not have been made to them, such Noteholders are required to
hold it in trust for the holders of Senior Indebtedness and pay it over to them
as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration. If any
Designated Senior Indebtedness is outstanding, neither the Company nor any
Subsidiary Guarantor may pay the Notes until five Business Days after the
Representatives of all the issues of Designated Senior Indebtedness receive
notice of such acceleration and, thereafter, may pay the Notes only if the
Indenture otherwise permits payment at that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the Notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company or a Subsidiary Guarantor who
are holders of Senior Indebtedness of the Company or a Subsidiary Guarantor, as
the case may be, may recover more, ratably, than the Noteholders, and creditors
of the Company who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
Change of Control
Upon the occurrence of a Change of Control, each Holder shall have the
right to require that the Company repurchase all or a portion of such Holder's
Notes at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date), in accordance with the provisions of
the next paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts and relevant financial information regarding
such Change of Control; (3) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with the covenant described
hereunder, that a Holder must follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a repurchase may
be limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
repurchases required in connection with a Change of Control. The Company's
failure to purchase the Notes in connection with a Change in Control would
result in a default under the Indenture which would, in turn, constitute a
default under the Senior Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payment to the
Holders of the Notes.
Book-Entry, Delivery and Form
Except as set forth in the next paragraph, the Exchange Notes will be
issued in the form of a Global Note. The Global Note will be deposited with, or
on behalf of, the Depository and registered in the name of the Depository or its
nominee. Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to the Depository or another nominee of the Depository.
Investors may hold their beneficial interests in the Global Note directly
through the Depository if they have an account with the Depository or indirectly
through organizations which have accounts with the Depository.
If a holder tendering Existing Notes so requests, such holder's Exchange
Notes will be issued as described below under "Certificated Notes" in registered
form without coupons (the "Certificated Notes").
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers (which may include the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts to
be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depository (with respect to participants' interest) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners or holders of any Notes under the
Global Note. The Company understands that under existing industry practice, in
the event an owner of a beneficial interest in the Global Note desires to take
any action that the Depository, as the holder of the Global Note, is entitled to
take, the Depository would authorize the participants to take such action, and
that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the Depository of
its Global Notes, Certificated Notes will be issued to each person that the
Depository identifies as the beneficial owner of the Exchange Notes represented
by the Global Note. In addition, any person having a beneficial interest in a
Global Note or any holder of Existing Notes whose Existing Notes have been
accepted for exchange may, upon request to the Trustee or the Exchange Agent, as
the case may be, exchange such beneficial interest or Existing Notes for
Certificated Notes. Upon any such issuance, the Trustee is required to register
such Certificated Notes in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, on the date of such Incurrence, the Consolidated Coverage Ratio exceeds
2.00 to 1 if such Indebtedness is Incurred prior to ,1998 or 2.25 to 1 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness Incurred pursuant to the Senior Credit Facility or any Permitted
Receivables Financing; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then outstanding
does not exceed the greater of (i) $150 million (less any permanent reductions
in the amount of available borrowings thereunder) and (ii) the sum of (x) 60% of
the book value of the inventory of the Company and its Restricted Subsidiaries
and (y) 85% of the book value of the accounts receivable of the Company and its
Restricted Subsidiaries, in each case determined in accordance with GAAP; (2)
Indebtedness of the Company owed to and held by any Wholly Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owed to and held by the Company or a
Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness of the
issuer thereof; (3) Indebtedness of the Company or a Restricted Subsidiary owed
to and held by any Non-Wholly Owned Subsidiary; provided, however, that (i) any
such Indebtedness shall be unsecured Subordinated Obligations of the Company or
such Restricted Subsidiary, as applicable and (ii) any subsequent issuance or
transfer of any Capital Stock of such Non-Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company, a Wholly
Owned Subsidiary or another Non-Wholly Owned Subsidiary) shall be deemed to
constitute the Incurrence of such Indebtedness by the issuer thereof; (4)
Indebtedness represented by the Notes; (5) Indebtedness outstanding on the Issue
Date (other than Indebtedness described in clause (1), (2) or (3) of this
covenant); (6) the GM Exchange Debentures; (7) Refinancing Indebtedness in
respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause
(4), (5), (6), (13) or this clause (7); (8) Indebtedness in respect of
performance bonds, bankers' acceptances, letters of credit and surety or appeal
bonds entered into by the Company and the Restricted Subsidiaries in the
ordinary course of their business; (9) Hedging Obligations consisting of
Interest Rate Agreements and Currency Agreements entered into in the ordinary
course of business and not for the purpose of speculation; provided, however,
that, in the case of Currency Agreements and Interest Rate Agreements, such
Currency Agreements and Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; (10) Purchase Money
Indebtedness and Capital Lease Obligations Incurred to finance the acquisition
by the Company or a Restricted Subsidiary of any assets in the ordinary course
of business and which do not exceed $20 million in the aggregate at any time
outstanding; (11) Indebtedness represented by the Subsidiary Guaranties and
Guarantees of Indebtedness Incurred pursuant to clause (1), (4), (5) and (7)
above; (12) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business, provided that such Indebtedness is extinguished within five
business days of Incurrence; (13) Indebtedness of the Company and its Restricted
Subsidiaries, to the extent the proceeds thereof are immediately used after the
Incurrence thereof to purchase Notes tendered in an offer to purchase made as a
result of a Change of Control; (14) Indebtedness of the Company and its
Restricted Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in any case Incurred in
connection with the disposition of any assets of the Company or any Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such assets for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with such
disposition; and (15) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company outstanding on the date of
such Incurrence (other than Indebtedness permitted by clauses (1) through (14)
above or paragraph (a)) does not exceed $50 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes and the Subsidiary Guaranties,
as applicable, to at least the same extent as such Subordinated Obligations or
(ii) any Senior Subordinated Indebtedness unless such Indebtedness shall be
Senior Subordinated Indebtedness or shall be subordinated to the Notes and the
Subsidiary Guaranties, as applicable; provided, however, that clause (ii)above
shall not prohibit the Refinancing of all or any part of the GM Notes with
Refinancing Indebtedness if, at the time of such Incurrence, no Default shall
have occurred and be continuing (or would result therefrom).
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not,
and shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (ii) any
Secured Indebtedness that is not Senior Indebtedness of the Company or such
Subsidiary Guarantor, as applicable, unless contemporaneously therewith
effective provision is made to secure the Notes or the Subsidiary Guaranty, as
applicable, equally and ratably with such Secured Indebtedness for so long as
such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment together with all other Restricted Payments (the amount of any payments
made in property other than in cash to be valued at the fair market value of
such property, as determined in good faith by the Board of Directors) declared
or made since the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter immediately following the
fiscal quarter during which the Notes are originally issued to the end of the
most recent fiscal quarter ending at least 45 days (or, if less, the number of
days after the end of such fiscal quarter as the consolidated financial
statements of the Company shall be provided to the Noteholders pursuant to the
Indenture) prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income accrued during such period (treated as one accounting
period) shall be a deficit, minus 100% of such deficit); (B) the aggregate Net
Cash Proceeds received by the Company from the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of the Company and other than an issuance or
sale to an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees to the
extent that the purchase by such plan or trust is financed by Indebtedness of
such plan or trust to the Company or any Subsidiary or for which the Company or
any Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which are
used to pay interest or principal on such Indebtedness)); (C) the amount by
which Indebtedness of the Company or its Restricted Subsidiaries is reduced on
the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date, of any Indebtedness of
the Company or its Restricted Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less the amount of
any cash, or the fair value of any other property, distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange); and (D) an amount
equal to the sum of (i) the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or advances or other
transfers of assets subsequent to the Issue Date, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or for which
the Company or any Subsidiary is liable, directly or indirectly, as a guarantor
or otherwise (including by the making of cash contributions to such plan or
trust which are used to pay interest or principal on such Indebtedness));
provided, however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above; (ii) any purchase or redemption of (A)
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
which is permitted to be Incurred pursuant to paragraphs (b) and (c) of the
covenant described under "--Limitation on Indebtedness" or (B) Subordinated
Obligations of a Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of such
Restricted Subsidiary or the Company which is permitted to be Incurred pursuant
to paragraphs (b) and (c) of the covenant described under "--Limitation on
Indebtedness"; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; (iii) any
purchase or redemption of (A) Disqualified Stock of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Disqualified Stock of the Company, (B) Disqualified Stock of a Restricted
Subsidiary made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of such Restricted Subsidiary or the
Company or (C) GM Preferred Stock made by exchange for GM Exchange Debentures in
an aggregate principal amount equal to the stated amount of the GM Preferred
Stock (plus accrued and unpaid dividends thereon); provided, however, that (1)
at the time of such exchange, no Default or Event of Default shall have occurred
and be continuing or would result therefrom and (2) such purchase or redemption
will be excluded in the calculation of the amount of Restricted Payments; (iv)
any purchase or redemption of the A&B Seller Notes or the Power Seller Notes;
provided, however, that (A) at the time of such purchase or redemption, no
Default shall have occurred and be continuing (or would result therefrom), (B)
the Company would be able to Incur an additional $1.00 of Indebtedness pursuant
to paragraph (a) of the covenant described under "--Limitation on Indebtedness"
after giving pro forma effect to such Restricted Payment, (C) such purchase or
redemption is not made, directly or indirectly, from the proceeds of (or made in
anticipation of) any Issuance of Indebtedness by the Company or any Subsidiary
and (D) such purchase or redemption will be included in the calculation of the
amount of Restricted Payments; (v) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted by the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock";
provided, however, that such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments; (vi) upon the occurrence of a
Change of Control and within 60 days after the completion of the offer to
repurchase the Notes pursuant to the covenant described under "--Change of
Control" above (including the purchase of all Notes tendered), any purchase or
redemption of Subordinated Obligations required pursuant to the terms thereof as
a result of such Change of Control at a purchase or redemption price not to
exceed the outstanding principal amount thereof, plus accrued and unpaid
interest thereon, if any; provided, however, that (A) at the time of such
purchase or redemption, no Default shall have occurred and be continuing (or
would result therefrom), (B) the Company would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness" after giving pro forma effect to such Restricted
Payment, (C) such purchase or redemption is not made, directly or indirectly,
from the proceeds of (or made in anticipation of) any Issuance of Indebtedness
by the Company or any Subsidiary and (D) such purchase or redemption will be
included in the calculation of the amount of Restricted Payments; (vii)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with this covenant;
provided, however, that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or would result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments; (viii) the repurchase of
shares of, or options to purchase shares of, common stock of the Company or any
of its Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted transferees of
such employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount of
such repurchases shall not exceed the sum of (1) $5 million and (2) the
aggregate amount of cash received by the Company after the Issue Date from the
sale of such shares to, or the exercise of options to purchase such shares by,
employees or directors of the Company or any of its Subsidiaries; provided
further, however, that such repurchases shall be included in the calculation of
the amount of Restricted Payments; or (ix) Investments in Joint Ventures
primarily engaged in a Related Business, provided, however, that the aggregate
amount of all such Investments shall not exceed $25 million at the time any such
Investment is made; provided, however, that (A) the amount referred to above in
this clause (ix) shall be increased to $40 million at the time of any Investment
if, after giving pro forma effect to such Investment, the Consolidated Coverage
Ratio exceeds 3.50 to 1.00 and (B) such Investments shall be included in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) to make any loans or advances to the Company or (c) transfer
any of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary which was entered into on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this covenant (or effecting a Refinancing of such Refinancing
Indebtedness pursuant to this clause (iii)) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no more restrictive in any material respect than the encumbrances
and restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
thereunder; (v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages; (vi) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition; and (vii) any encumbrance or restriction with respect to any
Receivables Subsidiary pursuant to an agreement related to Indebtedness of the
Receivables Subsidiary which is permitted under the covenant described under
"--Limitation on Indebtedness" or pursuant to any agreement relating to a
Financing Disposition to or by the Receivables Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to consummate any Asset
Disposition unless the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% (or 100% in the case of lease
payments) of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents. In the event
and to the extent that the Net Available Cash received by the Company or any
Restricted Subsidiary from one or more Asset Dispositions occurring on or after
the Issue Date exceeds $10 million, then the Company or such Restricted
Subsidiary shall (i) within 360 days after the date such Net Available Cash so
received exceeds $10 million and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness) to
(A) apply an amount equal to such excess Net Available Cash to prepay, repay or
purchase Senior Indebtedness of the Company or such Restricted Subsidiary, in
each case owing to a Person other than the Company or any Affiliate of the
Company or (B) invest (or enter into a binding commitment to invest, provided
that such commitment shall be subject only to customary conditions (other than
financing) and such investment shall be consummated within 360 days after the
end of such 360-day period) an equal amount, or the amount not so applied
pursuant to clause (A), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) and (ii) apply
such excess Net Available Cash (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of the covenant described
hereunder; provided, however that in connection with any prepayment, repayment
or purchase of Senior Indebtedness pursuant to clause (A) above, the Company or
such Restricted Subsidiary shall retire such Senior Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased; provided further,
however, that the Company or such Restricted Subsidiary shall not be required to
permanently reduce the related loan commitment in the case of any such
prepayment, repayment or purchase with Net Available Cash from any Asset
Disposition of Non-Core Assets, so long as an amount equal to 100% of such Net
Available Cash is invested in Additional Assets within the period required
pursuant to clause (B) above. The amount of such excess Net Available Cash
required to be applied pursuant to clause (ii) above and not theretofore so
applied shall constitute "Excess Proceeds." Pending application of Net Available
Cash pursuant to this provision, such Net Available Cash shall be invested in
Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $10
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph (or, if the Company so elects,
at any time within such period), make an offer (an "Excess Proceeds Offer") to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to the date of
purchase (the "Excess Proceeds Payment"). Upon completion of an Excess Proceeds
Offer, the amount of Excess Proceeds remaining after application pursuant to
such Excess Proceeds Offer (including payment of the purchase price for Notes
duly tendered) may be used by the Company for any corporate purpose (to the
extent not otherwise prohibited by the Indenture).
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Senior Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition and (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations thereunder in the event that such Excess Proceeds are received by
the Company under the covenant described hereunder and the Company is required
to repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $5 million, (i) are set forth in
writing, (ii) comply with clause (1) and (iii) have been approved by a majority
of the disinterested members of the Board of Directors and (3) if such Affiliate
Transaction involves an amount in excess of $10 million, (i) comply with clause
(2) and (ii) have been determined by a nationally recognized investment banking
firm to be fair, from a financial standpoint, to the Company and its Restricted
Subsidiaries; provided, however, that no such opinion shall be required with
respect to any Financing Disposition.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments," (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans in the ordinary course of business and approved by the Board of Directors,
(iii) the grant of stock options or similar rights to employees and directors of
the Company in the ordinary course of business and pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business of the Company or its Restricted Subsidiaries, (v) fees,
compensation or employee benefit arrangements paid to and indemnity provided for
the benefit of directors, officers or employees of the Company or any Subsidiary
in the ordinary course of business, (vi) the payment of interest, principal and
other amounts under the Junior Subordinated Notes and the World Senior Debt when
due in accordance with the terms thereof, (vii) the prepayment or redemption of
any World Senior Debt prior to scheduled maturity in accordance with the terms
thereof or (viii) any Affiliate Transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries in the ordinary course of business
(so long as the other stockholders of any participating Restricted Subsidiaries
which are not Wholly Owned Restricted Subsidiaries are not themselves Affiliates
of the Company).
Limitation on the Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary (other than
pledges of Capital Stock securing Designated Senior Indebtedness as in effect on
the Issue Date) or (ii) permit any Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any shares of its Capital
Stock other than (A) to the Company or a Wholly Owned Subsidiary, (B) directors'
qualifying shares, (C) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary or (D) with respect to the common stock of any Restricted Subsidiary,
in a Public Equity Offering as a result of or after which a Public Market
exists. The proceeds of any sale of such Capital Stock permitted hereby will be
treated as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of the covenant described under "--Limitation on Sales
of Assets and Subsidiary Stock."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any property of the Company or any Restricted
Subsidiary (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, which secures Indebtedness that ranks
pari passu with or subordinated to the Notes or the Subsidiary Guaranty unless
(i) if such Lien secures Indebtedness that ranks pari passu with the Notes and
the Subsidiary Guaranty, the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligation is no longer
secured by a Lien or (ii) if such Lien secures Indebtedness that is subordinated
to the Notes and the Subsidiary Guaranty, such Lien shall be subordinated to a
Lien granted to the Holders in the same collateral as that securing such Lien to
the same extent as such subordinated Indebtedness is subordinated to the Note
and the Subsidiary Guaranty.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)the
resulting, surviving or transferee Person (the "Successor Company")shall be a
Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) except in the case of a
merger the sole purpose of which is to change the Company's jurisdiction of
incorporation, immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; (iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is not
less than the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing clauses (ii), (iii) and
(iv), any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company shall not permit any Subsidiary Guarantor to consolidate with
or merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and the
Successor Company (if not such Subsidiary) shall expressly assume, by a
supplemental indenture, in form satisfactory to the Trustee, all the obligations
of such Subsidiary under its Subsidiary Guaranty; (ii) immediately after giving
effect to such transaction on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the resulting, surviving or transferee Person as
a result of such transaction as having been Incurred by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(iii) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement comply with the Indenture. The provisions
of clauses (i) and (iii) above shall not apply to any transactions which
constitute an Asset Disposition if the Company has complied with the applicable
provisions of the covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock" above.
Future Guarantors. The Company shall cause each Domestic Restricted
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes
on the same terms and conditions as those set forth in the Indenture. Each
Subsidiary Guaranty will be limited in amount to an amount not to exceed the
maximum amount that can be Guaranteed by the applicable Subsidiary Guarantor
without rendering such Subsidiary Guaranty void able under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SEC Reports. Until such time as the Company shall become subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall provide the Trustee, the Initial Purchasers, the Noteholders and
prospective Noteholders (upon request) with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and other reports to be so provided at the
times specified for the filing of such information, documents and reports under
such Sections. Thereafter, notwithstanding that the Company may not be required
to remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Noteholders and prospective Noteholders (upon request) with such annual reports
and such information, documents and other reports as are specified in such
Sections and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections; provided, however, that the Company shall not be required to file
any report, document or other information with the SEC if the SEC does not
permit such filing.
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due (whether or not such payment is
prohibited by the provisions described under "Subordination" above), continued
for 30 days, (ii) a default in the payment of principal of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not such payment is prohibited by the
provisions described under "Subordination" above), (iii) the failure by the
Company to comply with its obligations under "Certain Covenants-Merger and
Consolidation" above, (iv) the failure by the Company to comply for 30 days
after notice with any of its obligations under the covenants described above
under "--Change of Control" or "--Certain Covenants" (other than a failure to
purchase Notes), (v) the failure by the Company to comply for 30 days after
notice with its other agreements contained in the Indenture, (vi) Indebtedness
of the Company or any Significant Subsidiary is not paid within any applicable
grace period after final maturity or is accelerated by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million and such failure continues for 10 days after
notice (the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of money
in excess of $10 million is rendered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such judgment
and is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision"), (ix) a Subsidiary Guaranty ceases to be in full
force and effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guaranty and such Default continues for 10 days. However, a
default under clause (iv) or (v) will not constitute an Event of Default until
the Trustee or the Holders of 25% in principal amount of the outstanding Notes
notify the Company of the default and the Company does not cure such default
within the time specified in clauses (iv) and (v) hereof after receipt of such
notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is not opposed to the interest of the Holders. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
Holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of any Holder to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes or any
Subsidiary Guaranty, (vii) make any change in the amendment provisions which
require each holder's consent or in the waiver provisions or (viii) make any
change to the subordination provisions of the Indenture that would adversely
affect the Noteholders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to release Subsidiary
Guarantors when permitted by the Indenture, to secure the Notes, to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
their Representative) consent to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect
therein, will not impair or affect the validity of the amendment.
Transfer
Certificated Notes will be issued in registered form and will be
transferable only upon the surrender of the Notes being transferred for
registration of transfer. The Company may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (iii) and (iv) under
"Certain Covenants-Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "Certain
Covenants-Merger and Consolidation" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Subsidiary
Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
Concerning the Trustee
National City Bank is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"A&B Seller Notes" means the 10% Subordinated Notes due September 30, 2001,
of A&B Enterprises, Inc., in an original aggregate principal amount of $3.5
million.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain Covenants-Limitation on
Restricted Payments," "Certain Covenants-Limitation on Affiliate Transactions"
and "Certain Covenants-Limitations on Sales of Assets and Subsidiary Stock"
only, "Affiliate" shall also mean any beneficial owner of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof;
provided further, however, that for purposes of the provisions described under
"Certain Covenants-Limitations on Sales of Assets and Subsidiary Stock" only,
World Debt Partners shall not be deemed an "Affiliate" of the Company.
"Asset Disposition" (x) means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares and,
to the extent required by local ownership laws in foreign countries, shares
owned by foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (y)
a disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of the
covenant described under "Certain Covenants-Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Permitted Investment or
a Restricted Payment permitted by the covenant described under "Certain
Covenants-Limitation on Restricted Payments").
"Asset Purchase Agreement" means the Asset Purchase Agreement dated July
13, 1994, by and among the Company, DRA and General Motors Corporation.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Senior Credit Facility including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) Prior to the first public offering of common stock of the Company,
the Permitted Holders cease to be the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority
in the aggregate of the total voting power of the Voting Stock of the Company,
whether as a result of issuance of securities of the Company, any merger,
consolidation, liquidation or dissolution of the Company, any direct or indirect
transfer of securities by the Permitted Holders or otherwise (for purposes of
this clause (i) and clause (ii) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of any entity (the "specified entity") held by
any other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent entity);
(ii) after the first public offering of common stock of the Company,
any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders, is or becomes the beneficial
owner (as defined in clause (i) above, except that for purposes of this clause
(ii) such person shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders beneficially own (as defined in clause (i)
above), directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the Voting Stock of the Company than such other person and
do not have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Board of Directors (for the purposes
of this clause (ii), such other person shall be deemed to beneficially own any
Voting Stock of a specified entity held by a parent entity, if such other person
is the beneficial owner (as defined in this clause (ii)), directly or
indirectly, of more than 35% of the voting power of the Voting Stock of such
parent entity and the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent entity and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent entity);
(iii) after the first public offering of common stock of the Company,
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 by such Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office; or
(iv) after the first public offering of common stock of the Company,
the merger or consolidation of the Company with or into another Person or the
merger of another Person with or into the Company, or the sale of all or
substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the aggregate
voting power of the Voting Stock of the Company are changed into or exchanged
for cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Noteholders
pursuant to the Indenture) prior to the date of such determination (determined,
for the four fiscal quarters ending prior to the Issue Date, or any of such
fiscal quarters, on a pro forma basis to give effect to the Subsequent
Acquisitions as if they occurred on the first day of such period) to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period (except that, in the case of Indebtedness used to
finance working capital needs incurred under a revolving credit or similar
arrangement, the amount thereof shall be deemed to be the average daily balance
of such Indebtedness during such four-fiscal-quarter period), (2) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased, assumed by a third person (to the extent the Company and
its Restricted Subsidiaries are no longer liable for such Indebtedness) or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company shall have
consummated a Public Equity Offering following which there is a Public Market,
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period, (4)
if since the beginning of such period the Company or any Restricted Subsidiary
(by merger or otherwise) shall have made an Investment in any Restricted
Subsidiary (or any Person which becomes a Restricted Subsidiary) or an
acquisition of assets, which acquisition constitutes all or substantially all of
an operating unit of a business, including any such Investment or acquisition
occurring in connection with a transaction requiring a calculation to be made
hereunder, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest of
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, (a)
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, (ix) interest actually paid on any Indebtedness of
any other Person that is Guaranteed by the Company or any Restricted Subsidiary
and (x) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company or any Wholly Owned
Subsidiary) in connection with Indebtedness Incurred by such plan or trust,
minus, (b) to the extent included in such total interest expense, amortization
of deferred financing costs, fees and expenses.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss)of
any Person if such Person is not a Restricted Subsidiary, except that subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below); (ii) for purposes of subclass (a)(3)(A) of the covenant
described under "Certain Covenants --Limitation on Restricted Payments" only,
any net income (or loss) of any Person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary consistent with such restriction
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (or loss) realized upon the sale or other disposition
of any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (or loss) realized
upon the sale or other disposition of any Capital Stock of any Person; (v)
extraordinary gains or losses; and (vi) the cumulative effect of a change in
accounting principles. Notwithstanding the foregoing, for the purposes of the
covenant described under "Certain Covenants-Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any dividends,
repayments of loans or advances or other transfers of assets from Unrestricted
Subsidiaries to the Company or a Restricted Subsidiary to the extent such
dividends, repayments or transfers increase the amount of Restricted Payments
permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i)the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"CVC Investor" means (i) CVC, (ii) Citicorp, N.A. and (iii) any officer,
employee or director of CVC so long as such person shall be an employee, officer
or director of CVC.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, (ii) the
World Indebtedness and (iii) any other Senior Indebtedness of the Company which,
at the date of determination, has an aggregate principal amount outstanding of,
or under which, at the date of determination, the holders thereof are committed
to lend up to, at least $10 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable, at the option of the holder thereof, for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"DRA" means Delco Remy America, Inc., a Delaware corporation and a Wholly
Owned Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (i) income tax
expense, (ii) depreciation expense, (iii) amortization expense and (iv) all
other non-cash items reducing Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made, other than accruals for post-retirement benefits
other than pensions), less all non-cash items increasing Consolidated Net
Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Disposition" means any sale of any accounts receivable, or
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company which is not organized under the laws of the United States of America or
any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"GM Acquisition Note" means the 11(OMEGA)% Subordinated Note due July 31,
2004, in an original principal amount of $45 million, issued by DRA pursuant to
the Asset Purchase Agreement.
