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As filed with the Securities and Exchange Commission on March 24, 1997
REGISTRATION NO. 333-21819
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LDM TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 3089 38-269-0171
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
2500 EXECUTIVE HILLS DRIVE
AUBURN HILLS, MICHIGAN 48326
(810) 858-2800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY E. BORUSHKO
CHIEF FINANCIAL OFFICER
LDM TECHNOLOGIES, INC.
2500 EXECUTIVE HILLS DRIVE
AUBURN HILLS, MICHIGAN 48326
(810) 858-2800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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WITH COPIES TO:
VERNE C. HAMPTON, II.
DICKINSON, WRIGHT, MOON, VANDUSEN & FREEMAN
500 WOODWARD AVENUE
SUITE 4000
DETROIT, MICHIGAN 48226-3425
(313) 223-3500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If 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
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
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10 3/4% Senior Subordinated Notes due 2007,
Series B................................. $110,000,000 100% $110,000,000 $33,333.33
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Guarantees of 10 3/4% Senior Subordinated
Notes due 2007........................... (2) (2) (2) (2)
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(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
(2) Pursuant to Rule 457(n), no registration fee is required with respect to the
Guarantees of the Senior Subordinated Notes registered hereby.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
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PRIMARY STANDARD
EXACT NAME OF GUARANTOR REGISTRANT AS I.R.S. EMPLOYER INDUSTRIAL
SPECIFIED IN ITS CHARTER JURISDICTION OF ORGANIZATION IDENTIFICATION NO. CLASSIFICATION CODE NO.
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LDM Holdings, L.L.C..................... Michigan 38-333-3584 3089
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LDM Canada Limited Partnership.......... Michigan 38-331-1998 3089
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LDM Technologies Company................ Nova Scotia N/A 3089
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LDM TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-4 ITEM NUMBER HEADING OR SUBHEADING IN PROSPECTUS
-------------------- -----------------------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page of Prospectus; Outside Back Cover
Page of Prospectus.
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information............ Prospectus Summary; Risk Factors; Selected Financial
Data--LDM; Unaudited Pro Forma Consolidated Financial
Information; Notes to Unaudited Pro Forma Consolidated
Financial Information; Unaudited Pro Forma Consolidated
Interim Financial Information; Notes to Unaudited Pro Forma
Consolidated Interim Financial Information
4. Terms of the Transaction.................. Prospectus Summary; The Exchange Offer; Description of New
Notes; Certain Federal Income Tax Consequences Relating to
the Exchange Offer; Description of Senior Debt; Old Notes;
Registration Rights; Book Entry; Delivery and Form; Plan of
Distribution.
5. Pro Forma Financial Information........... Prospectus Summary; Unaudited Pro Forma Consolidated
Financial Information; Notes to Unaudited Pro Forma
Condensed Consolidated Financial Information; Unaudited Pro
Forma Consolidated Interim Financial Information; Notes to
Unaudited Pro Forma Consolidated Interim Financial
Information
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.... Legal Matters; Experts.
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities............................... Not Applicable.
B. INFORMATION ABOUT THE REGISTRANT
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 Companies........... Prospectus Summary; Capitalization; The Molmec Acquisition;
Selected Financial Data--LDM; Management's Discussion and
Analysis of Financial Condition and Results of
Operations--LDM; Unaudited Pro Forma Consolidated Financial
Information; Notes to Unaudited Pro Forma Condensed
Consolidated Financial Information; Unaudited Pro Forma
Consolidated Interim Financial Information; Notes to
Unaudited Pro Forma Consolidated Interim Financial
Information Business; Certain Transactions; Description of
New Notes; Financial Statements.
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
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.
D. VOTING AND MANAGEMENT INFORMATION
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...................... Management.
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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 MARCH 24, 1997
PROSPECTUS
LDM TECHNOLOGIES, INC.
LDM LOGO OFFER TO EXCHANGE
10 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ALL
OUTSTANDING 10 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED
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LDM Technologies, Inc., a Michigan corporation (the "Company" or "LDM"),
hereby offers, upon the terms and subject to conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"; together with the Prospectus, the "Exchange Offer"), to
exchange up to an aggregate principal amount of $110 million of its 10 3/4%
Senior Subordinated Notes Due 2007, Series B (the "New Notes") for up to an
aggregate principal amount of $110 million of its outstanding 10 3/4% Senior
Subordinated Notes Due 2007, Series A (the "Old Notes"). The terms of the New
Notes are identical in all material respects to those of the Old Notes, except
for certain transfer restrictions and registration rights relating to the Old
Notes. The New Notes will be issued pursuant to, and entitled to the benefits
of, the Indenture (as defined herein) governing the Old Notes. The New Notes and
the Old Notes are sometimes referred to collectively as the "Notes".
The New Notes will be general unsecured obligations of the Company ranking
subordinate in right of payment to all existing and future Senior Debt (as
defined). The New Notes will be guaranteed (each, a "Guarantee") on a senior
subordinated basis by certain of the Company's subsidiaries (the "Guarantors").
The Guarantees will be subordinate in right of payment to all Guarantor Senior
Debt (as defined), including all indebtedness under the Senior Credit Facility
(as defined herein).
The New Notes will be subordinated in right of payment to all existing and
future secured indebtedness of the Company and its subsidiaries. The New Notes
will rank pari passu in right of payment with the Old Notes. As of September 29,
1996, on a pro forma basis, after giving effect to the Initial Offering (as
defined herein), the Molmec Acquisition (as defined herein), and the borrowings
outstanding under the Senior Credit Facility, the Company and its subsidiaries
had approximately $16.2 million of Senior Debt outstanding.
The New Notes will bear interest at the rate of 10 3/4% per annum, payable
semiannually on January 15 and July 15, commencing July 15, 1997. Holders of the
New Notes will receive interest on July 15, 1997 from the date of initial
issuance of the New Notes, plus an amount equal to the accrued interest on the
Old Notes from the most recent date to which interest has been paid to the date
of exchange thereof. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
The New Notes are subject to redemption on or after January 15, 2002, at
the option of the Company, in whole or in part, at the redemption prices set
forth herein, plus accrued interest to the date of redemption. In addition, on
or before January 15, 2000, the Company may, at its option, redeem up to $25
million aggregate principal amount of the Notes originally issued with the net
proceeds from one or more Public Equity Offerings (as defined) at the redemption
price set forth herein plus accrued interest to the date of redemption; provided
that at least $75 million aggregate principal amount of the Notes would remain
outstanding after giving effect to any such redemption. In the event of a Change
of Control (as defined), the Company will be obligated to make an offer to
purchase all of the outstanding Notes at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase. In
addition, the Company will be obligated to make an offer to purchase Notes at a
purchase price equal to 100% of the principal amount thereof plus accrued
interest to the date of purchase in the event of certain asset sales. See
"Description of New Notes."
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SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
HOLDERS OF THE OLD 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 , 1997.
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(Continued from Cover)
The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1997, unless extended by the Company in its sole discretion (the
"Expiration Date"). The Expiration Date will not in any event be extended to a
date later than , 1997. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. In the
event the Company terminates the Exchange Offer and does not accept for exchange
any Old Notes with respect to the Exchange Offer, the Company will promptly
return the Old Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange, but is otherwise subject to certain customary conditions. The Old
Notes may be tendered only in integral multiples of $1,000.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guarantors contained in the Registration
Rights Agreement dated January 22, 1997 (the "Registration Rights Agreement") by
and among the Company, the Guarantors and Smith Barney Inc., as the initial
purchaser (the "Initial Purchaser"), with respect to the initial sale of the Old
Notes. Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by respective holders thereof (other than any such holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
provided that the New Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement with any person to participate in
the distribution of such New Notes and is not engaged in and does not intend to
engage in a distribution of the New Notes. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of the New Notes received in exchange for Old Notes
if such New 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 New
Notes. There can be no assurance as to the liquidity of any markets that may
develop for the New Notes, the ability of holders to sell the New Notes, or the
price at which holders would be able to sell the New Notes. Future trading
prices of the New Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the New Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the New Notes, if such
market develops, will not be subject to similar disruptions. The Initial
Purchaser has advised the Company that it currently intends to make a market in
the New Notes offered hereby. However, the Initial Purchaser is not obligated to
do so and any market marking may be discontinued at any time without notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses incident to the Exchange Offer.
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AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement," which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to in
the Registration Statement are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, may be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10007. Copies of such material can
be obtained from the Company or the Guarantors upon request. 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.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information and documents specified in Sections 13
and 15(d) of the Exchange Act, so long as the New Notes are outstanding, whether
or not the Company is subject to such informational requirements of the Exchange
Act. While any New Notes remain outstanding, the Company will make available,
upon request, to any holder of the New Notes, the information required pursuant
to Rule 144A(d)(4) under the Securities Act during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such
request should be directed to the Chief Financial Officer of the Company at 2500
Executive Hills Drive, Auburn Hills, Michigan 48326 (telephone number (810)
858-2800).
This Prospectus includes certain 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."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements of LDM Technologies, Inc. and the notes thereto and the financial
statements of Molmec, Inc. ("Molmec") and the notes thereto appearing elsewhere
in this Prospectus. Unless the context otherwise requires, the information
contained in this Prospectus gives effect to the Molmec Acquisition which was
consummated on January 22, 1997 and all references in this Prospectus to the
Company shall mean LDM Technologies, Inc., its consolidated subsidiaries and the
Molmec business. References to LDM shall mean LDM Technologies, Inc. and its
consolidated subsidiaries excluding Molmec. References to Molmec shall mean
Molmec, Inc. Also, unless the context otherwise requires, all references to
fiscal years in regard to LDM or the Company shall mean twelve-month periods
ending the last Sunday of September, and, in regard to Molmec, twelve-month
periods ending December 31. References to Molmec's twelve-month period ended
September 29, 1996 shall mean the period from September 25, 1995 through
September 29, 1996.
THE COMPANY
LDM is a leading Tier I designer and manufacturer of highly engineered
plastic instrument panel and exterior trim components supplied primarily to
North American automotive original equipment manufacturers ("OEMs"). Instrument
panel components manufactured by LDM include cluster finish panels, center trim
panels, air vents, coin and cup holders, ashtrays, gloveboxes, telephone holders
and consoles. Exterior trim components manufactured by LDM include front and
rear bumper fascias, end caps, body side claddings, rocker panels and grills. As
part of LDM's business strategy to target growing niche markets that require
significant design and engineering capabilities, it recently consummated the
acquisition of Molmec, a Tier I automotive supplier of close tolerance, plastic
components for under-the-hood fluid and air management applications. The
Company, on a pro forma basis, had fiscal year 1996 net sales of $306.4 million
and EBITDA of $26.8 million.