"GM Contingent Note" means the Contingent Purchase Price Note issued by DRA
pursuant to the Asset Purchase Agreement.
"GM Exchange Debentures" means any senior subordinated notes issued by DRA
after the Issue Date in exchange for the GM Preferred Stock in accordance with
the certificate of designation thereof as in effect on the Issue Date.
"GM Notes" means the GM Acquisition Note, the GM Contingent Note and the GM
Exchange Debentures, if issued.
"GM Preferred Stock" means the Series A 8% Preferred Stock of DRA issued
pursuant to the Asset Purchase Agreement, with a stated value of $1,000 per
share.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; provided further, however, that
in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, all conditional sale obligations of such Person and all obligations of
such Person under any title retention agreement (but excluding trade accounts
payables arising in the ordinary course of business), which purchase price or
obligation is due more than six months after the date of placing such property
in service or taking delivery and title thereto or the completion of such
services (provided that, in the case of obligations of an acquired Person
assumed in connection with an acquisition of such Person, such obligations would
constitute Indebtedness of such Person); (iv) all obligations of such Person for
the reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, any Preferred Stock
(but excluding, in each case, any accrued dividends); (vi) all obligations of
the type referred to in clauses (i) through (v) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured and (viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations as
described above at such date; provided, however, that the amount outstanding at
any time of any Indebtedness issued with original issue discount shall be deemed
to be the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP; provided further, however, that the
outstanding principal amount of the GM Contingent Note shall be deemed to be
zero until the last day of the fiscal year or other period with respect to which
the amount due thereunder shall be determined.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) 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 or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "Certain Covenants-Limitation on Restricted Payments,"
(i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Joint Venture" means, in respect of any Person, any corporation,
association, partnership or other business entity of which not less than 20% and
not more than 80% of the total voting power of shares of Capital Stock or other
interests (including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
(i) such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Junior Subordinated Notes" means the Company's 11% junior subordinated
notes due July 31, 2004, in an original aggregate principal amount of $18.2
million.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and directors
of the Company who own Voting Stock of the Company on the Issue Date, in each
case so long as such person shall remain an officer, employee or director of the
Company.
"MascoTech" means MascoTech Automotive Systems Group, Inc., a Delaware
corporation.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law be,
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or Joint Ventures as a result of such Asset Disposition and (iv)
the deduction of appropriate amounts provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Core Assets" means any assets of the Company used primarily in the
powder metal forge business of the Company on the Issue Date.
"Non-Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock (other than, to the extent required by local ownership laws in foreign
countries, shares owned by foreign shareholders) of which is owned by(i) the
Company or one or more Wholly Owned Subsidiaries and/or (ii) any of the
directors, officers, employees or former owners of such Restricted Subsidiary.
"Permitted Holders" means the CVC Investors, MascoTech, World Equity
Partners, the Management Investors and their respective Permitted Transferees;
provided, however, that in no event shall the Management Investors and the CVC
Investors (other than CVC or Citicorp, N.A.), collectively, be deemed "Permitted
Holders" with respect to more than 30% of the total voting power of all classes
of Voting Stock of the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (iii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Domestic Restricted
Subsidiary; provided, however, that such Person's primary business is a Related
Business; (iv) Temporary Cash Investments; (v) receivables owing to the Company
or any Restricted Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances; (vi) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vii) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary and not exceeding $2 million in the aggregate outstanding at any
time; (viii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; and (ix) any Person to
the extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to the covenant
described under "Certain Covenants-Limitation on Sales of Assets and Subsidiary
Stock".
"Permitted Receivables Financing" means any financing pursuant to which the
Company or any Restricted Subsidiary may sell, convey or other wise transfer to
a Receivables Subsidiary or any other Person (in the case of a transfer by a
Receivables Subsidiary), or grant a security interest in, any accounts
receivable (and related assets) of the Company or any Restricted Subsidiary;
provided, however, that (i) the covenants, events of default and other
provisions applicable to such financing shall be customary for such transactions
and shall be on market terms (as determined in good faith by the Board of
Directors) at the time such financing is entered into, (ii) the interest rate
applicable to such financing shall be a market interest rate (as determined in
good faith by the Board of Directors) at the time such financing is entered into
and (iii) such financing shall be non-recourse to the Company and its
Subsidiaries (other than a Receivables Subsidiary) except to a limited extent
customary for such transactions.
"Permitted Transferee" means, (a) with respect to any CVC Investor who is
an employee, officer or director of CVC, any spouse or lineal
descendent(including by adoption) of such CVC Investor so long as such CVC
Investor shall be an employee, officer or director of CVC; (b) with respect to
MascoTech, MascoTech Inc.; and (c) with respect to any Management Investor, any
spouse or lineal descendant (including by adoption) of such Management Investor
so long as such Management Investor shall be an employee, officer or director of
the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Power Investments" means Power Investments, Inc., an Indiana corporation.
"Power Seller Notes" means the 9.86% Subordinated Notes due February 6,
2001, of Reman Holdings, Inc., in an original aggregate principal amount of
$24.3 million.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company (or, for purposes of the covenant described under
"--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries," any Restricted Subsidiary) pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 10% of the total issued and outstanding common
stock of the Company (or, for purposes of the covenant described under
"--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries," any Restricted Subsidiary) has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such asset,
including additions and improvements; provided, however, that any Lien arising
in connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements, the real property on which such asset is attached; and
provided further, however, that such Indebtedness is Incurred within 90 days
after such acquisition of such asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose Wholly
Owned Subsidiary formed in connection with a Permitted Receivables Financing.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that (i)
such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced, (iii) such Refinancing Indebtedness has an aggregate principal
amount (or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if Incurred
with original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced; provided further, however, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary. For purposes of this definition, the Average Life and the aggregate
principal amount of the GM Contingent Note at the time of any Refinancing
thereof shall be determined by a responsible financial or accounting Officer of
the Company based on a good faith estimate of the amount of the contingent
payment that will become due and payable under such note and the timing of the
scheduled installments thereof in accordance with the terms of such note.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of the
Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable solely to the Company or a Restricted Subsidiary (and, if such
Restricted Subsidiary is not wholly owned, to its other shareholders on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held by
any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Senior Credit Facility" means the revolving credit facility made available
pursuant to the Third Amended and Restated Financing Agreement dated as of the
Issue Date, among the Subsidiary Guarantors, as borrowers, the Company, as
guarantor, the lenders from time to time party thereto and Bank One,
Indianapolis, National Association, as Agent, as the same may be amended,
waived, modified, Refinanced or replaced from time to time (except to the extent
that any such amendment, waiver, modification, replacement or Refinancing would
be prohibited by the terms of the Indenture).
"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, including the
Guarantees by the Company of all Bank Indebtedness and all World Indebtedness,
and (ii) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of the Company for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are subordinate in
right of payment to the Notes; provided, however, that Senior Indebtedness shall
not include (1) any obligation of the Company to any Subsidiary, (2) any
liability for Federal, state, local or other taxes owed or owing by the Company,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of the Company (and any
accrued and unpaid interest in respect thereof) which is subordinate or junior
in any respect (other than as a result of the Indebtedness being unsecured) to
any other Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations
with respect to any Capital Stock or (6) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of the Indenture. "Senior
Indebtedness" of any Subsidiary Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness. "Senior Subordinated
Indebtedness" of any Subsidiary Guarantor has a correlative meaning; provided,
however, that "Senior Subordinated Indebtedness" of DRA shall specifically
include (i) the Subsidiary Guaranty of DRA and (ii) the GM Notes (and any Senior
Subordinated Indebtedness Incurred to Refinance such notes).
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
"Subsequent Acquisitions" means the acquisitions by the Company prior to
the Issue Date of substantially all the Capital Stock or assets of each of
Nabco, Inc., The A&B Group, Inc., Autovill RT Ltd. and Power Investments.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guaranty" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guaranty.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by an registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America, any
State thereof or the District of Columbia or any foreign country recognized by
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 Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group, and (v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "Certain Covenants-Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "Certain
Covenants-Limitation on Indebtedness" and (y) no Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be by the
Company to the Trustee by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
and/or one or more Wholly Owned Subsidiaries.
"World Indebtedness" means any and all amounts payable under or in respect
of the World Senior Debt (or any Refinancing Indebtedness in respect thereof),
including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the borrowers thereunder whether or not a claim for post-filing interest is
allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, Guarantees and all other amounts payable there under or in respect
thereof.
"World Debt Partners" means World Subordinated Debt Partners, L.P., a
Delaware limited partnership.
"World Equity Partners" means World Equity Partners, L.P., a Delaware
limited partnership.
"World Senior Debt" means the 101/2% Senior Notes due July 31, 2003, in an
original aggregate principal amount of $75 million, issued by DRA pursuant to
the Credit Agreement dated as of July 29, 1994, as amended, among DRA, the
Company, and World Debt Partners, as the same may be amended, waived or modified
from time to time (except to the extent that any such amendment, waiver or
modification, would be prohibited by the terms of the Indenture).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of Existing Notes who
is an individual citizen or resident of the United States or a United States
corporation that purchased the Existing Notes pursuant to their original issue
(a "U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
Existing Notes, and the Exchange Notes received therefor, that are held as
"capital assets" within the meaning of Section 1221 of the Code by U.S. Holders.
It does not discuss state, local, or foreign tax consequences, nor does it
discuss tax consequences to subsequent purchasers (persons who did not purchase
the Existing Notes pursuant to their original issue), or to categories of
holders that are subject to special rules, such as foreign persons, tax-exempt
organizations, insurance companies, banks and dealers in stocks and securities.
Tax consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service with respect to the
federal income tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING
NOTES FOR EXCHANGE NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO
ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE EXISTING NOTES
FOR EXCHANGE NOTES.
The Exchange Offer
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes because the terms
of the Exchange Notes are not materially different from the terms of the
Existing Notes. Accordingly, such exchange should not constitute a taxable event
to U.S. Holders and, therefore, (i) no gain or loss should be realized by U.S.
Holders upon receipt of an Exchange Note, (ii) the holding period of the
Exchange Note should include the holding period of the Existing Note exchanged
therefor and (iii) the adjusted tax basis of the Exchange Note should be the
same as the adjusted tax basis of the Existing Note exchanged therefor
immediately before the exchange.
Stated Interest
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
Sale, Exchange Or Retirement Of The Notes
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or retirement
of a Note in an amount equal to the difference between the amount realized on
the sale, exchange or retirement and the tax basis of the Note. Gain or loss
recognized on the sale, exchange or retirement of a Note (excluding amounts
received in respect of accrued interest, which will be taxable as ordinary
interest income) generally will be capital gain or loss and will be long-term
capital gain or loss, if the Note was held for more than one year. Under
currently enacted legislation, capital gain recognized by non-corporate
taxpayers on assets held for more than 18 months is subject to a 20% maximum
rate of tax; while capital gain recognized by such taxpayers on assets held for
more than one year but not for more than 18 months is subject to a 28% maximum
rate of tax.
Backup Withholding
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof.
This withholding generally applies if the U.S. Holder fails to furnish his
or her social security number or other taxpayer identification number in the
specified manner and in certain circumstances or fails to properly certify that
he or she is not subject to backup withholding in general. Any amount withheld
from a payment to a U.S. Holder under the backup withholding rules is allowable
as a credit against such U.S. Holder's federal income tax liability.
Corporations and certain other entities described in the Code and Treasury
regulations are exempt from backup withholding if their exempt status is
properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until _______________, 1998,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon by Dechert Price & Rhoads, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of Delco Remy International, Inc. as
of July 31, 1997 and 1996, and for each of the three years in the period ended
July 31, 1997, appearing in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Neither
section applies by its terms to the Exchange Offer or to this Prospectus. All
statements other than statements of historical facts included in this
Prospectus, including without limitation the Unaudited Supplemental Data set
forth in the Pro Forma Condensed Consolidated Financial Data (Unaudited) and
Unaudited Supplemental Data and the statements under "Business--Business
Strategy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "--Liquidity and Capital Resources", are
forward-looking statements. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
or management's expectations ("Cautionary Statements") are disclosed in this
Prospectus, including without limitation in conjunction with the forward-looking
statements included in this Prospectus and under "Risk Factors." All written and
oral forward-looking statements made following consummation of the Transactions
which are attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
INDEX TO FINANCIAL STATEMENTS
Delco Remy International, Inc.
Report of Independent Auditors.................................................................................. F-2
Consolidated Statements of Operations for the years ended July 31, 1995, 1996 and 1997.......................... F-3
Consolidated Balance Sheets as of July 31, 1996 and 1997........................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended July 31, 1995, 1996
and 1997................................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1996 and 1997.......................... F-7
Notes to Consolidated Financial Statements...................................................................... F-8
World Wide Automotive, Inc.
Report of Independent Auditors................................................................................. F-36
Balance Sheets as of the years ended March 31, 1996 and 1997................................................... F-39
Statements of Income for the years ended March 31, 1995, 1996 and 1997......................................... F-41
Statement of Stockholders' Equity.............................................................................. F-42
Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997..................................... F-43
Notes to Financial Statements.................................................................................. F-44
Tractech Division of Titan Wheel International, Inc.
Report of Independent Auditors................................................................................. F-52
Statements of Operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996........................................................................................ F-53
Statements of Stockholders' Equity for the year ended December 31, 1995 and the nine months ended
September 30, 1996........................................................................................ F-54
Statements of Cash Flows for the year ended December 31, 1995 and the nine months ended
September 30, 1996........................................................................................ F-55
Notes to Financial Statements.................................................................................. F-56
Ballantrae Corporation
Report of Independent Auditors................................................................................. F-60
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997..................................... F-61
Consolidated Statements of Operations for the three months ended December 31, 1996 and the nine
months ended September 30, 1997........................................................................... F-63
Consolidated Statements of Stockholders' Equity for the three months ended December 31, 1996 and the
nine months ended September 30, 1997...................................................................... F-64
Consolidated Statements of Cash Flows for the three months ended December 31, 1996 and the nine
months ended September 30, 1997........................................................................... F-65
Notes to Consolidated Financial Statements..................................................................... F-66
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Delco Remy International, Inc.
We have audited the accompanying consolidated balance sheets of Delco Remy
International, Inc. as of July 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended July 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We 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
Delco Remy International, Inc. at July 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 31, 1997, in conformity with generally accepted accounting
principles.
Indianapolis, Indiana
September 5, 1997, except for "Share and
Per Share Information" in Note 16, as to
which the date is October ___, 1997
The foregoing report is in the form that will be signed upon the determination
of the Stock Split as described in Note 16 to the consolidated financial
statements.
ERNST & YOUNG LLP
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Net sales....................................................... $ 573,423 $ 636,852 $ 689,787
Cost of goods sold.............................................. 475,216 510,078 540,234
------------- ------------- -------------
Gross profit.................................................... 98,207 126,774 149,553
Selling, engineering, and administrative expenses............... 61,206 77,994 89,098
Restructuring charges........................................... -- 8,101 34,500
------------- ------------- -------------
Operating income................................................ 37,001 40,679 25,955
Other income (expense):
Gain on sale of building................................... -- -- 2,082
Interest expense........................................... (18,432) (27,367) (38,774)
------------- ------------- -------------
Income (loss) from continuing operations before income
taxes (benefit), preferred dividend requirement of subsidiary
and minority interest.......................................... 18,569 13,312 (10,737)
Minority interest in income of subsidiaries..................... -- 259 892
Income taxes (benefit).......................................... 7,846 5,741 (3,014)
Preferred dividend requirement of subsidiary.................... 1,397 1,516 1,648
------------- ------------- -------------
Income (loss) from continuing operations........................ 9,326 5,796 (10,263)
Discontinued operations:
Loss from operations of discontinued businesses (less
applicable income tax benefit of $1,582, $1,042 and $395,
respectively)........................................... 2,363 1,573 808
Loss on disposal of businesses (less applicable income tax
benefit of $6,043 and $426)............................. -- 9,064 874
Extraordinary item:
Write-off of debt issuance costs (less applicable income
tax benefit of $1,147).................................. -- -- 2,351
------------- ------------- -------------
Net income (loss)............................................... $ 6,963 $ (4,841) $ (14,296)
============= ============= =============
1997 Pro Forma Loss Per Share
-----------------------------------------------
From Before
Continuing Extraordinary Net
Operations Item Loss
------------- ------------- -------------
Primary......................................................... $ $ $
Supplemental....................................................
See Accompanying Notes
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
July 31
---------------- --- ---------------
1996 1997
---------------- ---------------
Assets:
Current assets:
Cash and cash equivalents................................... $ 3,406 $ 10,050
Trade accounts receivable (less allowance for doubtful
accounts of $1,209 and $2,935, respectively)............ 94,992 110,184
Other receivables........................................... 10,585 10,487
Recoverable income taxes.................................... 8,674 2,889
Inventories................................................. 123,583 164,417
Deferred income taxes....................................... 15,462 21,474
Other current assets........................................ 1,213 4,643
---------------- ---------------
Total current assets............................................. 257,915 324,144
Property and equipment........................................... 170,391 147,222
Less accumulated depreciation.................................... 29,235 26,858
---------------- ---------------
141,156 120,364
Deferred financing costs......................................... 6,497 8,803
Goodwill (less accumulated amortization of $4,758 and $7,289,
respectively)............................................... 66,570 86,612
Net assets held for disposal..................................... -- 25,279
Investment in affiliate.......................................... -- 3,119
Other assets..................................................... 2,944 2,248
---------------- ---------------
Total assets..................................................... $ 475,082 $ 570,569
================ ===============
See Accompanying Notes
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
July 31
--------------- -- ---------------
1996 1997
--------------- ---------------
Liabilities and stockholders' equity (deficit):
Current liabilities:
Accounts payable................................................ $ 81,207 $ 88,578
Accrued interest payable........................................ 4,026 3,107
Accrued restructuring charges................................... 5,541 37,377
Liabilities related to discontinued operations.................. 11,005 3,324
Other liabilities and accrued expenses.......................... 32,683 35,949
Current portion of long-term debt............................... 9,652 507
--------------- ---------------
Total current liabilities............................................ 144,114 168,842
Deferred income taxes................................................ 6,795 1,556
Long-term debt, less current portion................................. 289,144 363,261
Post-retirement benefits other than pensions......................... 8,186 12,677
Accrued pension benefit.............................................. 950 4,542
Other non-current liabilities........................................ 5,427 4,124
Minority interest in subsidiary...................................... 4,457 8,032
Redeemable exchangeable preferred stock of subsidiary................ 14,420 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares (par value $.01; authorized 1,000,000; issued
517,727 in 1996 and 525,477 in 1997)................. 5 5
Class B Shares (par value $.01; authorized 1,000,000; issued
385,523 in 1996 and 1997)............................ 4 4
Paid-in capital................................................. 1,798 10,194
Retained earnings (deficit)..................................... 2,122 (12,174)
Cumulative translation adjustment............................... (2,161) (1,752)
Stock purchase plan............................................. (179) (4,813)
--------------- ---------------
Total stockholders' equity (deficit)................................. 1,589 (8,536)
--------------- ---------------
Total liabilities and stockholders' equity (deficit)................. $ 475,082 $ 570,569
=============== ===============
See Accompanying Notes
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
Class A Class B Retained Cumulative Stock
Common Common Paid-In Earnings Translation Purchase
Stock Stock Capital (Deficit) Adjustment Plan Total
------------ ---------- --------- ----------- ----------- ------------ -----------
Initial capitalization at
August 1, 1994............... $ 5 $ 4 $ 1,572 $ -- $ -- $ (50) $1,531
Issuance of common stock..... -- -- 241 -- -- (124) 117
Net income................... -- -- -- 6,963 -- -- 6,963
Foreign currency translation
adjustment................... -- -- -- -- (181) -- (181)
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1995..... 5 4 1,813 6,963 (181) (174) 8,430
Repurchase of common stock... -- -- (15) -- -- (5) (20)
Net loss..................... -- -- -- (4,841) -- -- (4,841)
Foreign currency translation
adjustment................... -- -- -- -- (1,980) -- (1,980)
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1996..... 5 4 1,798 2,122 (2,161) (179) 1,589
Issuance of common stock..... -- -- 8,419 -- -- (4,653) 3,766
Repurchase of common stock... -- -- (23) -- -- 19 (4)
Net loss..................... -- -- -- (14,296) -- -- (14,296)
Foreign currency translation
adjustment................... -- -- -- -- 409 -- 409
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1997..... $ 5 $ 4 $ 10,194 $ (12,174) $ (1,752) $ (4,813) $ (8,536)
============ =========== ========== ============ =========== ============ ==========
See Accompanying Notes
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended July 31
------------ -- ------------ -- ------------
1995 1996 1997
------------ ------------ ------------
Operating activities:
Net income (loss)............................................ $ 6,963 $ (4,841) $ (14,296)
Extraordinary item........................................... -- -- 3,498
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 14,533 19,555 22,323
Gain on sale of building................................ -- -- (2,082)
Deferred income taxes................................... (3,580) (2,947) (9,578)
Post-retirement benefits other than pensions............ 4,434 3,752 4,491
Accrued pension benefits................................ 4,459 (3,509) 3,592
Non-cash interest expense............................... 8,069 7,867 7,949
Preferred dividend requirement of subsidiary............ 1,397 1,516 1,648
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable................................. (49,320) (24,458) (3,341)
Inventories......................................... (8,035) (25,720) (10,245)
Accounts payable.................................... 49,613 8,634 (11,036)
Other current assets and liabilities................ (6,657) 18,229 (4,538)
Accrued restructuring............................... -- 5,541 31,836
Other non-current assets and liabilities, net....... 45 (4,303) 2,316
------------ ------------ ------------
Net cash provided by (used in) operating activities.......... 21,921 (684) 22,537
Investing activities:
Acquisitions, net of cash acquired........................... (62,010) (46,320) (42,442)
Purchase of property and equipment........................... (11,241) (32,741) (31,888)
Investment in affiliates..................................... -- -- (3,119)
Proceeds from sale of building............................... -- -- 3,362
------------ ------------ ------------
Net cash used in investing activities........................ (73,251) (79,061) (74,087)
Financing activities:
Proceeds from issuances of long-term debt.................... 31,918 89,652 180,000
Payments on long-term debt................................... (4,917) (8,842) (126,200)
Other financing activities................................... 118 (20) 3,986
------------ ------------ ------------
Net cash provided by financing activities.................... 27,119 80,790 57,786
------------ ------------ ------------
Effect of exchange rate changes on cash...................... -- 883 408
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents......... (24,211) 1,928 6,644
Cash and cash equivalents at beginning of year............... 25,689 1,478 3,406
------------ ------------ ------------
Cash and cash equivalents at end of year..................... $ 1,478 $ 3,406 $ 10,050
============ ============ ============
See Accompanying Notes
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997
(dollars in thousands)
1. ORGANIZATION AND ACQUISITIONS
Delco Remy America Acquisition
On August 1, 1994, Delco Remy International, Inc. (the Company or DRI)
through a wholly-owned subsidiary, Delco Remy America, Inc. (DRA), purchased
substantially all of the assets, other than facilities, and assumed certain
liabilities of specific business activities of the Delco Remy Division of
General Motors Corporation (the GM Acquisition). The specific business
activities purchased are engaged in the design, manufacture, remanufacture and
sale of heavy duty starter motors and generators, automotive starter motors, and
related components.