The Company's major OEM customers include Ford, General Motors, Volkswagen
and Chrysler, with pro forma fiscal year 1996 net product sales (which excludes
mold sales) to these customers representing approximately 43%, 30%, 7% and 3%,
respectively, of pro forma fiscal year 1996 net product sales. The Company
supplies components and subassemblies for a variety of light duty trucks, sport
utility vehicles, minivans and passenger cars, including: Ford's F-series truck,
Expedition and Explorer sport utility vehicles, Windstar minivan, and
Contour/Mystique and Taurus/Sable passenger cars; General Motors' Sonoma, Blazer
and Jimmy sport utility vehicles, and Grand Prix/Cutlass, Cadillac Deville and
Seville passenger cars; Volkswagen's Golf/Jetta passenger car; and Chrysler's
Dakota light truck, Caravan/Voyager minivan, and Neon passenger car.
The Company is a full-service supplier with advanced computer design and
engineering capabilities which have enabled the Company to penetrate OEM new
product programs during the concept stage of the product life cycle and promote
long-term customer relationships. The Company recently constructed its Auburn
Hills Design Center to enhance its conceptual design and development
capabilities. The Company has been recognized as a quality supplier by its OEM
customers and, in addition, has received Ford's Q1 Award and is in the process
of being QS 9000 certified. To improve the Company's ability to support its OEM
customers internationally, the Company is finalizing alliances with certain
European automotive suppliers that manufacture products which complement the
Company's three lines of business and have strong product technology and
engineering capabilities.
The Company conducts molding, class A painting and assembly operations in
eleven locations in Michigan, Indiana, Ohio, Tennessee and Canada. In addition
to its injection molding expertise, the Company also possesses a broad range of
paint application capabilities, including recently developed robotic paint
application technology which it believes provides it with competitive advantages
in serving the exterior trim market.
LDM, a privately held Michigan corporation, was incorporated in 1985 to
pursue acquisitions in the automotive industry. In 1986, LDM began to focus on
the market for highly engineered plastic components
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when it acquired Arrow Molded Plastics, Inc. To strengthen its presence in this
market, LDM acquired Knapp Plastics Ltd., a manufacturer of exterior trim
components, in 1993 and purchased selected assets of Windsor Plastic Products
Ltd., a manufacturer of instrument panel components, in 1994. The acquisition of
Molmec is a continuation of LDM's efforts to strengthen its position as a
leading Tier I supplier of niche thermoplastic components and systems.
Management believes that each of these acquisitions has enhanced the Company's
growth opportunities by providing new customers, niche product capabilities,
additional manufacturing capacity and cost reductions through economies of
scale. Through a combination of these and other acquisitions and internal
growth, LDM's net sales and EBITDA have increased from approximately $76.2
million and $4.8 million, respectively, in fiscal year 1992 to approximately
$306.4 million and $26.8 million, respectively, on a pro forma basis in fiscal
year 1996, which represents a compound annual growth rate ("CAGR") of 42% and
53%, respectively.
The Company has developed and is implementing a business strategy to
achieve continued growth while enhancing its competitive position as a Tier I
OEM supplier. The Company's growth is being principally driven by (i) a
strategic focus on niche products, such as under-the-hood components, that the
Company believes possess strong secular growth potential and require significant
design and engineering capabilities and (ii) selected acquisitions to take
advantage of the consolidation trends in the OEM supplier industry. In addition,
the Company continually seeks to enhance its Tier I relationships through a
number of initiatives, including (i) expanding its full service capabilities in
response to increasingly rigorous OEM purchasing and manufacturing policies,
(ii) establishing a global position through participation on World Car programs
and the establishment of alliances with foreign suppliers, and (iii) improving
cost competitiveness through the implementation of lean manufacturing
methodologies and value engineering programs.
The Company was incorporated in Michigan in 1985. The Company's principal
executive offices are located at 2500 Executive Hills Drive, Auburn Hills,
Michigan 48326, and its telephone number is (810) 858-2800.
THE MOLMEC ACQUISITION
On January 22, 1997, LDM acquired substantially all of the assets of
Molmec, a privately held Michigan corporation incorporated in 1959, for
approximately $55 million in cash, subject to certain adjustments, and the
assumption of certain liabilities including $5.0 million of indebtedness and
$11.6 million of current liabilities as of September 29, 1996.
The Molmec Acquisition is a continuation of LDM's efforts to strengthen its
position as a leading supplier of niche thermoplastic components and systems to
the North American automotive market. LDM believes Molmec is an industry leader
in the design, manufacture and integration of fluid and air management
components and assemblies for under-the-hood use. Products manufactured by
Molmec include cowl vent assemblies, fluid reservoirs including degas bottles,
battery trays and covers, air deflectors and sight shields. Molmec's largest OEM
customers are Ford and Chrysler, which accounted for approximately 57% and 11%,
respectively, of Molmec's net product sales for the twelve-month period ended
September 29, 1996. Molmec provides components and subassemblies for a variety
of light duty trucks, sport utility vehicles, minivans and passenger cars,
including: Ford's F-Series truck, Windstar minivan, and Taurus/Sable, Mustang,
Crown Victoria/Grand Marquis and Contour/Mystique passenger cars; General
Motors' Grand Prix/Cutlass passenger car; and Chrysler's Dakota light truck and
Caravan/Voyager minivan.