The aggregate purchase price of the GM Acquisition of $155,665 (including
fees and expenses) was accounted for as a purchase. The Company issued (i)
common stock of $1,531, (ii) preferred stock of $11,507 and (iii) debt of
$158,200 to fund the purchase and provide capital for general corporate
purposes. The GM Acquisition resulted in the recording of approximately $17,600
of goodwill which is being amortized over 15 years. While the GM Acquisition was
recorded based on the best estimates available, certain purchase price
adjustments as of the August 1, 1994 purchase date have not been determined or
agreed to by General Motors Corporation (GM) and DRI. The resolution of these
items could result in a charge or credit to operations when finalized. The
accompanying consolidated financial statements reflect the consolidated results
of operations and cash flows for the Company subsequent to the GM Acquisition.
The Company had no operations prior to August 1, 1994.
GM is entitled to receive an additional contingent purchase payment which
will be paid beginning in 2004 and will be based upon a percentage of average
earnings of the Company in the three year period ending December 31, 2003 in
excess of certain imputed earnings. Since the additional contingent purchase
price, if any, is based upon future operations of the Company which cannot be
determined at this time, no provision for such payment has been made in the
accompanying consolidated financial statements.
Concurrent with the GM Acquisition, the Company entered into certain supply
agreements with GM whereby the Company will be the sole-source supplier to GM
for component parts manufactured by the Company at the date of the GM
Acquisition. The supply agreement for automotive starter motors has an initial
term of ten years, while the supply agreement for heavy duty starter motors and
generators has an initial term of six years.
1997 Acquisition
On May 8, 1997, the Company, through a wholly-owned subsidiary, acquired
82.5% of the outstanding common stock of World Wide Automotive, Inc. (World
Wide). World Wide is primarily an aftermarket supplier of light duty import
starters and alternators, although it also has a small amount of heavy duty
remanufacturing sales and domestic aftermarket sales. The remaining 17.5%
interest in World Wide is owned by current management of World Wide.
The aggregate purchase price was $40,842, including cash payments of
$38,692 and the issuance of Class A Common Stock valued at $2,150. The World
Wide acquisition was treated as a purchase for accounting purposes and is
included in the consolidated financial statements of the Company beginning with
the acquisition date. The World Wide acquisition resulted in goodwill of $21,301
which is being amortized over 35 years.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
1996 Acquisition
On February 6, 1996 the Company, through a wholly-owned subsidiary,
acquired 82.5% of the outstanding common stock of Power Investments, Inc. and
related companies (Power), a remanufacturer of diesel and gasoline engines, fuel
systems, transmissions, alternators and starters for medium, heavy duty, and
automotive applications. Power also remanufactures and distributes brakes, water
pumps, power steering pumps and various other remanufactured truck parts and
assemblies. Power has fifteen facilities located in the United States and
Canada. The remaining 17.5% interest in Power is owned by current management of
Power.
The aggregate purchase price was $48,422 including cash payments of $23,385
and the issuance of $24,300 of 9.86% Power Investments Seller Notes. The Power
acquisition was treated as a purchase for accounting purposes and is included in
the consolidated financial statements of the Company beginning with the
acquisition date. The Power acquisition resulted in goodwill of $16,267 which is
being amortized over 35 years.
1995 Acquisitions
In 1995, the Company made the following three acquisitions which were
treated as purchases for accounting purposes and are included in the
consolidated financial statements beginning with the respective acquisition
date. Each respective purchase price was allocated to the assets acquired and
liabilities assumed at their estimated fair values. The three acquisitions
resulted in goodwill of $38,864 which is being amortized over 35 years.
On January 6, 1995, the Company purchased all the stock of two
related companies (collectively referred to as Nabco) for an aggregate
cash purchase price of $27,600 and the issuance of 28,750 shares of DRI
Class A Common Stock. Nabco remanufactures automotive starters and
alternators.
On March 31, 1995, the Company, through a newly formed subsidiary,
purchased the shares of six related corporations (collectively referred
to as A&B). The aggregate purchase price of $33,400 included cash
payments of $29,900 and the issuance of $3,500 in 10% subordinated
notes. The A&B acquisition was financed through additional borrowings
under the Company's revolving loan and a new acquisition term loan of
$15,000. A&B remanufactures heavy duty starters and alternators and
related sub-components and parts.
On April 13, 1995, the Company acquired, through a series of stock
purchase transactions, approximately 97% interest in a Hungarian
company (Autovill), a manufacturer of heavy duty starter motors and
generators. The total purchase price was approximately $7,500 which
included the assumption of certain Autovill liabilities of $4,100.
Unaudited Pro Forma Results of Operations
The unaudited pro forma consolidated results of operations, assuming the
1995, 1996 and 1997 acquisitions had been consummated as of the beginning of the
preceding year, are as follows:
For the Year Ended July 31
----------------------------------------------------------
1995 1996 1997
----------------- ----------------- ----------------
Revenues......................... $ 666,604 $ 733,257 $ 738,802
Operating income................. 49,464 47,644 28,115
Income (loss) from continuing
operations....................... 13,929 5,445 (10,632)
Net income (loss)................ 11,566 (5,192) (14,665)
The pro forma consolidated financial information does not purport to
present what the Company's consolidated results of operations would actually
have been if the operations were combined during the periods presented and is
not intended to project future results or trends of operations.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Business Segment
The consolidated financial statements include the accounts of DRI and its
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation. The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and engine-related components for automobiles,
light and heavy duty trucks and other heavy duty vehicles. The Company's
products include starter motors, alternators, engines, transmissions and fuel
systems for the aftermarket and the original equipment manufacturer market,
principally in North America but also in Europe, Latin America and Asia-Pacific.
Use of Estimates
Preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments held primarily in repurchase agreements collateralized by U.S.
Government securities with a maturity of ninety days or less when purchased. The
carrying amount of cash equivalents approximates fair value.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
customers in the original equipment and aftermarket automotive industries, both
in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and have
been consistently within management's expectations. The Company invests its
temporary cash in high credit quality financial institutions and investment
grade short-term investments and limits the amount of credit exposure to any one
entity.
The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) and covered by a CBA that will expire within one year
is 48.0% and 2.4%, respectively.
Inventories
Inventories are carried at lower of cost or market determined on the
first-in, first-out (FIFO) method. Raw materials also include supplies and
repair parts which consist of material consumed in the manufacturing process but
not directly incorporated into the finished products. Inventories at July 31,
1996 and 1997 consisted of the following:
July 31
--------------------------------------
1996 1997
----------------- -----------------
Raw material................. $ 57,481 $ 84,583
Work in-process.............. 32,790 20,168
Finished goods............... 33,312 59,666
----------------- -----------------
$ 123,583 $ 164,417
================= =================
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
primarily using the straight-line method over the estimated useful lives of the
related assets (15 years for buildings and 3 to 15 years for machinery and
equipment).
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each year for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge certain foreign
transactions. These contracts reduce currency risk from exchange rate movements.
Gains and losses are deferred and accounted for as part of the underlying
transactions. The contractual amount and related deferred gains and losses from
these contracts are immaterial.
Goodwill
Goodwill represents the excess of purchase price over fair value of the net
assets acquired and is being amortized by the straight-line method over 15 to 35
years.
The carrying amount of goodwill is regularly reviewed for indicators of
impairment in value, which in the view of management are other than temporary,
including unexpected or adverse changes in the following: (i) the economic or
competitive environments in which the Company operates; (ii) profitability
analyses and (iii) cash flow analyses. If facts and circumstances suggest that a
subsidiary's net assets are impaired, the Company assesses the fair value of the
underlying business and reduces goodwill to an amount that results in the book
value of the subsidiary approximating fair value.
Investment in Affiliate
Investment in affiliate represents the Company's equity investment in its
Korean joint venture. This investment is accounted for using the equity method.
Recognition of Revenue
Substantially all of the Company's revenue is recognized at the time the
product is shipped. The Company's remanufacturing operations obtain used diesel
and gasoline engines, fuel systems, transmissions, starter motors and
generators, commonly known as cores, from its customers as trade-ins. Net sales
and cost of goods sold are reduced by $58,800, $70,000 and $113,100 for 1995,
1996 and 1997, respectively, to reflect the cost of cores returned for credit.
Fair Value of Financial Instruments
The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable, long-term debt and
redeemable convertible preferred stock of subsidiary. The fair value of the
Company's fixed rate debt was estimated using discounted cash flow analyses
based upon the Company's current incremental borrowing rates. With the exception
of the Senior Subordinated Notes, the carrying amounts of these financial
instruments approximated their fair value at July 31, 1996 and 1997. At July 31,
1997, the Senior Subordinated Notes have a face value of $140.0 million and a
fair value of $148.4 million.
Reclassification
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of warrants to purchase common stock will be excluded. The
impact is expected to result in an increase in historical primary earnings
(loss) per share for the years ended July 31, 1995, 1996 and 1997, of $___, $___
and $___ per share, respectively. The impact of Statement No. 128 on the
calculation of fully diluted earnings per share for these years is not expected
to be material.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, and will
be adopted by the Company in 1998. The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Statement will not have any impact
on the results of operations or the financial position of the Company.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies are required to report segment information in annual financial
statements and in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Statement is effective for financial statements for
fiscal years beginning after December 15, 1997, and the Company anticipates
adopting the Statement in 1999. The Company is evaluating the impact that this
Statement will have on its financial reporting.
3. DISCONTINUED OPERATIONS
Marine Corporation of America, Marine Drive Systems, and Powrbilt Products
In July 1997, the Company adopted plans for the sale of the marine products
business segment consisting of three non-core businesses. The Company plans to
sell the net assets of Marine Corporation of America, Marine Drive Systems and
Powrbilt Products (the 1997 Discontinued Businesses). These non-core businesses
were acquired in February 1996 in conjunction with the acquisition of Power.
A charge of $874 net of a tax benefit of $426 for operating losses expected
during the disposal period was recorded. The Company does not anticipate a loss
on the disposal of the net assets of the discontinued businesses. It is expected
that the net assets of the businesses will be sold during fiscal 1998.
Summary operating results of the 1997 Discontinued Businesses since their
acquisition are as follows:
For the Year Ended July 31
------------- -------------
1996 1997
------------- -------------
Net sales.............................. $ 5,624 $ 10,935
Net loss............................... (328) (808)
The net assets of the 1997 Discontinued Businesses included in the
consolidated balance sheet are summarized as follows:
July 31,
1997
------------
Current assets............................................ $ 6,525
Property and equipment, net............................... 650
Current liabilities....................................... (1,848)
------------
Net assets................................................ $ 5,327
============
Powder Metal Forge
In December 1995, the Company adopted plans for sale of its non-core powder
metal forge business segment (PMF) and recorded an initial loss on disposal. A
sale agreement was signed in December 1996 to transfer ownership of net assets
of PMF. Terms of the sale agreement require the Company to continue PMF
operations through a transition period in which the buyer will begin production
at its facility. The Company expects the transition period to be completed by
November 1997. The agreement requires the buyer to reimburse the Company for all
losses incurred from operating the business after December 1997 if the
transition has not been completed. PMF produces various engine components,
primarily for GM, through a forging process.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
The Company recorded a charge of $9,064, net of tax benefit of $6,043, for
losses on disposal of the business, operating losses expected during the
transition period, and allocated interest expense. During the fiscal year ended
July 31, 1997, the Company utilized $8,981 of the reserves for discontinued
operations including a loss from operations of $2,171. At July 31, 1997, $2,024
of discontinued operations reserves remained on the balance sheet related to
PMF.
Summary operating results of the discontinued operation, excluding the loss
on disposal are as follows for the years ended:
For the Year Ended July 31
------------------------------
1995 1996
------------- -------------
Net sales............................. $ 6,505 $ 4,228
Net loss.............................. (2,363) (1,245)
Interest expense of $1,014 and $496 in 1995 and 1996, respectively, was
allocated to discontinued operations of PMF based on the ratio of net assets
discontinued to total net assets and debt of the Company. In addition, interest
expense of $986 was allocated for the disposal period and is included in the
1996 loss on disposal of PMF. In 1997, $335 of interest expense was charged
against the reserve.
The net assets of PMF included in the consolidated balance sheet are
summarized as follows:
July 31
1997
------------
Current assets............................................ $ 3,917
Current liabilities....................................... (610)
------------
Net assets................................................ $ 3,307
============
4. RESTRUCTURING CHARGES
In May 1997, the Company decided to restructure the manufacturing
operations of DRA to utilize focus factory manufacturing concepts and to close
the Company's operations in the old vertically-integrated factories that were
leased from GM. These decisions resulted in the impairment of certain production
assets with a carrying amount of $30,321 ($25,279 of which is property and
equipment and $5,042 of which is related tooling and other supplies) which the
Company plans to sell or otherwise dispose. The Company has estimated the loss
on disposal including related costs at $26,260. In addition, the Company has
estimated a cost of $8,240 for reducing its workforce through several transition
programs. The results of operations for the products which will be discontinued
are not separately identifiable. The restructuring reserve is expected to be
utilized throughout 1998 and 1999.
In December 1995, the Company decided to eliminate the production of
certain parts and certain straight-drive starter motors for the original
equipment market. In addition, the Company purchased new, more efficient
equipment for use in the production of certain heavy duty alternators. These
decisions resulted in the impairment of certain production equipment with a
carrying amount of approximately $5,242, which the Company plans to sell or
otherwise dispose. The Company has estimated the loss on disposal, including
related costs, at $4,385. The results of operations for the parts and
straight-drive starter motors for which production will be discontinued are not
separately identifiable.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
In October 1995, the Company offered to certain eligible salaried employees
a voluntary retirement transition program in conjunction with a similar plan
offered by GM to its employees which allowed such employees special additional
benefits not typically provided upon retirement. These additional benefits
include salaried payments for six months and future supplemental payments under
the salaried retirement plan. As a result, $3,716 was charged to operations in
1996.
The following table summarizes the provisions and reserves for
restructuring and non-recurring charges:
Termination Exit/Impairment
Benefits Costs Total
Provision in 1996....................... $ 3,716 $ 4,385 $ 8,101
Payments and charges in 1996............ (1,665) (895) (2,560)
Reserve at July 31, 1996................ 2,051 3,490 5,541
Provision in 1997....................... 8,240 26,260 34,500
Change in estimate...................... (1,230) -- (1,230)
Payments and charges in 1997............ (821) (613) (1,434)
Reserve at July 31, 1997................ $ 8,240 $ 29,137 $ 37,377
========= ============ ===========
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
For the Year Ended July 31
----------------------------------------------------
1995 1996 1997
------------- --------------- ---------------
Balance at beginning of period........................... $ -- $ 162 $ 1,209
Additions charged to costs and expenses.................. 119 1,091 3,774
Acquisition of certain businesses........................ 102 308 324
Uncollectible accounts written off, net of recoveries.... (59) (352) (2,372)
------------- --------------- ---------------
$ 162 $ 1,209 $ 2,935
============= =============== ===============
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31
-------------- -- --------------
1996 1997
-------------- --------------
Land and buildings................ $ 12,213 $ 5,895
Buildings under capital leases.... 13,931 21,434
Machinery and equipment........... 144,247 119,893
============== ==============
$ 170,391 $ 147,222
============== ==============
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
7. LONG-TERM DEBT
Borrowings under long-term debt arrangements consists of the following:
July 31
----------------- -- -----------------
1996 1997
----------------- -----------------
Senior credit facility:
Revolving loans.............................. $ 48,530 $ --
Term loans................................... 54,235 --
Revolving acquisition loans.................. -- 34,963
Power seller notes............................... 24,300 8,300
World note....................................... 75,000 75,000
Senior subordinated notes........................ -- 140,000
GM acquisition note.............................. 55,224 59,155
A & B seller notes............................... 3,500 3,500
Junior subordinated notes........................ 22,619 25,211
Hungarian bank loans............................. 1,141 --
Other, including capital lease obligations....... 14,247 17,639
----------------- -----------------
298,796 363,768
Less current portion............................. 9,652 507
----------------- -----------------
$289,144 $ 363,261
================= =================
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Senior Credit Facility
Pursuant to the senior credit facility, revolving credit loans of $150,000
are available for general purposes, of which up to $85,000 is available for
acquisitions. The senior credit facility provides for quarterly payments of
$9,400 beginning in the year 1999. The Company has the option of paying an
interest rate of one bank's prime or a LIBOR-based rate. The weighted average
interest on amounts outstanding at July 31, 1997 was 8.02%.
The senior credit facility contains various covenants which include, among
other things: (i) limitations on additional borrowings and encumbrances; (ii)
the maintenance of certain financial ratios and compliance with certain
financial tests and limitations; (iii) limitations on cash dividends paid; (iv)
limitations on investments and capital expenditures; and (v) limitations on
leases and sales of assets.
The senior credit facility is collateralized by a lien on substantially all
assets of the Company and its domestic subsidiaries and by all the capital stock
of such subsidiaries held by the Company or any such other subsidiary.
Power Seller Notes
The Power Seller Notes are due February 6, 2001. Interest, at a rate of
9.86% per annum, is payable monthly for the current month. The notes may be
prepaid without premium or penalty after August 6, 1997. The Power Seller Notes
are secured by letters of credit issued under the senior credit facility.
World Note
The World Note, due on July 31, 2003, is payable to an affiliate of a
stockholder and bears interest at a rate of 10.5% per annum, payable
semiannually.
On any three interest payment dates, the Company may elect to pay up to 50%
of the unpaid accrued interest by issuing additional notes to the holder of the
World Note. At the option of the Company, prepayment of the loan balance may be
made at repayment amounts ranging from 103% in 1997 to 100% of principal after
August 1, 2000. Upon a change in control, certain asset sales, casualty events
or a public offering (all as defined in the debt agreement), the holders have
the right, but not the obligation, to require mandatory redemption of the debt,
without premium or penalty.
The World Note agreement contains certain covenants which are similar to
the provisions of the senior credit facility. The World noteholder has agreed to
subordinate its right to receive payments to the senior credit facility lenders.
DRI and its domestic subsidiaries have guaranteed the payment of principal and
interest on the World Note.
Senior Subordinated Notes
On August 2, 1996, the Company issued $140 million of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the Senior Subordinated Notes). The
proceeds from the Senior Subordinated Notes were $135.8 million (net of issuance
costs). The proceeds were used as follows: (i) to repay all outstanding
indebtedness under the Senior Credit Facility, plus accrued and unpaid interest
thereon, (ii) $16,000 was used to prepay one of the Power Seller Notes, plus
accrued and unpaid interest thereon, and (iii) the remaining net proceeds were
invested temporarily in short-term interest bearing obligations. The Company
recorded an extraordinary loss in 1997 of $2,351, net of tax benefit of $1,147,
related to deferred financing costs associated with the payoff of the Senior
Credit Facility.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and are subordinated in right of payment to the prior payment in
full of all existing and future senior indebtedness, pari passu with all present
and future senior subordinated indebtedness and senior to all present and future
subordinated indebtedness of the Company or the relevant subsidiary guarantors,
as defined in the indenture. The Senior Subordinated Notes will also be
effectively subordinated to any secured indebtedness to the extent of the value
of the assets securing such indebtedness.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, after August 1, 2001, at the redemption prices set forth in
the note agreement plus accrued and unpaid interest, if any, to the redemption
date. In addition, at any time prior to August 1, 1999, the Company may redeem,
at its option, up to an aggregate amount of 35% of the original principal amount
of the Senior Subordinated Notes with the proceeds of one or more public equity
offerings at a redemption price of 110% of the principal amount thereof plus
accrued and unpaid interest, if any, to the redemption date, provided that at
least 50% of the original aggregate principal amount of the notes remains
outstanding after each such redemption.
Upon the occurrence of a change of control (as defined), each holder of the
Senior Subordinated Notes will have the right to require the Company to purchase
all or a portion of such holder's notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase.
The indenture pursuant to which the Senior Subordinated Notes were issued
contains certain covenants that, among other things, limit the ability of the
Company and its restricted subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make other distributions with respect to capital stock (as
defined) of the Company and its restricted subsidiaries, (iii) sell assets of
the Company or its restricted subsidiaries, (iv) issue or sell restricted
subsidiary stock, (v) enter into certain transactions with affiliates, (vi)
create certain liens, (vii) enter into certain mergers and consolidations and
(viii) incur indebtedness which is subordinate to senior indebtedness and senior
to the Senior Subordinated Notes.
Pursuant to a registration agreement among the Company and the initial
purchasers, the Company will commence an exchange offer pursuant to an effective
registration statement or cause the Notes to be registered under the Securities
Act pursuant to a resale shelf registration statement. If an exchange offer
registration statement is not (i) filed by October 31, 1997 or (ii) declared
effective by December 31, 1997, or (iii) if an exchange offer is not consummated
or a resale shelf registration statement is not declared effective by January
31, 1998, special interest will accrue initially at the rate of .25% per annum
increasing to a maximum rate of 1% per annum, payable semi-annually until such
time as an exchange offer is consummated or a resale shelf registration is
declared effective.
GM Acquisition Note
In connection with the GM Acquisition, DRA issued to GM a subordinated note
in the principal amount of $45,000 due 2004. Interest accrues semiannually at a
rate of 11.5% per annum and is added to the unpaid principal balance in amounts
ranging from 60% of the accruing interest in 1997 to 20% in 1999. Beginning in
2000, interest is payable semiannually in cash.
A&B Seller Notes
In connection with the A&B acquisition, a subsidiary of DRI issued
subordinated notes in the principal amount of $3,500 due 2002. Interest is
payable semiannually at 10% per annum. The notes are subordinated to the senior
credit facility, senior subordinated debt, and the World Note. The notes may be
prepaid at any time without penalty.
Junior Subordinated Notes
DRI issued $18,200 in an initial principal amount of Junior Subordinated
Notes to two investors, who are also holders of the Company's common stock.
Interest on the junior subordinated notes accrues semiannually at 11% and is
payable entirely in additional principal, through 2004, when the entire balance
is due and payable.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Capital Lease Obligations
In 1996 the Company entered into an aggregate of $13,931 of new capital
leases with respect to three manufacturing facilities and its world headquarters
building. The leases have 15 year terms with options to renew for additional
periods. These leases have been capitalized using interest rates ranging from
12.5% to 14.2%. The carrying value of assets under capital leases was $15,870 at
July 31, 1997.
Other
Total cash interest paid for 1995, 1996 and 1997 was $7,738, $19,895 and
$31,744, respectively.
The following is the required principal payments of long-term debt and
capitalized leases:
1998....................................... $ 507
1999....................................... 721
2000....................................... 817
2001....................................... 9,366
2002....................................... 844
Thereafter................................. 351,513
----------------
$ 363,768
================
8. EMPLOYEE BENEFIT PLANS
Agreements with GM
In connection with the GM Acquisition, the Company and GM agreed to
allocate the responsibility for employee pension benefits and post-retirement
health care and life insurance on a pro-rata basis between DRA and GM. The
allocation is primarily determined upon years of service with DRA and aggregate
years of service with DRA and GM. In addition, GM has agreed to retain complete
responsibility for all pension and post-retirement benefit costs for salaried
and hourly employees who retired from DRA before August 1, 1996 and October 1,
1996, respectively. Effective August 1, 1994, DRA established hourly and
salaried pension and post-retirement health care and life insurance plans which
are similar to the respective GM plans.
Pension Plans
DRA has defined benefit pension plans covering substantially all employees.
The plan covering salaried employees provides benefits that are based upon years
of service and final estimated average compensation. Benefits for hourly
employees are based on stated amounts for each year of service. DRA's funding
policy is to contribute amounts to provide the plans with sufficient assets to
meet future benefit payment requirements consistent with actuarial
determinations of the funding requirements of federal laws. DRA made
contributions of $6,454 and $1,085 to the plans in 1996 and 1997, respectively.
No contributions were made in 1995. Plan assets are primarily invested in mutual
funds which invest in both debt and equity instruments.
The components of net periodic pension cost for the plans are as follows:
For the Year Ended July 31
---------------- --- ---------------- -- -----------------
1995 1996 1997
---------------- ---------------- -----------------
Service cost - benefits earned during the period......... $ 4,435 $ 2,935 $ 3,163
Interest costs on projected benefit obligation........... 2 293 544
Actual (gain) loss on assets............................. -- 51 (2,180)
Net amortization and deferral............................ 22 (316) 1,512
Special charge for early retirement...................... -- -- 1,633
---------------- ---------------- -----------------
Net periodic pension cost................................ $ 4,459 $ 2,963 $ 4,672
================ ================ =================
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
In 1997, the Company offered retirement incentives to salaried employees.
The program liability of $1,633 was included with the restructuring charge.
The following table sets forth the funded status for DRA's defined benefit
pension plans.