The Molmec Acquisition is expected to provide the Company with a number of
benefits, including an established market position with strong engineering
capabilities in the growing under-the-hood market for plastic components,
further diversification of revenues through a broader customer base and new
product lines, cost reduction opportunities and a management team with
significant expertise and customer relationships in the under-the-hood market.
During 1993 and 1994, the majority of Molmec's senior management was
replaced with a more experienced and professional management team which has led
to a substantial increase in sales and improved operating performance. The new
management team implemented a number of operating changes which included (i)
establishing a product-focused manufacturing strategy for Molmec's individual
facilities,
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(ii) replacing low margin products with design-intensive integrated systems,
(iii) expanding design, program management and engineering capabilities, and
(iv) implementing a cost reduction program through value analysis and "lean
manufacturing" initiatives. As a result of these efforts and the growing market
for under-the-hood components, Molmec's net sales and EBITDA have increased
substantially from approximately $69.4 million and $3.3 million, respectively,
for the fiscal year ended December 31, 1993, to approximately $88.6 million and
$10.1 million, respectively, for the twelve-month period ended September 29,
1996.
Concurrently with the consummation of the Molmec Acquisition, (i) the
Company issued and sold the Old Notes (the "Initial Offering"), and (ii) the
Company entered into the Senior Credit Facility with Bank America Business
Credit, Inc., as agent, and the other lenders named therein, providing for
borrowings of up to $45 million. The gross proceeds from the Initial Offering,
along with borrowings under the Senior Credit Facility, were used to acquire
Molmec, retire certain indebtedness, general corporate purposes, including
funding for strategic alliances and pay fees and expenses. The Initial Offering,
the Molmec Acquisition and the establishment of the Senior Credit Facility are
referred to herein together as the "Transactions." See "Business--The Molmec
Acquisition" and "Description of Senior Debt--Senior Credit Facility."
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THE EXCHANGE OFFER
THE NEW NOTES................. The forms and terms of the New Notes are
identical in all material respects to the terms
of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer,
except for certain transfer restrictions and
registration rights relating to the Old Notes
described under "--Terms of New Notes."
THE EXCHANGE OFFER............ The Company is offering to exchange up to $110
million aggregate principal amount of 10 3/4%
Senior Subordinated Notes due 2007, Series B
(the "New Notes") for up to $110 million
aggregate principal amount of its outstanding
10 3/4% Senior Subordinated Notes due 2007,
Series A (the "Old Notes"). Old Notes may be
exchanged only in integral multiples of $1,000.
EXPIRATION DATE; WITHDRAWAL OF
TENDER........................ The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997,
or such later date and time to which it is
extended by the Company (the "Expiration
Date"). The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old 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 NOTE
EXCHANGE OFFER................ The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING OLD
NOTES......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with such Old Notes and any
other required documentation to the Exchange
Agent (as defined) at the address set forth
herein. By executing the Letter of Transmittal,
each holder will represent to the Company that,
among other things, (i) any New Notes to be
received by it will be acquired in the ordinary
course of its business, (ii) it has no
arrangement or understanding with any person to
participate in the distribution of the New
Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of
the Company or, if it is an affiliate, it will
comply with the registration and prospectus
delivery requirements of the Securities Act to
the extent applicable.
INTEREST ON THE NEW NOTES..... The New Notes will bear interest at the rate of
10 3/4% per annum, payable semiannually on
January 15 and July 15, commencing July 15,
1997 to holders of record on the immediately
preceding January 1 and July 1, respectively.
Holders of the New Notes will receive interest
on July 15, 1997 from the date of initial
issuance of the New Notes, plus an amount equal
to the accrued interest on the Old Notes from
the most recent date to which interest has been
paid to the date of exchange thereof. Interest
on the Old Notes
4
10
accepted for exchange will cease to accrue upon
issuance of the New Notes.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Old Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent, prior to the Expiration
Date, must tender their Old Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
REGISTRATION REQUIREMENTS..... The Company has agreed to use its best efforts
to consummate by April 23, 1997 the registered
Exchange Offer pursuant to which holders of the
Old Notes will be offered an opportunity to
exchange their Old Notes for the New Notes
which will be issued without legends
restricting the transfer thereof. In the event
that applicable interpretations of the staff of
the Commission do not permit the Company to
effect the Exchange Offer or in certain other
circumstances, the Company has agreed to file a
Shelf Registration Statement covering resales
of the Old Notes and to use its best efforts to
cause such Shelf Registration Statement to be
declared effective under the Securities Act
and, subject to certain exceptions, keep such
Shelf Registration Statement effective until
three years after the effective date thereof.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ For a discussion of certain federal income tax
considerations relating to the exchange of the
New Notes for the Old Notes, see "Certain U.S.