July 31
--------------- -- ---------------
1996 1997
--------------- ---------------
Actuarial present value of accumulated pension benefit obligation:
Vested..................................................... $ 5,988 $ 11,375
Nonvested.................................................. 489 1,318
=============== ===============
Accumulated benefit obligation.................................. $ 6,477 $ 12,693
=============== ===============
Projected benefit obligation.................................... $ 7,021 $ 13,540
Plan assets at fair value....................................... (6,406) (9,664)
--------------- ---------------
Projected benefit obligation in excess of fair value of
plan assets................................................ 615 3,876
Prior service cost not yet recognized........................... (37) (911)
Unrecognized net gain........................................... 372 1,577
--------------- ---------------
Pension liability recognized in the balance sheet............... $ 950 $ 4,542
=============== ===============
The measurement of the July 31, 1996 and 1997 projected benefit obligation
was based upon a discount rate of 7.75%. The expected compensation growth rate
is 5% for salaried employees. The expected rate of return on plan assets is 10%.
Defined Contribution Plans
Various subsidiaries of the Company sponsor voluntary savings plans for
eligible salaried and hourly employees. These plans allow participants to make
contributions pursuant to section 401(k) of the Internal Revenue Code. Certain
of these plans have Company matching contribution provisions. Charges to
operations were $452, $686 and $532 for 1995, 1996 and 1997, respectively.
Profit Sharing Plans
DRA sponsors profit sharing plans covering substantially all of its
employees. Distributions are determined based upon formulas established by
management and are made annually. Profit sharing expense for 1995, 1996 and 1997
was $1,700, $1,300 and $1,400, respectively.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Post-Retirement Health Care and Life Insurance Plans
DRA maintains hourly and salaried benefit plans that provide
post-retirement health care and life insurance to retirees and eligible
dependents. The benefits are payable for life, although DRA retains the right to
modify or terminate the plans providing these benefits. The salaried plan is
contributory, with additional cost sharing features such as deductibles and
co-payments. Salaried employees who were not GM employees prior to 1992 are not
eligible for the above described post-retirement benefits. It is DRA's policy to
fund these benefits as claims are incurred.
The following table sets forth the status of DRA's post-retirement benefit
plans.
July 31
---------------- -- -----------------
1996 1997
---------------- -----------------
Accumulated post-retirement benefit obligation:
Fully eligible active participants...................... $ 148 $ 160
Active participants not yet fully eligible.............. 6,960 11,459
---------------- -----------------
7,108 11,619
Unrecognized net gain................................... 1,078 1,058
---------------- -----------------
Post-retirement benefit liability....................... $ 8,186 $ 12,677
================ =================
The components of post-retirement benefit expense are as follows:
For the Year Ended July 31
----------------- -- ----------------- --- ----------------
1995 1996 1997
----------------- ----------------- ----------------
Service Cost.......................................... $ 4,114 $ 3,557 $ 3,959
Interest Cost......................................... 320 254 551
Amortization of gain.................................. - (59) (19)
----------------- ----------------- ----------------
$ 4,434 $ 3,752 $ 4,491
================= ================= ================
Measurement of the accumulated post-retirement benefit obligation was based
on an 8.3% annual rate of increase in the cost of covered health care benefits.
The rate was assumed to decrease ratably to 5.5% through 2002 and remain level
at that rate thereafter. The discount rate used in determining the accumulated
post-retirement benefit obligation was 7.75%. An increase of 1% in assumed
health care cost trend rates would increase the accumulated post-retirement
benefit obligation as of July 31, 1997 by 25.8% and the net periodic cost for
1997 would be increased by 28.6%.
9. STOCKHOLDERS' EQUITY AND REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF DRA
All shares of Class A Common Stock and Class B Common Stock are identical
and will entitle the holders thereof to the same rights and privileges, provided
that except as otherwise required by law, the holders of Class B common stock
shall have no voting rights. Each share of Class A stock is convertible into one
share of Class B stock and each share of Class B stock is convertible into one
share of Class A stock. Pursuant to a Stockholders Agreement dated July 29,
1994, the Company issued 470,590 shares of Class A Common Stock and 319,410
shares of Class B Common Stock for an aggregate of $1,581. In addition, 28,750
shares of Class A common stock were issued in connection with the Nabco
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
acquisition. On October 21, 1994, the Company approved a private placement
memorandum whereby the Company is authorized to offer for sale to certain
members of management of DRA up to 95,000 shares of Class A Common Stock. As of
July 31, 1997, 90,000 shares were outstanding pursuant to the private placement
at a price approximating book value. Shares issued pursuant to this plan
generally vest over three years. During 1997, 26,750 shares were sold for $6,079
less than the deemed fair market value. As a result, compensation expense of
$1,616 was recorded during the current year and the balance of the unearned
compensation of $4,463 will be amortized over the remaining vesting period
The stockholder notes receivable of $179 and $350 at July 31, 1996 and
1997, respectively, were issued in connection with the sale of Class A Common
Stock and are payable in 1999 through 2002 together with interest at 9.25%
accrued interest per annum. The members of DRA management who are stockholders
of the Company are subject to agreements that impose certain restrictions and
grant rights on their ownership and transfer of Company stock. During the first
three years after issuance, stockholders are generally prohibited from
transferring shares of common stock of the Company owned by them. The Company
further has the right to repurchase such stock at amounts described in the
respective agreements when the management investor is no longer employed by DRA.
Warrants
In connection with the issuance of the Junior Subordinated Notes, DRI
issued warrants to purchase 100,000 shares of DRI Class A Common Stock at a
price of $.02 per share. The warrants can be exercised, in whole or in part, at
any time through June 31, 2004.
Redeemable Exchangeable Preferred Stock of DRA
In connection with the GM Acquisition, DRA issued 15,000 shares of Class A
Preferred Stock (par value $.01 per share and liquidation preference $1,000 per
share) to GM (DRA Preferred Stock). The provisions of the preferred stock call
for a cumulative cash dividend equal to $80 per share (8%). For financial
statement purposes the preferred stock has been discounted to approximately
$11,500 to reflect fair value at the issuance date based upon an 11.5% dividend
rate. The excess of the preference amount over the carrying value of the DRA
Preferred Stock is being accreted through August 1, 2004, at which time the DRA
Preferred Stock must be redeemed by DRA at $1,000 per share plus accrued and
unpaid dividends. At the option of DRA, the DRA Preferred Stock may be redeemed
at a price per share equal to $1,000 plus accrued and unpaid dividends. In
addition, the DRA Preferred Stock may be exchanged, at the option of DRA, in
whole or in part, for 8% subordinated debentures to be issued by DRA at $1,000
per share plus accrued and unpaid dividends. Dividends which accrue but remain
unpaid for one year accrue additional dividends at the rate of 8%. The carrying
value of the DRA Preferred Stock includes unpaid and accrued dividends of $3,896
as of July 31, 1997.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
10. INCOME TAXES
The following is a summary of the components of the provision for income
taxes (benefit) of continuing operations:
For the Year Ended July 31
--------------- -- --------------- - ---------------
1995 1996 1997
--------------- --------------- ---------------
Current:
Federal................................. $ 9,529 $ 5,969 $ 3,220
State and Local......................... 1,927 916 2,019
Foreign................................. 61 131 977
--------------- --------------- ---------------
11,517 7,016 6,216
Deferred:
Federal................................. (3,021) (1,240) (8,615)
State and Local......................... (650) (35) (960)
Foreign................................. -- -- 345
--------------- --------------- ---------------
$ 7,846 $ 5,741 $ (3,014)
=============== =============== ===============
Income (loss) from continuing operations before income taxes (benefit),
preferred dividend requirement of subsidiary and minority interest was taxed in
the following jurisdictions:
For the Year Ended July 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
Domestic.................................................. $ 18,198 $ 10,104 $ (15,640)
Foreign................................................... 371 3,208 4,903
--------------- --------------- ---------------
$ 18,569 $ 13,312 $ (10,737)
=============== =============== ===============
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:
For the Year Ended July 31
--------------- -- ---------------- -- ----------------
1995 1996 1997
--------------- ---------------- ----------------
Federal statutory income tax rate.......................... 35.0% 35.0% 35.0%
State and local income taxes- net of federal tax benefit... 4.5 4.3 (7.7)
Compensation expense....................................... -- -- 6.0
Other items................................................ 2.7 3.8 6.8
--------------- ---------------- ----------------
Effective income tax rate.................................. 42.2% 43.1% 28.1%
=============== ================ ================
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
State and local income taxes include provisions for Indiana and Michigan
which do not provide proportional benefit in loss years.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
July 31
----------------------------------
1996 1997
--------------- ---------------
Deferred tax assets:
Restructuring..................................... $ -- $ 4,424
Employee benefits................................. 7,385 7,157
Inventories....................................... 2,165 7,196
Warranty.......................................... 2,665 3,207
Asset impairment.................................. 1,380 8,480
Discontinued operations........................... 4,352 774
Non-compete agreements............................ -- 789
Alternative minimum tax credits................... 1,244 1,488
Other............................................. 3,054 2,835
--------------- ---------------
22,245 36,350
Deferred tax liabilities:
Depreciation...................................... (11,275) (13,475)
Discount on exchangeable securities............... (1,381) (1,336)
Other............................................. (922) (1,621)
--------------- ---------------
(13,578) (16,432)
--------------- ---------------
Net deferred tax asset................................. $ 8,667 $ 19,918
=============== ===============
The Company's alternative minimum tax credit may be carried forward
indefinitely. Income tax payments, including state taxes, for 1995, 1996 and
1997 were $8,900, $14,000 and $5,600, respectively.
No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($9,336 at July 31, 1997) because it is expected that such
earnings will be reinvested in these foreign operations indefinitely. It is not
practical to estimate the amount of taxes that might be payable on the eventual
remittances of such earnings.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
11. TRANSACTIONS WITH GM
The Company and GM have entered into several transactions and agreements
related to their respective businesses. In addition to the transactions
disclosed elsewhere in the accompanying consolidated financial statements and
related notes, the Company entered into the following transactions with GM:
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Sales....................................... $ 338,356 $ 298,084 $ 301,328
Material purchases and costs for services... 205,874 112,372 97,934
In addition, the Company had the following balances with GM:
July 31
------------------------------
1996 1997
------------- -------------
Trade accounts receivable.......... $ 27,391 $ 30,286
Other receivables.................. 9,807 4,886
Accounts payable................... 10,752 7,644
12. LEASE COMMITMENTS
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $959, $3,208 and $4,004 for 1995, 1996 and 1997,
respectively. Rental commitments at July 31, 1997 for long-term non-cancelable
operating leases were as follows for the year ending:
1998.......................................... $ 4,581
1999.......................................... 3,855
2000.......................................... 2,649
2001.......................................... 1,449
2002.......................................... 1,387
Thereafter.................................... 1,784
=============
$ 15,705
=============
13. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. The Company believes that the disposition of these matters will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
14. GEOGRAPHICAL INFORMATION
The Company operates predominantly in a single industry as a designer,
manufacturer, remanufacturer, and distributor of electrical and other engine
related components, including starter motors and alternators for automobiles,
trucks, and other heavy duty vehicles. The Company is a multi-national
corporation with operations in many countries including the United States,
Canada, Mexico, Hungary, Germany, Korea and the Netherlands. Sales, operating
profits and identifiable assets of Canadian, European and other foreign
locations are those sales, operating profits and assets related to the
operations in those locations. Geographical information is shown below:
For the Year Ended July 31
---------------------------------------------------
1995 1996 1997
-------------- --------------- ---------------
Net sales:
United States........................................ $ 584,859 $ 657,782 $ 684,790
Canada............................................... -- 26,815 47,240
Europe............................................... 5,090 15,975 14,487
Other foreign........................................ -- -- 7,052
Eliminate intercompany sales......................... (16,526) (63,720) (63,782)
-------------- --------------- ---------------
Total net sales...................................... $ 573,423 $ 636,852 $ 689,787
============== =============== ===============
Operating income:
United States........................................ $ 36,544 $ 36,751 $ 23,196
Canada............................................... -- 2,319 2,341
Europe............................................... 457 1,609 784
Other foreign........................................ -- -- (366)
-------------- --------------- ---------------
Total operating income............................... $ 37,001 $ 40,679 $ 25,955
============== =============== ===============
Identifiable assets:
United States........................................ $ 310,292 $ 427,847 $ 474,991
Canada............................................... -- 29,959 31,197
Europe............................................... 11,523 10,138 13,105
Other foreign........................................ -- -- 16,303
-------------- --------------- ---------------
Total identifiable assets............................ 321,815 467,944 535,596
Corporate assets..................................... 65,096 119,339 192,458
Elimination.......................................... (64,384) (112,201) (157,485)
-------------- --------------- ---------------
Total assets..................................... $ 322,527 $ 475,082 $ 570,569
============== =============== ===============
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
15. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Senior Notes referred to in Note 16 below are unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes (the Non-Guarantor Subsidiaries). The claims of
creditors of Non-Guarantor Subsidiaries have priority over the rights of the
Company to receive dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at July
31, 1997 and 1996 and for the years ended July 31, 1997, 1996 and 1995.
The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
Guarantor Subsidiaries Non-Guarantor Subsidiaries
- ---------------------------- ------------------------------------
Delco Remy America, Inc. Autovill RT Ltd.
Remy International, Inc. Power Investments Canada Ltd.
Reman Holdings, Inc. Remy UK Limited
Nabco, Inc. Delco Remy International (Europe) GmbH
The A&B Group, Inc. Remy India Holdings, Inc.
A&B Enterprises, Inc. Remy Mauritius Ltd.
Dalex, Inc. Remy Korea Holdings, Inc.
A&B Cores, Inc. 681287 Alberta Ltd.
R&L Tool Company, Inc. Publitech, Inc.
MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc.
Power Investments, Inc. Autovill Holdings, Inc.
Franklin Power Products, Inc.
International Fuel Systems, Inc.
Marine Drive Systems, Inc.
Marine Corporation of America
Powrbilt Products, Inc.
World Wide Automotive, Inc.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Balance Sheet
July 31, 1997
-----------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- --------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents........ $ -- $ 1,504 $ 8,546 $ -- $ 10,050
Trade accounts receivable........ -- 99,745 10,439 -- 110,184
Affiliate accounts receivable, net -- 33,409 2 (33,411)(a) --
Other receivables................ -- 9,605 882 -- 10,487
Recoverable income taxes......... -- 2,889 -- -- 2,889
Inventories...................... -- 145,035 19,382 -- 164,417
Deferred income taxes............ 4,315 17,159 -- -- 21,474
Other current assets............. -- 4,163 480 -- 4,643
-------------- -------------- -------------- -------------- --------------
Total current assets.................. 4,315 313,509 39,731 (33,411) 324,144
Property and equipment................ 20 133,769 13,433 -- 147,222
Less accumulated depreciation......... 13 22,353 4,492 -- 26,858
-------------- -------------- -------------- -------------- --------------
7 111,416 8,941 -- 120,364
Deferred financing costs.............. 5,148 3,655 -- -- 8,803
Goodwill, net......................... -- 76,437 10,175 -- 86,612
Net assets held for disposal.......... -- 25,279 -- -- 25,279
Investment in affiliates.............. 171,614 -- -- (168,495)(b)(c) 3,119
Other assets.......................... 1,953 (1,463) 1,758 -- 2,248
-------------- -------------- -------------- -------------- --------------
Total assets.......................... $ 183,037 $ 528,833 $ 60,605 $(201,906) $ 570,569
============== ============== ============== ============== ==============
<FN>
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Balance Sheet
July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Liabilities and stockholders' equity (deficit):
Current liabilities:
Accounts payable................. $ $ 82,585 $ 5,798 $ -- $ 88,578
195
Affiliate accounts payable....... 15,684 6,152 11,575 (33,411)(a) --
Accrued interest payable......... -- 3,107 -- -- 3,107
Accrued restructuring charges.... -- 37,377 -- -- 37,377
Liabilities related to
discontinued operations.......... -- 3,324 -- -- 3,324
Other liabilities and accrued
expenses......................... (11,076) 41,034 5,991 -- 35,949
Current portion of long-term
debt............................. -- 506 1 -- 507
-------------- -------------- -------------- -------------- --------------
Total current liabilities............. 4,803 174,085 23,365 (33,411) 168,842
Deferred income taxes................. 10,631 (9,114) 39 -- 1,556
Long-term debt, less current portion.. 173,511 189,669 81 -- 363,261
Post-retirement benefits other than
pensions......................... -- 12,677 -- -- 12,677
Accrued pension benefit............... -- 4,542 -- -- 4,542
Other non-current liabilities......... 876 3,231 17 -- 4,124
Minority interest in subsidiary....... -- 6,504 1,528 -- 8,032
Redeemable exchangeable preferred
stock of subsidiary.............. -- 16,071 -- -- 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares.............. 5 -- -- -- 5
Class B Shares.............. 4 -- -- -- 4
Paid-in capital.................. 10,194 -- -- -- 10,194
Subsidiary investment............ -- 127,665 31,970 (159,635)(b) --
Retained earnings (deficit)...... (12,174) 3,503 5,357 (8,860)(c) (12,174)
Cumulative translation
adjustment....................... -- -- (1,752) -- (1,752)
Stock purchase plan.............. (4,813) -- -- -- (4,813)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity
(deficit)........................ (6,784) 131,168 35,575 (168,495) (8,536)
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit)................. $ 183,037 $ 528,833 $ 60,605 $ (201,906) $ 570,569
============== ============== ============== ==============================
<FN>
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales............................. $ -- $ 684,790 $ 68,779 $(63,782)(a) $ 689,787
Cost of goods sold.................... -- 548,875 55,141 (63,782)(a) 540,234
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 135,915 13,638 -- 149,553
Selling, engineering, and
administrative expenses.......... 6,325 71,933 10,840 -- 89,098
Restructuring charges................. -- 34,500 -- -- 34,500
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (6,325) 29,482 2,798 -- 25,955
Other income (expense):
Gain on sale of building......... -- -- 2,082 -- 2,082
Interest expense................. (18,815) (19,997) 38 -- (38,774)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income tax
(benefit), preferred dividend
requirement of subsidiary, and
minority interest................ (25,140) 9,485 4,918 -- (10,737)
Minority interest in income of
subsidiaries..................... -- 921 (29) -- 892
Equity in earnings of subsidiaries.... 1,821 -- -- (1,821)(b) --
Income taxes (benefit)................ (9,023) 4,042 1,967 -- (3,014)
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,648(c) 1,648
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations....................... (14,296) 4,522 2,980 (3,469) (10,263)
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 808 -- -- 808
Loss on disposal of businesses
(less applicable income tax
benefit)......................... -- 874 -- -- 874
Extraordinary item:
Write-off of debt issuance costs
(less applicable income tax
benefit)......................... -- 2,351 -- -- 2,351
-------------- -------------- -------------- -------------- --------------
Net (loss) income..................... $ (14,296) $ 489 $ 2,980 $ (3,469) $ (14,296)
============== ============== ============== ============== ==============
<FN>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Operating Activities:
Net (loss) income..................... $ (14,296) $ 489 $ 2,980 $(3,469)(a) $ (14,296)
Extraordinary item.................... 375 3,123 -- -- 3,498
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... 1,629 19,942 752 -- 22,323
Gain on sale of building......... -- -- (2,082) -- (2,082)
Equity in earnings of subsidiary. (1,821) -- -- 1,821(a) --
Deferred income taxes............ 7,864 (17,481) 39 -- (9,578)
Post-retirement benefits other
than pensions.................... -- 4,491 -- -- 4,491
Accrued pension benefits......... -- 3,592 -- -- 3,592
Non-cash interest expense........ 3,337 4,612 -- -- 7,949
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,648(b) 1,648
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (1,715) (1,626) -- (3,341)
Inventories.................. -- (4,950) (5,295) -- (10,245)
Accounts payable............. (67) (10,970) 1 -- (11,036)
Intercompany accounts........ (74,450) 65,730 8,720 -- --
Other current assets and
liabilities.................. (8,727) 995 3,194 -- (4,538)
Accrued restructuring........ -- 31,836 -- -- 31,836
Other non-current assets and
liabilities, net............. (12,209) 16,180 (1,655) -- 2,316
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
operating activities............. (98,365) 115,874 5,028 -- 22,537
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Cash Flows--(continued)
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Investing activities:
Acquisition, net of cash acquired..... (45,284) 135 2,707 -- (42,442)
Purchase of property and equipment.... -- (27,025) (4,863) -- (31,888)
Investment in affiliates.............. (3,119) -- -- -- (3,119)
Proceeds from sale of building........ -- -- 3,362 -- 3,362
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
investing activities............. (48,403) (26,890) 1,206 -- (74,087)
Financing activities:
Proceeds from issuances of long-term
debt............................. 162,700 17,300 -- -- 180,000
Payments on long-term debt............ (16,000) (110,200) -- -- (126,200)
Other financing activities............ -- 3,986 -- -- 3,986
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities............. 146,700 (88,914) -- -- 57,786
Effect of exchange rate changes on cash
-- -- 408 -- 408
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents................. (68) 70 6,642 -- 6,644
Cash and cash equivalents at beginning
of year.......................... 68 1,434 1,904 -- 3,406
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ -- $ 1,504 $ 8,546 $ -- $ 10,050
============== ============== ============== ============== ==============
<FN>
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Balance Sheet
July 31, 1996
-----------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- --------------------------------------------------------------
(in thousands)
Assets:
Current assets:
Cash and cash equivalents........ $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
Trade accounts receivable, net... -- 87,161 7,831 -- 94,992
Affiliate accounts receivable.... -- 80,650 -- (80,650)(a) --
Other receivables................ -- 10,265 320 -- 10,585
Recoverable income taxes......... 825 7,013 836 -- 8,674
Inventories...................... -- 111,631 11,952 -- 123,583
Deferred income taxes............ 1,548 13,914 -- -- 15,462
Other current assets............. -- 790 423 -- 1,213
-------------- -------------- -------------- -------------- --------------
Total current assets.................. 2,441 312,858 23,266 (80,650) 257,915
Property and equipment................ 20 162,963 7,408 -- 170,391
Less accumulated depreciation......... -- 28,207 1,028 -- 29,235
-------------- -------------- -------------- -------------- --------------
20 134,756 6,380 -- 141,156
Deferred financing costs.............. 481 6,016 -- -- 6,497
Goodwill, net......................... -- 58,174 8,396 -- 66,570
Investment in affiliate............... 119,240 -- -- (119,240)(b)(c) --
Other assets.......................... 544 345 2,055 -- 2,944
-------------- -------------- -------------- -------------- --------------
Total assets.......................... $ 122,726 $ 512,149 $ 40,097 $(199,890) $ 475,082
============== ============== ============== ============== ==============
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Balance Sheet
July 31, 1996
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Liabilities and stockholders'
equity (deficit):
Current liabilities:
Accounts payable................. $ 262 $ 75,509 $ 5,436 $ -- $ 81,207
Affiliate accounts payable....... 73,322 4,968 2,360 (80,650)(a) --
Accrued interest payable......... -- 4,026 -- -- 4,026
Accrued restructuring charges.... -- 5,541 -- -- 5,541
Liabilities related to
discontinued operations.......... -- 11,005 -- -- 11,005
Other liabilities and accrued
expenses......................... (1,524) 31,151 3,056 -- 32,683
Current portion of long-term
debt............................. -- 8,511 1,141 -- 9,652
-------------- -------------- -------------- -------------- --------------
Total current liabilities........ 72,060 140,711 11,993 (80,650) 144,114
Deferred income taxes................. -- 6,795 -- -- 6,795
Long-term debt, less current portion.. 46,919 242,225 -- -- 289,144
Post-retirement benefits other than
pensions......................... -- 8,186 -- -- 8,186
Accrued pension benefit............... -- 950 -- -- 950
Other non-current liabilities......... (3) 2,582 2,848 -- 5,427
Minority interest in subsidiary....... -- 4,457 -- -- 4,457
Redeemable exchangeable preferred
stock of subsidiary.............. -- 14,420 -- -- 14,420
Stockholders' equity (deficit):
Common stock:
Class A Shares.............. 5 -- -- -- 5
Class B Shares.............. 4 -- -- -- 4
Paid-in capital.................. 1,798 -- -- -- 1,798
Subsidiary investment............ -- 87,161 25,040 (112,201)(b) --
Retained earnings (deficit)...... 2,122 4,662 2,377 (7,039)(c) 2,122
Cumulative translation
adjustment....................... -- -- (2,161) -- (2,161)
Notes receivable from
stockholders..................... (179) -- -- -- (179)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity
(deficit)........................ 3,750 91,823 25,256 (119,240) 1,589
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit)................. $ 122,726 $ 512,149 $ 40,097 $(199,890) $ 475,082
============== ============== ============== ============== ==============
<FN>
(a) Elimination of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1996
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales............................. $ -- $ 657,782 $ 42,790 $(63,720)(a) $ 636,852
Cost of goods sold.................... -- 541,363 32,435 (63,720)(a) 510,078
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 116,419 10,355 -- 126,774
Selling, engineering, and
administrative expenses.......... 1,923 69,644 6,427 -- 77,994
Restructuring charges................. -- 8,101 -- -- 8,101
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (1,923) 38,674 3,928 -- 40,679
Interest expense...................... (4,503) (22,477) (387) -- (27,367)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income
taxes benefit), preferred
dividend requirement of subsidiary
and minority interest............. (6,426) 16,197 3,541 -- 13,312
Minority interest in income of
subsidiary....................... -- -- 259 -- 259
Equity in earnings of subsidiary...... (1,904) -- -- 1,904(b) --
Income taxes (benefit)................ (3,489) 8,014 1,216 -- 5,741
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,516(c) 1,516
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations....................... (4,841) 8,183 2,066 388 5,796
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 1,573 -- -- 1,573
Loss on disposal of businesses
(less applicable income tax
benefit)......................... -- 9,064 -- -- 9,064
-------------- -------------- -------------- -------------- --------------
Net (loss) income..................... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
============== ============== ============== ============== ==============
<FN>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1996
------------------------------------------------------------------------------
Delco Remy Non-
International Subsidiary Guarantor
Inc. Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
(in thousands)
Operating Activities:
Net (loss) income..................... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 18,569 986 -- 19,555
Equity in earnings of subsidiary. 1,904 -- -- (1,904)(a) --
Deferred income taxes............ (620) (3,328) 1,001 -- (2,947)
Post-retirement benefits other
than pensions.................... -- 3,752 -- -- 3,752
Accrued pension benefits......... -- (3,509) -- -- (3,509)
Non-cash interest expense........ 2,333 5,534 -- -- 7,867
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,516(b) 1,516
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (24,724) 266 -- (24,458)
Inventories.................. -- (27,048) 1,328 -- (25,720)
Accounts payable............. 262 7,339 1,033 -- 8,634
Intercompany accounts........ 27,650 (29,070) 1,420 -- --
Other current assets and
liabilities.................. (2,679) 21,702 (794) -- 18,229
Accrued restructuring........ -- 5,541 -- -- 5,541
Other non-current assets and
liabilities, net............. (1,148) 1,248 (4,403) -- (4,303)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities............. 22,861 (26,448) 2,903 -- (684)
Investing activities:
Acquisition, net of cash acquired..... (47,685) 1,365 -- -- (46,320)
Purchase of property and equipment.... (1) (32,740) -- -- (32,741)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities. (47,686) (31,375) -- -- (79,061)
Financing activities:
Proceeds from issuances of long-term
debt............................. 24,300 65,352 -- -- 89,652
Payments on long-term debt............ -- (6,466) (2,376) -- (8,842)
Other financing activities............ -- (20) -- -- (20)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities............. 24,300 58,866 (2,376) -- 80,790
Effect of exchange rate changes on cash
-- -- 883 -- 883
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents................. (525) 1,043 1,410 -- 1,928
Cash and cash equivalents at beginning
of year.......................... 593 391 494 -- 1,478
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
============== ============== ============== ============== ==============
<FN>
(a) Elimination of investment in affiliates earnings.