Federal Income Tax Considerations Relating to
the Exchange Offer."
USE OF PROCEEDS............... There will be no proceeds to the Company from
the exchange of Notes pursuant to the Exchange
Offer.
EXCHANGE AGENT................ IBJ Schroder Bank & Trust Company is the
Exchange Agent. The address and telephone
number of the Exchange Agent are set forth in
"The Exchange Offer--Exchange Agent."
5
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TERMS OF THE NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that the New Notes are registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. See
"Description of the New Notes."
THE OFFERING
New Notes..................... $110 million aggregate principal amount of
10 3/4% Senior Subordinated Notes due 2007,
Series B of the Company.
Maturity Date................. January 15, 2007.
Interest Payment Dates........ January 15 and July 15 of each year, commencing
July 15, 1997.
Ranking....................... The New Notes will be general unsecured
obligations of the Company ranking subordinate
in right of payment with all existing and
future Senior Debt (as defined). As of
September 29, 1996, on a pro forma basis after
giving effect to the Transactions, the Company
would have had approximately $16.2 million of
Senior Debt outstanding. In addition, the
Company would have had available approximately
$31 million of revolving loans undrawn under
its Senior Credit Facility (as defined). See
"Description of Senior Debt."
Guarantors.................... The New Notes will be guaranteed (each, a
"Guarantee") on a senior subordinated basis by
certain of the Company's subsidiaries (the
"Guarantors"). The Guarantees will be
subordinate in right of payment to all
Guarantor Senior Debt (as defined), including
all indebtedness under the Senior Credit
Facility. See "Description of New Notes --
Certain Definitions -- Guarantors."
Optional Redemption........... Except as provided below, the New Notes are not
redeemable at the Company's option prior to
January 15, 2002. Thereafter, the New Notes
will be redeemable, in whole or in part, at the
option of the Company, at the redemption prices
set forth herein plus accrued interest to the
date of redemption. In addition, prior to
January 15, 2000, the Company may, at its
option, redeem up to $25 million principal
amount of Notes originally issued with the net
proceeds from one or more Public Equity
Offerings (as defined herein) at the redemption
price set forth herein plus accrued interest to
the date of redemption; provided that at least
$75 million aggregate principal amount of Notes
would remain outstanding after giving effect to
any such redemption. See "Description of New
Notes -- Redemption."
Change of Control............. In the event of a Change of Control (as defined
herein), the Company will be obligated to make
an offer to purchase all of the outstanding
Notes at a redemption price of 101% of the
principal amount thereof plus accrued interest
to the date of purchase. In the event a Change
of Control were to occur, there can be no
assurance that the Company will have available
funds sufficient to repurchase all of the Notes
that holders elect to tender. See "Description
of New Notes -- Change of Control."
Offer to Purchase............. The Company will be required in certain
circumstances to make an offer to purchase the
New Notes, at a purchase price equal to 100%
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12
of the principal amount thereof plus accrued
interest to the date of purchase, with the net
cash proceeds of certain asset sales. See
"Description of New Notes -- Certain Covenants
-- Limitation on Asset Sales."
Certain Covenants............. The indenture under which the Old Notes were
issued and the New Notes will be issued (the
"Indenture") contains covenants including, but
not limited to, covenants with respect to
limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii) the
issuance of preferred stock by subsidiaries,
(iii) the creation of liens, (iv) restricted
payments, (v) the sales of assets and
subsidiary stock, (vi) mergers and
consolidations, (vii) payment restrictions
affecting subsidiaries and (viii) transactions
with affiliates. See "Description of New Notes
-- Certain Covenants."
Risk Factors.................. Holders of Old Notes should carefully consider
the matters set forth under the caption "Risk
Factors" prior to making a decision with
respect to the Exchange Offer. See "Risk
Factors."
7
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SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth (i) summary historical financial data of LDM
Technologies, Inc. for the fiscal years ended September 27, 1992, September 26,
1993, September 25, 1994, September 24, 1995, September 29, 1996 and the
quarters ended December 24, 1995 and December 29, 1996 and (ii) summary pro
forma financial data giving effect to the Molmec Acquisition and the Offering
for the fiscal year ended September 29, 1996 and the three months ended December
29, 1996. The summary historical financial data for fiscal 1994, 1995 and 1996
were derived from the audited consolidated financial statements of LDM included
elsewhere in this Prospectus. The summary historical financial data for fiscal
years 1992 and 1993 and the quarterly financial data were derived from the
unaudited consolidated financial statements of LDM. The summary pro forma
statement of operations data and other financial data for the fiscal year ended
September 29, 1996 and the three months ended December 29, 1996 gives effect to
the Molmec Acquisition and the Initial Offering as if both had occurred on
September 25, 1995, and the summary pro forma balance sheet data at September
29, 1996 and at December 29, 1996 gives effect to the Molmec Acquisition and the
Initial Offering as if each had occurred as of such date. The following table
should be read in conjunction with "Selected Financial Data -- LDM", "Unaudited
Pro Forma Consolidated Financial Information", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- LDM" and the
historical consolidated financial statements of LDM presented elsewhere in this
Prospectus.
YEAR ENDED
---------------------------------------------------------------------
UNAUDITED
UNAUDITED AUDITED PRO FORMA
--------------------- --------------------------------- ---------
SEPT. 27, SEPT. 26, SEPT. 25, SEPT. 24, SEPT. 29, SEPT. 29,
1992 1993 1994 1995 1996 1996(A)
--------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA
Net sales(b).............. $76,243 $110,251 $177,597 $220,991 $217,759 $306,406
Cost of sales............. 59,456 90,674 151,692 182,408 182,896 252,661
Gross profit.............. 16,787 19,577 25,905 38,584 34,863 53,745
Selling, general and
administrative
expenses................ 14,735 14,679 17,137 23,515 26,418 40,422
Operating profit.......... 2,052 4,898 8,768 15,069 8,444 13,323
Interest expense.......... 339 779 2,144 3,178 3,280 13,267
Income (loss) from
continuing operations,
before extraordinary
item(c)................. 600 3,026 2,570 6,248 1,173 (1,892)
OTHER FINANCIAL DATA
EBITDA(d)(e).............. $ 4,820 $ 8,228 $ 15,110 $ 21,261 $ 16,473 $ 26,758
Depreciation and
amortization............ 3,680 3,810 6,593 6,778 8,006 13,413
Capital expenditures...... 1,900 4,000 29,023 15,150 20,286 21,675
Adjusted capital
expenditures(f)......... 1,900 4,000 11,594 9,340 8,360 9,749
Ratio of earnings to fixed
charges(g).............. 2.9 5.3 3.5 3.9 1.9 1.4
Ratio of EBITDA to
interest expense........ 14.2 10.6 7.1 6.7 5.0 2.0
QUARTER ENDED
--------------------------------
UNAUDITED
UNAUDITED PRO FORMA
------------------- ----------
DEC. 24, DEC. 29, DEC. 29,
1995 1996 1996(A)
-------- -------- ----------
STATEMENT OF OPERATIONS DATA
Net sales(b).............. $ 53,147 $ 52,265 $ 73,809
Cost of sales............. 44,950 44,317 60,960
Gross profit.............. 8,197 7,948 12,849
Selling, general and
administrative
expenses................ 6,727 6,263 9,279
Operating profit.......... 1,470 1,685 3,570
Interest expense.......... 899 1,361 3,016
Income (loss) from
continuing operations,
before extraordinary
item(c)................. (157) 316 433
OTHER FINANCIAL DATA
EBITDA(d)(e).............. 3,109 4,008 7,307
Depreciation and
amortization............ 1,720 1,978 3,392
Capital expenditures...... 3,349 5,300 5,677
Adjusted capital
expenditures(f)......... 1,827 4,059 4,436
Ratio of earnings to fixed
charges(g).............. 1.4 1.4 1.2
Ratio of EBITDA to
interest expense........ 3.5 2.9 2.4
UNAUDITED AUDITED UNAUDITED
--------------------------------- --------------------- PRO FORMA UNAUDITED
AT AT AT AT AT --------- -------------------
SEPT. 27, SEPT. 26, SEPT. 25, SEPT. 24, SEPT. 29, SEPT. 29, DEC. 24, DEC. 29,
1992 1993 1994 1995 1996 1996(A) 1995 1996
--------- --------- --------- --------- --------- --------- -------- --------
BALANCE SHEET DATA
Cash...................... $ 1,224 $ 318 $ 976 $ 1,138 $ 2,122 $ 10,891 $ 1,042 $ 1,820
Total assets.............. 36,390 50,353 86,777 107,655 119,125 204,530 105,120 126,761
Total debt................ 6,998 12,971 36,489 44,936 51,786 126,211 48,795 54,454
Stockholders' equity...... 11,548 14,586 17,319 23,635 17,322 17,083 24,184 17,619
UNAUDITED
PRO FORMA
----------
DEC. 29,
1996
----------
BALANCE SHEET DATA
Cash...................... $ 7,103
Total assets.............. 204,402
Total debt................ 125,504
Stockholders' equity...... 17,619
(footnotes on following page)
8
14
- ------------------------------
(a) Gives pro forma effect to the Initial Offering and the Molmec Acquisition in
the manner described under "Unaudited Pro Forma Consolidated Financial
Information".
(b) The Company in 1993 acquired a 75% interest in GL Industries of Indiana,
Inc. (d/b/a Como Products) ("Como"), a manufacturer of consumer
thermoplastic components. Net sales of Como for fiscal years 1996, 1995 and
1994 were $22.1 million, $31.8 million and $31.3 million, respectively, and
for the quarters ended in December, 1996 and 1995 were $5.6 million and $6.0
million, respectively. See Note 6, "Segment Data from Continuing Operations"
in the Notes to LDM's Consolidated Financial Statements.
(c) During the fiscal years ended September 27, 1992 and September 26, 1993, LDM
settled separate lawsuits for approximately $1.2 million and $1.4 million,
respectively, relating to an acquisition made in 1988 and the subsequent
sale or transfer of certain of the acquired business assets to LDM.
(d) EBITDA is defined as income from continuing operations before the effect of
changes in accounting principles and extraordinary items plus the following:
interest, income taxes, depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. However, EBITDA should not be considered in
isolation as a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(e) The Company's 1996 pro forma EBITDA of approximately $26.8 million includes
a $1.2 million charge related to Molmec's termination of its existing
key-man bonus program. The Company believes that this charge may be viewed
as a non-recurring item. If such charge were excluded, the Company's 1996
pro forma EBITDA would be approximately $28.0 million.