(b) Elimination of preferred dividend requirement of subsidiary.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1995
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales............................. $ -- $ 584,859 $ 5,090 $(16,526)(a) $ 573,423
Cost of goods sold.................... -- 488,406 3,336 (16,526)(a) 475,216
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 96,453 1,754 -- 98,207
Selling, engineering, and
administrative expenses.......... 825 59,084 1,297 -- 61,206
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (825) 37,369 457 -- 37,001
Interest expense...................... (2,083) (16,263) (86) -- (18,432)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income taxes
(benefit), preferred dividend
requirement of subsidiary, and
minority interest.................. (2,908) 21,106 371 -- 18,569
Equity in earnings of subsidiary...... 8,943 -- -- (8,943)(b) --
Income taxes (benefit)................ (928) 8,713 61 -- 7,846
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,397(c) 1,397
-------------- -------------- -------------- -------------- --------------
Income (loss) from continuing
operations....................... 6,963 12,393 310 (10,340) 9,326
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 2,363 -- -- 2,363
-------------- -------------- -------------- -------------- --------------
Net income (loss)..................... $ 6,963 $ 10,030 $ 310 $ (10,340) $ 6,963
============== ============== ============== ============== ==============
<FN>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1995
------------------------------------------------------------------------------
Delco Remy Non-
International Subsidiary Guarantor
Inc. Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Operating Activities:
Net income (loss)..................... $ 6,963 $ 10,030 $ 310 $(10,340)(a)(b)$ 6,963
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 14,491 42 -- 14,533
Equity in earnings of subsidiary. (8,943) -- -- 8,943(a) --
Deferred income taxes............ (927) (2,653) -- -- (3,580)
Post-retirement benefits other
than pensions.................... -- 4,434 -- -- 4,434
Accrued pension benefits......... -- 4,459 -- -- 4,459
Non-cash interest expense........ 2,086 5,983 -- -- 8,069
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,397(b) 1,397
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (49,270) (50) -- (49,320)
Inventories.................. -- (7,212) (823) -- (8,035)
Accounts payable............. -- 48,862 751 -- 49,613
Intercompany accounts........ 62,733 (63,674) 941 -- --
Other current assets and
liabilities.................. 330 (6,450) (537) -- (6,657)
Other non-current assets and
liabilities, net............. 3,578 (3,797) 264 -- 45
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities............. 65,820 (44,797) 898 -- 21,921
Investing activities:
Acquisitions, net of cash acquired.... (64,429) 1,824 595 -- (62,010)
Purchase of property and equipment.... (19) (11,129) (93) -- (11,241)
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
investing activities............. (64,448) (9,305) 502 -- (73,251)
Financing activities:
Proceeds from issuances of long-term
debt............................. -- 31,918 -- -- 31,918
Payments on long-term debt............ (848) (3,163) (906) -- (4,917)
Other financing activities............ -- 118 -- -- 118
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
financing activities............. (848) 28,873 (906) -- 27,119
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in cash and
cash equivalents................. 524 (25,229) 494 -- (24,211)
Cash and cash equivalents at beginning
of year.......................... 69 25,620 -- -- 25,689
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ 593 $ 391 $ 494 $ -- $ 1,478
============== ============== ============== ============== ==============
<FN>
(a) Elimination of investment in affiliate earnings.
(b) Recording of preferred dividend requirement of subsidiary.
</FN>
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
16. SUBSEQUENT EVENTS
Offerings
In October 1997, the Company filed Registration Statements to offer
approximately $60,000 of Class A Common Stock ($69,000 if the Underwriters'
over-allotment option is exercised in full) and $130,000 of __% Senior Notes Due
2007 (the Senior Notes). Net proceeds to the Company from such Offerings, after
deduction of associated expenses, are expected to be approximately $181,000.
Planned Acquisition
On October __, 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire all of the capital stock of Ballantrae (the Planned
Acquisition) for $49,200 (including assumed debt). Ballantrae operates through
two subsidiaries: Tractech, a leading producer of traction control systems for
heavy duty original equipment manufacturers and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year 1997, Tractech accounted for approximately __% of Ballantrae's
$37,600 of net sales. The Company will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19,000 for the equity of Ballantrae and will repay approximately
$30,000 of Ballantrae's debt. The acquisition is expected to be completed at or
prior to the consummation of the Offerings.
Recapitalization
In connection with the above-mentioned Offerings and Planned Acquisition,
the Company plans to complete several transactions pursuant to which the
Company's outstanding debt and preferred stock will be restructured (the
Recapitalization). Significant components of the Recapitalization, together with
the applicable accounting effects, will be as follows:
The payment in full of the World Note.
The early extinguishment of the World Note will result in a write-off of
the unamortized debt issue costs of $1,350, net of income taxes, which will
be accounted for as an extraordinary loss on this transaction.
The payment in full of the GM Acquisition Note.
The exchange of the Junior Subordinated Notes for __________ shares of
Class A Common Stock.
The exchange of the outstanding shares of 8% preferred stock of DRA to an
8% subordinated debenture of DRA.
The payment in full of $11,800 principal amount of subordinated notes
payable to certain former stockholders of A&B Group and Power.
The amendment of the senior credit facility in connection with the
consummation of the Offerings.
Payment of Ballantrae debt assumed in the Planned Acquisition.
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997--(continued)
(dollars in thousands)
Share and Per Share Information
On October __, 1997, the Company authorized a ___-to-one stock split. All
share and per share amounts have been adjusted to reflect this split. The
primary loss per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year, adjusted
to reflect all common stock issued within one year prior to the initial public
offering of common stock as if those shares issued had been outstanding for the
entire year. The supplemental loss per share is based on the weighted average
number of shares of common stock and common stock equivalents used in the
primary loss per share calculation, retroactively adjusted to reflect the
assumed exchange of the Junior Subordinated Notes, the issuance of the Common
Stock and Senior Notes in the Offerings and the repayment of certain debt with
the proceeds of the Offerings. Historical earnings (loss) per share for 1995,
1996 and 1997 are $__, $( ) and $( ), respectively.]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
World Wide Automotive, Inc. (formerly Precision Alternator and Starter, Inc.)
We have audited the accompanying balance sheet of World Wide Automotive,
Inc. (formerly Precision Alternator and Starter, Inc.) as of March 31, 1997 and
the related statements of income, stockholders' equity, and cash flows for the
year then ended. 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 audit. We did not audit the financial
statements of Certipro, a division of the Company, which statements reflect
total assets of $7,907,945 as of March 31, 1997, and total revenues of
$18,744,026 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Certipro, is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of World Wide Automotive, Inc. (formerly Precision
Alternator and Starter, Inc.) at March 31, 1997, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Vienna, Virginia
October 16, 1997
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precision Alternator and Starter, Inc.
We have audited the accompanying balance sheet of Precision Alternator and
Starter, Inc. as of March 31, 1996, and the related statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Precision Alternator and
Starter, Inc. at March 31, 1996, and the results of its operations and its cash
flows for each of the two years ended March 31, 1996, in conformity with
generally accepted accounting principles.
FRIEDMAN & FULLER, P.C.
Rockville, Maryland
October 15, 1997
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Precision Alternator and Starter, Inc.
We have audited the balance sheet of Certipro Division of Precision
Alternator and Starter, Inc. as of March 31, 1997, and the related statements of
operations, changes in division equity, and cash flows for the year then ended.
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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Certipro Division of
Precision Alternator and Starter, Inc. at March 31, 1997, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
FRIEDMAN & FULLER, P.C.
Rockville, Maryland
August 19, 1997
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
BALANCE SHEETS
March 31
-------------------------------
1996 1997
-------------- ---------------
Assets
Current assets:
Cash........................................................................... $ 251,466 $ 52,089
Trade accounts receivable, less allowance for doubtful accounts
of $101,682 and $211,065, respectively...................................... 10,523,827 12,326,336
Accounts receivable, other..................................................... 9,235 35,447
Inventory, less reserves of $295,881 and $780,760, respectively................ 27,139,396 31,568,338
Prepaid expenses............................................................... 300,774 436,009
Current portion of deferred tax asset.......................................... 569,000 1,569,000
-------------- ---------------
Total current assets....................................................... 38,793,698 45,987,219
Property, plant and equipment....................................................... 3,608,217 3,864,719
Less accumulated depreciation....................................................... (2,215,971) (2,377,067)
-------------- ---------------
1,392,246 1,487,652
Other assets:
Deposits....................................................................... 132,700 78,638
Goodwill, net of accumulated amortization of $274,126 798,538
and $309,881, respectively.................................................. 762,783
Other intangibles, net of accumulated amortization of $103,360 and
$231,027, respectively...................................................... 133,211 215,133
Deferred tax asset, net of current portion..................................... 669,000 424,000
Investment in SKB, Inc......................................................... 350,000 --
-------------- ---------------
Total other assets......................................................... 2,083,449 1,480,554
Total assets............................................................... $ 42,269,393 $ 48,955,425
============== ===============
See Accompanying Notes.
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
BALANCE SHEETS
March 31
-------------------------------
1996 1997
-------------- ---------------
Liabilities and stockholders' equity Current liabilities:
Line of credit............................................................. $ 17,664,012 $ 17,445,110
Accounts payable........................................................... 13,335,509 17,775,992
Warranty reserve........................................................... 305,233 478,371
Accrued compensation....................................................... 1,380,165 1,511,875
Accrued commissions........................................................ 205,741 481,799
Accrued freight............................................................ 209,311 236,267
Accrued interest........................................................... 152,530 161,491
Other accrued expenses..................................................... 130,668 450,195
Current portion of long-term debt.......................................... 526,324 836,105
Current portion of capital lease obligations............................... 23,790 59,652
Income taxes payable....................................................... 851,146 46,302
-------------- ---------------
Total current liabilities.............................................. 34,784,429 39,483,159
Long-term debt, less current portion............................................ 157,784 638,986
Capital lease obligations, less current portion................................. 20,856 127,442
Deferred rent................................................................... 302,567 421,201
-------------- ---------------
Total liabilities...................................................... 35,265,636 40,670,788
Commitments
Stockholders' equity:
Common stock, $.01 par; 150,000 shares authorized,
120,000 shares issued and outstanding................................... 1,200 1,200
Additional capital......................................................... 2,784,450 2,784,450
Retained earnings.......................................................... 4,218,107 5,498,987
-------------- ---------------
Total stockholders' equity............................................. 7,003,757 8,284,637
-------------- ---------------
Total liabilities and stockholders' equity............................. $ 42,269,393 $ 48,955,425
============== ===============
See Accompanying Notes.
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
STATEMENTS OF INCOME
Year Ended March 31
---------------------------------------------------------------
1995 1996 1997
------------------ ------------------- ------------------
Net Sales......................................... $ 53,929,452 $ 64,951,886 $ 78,099,809
Cost of sales..................................... 37,385,345 43,933,876 53,399,411
------------------ ------------------- ------------------
Gross profit...................................... 16,544,107 21,018,010 24,700,398
Selling, general and administrative............... 13,502,315 16,630,082 19,541,106
------------------ ------------------- ------------------
Income from operations............................ 3,041,792 4,387,928 5,159,292
Interest expense.................................. 1,249,828 1,631,218 1,968,744
Other expense..................................... 437,159 516,949 1,059,668
------------------ ------------------- ------------------
Income before income taxes........................ 1,354,805 2,239,761 2,130,880
Income tax expense (benefit):
Current....................................... 700,000 1,149,433 1,566,000
Deferred...................................... (114,000) (321,000) (716,000)
------------------ ------------------- ------------------
586,000 828,433 850,000
------------------ ------------------- ------------------
Net income.................................. $ 768,805 $ 1,411,328 $ 1,280,880
================== =================== ==================
See Accompanying Notes.
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Capital Retained Earnings Total
----------------- --------------------- ------------------ ----------------------
Balance at March 31, 1994..... $ 1,200 $ 2,784,450 $ 2,037,974 $ 4,823,624
Net income.................... -- -- 768,805 768,805
----------------- --------------------- ------------------ ----------------------
Balance at March 31, 1995..... 1,200 2,784,450 2,806,779 5,592,429
Net income.................... -- -- 1,411,328 1,411,328
----------------- --------------------- ------------------ ----------------------
Balance at March 31, 1996..... 1,200 2,784,450 4,218,107 7,003,757
Net income.................... -- -- 1,280,880 1,280,880
----------------- --------------------- ------------------ ----------------------
Balance at March 31, 1997..... $ 1,200 $ 2,784,450 $ 5,498,987 $ 8,284,637
================= ===================== ================== ======================
See Accompanying Notes.
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
STATEMENTS OF CASH FLOWS
Year Ended March 31
---------------------------------------------------------------
1995 1996 1997
------------------ ------------------- ------------------
Operating activities
Net income...................................... $ 768,805 $ 1,411,328 $ 1,280,880
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization............... 325,574 372,044 495,182
Equity in net income of investment.......... (5,837) (32,082) --
Write-down of investment to fair market value -- 63,640 --
Gain on sale of assets...................... (6,786) (60,250) (42,770)
Deferred rent............................... 60,513 242,054 118,634
Provision for deferred income tax expense... (114,000) (321,000) (716,000)
Changes in operating assets and liabilities:
Trade accounts receivable & other accounts
receivable................................ (2,145,316) 1,251,838 (1,812,721)
Inventory................................... (3,818,557) (8,197,203) (4,428,942)
Prepaid expenses and other assets........... (31,809) (105,354) (339,691)
Accounts payable and accrued expenses....... 3,110,662 1,949,702 5,376,833
Income taxes payable........................ (247,192) 269,421 (804,844)
------------------ ------------------- ------------------
Net cash used in operating activities........... (2,103,943) (3,155,862) (873,439)
Investing activities
Proceeds from sale of property and equipment.... 21,241 60,250 250,595
Purchase of property and equipment.............. (789,403) (424,064) (433,415)
Sale of Investment in SKB, Inc.................. -- -- 350,000
------------------ ------------------- ------------------
Net cash used in investing activities........... (768,162) (363,814) 167,180
Financing activities
Net borrowings (repayments) on line of credit... 3,000,574 3,946,313 (218,902)
Proceeds from issuance of long-term debt........ 303,126 -- 1,950,000
Payments on long-term debt...................... (389,395) (409,136) (1,159,007)
Payments on capital lease obligations........... (25,796) (22,511) (65,209)
------------------ ------------------- ------------------
Net cash provided by financing activities....... 2,888,509 3,514,666 506,882
------------------ ------------------- ------------------
Increase (decrease) in cash..................... 16,404 (5,010) (199,377)
Cash at beginning of year....................... 240,072 256,476 251,466
------------------ ------------------- ------------------
Cash at end of year............................. $ 256,476 $ 251,466 $ 52,089
================== =================== ==================
Supplemental Cash Flow Disclosures
Interest paid during the year $ 1,180,143 $ 1,594,311 $ 1,959,783
================== =================== ==================
Income taxes paid during the year $ 947,192 $ 880,012 $ 1,654,844
================== =================== ==================
Non-Cash Investing and Financing Activities
Capitalized leases $ -- $ -- $ 207,647
================== =================== ==================
See Accompanying Notes
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
World Wide Automotive, Inc. (formerly Precision Alternator and Starter,
Inc.) (the "Company") is a re-manufacturer and distributor of automotive
components. The Company sells its products to retail and wholesale distributors,
jobbers and dealers located throughout the continental U.S. and Canada. The
Company is primarily an aftermarket supplier of light duty import starters and
alternators.
Use of Estimates
Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Foreign Currency Transactions
As a result of purchasing inventory from foreign vendors, the Company is
exposed to the effect of foreign exchange rate fluctuations. It is the practice
of the Company to hedge these transactions with foreign currency futures
contracts. The Company does not engage in speculation. At March 31, 1997 the
Company has forward exchange contract commitments through September 1997 to
purchase approximately 621,724,000 Japanese Yen for approximately $5.4 million.
Exchange gains and losses are realized during the year upon settlement and are
included in operations.
If the financial counter party failed to perform according to the terms of
the foreign currency futures contracts, the Company would have to settle the
purchase commitments at the exchange rate at the dates of settlement and incur
related gain or loss. Management expects the financial counter party to fully
perform under the contracts.
Revenue Recognition
The Company's revenue is recognized at the time the product is shipped. The
Company's remanufacturing operations obtain used starters and alternators,
commonly known as cores, from its customers as trade-ins. Net sales and cost of
goods sold are reduced to reflect the cost of cores returned for credit.
Cash
The Company considers cash and liquid investments with original or
remaining maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
customers in the original equipment and after-market automotive industries, both
in the U.S. and internationally. Credit is granted to substantially all of the
Company's customers. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. Credit
losses are provided for in the financial statements and have been consistently
within management's expectations.
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
Net sales for the years ended March 31, 1995, 1996 and 1997, included sales
to three major customers totaling approximately $21,400,000, $21,500,000 and
$38,300,000, respectively. Approximately $4,000,000 and $7,000,000,
respectively, is included in account receivable from these same three customers
as of March 31, 1996 and 1997.
Purchases from significant vendors for the years ended March 31, 1995, 1996
and 1997, included purchases from one major vendor totaling approximately 27%,
19% and 17% of total purchases, respectively. Approximately $5.4 million is
included in accounts payable due to this major vendor as of both March 31, 1996
and 1997.
Fair Value of Financial Instruments
The Company's financial instruments generally consist of cash, trade and
other receivables, accounts payable and long-term debt. The carrying amounts of
these financial instruments approximated their fair values at March 31, 1996 and
1997.
Inventory
Inventory is stated at the lower of cost or market, cost being determined
by the weighted average method, which approximates the first-in, first-out
(FIFO) method. Raw materials also include supplies and repair parts which
consist of material consumed in the manufacturing process but not directly
incorporated into the finished products. Inventory consists of the following:
March 31
------------------------------------------
1996 1997
------------------- ------------------
Raw materials............... $ 2,389,258 $ 2,020,122
Cores....................... 7,490,594 10,458,116
Finished goods.............. 17,555,425 19,870,860
Less reserves............... (295,881) (780,760)
=================== ==================
$ 27,139,396 $ 31,568,338
=================== ==================
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost and are
depreciated using the straight-line method over the shorter of the asset's
estimated useful life or the lease term (for equipment held under capital
leases). Useful lives are primarily 5 years, except for buildings which are 25
years. Property, plant and equipment consists of the following:
March 31
------------------------------------------
1996 1997
------------------- ------------------
Land and buildings............... $ 176,603 $ 176,603
Machinery and equipment.......... 1,611,074 1,439,472
Computer equipment............... 648,692 846,275
Leasehold improvements........... 546,302 549,987
Furniture and fixtures........... 512,661 531,850
Equipment under capital leases... 112,885 320,532
------------------- ------------------
$3,608,217 $3,864,719
=================== ==================
Depreciation/amortization expense for the years ended March 31, 1995, 1996
and 1997, was approximately, $258,000, $293,000 and $332,000, respectively.
Goodwill and Other Intangibles
Goodwill represents the excess of purchase price over fair value of net
assets acquired and is being amortized on a straight-line basis over 30 years.
Other intangibles consist of acquisition and loan costs. Acquisition costs
are being amortized on a straight-line basis over 30 years. Loan costs are being
amortized over the loan periods which range from 15 to 60 months, or the
expected life of the asset which in all instances is equal to, or less than the
loan period. Other intangibles consists of the following:
March 31
------------------------------------------
1996 1997
------------------- ------------------
Acquisition costs................. $ 127,515 $ 127,515
Loan costs........................ 109,056 318,645
Less accumulated amortization..... (103,360) (231,027)
=================== ==================
$ 133,211 $ 215,133
=================== ==================
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
The carrying values of intangible assets are regularly reviewed for
indicators of impairment in value, which in the view of management are other
than temporary, including unexpected or adverse changes in the following: (i)
the economic or competitive environments in which the Company operates; (ii)
profitability analyses and (iii) cash flow analyses. If facts and circumstances
suggest that the carrying value of an intangible asset is impaired, the Company
assesses the fair value and reduces the asset to an amount that results in the
book value approximating fair value.
Warranty Reserve
The Company warrants to original purchasers of its products that all
products will be free from defects in materials and workmanship for as long as
the products are used on vehicles for which they were purchased. The Company
does not warrant installation, abused or disassembled products or products that
have been tampered with or used in a manner not in keeping with the original
intent of the product. Additionally, the warranty extends only to products and
the replacement thereof. The Company does not assume responsibility for any
incidental or consequential damages. The Company has provided a warranty reserve
in conjunction with this policy.
Deferred Rent
The Company has two facility lease agreements which contain rent abatement
periods and rent escalations which are straight-lined over the life of the
leases.
Income Taxes
Deferred income taxes are provided for timing differences in recognizing
certain income, expense and credit items for financial reporting purposes and
tax reporting purposes.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, which
the Company anticipates adopting in 1998. The Statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. The Statement will not have
any impact on the results of operations or the financial position of the
Company.
Reclassification
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
2. INVESTMENT IN SKB, INC.
The Company accounted for its 50% investment in SKB, Inc. ("SKB") by the
equity method of accounting. During the year ended March 31, 1996, the Company
recorded a charge of $63,640 to reduce its investment in SKB to fair market
value. The Company sold its interest in SKB on October 1, 1996 at a price of
$350,000, resulting in no gain or loss on the transaction. For the years ended
March 31, 1995 and 1996 and for the period from April 1, 1996 through October 1,
1996, the Company had net sales to SKB of $836,838, $774,420 and $142,651,
respectively.
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
3. LINE OF CREDIT AGREEMENT
In October 1996, the Company amended its agreement to increase its line of
credit to $20,000,000. The line of credit expires on December 31, 1997, and
bears interest at the prime rate plus one and one half percent. Interest is
payable monthly. The amount available under the line of credit is limited to
specified percentages of inventory and eligible receivables less a standby
letter of credit provision of $630,000. The line of credit is collateralized by
substantially all of the Company's assets. Under the agreement terms, the
Company is obligated to meet certain loan covenants. As of March 31, 1997, the
Company was not in compliance with these covenants, however all of the
violations were cured when the debt was repaid on May 8, 1997 in connection with
the acquisition of the Company by Delco Remy International, Inc. (see Note 10).
4. LONG-TERM DEBT
Borrowings under long-term debt arrangements consist of the following:
March 31
------------------------------------
1996 1997
--------------- -----------------
Notes payable to bank in monthly installments through December 1997 of principal
and interest at the prime rate plus 1(OMEGA)%;
collateralized by equipment........................................ $120,266 $ 45,091
$1,300,000 term note to bank expiring in December 1997 with monthly principal
payments of $86,667 plus interest at the prime rate plus 1(OMEGA)%;
collateralized by substantially all of the Company's
assets............................................................. -- 780,000
Unsecured subordinated debenture payable to a financial institution with
interest only payments at 19% for the first 18 months and equal principal &
interest payments thereafter for the remaining
42 months through August 2001...................................... -- 650,000
Note payable to bank repaid in December 1996........................... 272,000 --
Subordinated notes repaid to shareholders in November 1996............. 291,842 --
------------- -------------
684,108 1,475,091
Less current portion................................................... (526,324) (836,105)
------------- -------------
$157,784 638,986
============= =============
Aggregate maturities of long-term debt at March 31, 1997 are as follows:
Year ending March 31 Amount
-------------------------------- -------------------
1998 $ 836,105
1999 146,597
2000 177,009
2001 213,729
2002 101,651
-------------------
Total $ 1,475,091
===================
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
5. LEASES AND COMMITMENTS
The Company is currently obligated under certain non-cancelable operating
leases for the rental of facilities, vehicles and equipment which expire at
various dates through October 2014. The Company also leases trucks under
cancelable operating leases. Total rent expense under all operating leases for
the years ended March 31, 1995, 1996 and 1997, was approximately $941,000,
$1,455,000 and $1,945,000, respectively.
The Company leases certain equipment under capital leases. Amortization of
leased assets is included in depreciation expense.
Aggregate future minimum lease payments under capital and non-cancelable
operating leases having remaining terms in excess of one year as of March 31,
1997 are as follows:
Capital
Year ended March 31 Leases Operating Leases
-------------------- ---------------------
1998................................................... $ 75,147 $ 1,178,031
1999................................................... 49,479 965,271
2000................................................... 49,479 766,049
2001................................................... 49,479 572,316
2002 .................................................. 6,872 469,962
Thereafter............................................. -- 7,293,136
-------------------- ---------------------
Total minimum lease payments........................... 230,456 $ 11,244,765
=====================
Less amounts representing interest..................... (43,362)
--------------------
Present value of future minimum lease payments......... $ 187,094
====================
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
Under terms of a management consulting agreement, the Company was obligated
to pay an affiliate a fee for management and consulting services through March
31, 1998. This agreement was terminated at the time of the sale of the Company
in May 1997 (see Note 10). Management fee expense under this agreement was
$180,000, $195,000 and $250,000 for the years ended March 31, 1995, 1996 and
1997, respectively.
6. INCOME TAXES
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amount in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
SFAS 109 provides that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion of the deferred tax
asset will not be realized. Management believes, based on the weight of
available evidence, that no allowance is necessary.
The following is a summary of the components of the provision for income
taxes (benefit) of continuing operations:
For the Year Ended March 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
Current:
Federal................................. $ 590,000 $ 974,433 $1,319,000
State and Local......................... 110,000 175,000 247,000
--------------- --------------- ---------------
700,000 1,149,433 1,566,000
Deferred:
Federal................................. (99,000) (271,000) (603,000)
State and Local......................... (15,000) (50,000) (113,000)
--------------- --------------- ---------------
$ 586,000 $ 828,433 $ 850,000
=============== =============== ===============
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:
For the Year Ended March 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
Federal statutory income tax (34% rate).... $ 461,000 $762,000 $725,000
State and local income taxes,
net of federal tax benefit................. 73,000 89,000 98,000
Other items................................ 52,000 (22,567) 27,000
--------------- --------------- ---------------
Effective income tax rate.................. $ 586,000 $ 828,433 $ 850,000
=============== =============== ===============
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
March 31
---------------------------------------
1996 1997
----------------- ------------------
Deferred tax assets:
Inventory capitalization........................ $ 436,000 $ 764,000
Compensated absences............................ 172,000 175,000
Inventory reserves.............................. 112,000 316,000
Warranty liability.............................. 116,000 182,000
Reserve for sales returns....................... 57,000 53,000
Deferred compensation........................... 61,000 189,000
Allowance for doubtful accounts................. 39,000 80,000
Leases.......................................... 115,000 160,000
Other........................................... 150,000 157,000
----------------- ------------------
1,258,000 2,076,000
Deferred tax liabilities:
Fixed and intangible assets..................... (20,000) (83,000)
----------------- ------------------
(20,000) (83,000)
----------------- ------------------
Net deferred tax asset............................. $ 1,238,000 $ 1,993,000
================= ==================
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
7. 401(K) PLAN
The Company maintains a 401(k) plan which covers all employees who meet the
Plan's eligibility requirements. Under the terms of the Plan, both the Company's
contributions to the Plan and the level of matching voluntary employee
contributions by the Company is discretionary on an annual basis. Plan expense
for the years ended March 31, 1995, 1996 and 1997, was approximately $36,000,
$64,000 and $44,000, respectively.
8. STOCK RIGHTS PLAN
During 1989 the Company established a non-qualified stock rights plan. Each
right represents the Company's obligation to pay either cash or a stock right
equal to a portion of the Company' s book value at that date. Granting of stock
rights is at the discretion of the Stock Rights Committee, and the amount
granted cannot exceed ten percent of income before management fees, interest,
taxes, and any other non-operating expenses. One-half of stock rights granted
vest on the last day of the fiscal year during which the grant was made and the
remaining one half vests on the last day of the succeeding fiscal year.
Employees may elect to receive cash in lieu of stock rights.
For the years ended March 31, 1995, 1996 and 1997, the Company granted
$53,000, $140,000 and $127,000, of stock rights. Total stock rights outstanding
at March 31, 1995, 1996 and 1997, are valued at approximately $260,000, $464,000
and $454,000, respectively. The total unvested portion as of March 31, 1995,
1996 and 1997, was $33,000, $189,000 and $197,000, respectively. Effective in
October 1996, the stock rights plan was terminated, however vested and unvested
portions were uneffected. Upon the sale of the Company, the vested/unvested
amounts were paid to the holders of these stock rights (see Note 10).
9. OTHER EXPENSE
Other expense consists of the following:
For the Year Ended March 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
Management consulting fees................. $ 180,000 $ 195,000 $ 466,000
Vendor finance charges..................... 214,075 159,033 278,267
Other...................................... 43,084 162,916 315,401
--------------- --------------- ---------------
$ 437,159 $ 516,949 $ 1,059,668
=============== =============== ===============
WORLD WIDE AUTOMOTIVE, INC.
(formerly Precision Alternator and Starter, Inc.)
NOTES TO FINANCIAL STATEMENTS - (continued)
March 31, 1997
10. SUBSEQUENT EVENTS
On May 8, 1997, a wholly owned subsidiary of Delco Remy International
("DRI") acquired 82.5% of the outstanding common stock of the Company for
approximately $42.0 million which includes assumed debt. The current management
of the Company retained the remaining 17.5% interest in the Company. A portion
of the proceeds was used to retire substantially all of the Company's debt.
In conjunction with the acquisition, the Company divested itself of its
route sale division (Certipro) via a distribution of assets, relinquished its
rights to certain intellectual property including the rights to the name
"Precision Alternator and Starter" and effected a Corporate Charter Amendment to
change its name to World Wide Automotive, Inc.
The acquisition was treated as a purchase for accounting purposes and is
included in the consolidated financial statements of DRI beginning with the
acquisition date. DRI filed Registration Statements with the Securities and
Exchange Commission in connection with DRI's planned sale of common stock and
$130,000,000 of senior notes due in 2007. It is anticipated that the Company
will be an unconditional joint and several guarantor of the senior notes of DRI,
along with all of DRI's other domestic subsidiaries.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Ballantrae Corporation
(Successor to Tractech Division of Titan Wheel International, Inc.)
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Tractech Division of Titan Wheel International, Inc.
(predecessor to Ballantrae Corporation) for the nine months ended September 30,
1996 and the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Tractech
Division of Titan Wheel International, Inc. for the nine months ended September
30, 1996 and the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Detroit, Michigan ERNST & YOUNG LLP
October 17, 1997
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Year Nine months
ended ended
December 31, 1995 September 30, 1996
------------------ -------------------
Net sales.......................................... $ 26,395,431 $ 18,432,740
Cost of sales...................................... 16,731,310 11,920,057
------------------ -------------------
Gross profit....................................... 9,664,121 6,512,683
Selling expenses................................... 688,681 424,817
General and administrative expenses................ 3,182,504 2,560,968
------------------ -------------------
3,871,185 2,985,785
------------------ -------------------
Income from operations............................. 5,792,936 3,526,898
Other income....................................... 351,975 252,134
------------------ -------------------
Income before taxes................................ 6,144,911 3,779,032
Income taxes (Note 2).............................. 1,627,261 871,760
------------------ -------------------
Net income $ 4,517,650 $ 2,907,272
================== ===================
See accompanying notes.
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THE YEAR ENDED DECEMBER 31, 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1996
Accumulated
Retained Subsidiary Translation
Earnings Investment Adjustments Total
----------------- ----------------- ------------------ ------------------
Balance at December 31, 1994........ $ 28,272,462 $18,418,510 $ 509,267 $ 47,200,239
Net income for 1995................. 4,517,650 -- -- 4,517,650
Translation adjustments............. -- -- 282,598 282,598
----------------- ----------------- ------------------ ------------------
Balance at December 31, 1995........ 32,790,112 18,418,510 791,865 52,000,487
Net income for 1996................. 2,907,272 -- -- 2,907,272
Translation adjustments............. -- -- 23,289 23,289
----------------- ----------------- ------------------ ------------------
Balance at September 30, 1996....... $ 35,697,384 $ 18,418,510 $ 815,154 $ 54,931,048
================= ================= ================== ==================
See accompanying notes.
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Year Nine months
ended ended
December 31, 1995 September 30, 1996
------------------ -------------------
Cash flows from operating activities:
Net income................................................................. $ 4,517,650 $2,907,272
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization......................................... 1,145,510 914,148
Gain on sale of fixed assets.......................................... -- (8,937)
Changes in operating assets and liabilities:
Accounts receivable............................................... (898,139) (274,136)
Inventories ...................................................... (1,171,422) 1,737,878
Other assets...................................................... 523,095 (76,788)
Accounts payable.................................................. (361,431) (168,683)
Accrued interest and liabilities.................................. (129,086) 111,023
Income taxes payable.............................................. (542,632) (78,878)
Intercompany liabilities.......................................... (873,556) (5,306,167)
Equity adjustments from foreign currency ......................... 168,294 21,515
-------------------- -----------------
Net cash provided by operating activities.................................. 2,378,283 (221,753)
Cash flows from investing activities
Purchase of property, plant and equipment.................................. (2,279,759) (418,597)
Proceeds from sale of capital assets....................................... 77,749 47,204
-------------------- -----------------
Net cash used in investing activities...................................... (2,202,010) (371,393)
Net increase (decrease) in cash............................................ 176,273 (593,146)
Cash and cash equivalents at beginning of period........................... 1,408,488 1,584,761
-------------------- -----------------
Cash and cash equivalents at end of period................................. $ 1,584,761 $ 991,615
==================== =================
See accompanying notes.
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Tractech Division of Titan Wheel International, Inc. (the Company) is the
predecessor of Ballantrae Corporation (see Note 6). The Company consists of
domestic operations and the operations of a company in Ireland, and is engaged
in the engineering, manufacturing, and marketing of mechanical transmission
components and systems used in transportation vehicles and mobile equipment.
Principles of Reporting
The financial statements include the accounts of Tractech Division of Titan
Wheel International, Inc. (Titan). All significant intercompany and
interdivisional transactions and balances have been eliminated. The financial
statements do not reflect any of the purchase accounting adjustments made by
Titan resulting from the acquisition of the Company by Titan in 1993. These
financial statements have been prepared to include only the operating results,
changes in stockholders' equity and cash flows of the Company. Accordingly, all
disclosures related to the balance sheet have been omitted.
Titan has allocated certain general and administrative charges to the
Company totaling $675,000 and $674,000 for the nine months ended September 30,
1996 (1996) and the year ended December 31, 1995 (1995), respectively. These
charges were allocated by Titan based upon sales. Management believes that this
method of allocation is reasonable.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
manufacturers of mobile equipment, trucks and specialized vehicles, both in the
U.S. and internationally. The Company performs periodic credit evaluations of
its customers' financial condition and generally does not require collateral.
Credit losses are provided for in the financial statements and have been
consistently within management's expectations. The Company invests its temporary
cash in high credit quality financial institutions and investment grade
short-term investments and limits the amount of credit exposure to any one
entity.
The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) is 57%. The CBA expires on August 31, 1999.
Inventories
Inventories are carried at the lower of cost or market, using the last-in,
first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets (40
years for buildings and improvements and 12 years for machinery and equipment).
Costs of maintenance and repairs are charged to expense when incurred.
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1996
Other Assets
Patents are amortized using the straight-line method over their estimated
lives.
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each period for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity. Losses resulting from foreign exchange transactions
totaling $15,867 and $23,445 for the year ended December 31, 1995 and for the
nine months ended September 30, 1996, respectively, are included in net income.
2. FEDERAL INCOME TAXES
The Company is included in the consolidated tax returns of Titan. The tax
expense recorded by the Company is the amount allocated to it by Titan. This
amount approximates the tax expense that would result from using a separate
return basis. Titan did not allocate any deferred tax assets or liabilities to
the Company. The following is a summary of the components of the provision for
income taxes:
Nine months
Year ended ended
December 31, September 30,
1995 1996
---------------- ----------------
Federal............................. $ 1,106,000 $ 457,000
State and Local..................... 165,357 110,000
Foreign............................. 355,904 304,760
---------------- ----------------
$ 1,627,261 $ 871,760
================ ================
Income before income taxes was taxed in the following jurisdictions:
Nine months
Year ended ended
December 31, September 30,
1995 1996
---------------- ----------------
Domestic............................ $ 3,873,575 $ 1,417,153
Foreign............................. 2,271,336 2,361,879
---------------- ----------------
$ 6,144,911 $ 3,779,032
================ ================
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:
Nine months
Year ended ended
December 31, September 30,
1995 1996
---------------- ----------------
Federal statutory income tax rate... 34.0% 34.0%
Favorable foreign tax rate.......... (6.8) (12.9)
Other Items......................... (0.7) 2.0
---------------- ----------------
Effective income tax rate........... 26.5% 23.1%
================ ================
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1996
The favorable foreign tax rate is the result of an inducement offered by
the Irish government to encourage the Company to establish their foreign
manufacturing facility in Ireland. The favorable rate expires in 2010.
No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign operations ($10,466,851 at September 30, 1996) because it is expected
that such earnings will be reinvested in these foreign operations indefinitely.
It is not practical to estimate the amount of taxes that might be payable on the
eventual remittances of such earnings.
3. COMMITMENTS AND CONTINGENCIES
The Company leases a building under a noncancellable operating lease which
provides for a renewal option every five years. The operating lease has rental
payments due of approximately $58,900 in the remaining months of 1996, $235,600
in 1997 and 1998, and $78,533 in 1999.
Total rental expense under all operating leases aggregated $285,953 and
$214,220 for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 respectively. Included in rental expense is $1 per year for
the lease of equipment having an original cost of approximately $2,350,000
pursuant to an incentive lease arrangement sponsored by the Irish Development
Authority. The Company has the right to continue this lease indefinitely.
The Company is party to legal actions and claims arising in the ordinary
course of business. The Company believes that the disposition of these matters
will not have a material adverse effect on financial position, results of
operations or cash flows of the Company.
4. RETIREMENT PLANS AND BENEFITS
The Company is a participant in two defined contribution 401(k) savings
plans sponsored by Titan that cover substantially all domestic salary and hourly
employees. Company contributions to the plans are based on employee
contributions and compensation. The Company may also make discretionary
contributions annually. Company contributions for these two plans totaled
$43,281 and $32,213 for the year ended December 31, 1995 and for the nine months
ended September 30, 1996, respectively.
The Company sponsors a defined contribution retirement savings plan that
covers substantially all of its employees at its foreign location. Company
contributions to the plan are based on employee contributions and compensation.
Company contributions totaled $52,082 and $30,932 for the year ended December
31, 1995 and for the nine months ended September 30, 1996, respectively.
The Company contributes to the Central States Pension Fund, which covers
all eligible bargaining employees of one of its plants. The benefits are
principally based on years of service and a benefit formula as defined in the
plan. The Company currently contributes $37 per week per eligible employee,
which is specified in the Bargaining Agreement. Company contributions totaled
$65,305 and $46,472 for the year ended December 31, 1995 and for the nine months
ended September 30, 1996 respectively.
TRACTECH DIVISION OF TITAN WHEEL INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1996
5. SEGMENT AND GEOGRAPHIC DATA
The Company operates in one business segment--manufacturing engineered
metal products and systems for original equipment manufacturers and end users of
transportation mobile equipment. Geographical region information for the years
ended December 31, 1995 and for the nine months ended September 30, 1996 is as
follows:
Year ended Nine months ended
December 31, September 30, 1996
1995
----------------- --------------------
Net sales:
United States.................... $ 21,806,188 $ 14,117,885
International.................... 10,647,278 7,554,012
Eliminate intercompany sales..... (6,058,035) (3,239,157)
----------------- --------------------
Total net sales.............. $ 26,395,431 $ 18,432,740
================= ====================
Operating income:
United States.................... $ 3,873,575 $ 1,417,153
International.................... 2,271,336 2,361,879
----------------- --------------------
Total operating income....... $ 6,144,911 $ 3,779,032
================= ====================
International sales are principally from operations located in Ireland and
do not include export sales of domestic operations. Export sales from domestic
operations were not significant for the year ended December 31, 1995 or for the
nine months ended September 30, 1996.
During the year ended December 31, 1995 and the nine months ended September
30, 1996, there were sales to one customer that amounted to $3,656,599 and
$2,674,869, respectively.
6. SUBSEQUENT EVENT
Effective October 1, 1996, the Company was sold to Tractech, Inc., a
subsidiary of Ballantrae Corporation.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Ballantrae Corporation
We have audited the accompanying consolidated balance sheets of Ballantrae
Corporation as of September 30, 1997 and December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the nine months ended September 30, 1997 and the three months ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ballantrae Corporation at September 30, 1997 and December 31, 1996, and the
consolidated results of its operations and its cash flows for the nine months
ended September 30, 1997 and the three months ended December 31, 1996, in
conformity with generally accepted accounting principles.
Detroit, Michigan ERNST & YOUNG LLP
October 17, 1997
BALLANTRAE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1997
----------------- ------------------
Assets
Current assets:
Cash and cash equivalents........................................ $ 783,966 $ 460,605
Accounts receivable, less allowance of $65,000 in 1997 and 1996,
respectively................................................... 4,923,871 5,696,717
Inventories (Note 1)............................................. 9,708,513 10,426,534
Recoverable income taxes......................................... 163,000 --
Deferred income tax.............................................. 46,000 452,000
Other............................................................ 45,520 51,865
----------------- ------------------
Total current assets......................................... 15,670,870 17,087,721
Property, plant and equipment:
Land ............................................................ 272,490 272,490
Buildings and improvements....................................... 4,022,144 4,034,313
Machinery and equipment.......................................... 12,010,783 13,049,576
----------------- ------------------
16,305,417 17,356,379
Less accumulated depreciation and amortization................... 2,569,028 3,628,851
----------------- ------------------
Net property, plant and equipment............................ 13,736,389 13,727,528
Other assets:
Goodwill, net of amortization of $92,516 and $261,542 in 1996 and
1997, respectively............................................. 13,790,739 13,572,110
Deferred financing costs, net of amortization of $17,550 and
$52,650 in 1996 and 1997, respectively......................... 473,569 421,419
Patents, net of amortization of $4,623 and $21,239 in 1996 and
1997, respectively............................................. 210,438 216,475
----------------- ------------------
Total other assets........................................... 14,474,746 14,210,004
----------------- ------------------
$43,882,005 $45,025,253
================= ==================
See Accompanying Notes
December 31, September 30,
1996 1997
-------------------- --------------------
Liabilities and stockholders' equity (deficit) Current liabilities:
Accounts payable............................................... $ 2,614,925 $2,793,599
Accrued liabilities............................................ 1,889,740 1,721,457
Accrued interest............................................... 539,575 609,872
Income taxes payable........................................... 193,032 629,232
-------------------- --------------------
Total current liabilities..................................... 5,237,272 5,754,160
Long-term debt (Note 4).......................................... 32,239,100 29,934,100
Deferred income taxes (Note 6)................................... 277,000 566,000
Redeemable exchangeable preferred stock of subsidiary
(Note 5)...................................................... 8,242,048 8,981,800
Redeemable exchangeable preferred stock (Note 5)................. 2,814,192 3,109,287
Stockholders' equity (deficit):
Class A common stock, $.01 par value, 1,000,000 shares
authorized, 106,453 shares issued and outstanding........... 1,065 1,065
Class B common stock, $.01 par value, 1,000,000
shares authorized, 122,500 shares issued and
outstanding................................................. -- 1,225
Paid-in capital............................................... 105,388 226,663
Retained earnings............................................. 305,960 1,790,973
Predecessor carryover basis................................... (5,340,020) (5,340,020)
-------------------- --------------------
Total stockholders' equity (deficit).......................... (4,927,607) (3,320,094)
-------------------- --------------------
$43,882,005 $45,025,253
==================== ====================
See accompanying notes.
BALLANTRAE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Nine months
ended ended
December 31, 1996 September 30, 1997
--------------------------- ---------------------------
Net sales.......................................... $7,924,259 $28,877,686
Cost of sales...................................... 5,246,791 19,028,791
--------------------------- ---------------------------
Gross profit....................................... 2,677,468 9,848,895
Selling expenses................................... 203,561 752,895
General and administrative expenses................ 1,074,181 3,365,179
--------------------------- ---------------------------
1,277,742 4,118,074
--------------------------- ---------------------------
Income from operations............................. 1,399,726 5,730,821
Other income (expense):
Interest expense................................ (651,712) (2,296,290)
Interest income................................. 19,985 7,650
Deferred financing charges...................... (17,550) (52,650)
Foreign exchange gain or loss and other......... (4,251) (184,302)
--------------------------- ---------------------------
(653,528) (2,525,592)
--------------------------- ---------------------------
Income before income taxes and preferred dividend
requirement of subsidiary....................... 746,198 3,205,229
Income taxes (Note 6).............................. 185,458 727,207
Preferred dividend requirement of subsidiary....... 190,588 739,752
--------------------------- ---------------------------
Net income......................................... $ 370,152 $ 1,738,270
=========================== ===========================
See Accompanying Notes.
BALLANTRAE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The three months ended December 31, 1996 and
Nine months ended September 30, 1997
Class A Class B Additional Predecessor
Common Common Paid-In Retained Carryover
Stock Stock Capital Earnings Basis Total
------------- ---------- ------------ ------------- -------------- --------------
Balance at October 1, 1996.... $1,065 $ -- $105,388 $ -- $(5,340,020) $(5,233,567)
Preferred stock dividends..... -- -- -- (64,192) -- (64,192)
Net income for 1996........... -- -- -- 370,152 -- 370,152
------------- ---------- ------------ ------------- -------------- --------------
Balance at December 31, 1996.. 1,065 -- 105,388 305,960 (5,340,020) (4,927,607)
------------- ---------- ------------ ------------- -------------- --------------
Warrants redeemed............. -- 1,225 121,275 -- -- 122,500
Preferred stock dividends..... -- -- -- (253,257) -- (253,257)
Net income for 1997........... -- -- -- 1,738,270 -- 1,738,270
------------- ---------- ------------ ------------- -------------- --------------
Balance at September 30, 1997. $1,065 $1,225 $226,663 $1,790,973 $(5,340,020) $(3,320,094)
============= ========== ============ ============= ============== ==============
See Accompanying Notes.