(f) Adjusted capital expenditures exclude the following items: (i) approximately
$12.0 million in capital expenditures during fiscal year 1996, approximately
$5.8 million during fiscal year 1995, approximately $1.2 million for the
three month period ended December 29, 1996, approximately $1.5 million for
the three month period ended December 24, 1995 associated with the
construction of the Company's new Design Center in Auburn Hills, Michigan,
and (ii) approximately $17.4 million in fiscal year 1994 related to the
acquisition of the Leamington, Ontario facility.
(g) For purposes of the ratio of earnings to fixed charges, (i) earnings include
income from continuing operations before the following: income taxes, the
effect of changes in accounting principles, extraordinary items, minority
interests, and fixed charges and (ii) fixed charges include interest on all
indebtedness, amortization of deferred financing costs and the portion of
rental expense that the Company believes to be representative of interest.
The December 29, 1996 and September 29, 1996 pro forma ratios of earnings to
fixed charges of 1.2 and 1.4, respectively, give effect only to the change
in interest expense related to the replacement of existing debt. The pro
forma ratio of earnings to fixed charges was 1.2 for the quarter ended
December 29, 1996 and for the year ended September 29, 1996 fixed charges
would have exceeded earnings by $0.8 million on a pro forma basis adjusted
to give effect to both the Initial Offering and the Molmec Acquisition.
9
15
RISK FACTORS
Holders of Old Notes should carefully consider the following factors set
forth below as well as the other information included in this Prospectus in
connection with the Exchange Offer. The risk factors set forth below are
generally applicable to the Old Notes as well as the New Notes.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
After giving effect to the Transactions, the Company has indebtedness which
is substantial in relation to its stockholders' equity, as well as interest and
debt service requirements which are significant compared to its cash flow from
operations. As of September 29, 1996, on a pro forma basis after giving effect
to the Transactions, the Company would have had approximately $126.2 million of
debt outstanding, including the Notes. In addition, the Company would have had
available approximately $31 million of revolving loans undrawn under the Senior
Credit Facility. For the year ended September 29, 1996, the Company's ratio of
EBITDA to interest expense was approximately 2.0 to 1 on a pro forma basis after
giving effect to the Transactions.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including, but not limited to the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for other purposes; and (ii) the
Company's ability to obtain additional debt financing in the future for working
capital, capital expenditures or acquisitions may be limited.
The Company's ability to pay interest on the Notes and to satisfy its other
obligations will depend upon its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond its control. The Company anticipates that its
operating cash flow together with available borrowings under the Senior Credit
Facility, will be sufficient to meet its operating expenses and to service
interest requirements on its debt obligations as they become due. The Company
may be required to refinance the Notes at maturity. No assurance can be given
that, if required, the Company will be able to refinance the Notes on terms
acceptable to it, if at all. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on terms acceptable to it, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- LDM -- Liquidity
and Capital Resources."
The Indenture contains certain restrictive covenants which will affect, and
in many respects significantly limit or prohibit, among other things, the
ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, make investments, engage in transactions with affiliates, create
liens, sell assets and engage in mergers and consolidations. The Senior Credit
Facility contains similar and more restrictive covenants and also requires the
Company to meet certain financial ratios and tests. These covenants may
significantly limit the operating and financial flexibility of the Company and
may limit its ability to respond to changes in its business or competitive
activities. The ability of the Company to comply with such provisions may be
affected by events beyond its control. In the event of any default under the
Senior Credit Facility, the lenders thereunder 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, the lenders thereunder could proceed against the collateral securing
the Senior Credit Facility, which consists of substantially all of the property
and assets of the Company. If the indebtedness under the Senior Credit Facility
were to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay such indebtedness and the Notes in full. See
"Description of Senior Debt -- Senior Credit Facility."
SUBORDINATION
The Notes are subordinated in right of payment to all Senior Debt of the
Company, including, as of September 29, 1996, approximately $16.2 million of
indebtedness under the Molmec Bonds (as defined) and the Arrow Bonds (as
defined) and borrowings under the Senior Credit Facility. In addition, the
Guarantee of
10
16
each Guarantor is subordinate in right of payment to all Guarantor Senior Debt
of such Guarantor, including indebtedness under the Senior Credit Facility. See
"Description of Senior Debt." In the event of the bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Debt has been paid in full
and sufficient assets may not remain to pay amounts due on any or all of the
Notes then outstanding. In certain circumstances, provisions of the Senior Debt
could prohibit payments of amounts due to holders of the Notes. See "Description
of New Notes -- Subordination." As of September 29, 1996, on a pro forma basis
after giving effect to the Transactions, the Company would have had Senior Debt
in an aggregate amount of approximately $16.2 million. Additional Senior Debt
may be incurred by the Company from time to time, subject to certain
limitations. See "Description of New Notes -- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness."