BALLANTRAE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Nine months
ended ended
December 31, 1996 September 30, 1997
------------------------- --------------------------
Cash flows from operating activities
Net income............................................... $ 370,152 $ 1,738,270
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization....................... 447,782 1,395,253
Deferred income taxes............................... 12,000 (117,000)
Preferred dividend requirement of subsidiary........ 190,588 739,752
Changes in operating assets and liabilities:
Accounts receivable................................. (866,534) (617,228)
Recoverable income taxes............................ (163,000) 163,000
Inventories......................................... (363,341) (718,021)
Other current assets................................ 80,303 (161,963)
Accounts payable.................................... 676,324 178,674
Accrued interest and liabilities.................... 838,103 (97,985)
Income taxes payable................................ 67,972 436,200
------------------------- --------------------------
Net cash provided by operating activities................ 1,290,349 2,938,952
Cash flows from investing activities
Increase in acquisition costs............................ (600,997) (43,413)
Purchase of property, plant and equipment................ (121,994) (1,050,962)
Increase in patents...................................... (20,112) (27,276)
------------------------- --------------------------
Net cash used in investing activities.................... (743,103) (1,121,651)
Cash flows from financing activities
Principal payments on long-term debt..................... (450,000) (2,305,000)
Issuance of preferred stock.............................. -- 41,838
Issuance of common stock................................. -- 122,500
------------------------- --------------------------
Net cash used in financing activity...................... (450,000) (2,140,662)
Net increase (decrease) in cash and cash equivalents..... 97,246 (323,361)
Cash and cash equivalents at beginning of period......... 686,720 783,966
------------------------- --------------------------
Cash and cash equivalents at end of period............... $ 783,966 $ 460,605
========================= ==========================
Supplemental disclosure of cash flow information:
Interest paid......................................... $ 119,690 $ 1,366,000
Income taxes paid..................................... $ 163,000 $ 350,000
See Accompanying Notes.
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Ballantrae Corporation and its subsidiaries (collectively, the "Company")
are engaged in the engineering, manufacturing, and marketing of mechanical power
transmission components and systems used in transportation vehicles and mobile
equipment, and fabricated tubing assemblies used in air conditioning and
refrigeration compressors.
Principles of Consolidation
The consolidated financial statements include the accounts of Ballantrae
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
original equipment manufacturers of mobile equipment, trucks and specialized
vehicles, and manufacturers of air conditioners and refrigeration compressors,
both in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and have
been consistently within management's expectations. The Company invests its
temporary cash in high credit quality financial institutions and investment
grade short-term investments and limits the amount of credit exposure to any one
entity.
The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) is 29%. The CBA expires on August 31, 1999.
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Inventories
Inventories are carried at the lower of cost or market, using the first-in,
first-out (FIFO) method. The components of inventories are as follows:
December 31, September 30,
1996 1997
-------------------- --------------------
Raw Materials................ $ 4,993,363 $ 5,094,424
Work in process.............. 2,910,757 3,494,447
Finished goods............... 1,804,393 1,837,663
-------------------- --------------------
$9,708,513 $10,426,534
==================== ====================
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets (25 to
40 years for buildings and improvements and 5 to 12 years for machinery and
equipment). Costs of maintenance and repairs are charged to expense when
incurred.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized by the straight line method over 40
years.
The carrying amount of goodwill is regularly reviewed for indicators of
impairment in value, which in the view of management are other than temporary,
including unexpected or adverse changes in the following: (i) the economic or
competitive environments in which the Company operates; (ii) profitability
analyses and (iii) cash flow analyses. If facts and circumstances suggest that a
subsidiary's net assets are impaired, the Company assesses the fair value of the
underlying business and reduces goodwill to an amount that results in the book
value of the subsidiary approximating fair value.
Deferred Financing Costs and Patents
Deferred financing costs are primarily costs incurred in connection with
the Company's acquisition and are being amortized over the term of the related
debt using the straight-line method. Patents are amortized using the
straight-line method over their estimated lives.
Foreign Currency Translation
Financial statements of the Company's foreign subsidiary are translated
into U.S. dollars using a combination of historical and current exchange rates
for assets and liabilities. The related translation gain or (loss) of $22,669
and $(342,436) for the three months ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, are included in net income.
Fair Value of Financial Instruments
The Company's financial instruments generally consist of cash and cash
equivalents, accounts receivable, accounts payable, long-term debt and
redeemable convertible preferred stock. The fair value of the Company's fixed
rate debt was estimated using discounted cash flow analyses based upon the
Company's current incremental borrowing rates. The carrying amounts of financial
instruments approximated their fair value at December 31, 1996 and September 30,
1997.
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, and will
be adopted by the Company in 1998. The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Statement will not have any impact
on the results of operations or the financial position of the Company.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies are required to report segment information in annual financial
statements and in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Statement is effective for financial statements for
fiscal years beginning after December 15, 1997, and will be adopted by the
Company in 1998. The Company is evaluating the impact that this Statement will
have on its financial reporting.
2. ACQUISITION
On October 1, 1996, the Company, through a wholly-owned subsidiary,
acquired substantially all of the assets of the Tractech Division of Dyneer
Corporation and Tractech Limited (Tractech). The aggregate purchase price was
$33.9 million including cash payments of $23.9 million and the issuance of $10
million in a 11% subordinated promissory note payable on October 31, 2006. The
Tractech acquisition resulted in goodwill of $ 11.7 million which is being
amortized over 40 years.
On October 24, 1996, the Company, through a wholly-owned subsidiary,
acquired Kraftube, Inc. (Kraftube) for an aggregate cash purchase price of
$6,992,000. Kraftube produces fabricated tubing assemblies used in air
conditioning and refrigeration compressors. The Kraftube acquisition resulted in
goodwill of $1,506,000 which is being amortized over 40 years.
The predecessor carryover basis included in the present equity structure
results from the purchase of Kraftube. Prior to the purchase, two current
stockholders of the Company were the majority shareholders of Kraftube (78%). At
the date of purchase, the assets and liabilities were recorded at their fair
market value, less the previous stockholders' carryover basis of the new
corporation's assets at the date of purchase. The cost of assets acquired in
excess of Kraftube's basis prior to the acquisition for continuing stockholders
interest was recorded as a charge to equity.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
Three months Nine months
ended December ended
31, 1996 September 30,
1997
----------------- ----------------
Balance at beginning of period............ $ 25,000 $ 65,000
Additions charged to costs and expenses... 39,753 103
Uncollectible accounts written off,
net of recoveries......................... 247 (103)
----------------- ----------------
$ 65,000 $ 65,000
================= ================
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
4. DEBT
In October, 1996, the Company entered into a Group Credit Agreement (the
Agreement) with a bank that expires on December 31, 2003. Under the Agreement,
the financial institution agreed to extend the Company $26.5 million in
revolving loans ($22,239,100 and $19,934,100 outstanding at December 31, 1996
and September 30, 1997, respectively). The term loan calls for mandatory
quarterly principal reductions with the annual aggregate reductions of the
outstanding amount at September 30, 1997 as follows:
1999............................................. $ 634,100
2000............................................. 3,612,500
2001............................................. 4,387,500
2002............................................. 4,900,000
Thereafter....................................... 6,400,000
------------------
$19,934,100
==================
The bank also agreed to extend the Company $6,000,000 in pooled revolving
loans (no amounts were outstanding at September 30, 1997 or December 31, 1996).
In addition, the Company may obtain letters of credit up to $500,000 in
aggregate which would be treated as an advance on the pooled revolving loan.
Borrowings under the Agreement bear interest at the prime base lending rate
or LIBOR base rate plus an applicable spread that ranges from zero to .75% for
the prime based rate or 2.0% to 3.25% for the LIBOR based rate. The interest
rate at December 31, 1996 and September 30, 1997 was 8.75% and 8.93%,
respectively. The Company pays a commitment fee that ranges from .25% to .625%
annually on the unused revolving and pooled loans. The Company's inventory,
accounts receivable, personal property, certain real estate and intangibles are
pledged as collateral under the Agreement. The Company is also required to
maintain a minimum net worth and meet certain financial ratios on a consolidated
basis.
Tractech Inc., a subsidiary of the Company, issued to Dyneer Corporation a
subordinated note for $10 million with a fixed annual interest of 11% due
semi-annually in connection with the acquisition discussed above. The note
matures October 31, 2006. The Company has guaranteed Tractech Inc.'s obligation
to Dyneer Corporation. Titan Wheel International, Inc. (Titan Wheel), the parent
company of Dyneer Corporation, was a defendant in an unresolved lawsuit at the
time Tractech was sold to the Company. If Titan Wheel prevails in this lawsuit,
the Company is to pay Titan Wheel $750,000. If Titan Wheel loses or no decision
is reached by September 30, 2001, the subordinated note to Dyneer Corporation
will be reduced by $750,000.
5. REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF PARENT AND SUBSIDIARY
Ballantrae Corporation and Kraftube have 2,791,838 preferred shares
outstanding, (3,250,000 shares authorized, par value $.01 per share and
liquidation preference of $1.00 per share) and 80,514 preferred shares
outstanding, (150,000 shares authorized, par value $.01 per share and
liquidation preference of $100 per share), respectively, designated as 12%
Exchangeable Preferred Stock (12% Preferred Stock). The provisions of the 12%
Preferred Stock call for a cumulative cash dividend equal to 12% per share. The
12% Preferred Stock must be redeemed by September 30, 2006, at the liquidation
preference amount plus accrued and unpaid dividends. At the option of the
issuer, the 12% Preferred Stock may be redeemed at a price per share equal to
the liquidation preference plus accrued and unpaid dividends. In addition, the
12% Preferred Stock may be exchanged, at the option of the issuer, in whole or
in part, for 12% junior subordinated debentures to be issued by the respective
company at the liquidation preference amount plus accrued and unpaid dividends.
Dividends which accrue but remain unpaid for one year accrue additional
dividends at the rate of 12%. If the Company or Kraftube is liquidated or merged
and is not the surviving entity, the holders of the 12% Preferred Stock will
receive in cash the liquidation preference amount per share plus an amount equal
to full cumulative dividends. The holders of the 12% Preferred Stock have no
voting rights except on matters relating to the preferred stock. The carrying
value of the 12% Preferred Stock includes cumulative unpaid and accrued
dividends of $64,192 and $317,449 for Ballantrae Corporation and $190,587 and
$930,340 for Kraftube at December 31, 1996 and September 30, 1997, respectively.
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
6. INCOME TAXES
The following is a summary of the components of the provision for income
taxes:
Three months Nine months
ended ended
December 31, 1996 September 30,
1997
------------------ ------------------
Current:
Federal..................... $ 57,183 $ 645,900
Foreign..................... 116,275 198,307
------------------ ------------------
173,458 844,207
Deferred federal (credit):..... 12,000 (117,000)
------------------ ------------------
$ 185,458 $ 727,207
================== ==================
Income before income taxes and preferred dividend requirement of subsidiary
was taxed in the following jurisdictions:
Three months Nine months
ended ended
December 31, 1996 September 30, 1997
------------------ -------------------
Domestic............. 181,562 1,579,390
Foreign.............. 564,636 1,625,839
------------------ -------------------
746,198 3,205,229
================== ===================
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:
Three months Nine months
ended ended
December 31, 1996 September 30,
1997
------------------- ------------------
Federal statutory income tax rate..... 34.0% 34.0%
Favorable foreign tax rate............ (11.4) (12.7)
Other items........................... 2.3 1.4
------------------- ------------------
Effective income tax rate............. 24.9% 22.7%
=================== ==================
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
The favorable foreign tax rate is the result of an inducement offered by
the Irish government to encourage the Company to establish their foreign
manufacturing facility in Ireland. The favorable rate expires in 2010.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
Three months Nine months
ended ended
December 31, 1996 September 30, 1997
------------------ -------------------
Deferred tax assets:
Employee benefits.......... $ 46,000 $ 202,000
Inventories................ -- 207,000
Other...................... -- 43,000
------------------ -------------------
$ 46,000 452,000
Deferred tax liabilities:
Depreciation............... 252,000 420,000
Goodwill................... 17,000 113,000
Other...................... 8,000 33,000
------------------ -------------------
277,000 566,000
------------------ -------------------
Net deferred tax liability....... $ (231,000) $ (114,000)
================== ===================
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($2,485,116 at September 30, 1997) because it is expected
that such earnings will be reinvested in these foreign operations indefinitely.
It is not practical to estimate the amount of taxes that might be payable on the
eventual remittances of such earnings.
7. COMMITMENTS AND CONTINGENCIES
The Company leases a building under a noncancellable operating lease which
provides for a renewal option every five years. The operating lease has rental
payments due of approximately $235,000 in 1998 and $137,083 in 1999.
Total rental expense under all operating leases aggregated $98,263 $229,953
for the three months ended December 31, 1996 and the nine months ended September
30, 1997, respectively. Included in rental expense is $1 per year for the lease
of equipment having an original cost of approximately $2,350,000 pursuant to an
incentive lease arrangement sponsored by the Irish Development Authority. The
Company has the right to continue this lease indefinitely.
An officer of Kraftube has been granted an option to purchase up to 3.5% of
the outstanding common shares of Kraftube. The option vests in 2002. At that
time, the officer has the option to sell (the put option) and Kraftube has the
option to buy (the call option) the shares of stock issued upon the exercise of
the option, for a formula based price. The formula is based on the average
earnings before interest and taxes for the three years ended December 31, 2001
and the amount of debt outstanding. The call and put options expire on December
31, 2002.
The Company is party to legal actions and claims arising in the ordinary
course of business. The Company believes that the disposition of these matters
will not have a material adverse effect on financial position, results of
operations or cash flows.
8. RETIREMENT PLANS AND BENEFITS
The Company sponsors two defined contribution 401(k) savings plans that
cover substantially all domestic salary and hourly employees. Company
contributions to the plans are based on employee contributions and compensation.
The Company may also make discretionary contributions annually. Company
contributions for these two plans totaled $33,137 and $53,653 for the three
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
The Company also sponsors a defined contribution retirement savings plan
that covers substantially all of its employees at its foreign subsidiary.
Company contributions to the plan are based on employee contributions and
compensation. Company contributions totaled $13,018 and $33,810 for the three
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.
The Company contributes to the Central States Pension Fund, which covers
all eligible bargaining employees of one of its subsidiaries. The benefits are
principally based on years of service and a benefit formula as defined in the
plan. The Company currently contributes $37 per week per eligible employee,
which is specified in the Bargaining Agreement. Company contributions totaled
$14,911 and $72,406 for the three months ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
9. SEGMENT AND GEOGRAPHIC DATA
The Company operates in one business segment--manufacturing engineered
metal products and systems for original equipment manufacturers and end users of
transportation mobile equipment. Geographical region information is as follows:
Three months Nine months
ended ended
December 31, 1996 September 30,
1997
------------------ ------------------
Net sales:
United States.................... $6,540,936 $23,998,968
International.................... 2,710,626 9,613,309
Eliminate intercompany sales..... (1,327,303) (4,734,591)
------------------ ------------------
Total net sales.................. $7,924,259 $28,877,686
================== ==================
Operating income:
United States.................... $671,274 $3,359,245
International.................... 728,452 2,371,576
------------------ ------------------
Total operating income........... $1,399,726 $5,730,821
================== ==================
Identifiable assets:
United States.................... $27,334,081 $29,748,081
International.................... 16,380,904 15,620,116
------------------ ------------------
Total identifiable assets........ 43,714,985 45,368,197
Corporate assets................. 248,193 263,110
Elimination...................... (81,173) (606,054)
------------------ ------------------
Total assets..................... $43,882,005 $45,025,253
================== ==================
International sales are principally from operations located in Ireland and
do not include export sales of domestic operations. Export sales from domestic
operations were not significant for either period presented.
Sales to the two customers exceeded 10% of total sales which were $951,000
and $838,000 during the three months ended December 31, 1996 and $4,022,000 and
$2,920,000 during the nine months ended September 30, 1997.
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
10. RELATED PARTY TRANSACTION
The Company has entered into a consulting agreement with the Chairman and
President of Ballantrae Corporation. The agreement amounts to $100,000 annually,
with $25,000 accrued as of December 31, 1996 and September 30, 1997.
In February, 1997, the principal shareholder exercised stock warrants to
purchase 122,500 shares of common stock for $1.00 per share. Warrants
outstanding totaled 25,000 at December 31, 1996 and September 30, 1997.
11. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTOR AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. As discussed in Note 12 below, the Company has reached a
definitive agreement to be acquired. It is anticipated that the domestic legal
entities of the Company, with the exception of Kraftube Management, Inc. and
Kraftube, Inc., will be unconditional, joint and several guarantors of the
senior notes of the acquiring company discussed in Note 12 along with all other
domestic subsidiaries of the acquiring company.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, both as
listed below, at December 31, 1996 and September 30, 1997 and for the three
months ended December 31, 1996 and the nine months ended September 30, 1997.
The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
Guarantor Subsidiary Non-Guarantor Subsidiaries
- --------------------------- -----------------------------------
Tractech Inc. Kraftube Management, Inc.
Kraftube, Inc.
Tractech Limited
Lissaphuca Limited
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Balance Sheet
September 30, 1997
---------------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
----------------- ---------------- ---------------- ----------------- --------------------
Assets
Current assets:
Cash and cash equivalents.. $ 46,635 $ 224,989 $ 188,981 $ -- $460,605
Accounts receivable, net... -- 3,387,162 2,309,555 -- 5,696,717
Inventories ............... -- 7,315,572 3,717,016 (606,054)(a) 10,426,534
Deferred income tax........ -- 301,000 151,000 -- 452,000
Other...................... -- -- 51,865 -- 51,865
----------- ---------- ---------- ----------- ----------
Total current assets.......... 46,635 11,228,723 6,418,417 (606,054) 17,087,721
Investment in affiliates...... 9,414,736 10,000 1,948,176 11,372,912(b) --
Property, plant and equipment:
Land ...................... -- 190,660 81,830 -- 272,490
Buildings and
improvements -- 2,139,340 1,894,973 -- 4,034,313
Machinery and equipment.... -- 4,863,880 8,185,696 -- 13,049,576
Less accumulated --
depreciation............. -- (594,722) (3,034,129) (3,628,851)
----------- ---------- ---------- ----------- ----------
Net property, plant and equipment -- 6,599,158 7,128,370 -- 13,727,528
Other assets:
Goodwill, net ............. -- 6,125,110 7,447,000 -- 13,572,110
Deferred financing costs
net -- 360,000 61,419 -- 421,419
Patents, net .............. 216,475 -- -- -- 216,475
----------- ------------ ------------ ------------- ------------
Total other assets............ 216,475 6,485,110 7,508,419 -- 14,210,004
=========== ============ ============ ============= ============
$ 9,677,846 $ 24,322,991 $ 23,003,382 $(11,978,966) $45,025,253
=========== ============ ============ ============= ============
- ---------------
<FN>
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investments in subsidiaries.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Balance Sheet
September 30, 1997
----------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
-------------- --------------- ---------------- ------------------- ---------------
Liabilities and stockholders'
equity (deficit)
Current liabilities:
Accounts payable.............. $ 27,516 $ 1,541,463 $ 1,224,620 -- $2,793,599
Accrued liabilities........... 28,000 996,647 696,810 -- 1,721,457
Accrued interest.............. -- 507,072 102,800 -- 609,872
Income taxes payable.......... -- 20,000 609,232 -- 629,232
-------------- --------------- ---------------- ------------------- ---------------
Total current
liabilities.............. 55,516 3,065,182 2,633,462 -- 5,754,160
Intercompany liabilities........... 4,493,117 1,497,884 (5,991,001) -- --
Long-term debt..................... -- 12,545,000 17,389,100 -- 29,934,100
Deferred income taxes.............. -- 343,000 223,000 -- 566,000
Redeemable exchangeable
preferred stock of subsidiary. -- -- 8,981,800 -- 8,981,800
Redeemable exchangeable
preferred stock............... 3,109,287 -- -- -- 3,109,287
Stockholders' equity (deficit):
Class A common stock.......... 1,065 1 36,000 (36,001)(b) 1,065
Class B common stock.......... 1,225 -- -- -- 1,225
Paid-in capital............... 226,663 6,199,999 2,382,906 (8,582,905)(b) 226,663
Retained earnings............. 1,790,973 671,925 2,688,135 (3,360,060)(a,b) 1,790,973
Predecessor carryover basis -- -- (5,340,020) -- (5,340,020)
-------------- --------------- ---------------- ------------------- ---------------
Total stockholders'
equity (deficit)........ 2,019,926 6,871,925 (232,979) (11,978,966) (3,320,094)
-------------- --------------- ---------------- ------------------- ---------------
$9,677,846 $24,322,991 $ 3,003,382 $(11,978,966) $45,025,253
============== =============== ================ =================== ===============
<FN>
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investments in subsidiaries.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Statement of Operations
Nine months ended September 30, 1997
-----------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
---------------- ----------------- ---------------- ------------------ ---------------
Net sales..................... $ -- $15,974,980 $17,637,297 $(4,734,591)(a) $28,877,686
Cost of sales................. -- 11,731,273 11,507,228 (4,209,710)(a) 19,028,791
---------------- ----------------- ---------------- ------------------ ---------------
Gross profit.................. -- 4,243,707 6,130,069 (524,881)(a) 9,848,895
Selling expenses.............. -- 570,701 182,194 -- 752,895
General and administrative 141,620 1,766,188 1,457,371 -- 3,365,179
expenses.................... ---------------- ----------------- ---------------- ------------------ ---------------
141,620 2,336,889 1,639,565 -- 4,118,074
---------------- ----------------- ---------------- ------------------ ---------------
Income from operations........ (141,620) 1,906,818 4,490,504 (524,881) 5,730,821
Equity in earnings of
subsidiaries................ 2,145,562 -- -- (2,145,562)(b) --
Other income (expense):
Interest expense........... (265,780) (1,288,508) (742,002) -- (2,296,290)
Interest income............ -- -- 7,650 -- 7,650
Deferred financing charges. -- (45,000) (7,650) -- (52,650)
Foreign exchange gain or 108 17,089 (201,499) -- (184,302)
loss and other........... ---------------- ----------------- ---------------- ------------------ ---------------
(265,672) (1,316,419) (943,501) -- (2,525,592)
---------------- ----------------- ---------------- ------------------ ---------------
Income before income taxes and
preferred dividend
requirement of subsidiary.. 1,738,270 590,399 3,547,003 (2,670,443) 3,205,229
Income taxes.................. -- 61,855 665,352 -- 727,207
Preferred dividend requirement
of subsidiary............... -- -- -- (739,752)(c) (739,752)
---------------- ----------------- ---------------- ------------------ ---------------
Net income.................... $ 1,738,270 $ 528,544 $2,881,651 $(3,410,195) $ 1,738,270
================ ================= ================ ================== ===============
<FN>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 1997
----------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
--------------- ---------------- ---------------- --------------- ----------------
Cash flows from
operating activities:
Net income......................... $1,738,270 $ 528,544 $ 2,881,651 $ (3,410,195) $1,738,270
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and amortization.. 14,623 614,915 765,715 -- 1,395,253
Equity in earnings of
subsidiaries................. (2,145,562) -- -- 2,145,562(a) --
Deferred income taxes.......... -- 30,000 (147,000) -- (117,000)
Preferred dividend requirement
of subsidiary................ -- -- -- 739,752(b) 739,752
Changes in operating assets and
liabilities:
Accounts receivable............ -- (742,715) 125,487 -- (617,228)
Recoverable income taxes....... -- 163,000 -- -- 163,000
Inventories.................... -- (1,042,344) (200,558) 524,881(c) (718,021)
Other current assets........... -- (180,613) 18,650 -- (161,963)
Accounts payable............... 27,516 491,496 (340,338) -- 178,674
Accrued interest and
liabilities.................. 2,300 3,015 (103,300) -- (97,985)
Income taxes payable........... -- 20,000 416,200 -- 436,200
Intercompany liabilities....... 228,055 1,667,037 (1,895,092) -- --
--------------- ---------------- ---------------- ---------------- ----------------
Net cash (used in) provided by
operating activities.......... (134,798) 1,552,335 1,521,415 -- 2,938,952
Cash flows from investing
activities:
Increase in acquisition costs...... -- (9,869) (33,544) -- (43,413)
Purchase of property, plant and
equipment..................... -- (814,885) (236,077) -- (1,050,962)
Increase in patents................ (27,276) -- -- -- (27,276)
--------------- ---------------- ---------------- ---------------- ----------------
Net cash (used in) provided by
investing activities.......... (27,276) (824,754) (269,621) -- (1,121,651)
Cash flows from financing
activities:
Principle payments on long-term -- (755,000) (1,550,000) -- (2,305,000)
debt..........................
Issuance of preferred stock........ 41,838 -- -- -- 41,838
Issuance of common stock........... 122,500 -- -- -- 122,500
--------------- ---------------- ---------------- ---------------- ----------------
Net cash provided by (used in)
financing activity............ 164,338 (755,000) (1,550,000) -- (2,140,662)
Net increase (decrease) in cash.... 2,264 (27,419) (298,206) -- (323,361)
Cash and cash equivalents at
beginning of period........... 44,371 252,408 487,187 -- 783,966
--------------- ---------------- ---------------- ---------------- ----------------
Cash and cash equivalents at end
of period..................... $ 46,635 $ 224,989 $ 188,981 $ -- $ 460,605
=============== ================ ================ ================ ================
- ----------------
<FN>
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
(c) Elimination of intercompany profit in inventory.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Balance Sheet
December 31, 1996
----------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
-------------- ------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents....... $ 44,371 $ 252,408 $ 487,187 $ -- $ 783,966
Accounts receivable, net........ -- 2,536,234 2,387,637 -- 4,923,871
Inventories .................... -- 6,192,055 3,597,631 (81,173)(a) 9,708,513
Recoverable income taxes........ -- 90,000 73,000 -- 163,000
Deferred income tax............. -- -- 46,000 -- 46,000
Other........................... -- 600 44,920 -- 45,520
-------------- ----------------- ---------------- ---------------- -----------------
Total current assets......... 44,371 9,071,297 6,636,375 (81,173) 15,670,870
Investment in affiliates........... 7,269,174 10,000 -- (7,279,174)(b) --
Property, plant and equipment:
Land ........................... -- 190,660 81,830 -- 272,490
Buildings and improvements...... -- 2,139,340 1,882,804 -- 4,022,144
Machinery and equipment......... -- 4,048,995 7,961,788 -- 12,010,783
Less accumulated depreciation... -- (142,659) (2,426,369) -- (2,569,028)
-------------- ----------------- ---------------- ---------------- -----------------
Net property, plant and
equipment....................... -- 6,236,336 7,500,053 -- 13,736,389
Other assets:
Goodwill, net .................. (6,616) 6,233,094 7,564,261 -- 13,790,739
Deferred financing costs, net... -- 405,000 68,569 -- 473,569
Patents, net ................... 210,438 -- -- -- 210,438
-------------- ----------------- ---------------- ---------------- -----------------
Total other assets.......... 203,822 6,638,094 7,632,830 -- 14,474,746
-------------- ----------------- ---------------- ---------------- -----------------
$7,517,367 $21,955,727 $21,769,258 $(7,360,347) $43,882,005
============== ================= ================ ================ =================
<FN>
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investment in subsidiaries.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Balance Sheet
December 31, 1996
-----------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
---------------- --------------- --------------- ----------------- ---------------
Liabilities and stockholders'
equity (deficit)
Current liabilities:
Accounts payable............. $ -- $1,049,967 $1,564,958 $ $2,614,925
--
Accrued liabilities.......... 25,700 1,175,927 688,113 -- 1,889,740
Accrued interest............. -- 324,777 214,798 -- 539,575
Income taxes payable......... -- -- 193,032 -- 193,032
---------------- --------------- --------------- ----------------- ---------------
Total current
liabilities........... 25,700 2,550,671 2,660,901 -- 5,237,272
Intercompany liabilities.......... 4,265,062 (19,152) (4,245,910) -- --
Long-term debt.................... -- 13,150,000 19,089,100 -- 32,239,100
Deferred income taxes............. 12,000 265,000 -- 277,000
Redeemable exchangeable preferred
stock of subsidiary.......... -- -- 8,242,048 -- 8,242,048
Redeemable exchangeable preferred
stock........................ 2,814,192 -- -- -- 2,814,192
Stockholders' equity (deficit):
Class A common stock......... 1,065 1 11,000 (11,001)(b) 1,065
Paid-in capital.............. 105,388 6,199,999 661,723 (6,861,722)(b) 105,388
Retained earnings............ 305,960 62,208 425,416 (487,624)(a,b) 305,960
Predecessor carryover basis.. -- -- (5,340,020) -- (5,340,020)
---------------- --------------- --------------- ----------------- ---------------
Total stockholders'
equity (deficit)............. 412,413 6,262,208 (4,241,881) (7,360,347) (4,927,607)
---------------- --------------- --------------- ----------------- ---------------
$7,517,367 $21,955,727 $21,769,258 $(7,360,347) $43,882,005
================ =============== =============== ================= ===============
- -----------------
<FN>
(a) Elimination of intercompany profit in inventory.
(b) Elimination of investment in subsidiaries.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Statement of Operations
Three months ended December 31, 1996
----------------------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
--------------- ------------------ ---------------- ----------------- --------------
Net sales........................... $ -- $ 4,849,072 $ 4,402,488 $(1,327,301)(a) $7,924,259
Cost of sales....................... -- 3,469,667 3,023,252 (1,246,128)(a) 5,246,791
--------------- ------------------ ---------------- ----------------- --------------
Gross profit........................ 1,379,405 1,379,236 (81,173) 2,677,468
Selling expenses.................... -- 150,723 52,838 -- 203,561
General and administrative
expenses....................... 36,939 675,831 361,411 -- 1,074,181
--------------- ------------------ ---------------- ----------------- --------------
36,939 826,554 414,249 -- 1,277,468
--------------- ------------------ ---------------- ----------------- --------------
Income from operations.............. (36,939) 552,851 964,987 (81,173) 1,399,726
Equity in earnings of subsidiaries.. 406,451 -- -- (406,451)(b) --
Other income (expense):
Interest expense................. -- (394,321) (257,391) -- (651,712)
Interest income.................. 640 -- 19,345 -- 19,985
Deferred financing charges....... -- (15,000) (2,550) -- (17,550)
Foreign exchange gain or loss and
other ......................... -- 13,165 (17,416) -- (4,251)
--------------- ------------------ ---------------- ----------------- --------------
640 (396,156) (258,012) (653,528)
--------------- ------------------ ---------------- ----------------- --------------
Income (loss) before income taxes
and preferred dividend
requirement of subsidiary........ 370,152 156,695 706,975 (487,624) 746,198
Income taxes ....................... -- 13,314 172,144 -- 185,458
Preferred dividend requirement
of subsidiary.............. -- -- -- (190,588)(c) 190,588
--------------- ------------------ ---------------- ----------------- --------------
Net income.......................... $370,152 $143,381 $534,831 $(678,212) $370,152
=============== ================== ================ ================= ==============
- ---------------
<FN>
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
Condensed Consolidating Statement of Cash Flows
Three months ended December 31, 1996
-----------------------------------------------------------------------------
Ballantrae
Corporation Non-
(Parent Subsidiary Guarantor
Company Only) Guarantor Subsidiaries Eliminations Consolidated
-------------- ------------- ------------- --------------- ---------------
Cash flows from operating activities:
Net income................................ $370,152 $143,381 $534,831 $(678,212) $370,152
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization........ 11,239 196,860 239,683 -- 447,782
Equity in earnings of subsidiaries... (406,451) -- -- 406,451(a) --
Deferred income taxes................ -- 12,000 -- -- 12,000
Preferred dividend requirement of
subsidiary......................... -- -- -- 190,588(b) 190,588
Changes in operating assets and
liabilities:
Accounts receivable.................. -- 60,116 (926,650) -- (866,534)
Recoverable income taxes............. -- (163,000) -- -- (163,000)
Inventories.......................... -- (117,953) (326,561) 81,173(c) (363,341)
Other current assets................. -- 72,400 7,900 -- 80,303
Accounts payable..................... -- 188,677 487,647 -- 676,324
Accrued interest and liabilities..... 25,700 902,554 (90,151) -- 838,103
Intercompany liabilities............. 215,062 (19,152) (195,910) -- --
Income tax payable................... -- -- 67,972 -- 67,972
-------------- ------------- ------------- --------------- ---------------
Net cash provided by (used in) operating
activities........................... 215,702 1,275,883 (201,236) -- 1,290,349
Cash flows from investing activities:
Increase in acquisition costs........ -- (518,611) (82,386) -- (600,997)
Purchase of property and equipment... -- (47,992) (74,002) -- (121,994)
Increase in patents.................. (215,063) 194,951 -- -- (20,112)
-------------- ------------- ------------- --------------- ---------------
Net cash used in investing activities..... (215,063) (371,652) (156,388) -- (743,103)
Cash flows from financing activities:
Principal payments on long-term
debt............................. -- (850,000) 400,000 -- (450,000)
-------------- ------------- ------------- --------------- ---------------
Net increase in cash and cash equivalents. 639 54,231 42,376 -- 97,246
Cash and cash equivalents at beginning of
period............................... 43,739 198,177 444,813 -- 686,720
-------------- ------------- ------------- --------------- ---------------
Cash and cash equivalents at end
of period............................ $44,369 $252,408 $487,189 $ -- $783,966
============== ============= ============= =============== ===============
<FN>
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
(c) Elimination of intercompany profit in inventory.
</FN>
BALLANTRAE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1997
12. SUBSEQUENT EVENT
In October 1997, the Company entered into a definitive agreement with Delco
Remy International, Inc. (DRI) whereby DRI would acquire all of the capital
stock of the Company for $49,740,000 (including assumed debt). DRI will exchange
shares of its common stock with a value of approximately $19,740,000 for the
equity of the Company and will repay approximately $30,000,000 of the Company's
debt. DRI filed Registration Statements with the Securities and Exchange
Commission in connection with DRI's planned sale of common stock and
$130,000,000 of Senior Notes Due in 2007 (the Offerings) that described the
planned acquisition of the Company. The acquisition of the Company is expected
to be completed at or prior to the consummation of the Offerings.
No dealer, salesperson or other person has been DELCO REMY authorized to
give any information or to make any representation not contained in this
Prospectus, and, if INTERNATIONAL, INC. given or made, such information or
representation must not be relied upon as having been authorized. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
$140,000,000 to buy any securities other than those to which it relates, nor
does it constitute an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such solicitation is unlawful. 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 the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS 10-5/8% Senior Subordinated
Page Notes Due 2006
Available Information.....................................2
Prospectus Summary........................................3
Risk Factors.............................................13
Use of Proceeds..........................................20
Capitalization...........................................21 PROSPECTUS
Selected Consolidated Historical Financial Data..........24
Pro Forma Condensed Consolidated Financial Data..........22
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................32
The Exchange Offer.......................................39
Business.................................................46
Management...............................................60
Principal Stockholders...................................66
Certain Transactions.....................................69
Description of Capital Stock.............................69
Description of Indebtedness..............................71
Description of Notes.....................................74
Certain Federal Income Tax Consequences.................101
Plan of Distribution....................................102
Legal Matters...........................................102
Experts.................................................102
Disclosure Regarding Forward Looking Statements.........103
Index to Financial Statements...........................F-1
Until , 1998 (90 days after the date of
this Prospectus), all dealers effecting transactions in the
Notes, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments
or subscriptions.
- ------------------------------------------------------------------
DELCO REMY INTERNATIONAL, INC.
$140,000,000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
As permitted by the Delaware Law, the Company's Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts of
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transaction from which the director derives
an improper personal benefit. In addition, the Company's By-laws provide for
indemnification of the Company's officers and directors to the fullest extent
permitted under Delaware law. Section 145 of the Delaware Law provides that a
corporation may indemnify any persons, including officers and directors, who
were or are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation or is or was serving at the request of
such corporation as an officer, director, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The directors and officers of the registrant are insured against certain
liabilities under the registrant's directors' and officers' liability insurance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
Exhibit
Number Description
- --------------- ------------------------------------------------------------
3.1* Certificate of Incorporation of the Company, as amended
3.2* By-laws of the Company
4.1** Indenture, dated as of August 1, 1996, among the Company,
certain of the Company's subsidiaries signatories thereto and
National City Bank, as trustee
5.1* Opinion of Dechert Price & Rhoads, counsel to the Company
10.1U Light Duty Starter Motor Supply Agreement, dated July 31,
1994, by and between Delco Remy America, Inc. ("DRA") and
General Motors Corporation ("GM")
10.2U Heavy Duty Component Supply Agreement, dated July 31, 1994,
by and between DRA and GM 10.3U Distribution and Supply
Agreement, dated July 31, 1994, by and between DRA and GM
10.4U Trademark License, dated July 31, 1994, by and among
DRA, DR International, Inc. and GM 10.5U Tradename License
Agreement, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.6U Partnership Agreement of Delco Remy Mexico S. de R.L. de
C.V., dated April 17, 1997
10.7U Joint Venture Agreement, dated , by
and between Remy Korea Holdings, Inc. and S.C. Kim
10.8U Securities Purchase and Holders Agreement, dated July 29,
1994, by and among the Company, CVC, WEP, MascoTech,
Harold K. Sperlich, James R. Gerrity and the individuals
named therein as Management Investors
10.9U Registration Rights Agreement, dated July 29, 1994, by and
among the Company, CVC, WEP, MascoTech, Harold K. Sperlich,
James R. Gerrity and the individuals named therein as
Management Investors
10.10* Employment Agreement, dated July 31, 1994 by and between
Delco Remy International, Inc. and Thomas J. Snyder
10.11* Fourth Amended and Restated Financing Agreement, dated as of
, 1997, among the Company, certain
of the Company's subsidiaries signatories thereto and Bank
One, Indianapolis, National Association, The CIT
Group/Business Credit, Inc.
10.13* 8% Subordinated Debenture of DRA, due July 31, 2004 in favor
of GM
10.14U Contingent Purchase Price Note of DRA, in favor of GM,
dated July 31, 1994
10.15U Lease by and between ANDRA L.L.C. and DRA, dated February 9,
1995
10.16U Lease by and between Eagle I L.L.C. and DRA, Inc. dated
August 11, 1995
10.17* Form of Indenture governing % Senior Notes Due 2007 among the
Company, the Subsidiary Guarantors and United States Trust
Company of New York, as trustee, including form of Note
12.1U Statement re Computation of Ratios
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young (see page II-4)
23.2 Consent of Friedman & Fuller P.C. (See page II-5)
23.3 Consent of Dechert Price & Rhoads included in Exhibit 5.1
24.1 Power of Attorney included on Signature Page
25.1 Form T-1 Statement of Eligibility of Trustee
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
<FN>
* To be filed by amendment.
** Incorporated by reference to Exhibit 10.12 to the Registration Statement on
Form S-1 (Registration No. 333-37675) (the "Form S-1 Registration
Statement") filed by the Company on October 10, 1997, registering the
issuance of the Company's Class A Common Stock, par value $.01 per share,
and Amendment No. 1 thereto filed October 22, 1997.
U Incorporated by reference to the Exhibit of the same number to the Form S-1
Registration Statement and Amendment No. 1 thereto filed October 22, 1997.
</FN>
(b) Financial Statement Schedules:
Schedules not listed above are omitted because of the absence of the
conditions under which they are require or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
Item 22. Undertakings
Do not remove this number.
(a) The undersigned registrants hereby undertake:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii)to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the 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 registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of 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 Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Consent of Independent Accountants
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Historical Financial Data" and to the use of our reports
dated September 5, 1997 (except for "Share and Per Share Information" in Note
16, as to which the date is October , 1997), in the Registration Statement on
Form S-4 and related Prospectus of Delco Remy International, Inc. for the
registration of the Notes.
October , 1997
The foregoing consent is in the form that will be signed upon the
determination of the stock split as described in Note 16 to the consolidated
financial statements.
ERNST & YOUNG LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report, dated October 15, 1997, on the
financial statements of Precision Alternator and Starter, Inc. as of and for the
two years in the period ended March 31, 1996, and our report, dated August 19,
1997, on the financial statements of Certipro Division of Precision Alternator
and Starter, Inc. as of and for the year ended March 31, 1997, in the
Registration Statement on Form S-4 and the related Prospectus of Delco Remy
International, Inc. for the registration of the Notes.
FRIEDMAN & FULLER, P.C.
October , 1997
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
DELCO REMY INTERNATIONAL, INC.
By: HAROLD K. SPERLICH
----------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
HAROLD K. SPERLICH Chairman (principal executive officer) October 30, 1997
- -----------------------------------------
Harold K. Sperlich and Director
DAVID L. HARBERT Executive Vice President and Chief October 30, 1997
- -----------------------------------------
David L. Harbert Financial Officer (principal financial
and principal accounting officer)
E. H. BILLIG Director October 30, 1997
- -----------------------------------------
E. H. Billig
RICHARD M. CASHIN, JR. Director October 30, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 30, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
ROBERT J. SCHULTZ Director October 30, 1997
- -----------------------------------------
Robert J. Schultz
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
DELCO REMY AMERICA, INC.
By: HAROLD K. SPERLICH
----------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
HAROLD K. SPERLICH Chairman (principal executive officer) October 30, 1997
- -----------------------------------------
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 30, 1997
- -----------------------------------------
David L. Harbert Financial Officer (principal financial
and principal accounting officer)
E. H. BILLIG Director October 30, 1997
- -----------------------------------------
E. H. Billig
RICHARD M. CASHIN, JR. Director October 30, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 30, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
REMY INTERNATIONAL, INC.
By: HAROLD K. SPERLICH
----------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
HAROLD K. SPERLICH Chairman (principal executive officer) October 30, 1997
- -----------------------------------------
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 30, 1997
- -----------------------------------------
David L. Harbert Financial Officer (principal financial
and principal accounting officer)
E. H. BILLIG Director October 30, 1997
- -----------------------------------------
E. H. Billig
RICHARD M. CASHIN, JR. Director October 30, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 30, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
REMAN HOLDINGS, INC.
By: HAROLD K. SPERLICH
----------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
HAROLD K. SPERLICH Chairman (principal executive officer) October 30, 1997
- -----------------------------------------
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 30, 1997
- -----------------------------------------
David L. Harbert Financial Officer (principal financial
and principal accounting officer)
E. H. BILLIG Director October 30, 1997
- -----------------------------------------
E. H. Billig
RICHARD M. CASHIN, JR. Director October 30, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 30, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
NABCO, INC.
By: NICHOLAS J. BOZICH
----------------------------
NICHOLAS J. BOZICH
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
NICHOLAS J. BOZICH President and Chief Executive Officer October 30, 1997
- -----------------------------------------
Nicholas J. Bozich (principal executive officer)
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- -----------------------------------------
David L. Harbert financial and principal accounting
officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
THE A&B GROUP, INC.
By: JOHN M. MAYFIELD
----------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
JOHN M. MAYFIELD President (principal executive officer) October 30, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- -----------------------------------------
David L. Harbert financial and principal accounting
officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
A&B ENTERPRISES, INC.
By: JOHN M. MAYFIELD
----------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
JOHN M. MAYFIELD President (principal executive officer) October 30, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
DALEX, INC.
By: JOHN M. MAYFIELD
----------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
JOHN M. MAYFIELD President (principal executive officer) October 30, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- ------------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 30, 1997
- ------------------------------------------
James R. Gerrity
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
A&B CORES, INC.
By: JOHN M. MAYFIELD
----------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
JOHN M. MAYFIELD President (principal executive officer) October 30, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
R&L TOOL COMPANY, INC.
By: JOHN M. MAYFIELD
----------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
JOHN M. MAYFIELD President (principal executive officer) October 30, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
MCA, INC. OF MISSISSIPPI
By: JOHN M. MAYFIELD
----------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
JOHN M. MAYFIELD President (principal executive officer) October 30, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 30, 1997
- -----------------------------------------
James R. Gerrity
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
POWER INVESTMENTS, INC.
By: J. MICHAEL JARVIS
----------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
J. MICHAEL JARVIS President (principal executive October 30, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
FRANKLIN POWER PRODUCTS, INC.
By: J. MICHAEL JARVIS
----------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
J. MICHAEL JARVIS President (principal executive October 30, 1997
- ----------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
INTERNATIONAL FUEL SYSTEMS, INC.
By: J. MICHAEL JARVIS
---------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
J. MICHAEL JARVIS President (principal executive October 30, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
MARINE DRIVE SYSTEMS, INC.
By: J. MICHAEL JARVIS
---------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
J. MICHAEL JARVIS President (principal executive October 30, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
MARINE CORPORATION OF AMERICA
By: J. MICHAEL JARVIS
-----------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
J. MICHAEL JARVIS President (principal executive October 30, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
POWRBILT PRODUCTS, INC.
By: J. MICHAEL JARVIS
--------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
J. MICHAEL JARVIS President (principal executive October 30, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 30, 1997.
WORLD WIDE AUTOMOTIVE, INC.
By: RICHARD L. KEISTER
-------------------------
RICHARD L. KEISTER
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
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.
RICHARD L. KEISTER President (principal executive October 30, 1997
- ----------------------------------------- officer) and Director
Richard L. Keister
DAVID L. HARBERT Vice President, Treasurer (principal October 30, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 30, 1997
- -----------------------------------------
Thomas J. Snyder
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- ------- --------------------------------------------------------------- ---------------
3.1* Certificate of Incorporation of the Company, as amended
3.2* By-laws of the Company
4.1** Indenture, dated as of August 1, 1996, among the Company, certain
of the Company's subsidiaries signatories thereto and National
City Bank, as trustee
5.1* Opinion of Dechert Price & Rhoads, counsel to the Company
10.1U Light Duty Starter Motor Supply Agreement, dated July 31, 1994,
by and between Delco Remy America, Inc. ("DRA") and General
Motors Corporation ("GM")
10.2U Heavy Duty Component Supply Agreement, dated July 31, 1994, by
and between DRA and GM 10.3U Distribution and Supply Agreement,
dated July 31, 1994, by and between DRA and GM 10.4U Trademark
License, dated July 31, 1994, by and among DRA, DR International,
Inc. and GM
10.5U Tradename License Agreement, dated July 31, 1994, by and among
DRA, DR International, Inc. and GM
10.6U Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V.,
dated April 17, 1997
10.7U Joint Venture Agreement, dated , by and
between Remy Korea Holdings, Inc. and S.C. Kim
10.8U Securities Purchase and Holders Agreement, dated July 29, 1994,
by and among the Company, CVC, WEP, MascoTech, Harold K.
Sperlich, James R. Gerrity and the individuals named therein as
Management Investors
10.9U Registration Rights Agreement, dated July 29, 1994, by and among
the Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R.
Gerrity and the individuals named therein as Management Investors
10.10* Employment Agreement, dated July 31, 1994 by and between Delco
Remy International, Inc. and Thomas J. Snyder
10.11* Fourth Amended and Restated Financing Agreement, dated as of
, 1997, among the Company, certain of
the Company's subsidiaries signatories thereto and Bank One,
Indianapolis, National Association, The CIT Group/Business
Credit, Inc.
10.13* 8% Subordinated Debenture of DRA, due July 31, 2004 in favor of GM
10.14U Contingent Purchase Price Note of DRA, in favor of GM, dated
July 31, 1994
10.15U Lease by and between ANDRA L.L.C. and DRA, dated February 9, 1995
10.16U Lease by and between Eagle I L.L.C. and DRA, Inc. dated August 11, 1995
10.17* Form of Indenture governing % Senior Notes Due 2007 among the
Company, the Subsidiary Guarantors and United States Trust Company
of New York, as Trustee, including form of Note
12.1U Statement re Computation of Ratios
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young (see page II-4)
23.2 Consent of Friedman & Fuller P.C. (See page II-5)
23.3 Consent of Dechert Price & Rhoads included in Exhibit 5.1
24.1 Power of Attorney included on Signature Page
25.1 Form T-1 Statement of Eligibility of Trustee
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- ----------------------
<FN>
* To be filed by amendment.
** Incorporated by reference to Exhibit 10.12 to the Registration Statement on
Form S-1 (Registration No. 333-37675) (the "Form S-1 Registration
Statement") filed by the Company on October 10, 1997, registering the
issuance of the Company's Class A Common Stock, par value $.01 per share,
and Amendment No. 1 thereto filed October 22, 1997.
U Incorporated by reference to the Exhibit of the same number to the Form S-1
Registration Statement and Amendment No. 1 thereto filed October 22, 1997.
</FN>
- --------
* To be completed by amendment.