RISK OF FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence by a Guarantor of indebtedness under its Guarantee would be
subject to review under relevant federal and state fraudulent transfer laws in a
bankruptcy case or a lawsuit by or on behalf of unpaid creditors of such
Guarantor or a representative of such creditors, such as a trustee or such
Guarantor as debtor-in-possession. Management believes the indebtedness
represented by the Guarantees is being incurred for proper purposes and in good
faith, and that based on present forecasts, asset valuations and other financial
information, each Guarantor is, solvent, has sufficient capital for carrying on
its business and is able to pay its debts as they mature. Notwithstanding
management's belief, if a court were to find that, at the time of the incurrence
of indebtedness represented by a Guarantee, a Guarantor was insolvent, was
rendered insolvent by reason of such incurrence, was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, such court could, among other things, void all or a
portion of such indebtedness and/or subordinate such indebtedness to other
existing and future indebtedness of such Guarantor, the effect of which would be
to entitle such other creditors to be paid in full before any payment could be
made on the Guarantee. The measure of insolvency for purposes of the foregoing
will vary depending upon the law of the relevant jurisdiction. Generally,
however, a Guarantor would be considered insolvent for purposes of the foregoing
if the sum of its debts is greater than all its property at a fair valuation, or
if the present fair saleable value of its 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.
COMPANY STRUCTURE
LDM derived approximately 27% of its fiscal year 1996 net sales from its
subsidiaries. Any right of the holders of the Notes to participate in the assets
of a subsidiary of the Company upon any liquidation or reorganization of such
subsidiary will be subject to the prior claims of such subsidiary's creditors,
including trade creditors. Accordingly, the Notes are structurally subordinated
to all liabilities, including trade payables, of the subsidiaries of the
Company.
INTERNATIONAL OPERATIONS
LDM derived approximately 17% of its fiscal year 1996 net sales from its
indirect Canadian subsidiary, LDM Technologies Company, a Nova Scotia unlimited
liability company ("LDM Canada"). The Company's international operations are
subject to risks inherent in international business activities, including, in
particular, compliance with a variety of foreign laws and regulations,
unexpected changes in regulatory requirements, overlap of different tax
structures, foreign currency exchange rate fluctuations and general economic
conditions. See Note 6, "Segment Data from Continuing Operations" of the Notes
to LDM's Consolidated Financial Statements.
THE OEM SUPPLIER INDUSTRY
The Company competes in the North American automotive original equipment
manufacturer supplier industry. The OEM supplier industry is highly cyclical
and, in large part, dependent upon the overall strength of consumer demand for
light trucks and passenger cars. There can be no assurance that the automotive
11
17
industry for which the Company supplies components and systems will not
experience downturns in the future. An economic recession typically impacts
substantially leveraged companies such as the Company more than similarly
situated companies with less leverage. A decrease in overall consumer demand for
light trucks or passenger cars could have a material adverse effect on the
Company's financial condition and results of operations.
The automotive industry is characterized by a small number of OEM customers
that are able to exert considerable pressure on component and system suppliers
to reduce costs, improve quality and provide additional design and engineering
capabilities. In the past, OEMs have generally demanded and received price
reductions and measurable increases in quality by implementing competitive
selection processes, rating programs and various other arrangements. Also,
through increased partnering on platform work, OEMs have generally required
component and system suppliers to provide more design engineering input at
earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. There can be no assurance that
future price reductions, increased quality standards or additional engineering
capabilities required by OEMs will not have a material adverse effect on the
financial condition or results of operations of the Company.
COMPETITION
The Company operates in an industry which is highly competitive. There can
be no assurance that the Company's products will continue to compete
successfully with the products of competitors, including the automotive OEMs
themselves, many of which are significantly larger and have greater financial
and other resources than the Company. Management believes that the Company's
experience in design engineering and implementing cost reduction programs and
its ability to control manufacturing and development costs should allow the
Company's product prices to remain competitive. However, there can be no
assurance that the Company will be able to improve or maintain its profit
margins on sales to OEM customers. See "Business -- Competition".
RELIANCE ON PRINCIPAL CUSTOMERS
Sales to the Company's two largest customers, Ford and General Motors,
accounted for approximately 43% and 30%, respectively, of the Company's pro
forma consolidated net product sales in fiscal year 1996. Although the Company
has ongoing supply relationships with Ford and General Motors, there can be no
assurance that sales to these customers will continue at the same levels.
Furthermore, continuation of these relationships is dependent upon the
customers' satisfaction with the price, quality and delivery of the Company's
products. While management believes its relationships with its customers are
mutually satisfactory, if any of these customers were to reduce substantially or
discontinue their purchases from the Company, the financial condition and
results of operations of the Company would be materially adversely affected. See
"Business -- Customers".
INTEGRATION OF MOLMEC
As a result of the Molmec Acquisition, management will have to integrate
into its current business a large, complex manufacturing operation. Management
believes that it has or can obtain the resources necessary to integrate this
business and capitalize on the strengths of Molmec. Integration of the Molmec
business is, however, subject to numerous contingencies, many of which are
beyond management's control. Accordingly, no assurance can be given that the
Company will be able to successfully integrate the Molmec business. If the
Company is not successful in integrating the Molmec business with LDM's
business, it could have a materially adverse effect on the Company's financial
condition and results of operation. See "Business -- The Molmec Acquisition".
CONTROL BY PRINCIPAL SHAREHOLDERS
Richard J. Nash and Joe Balous, each a founder, director and shareholder of
the Company (the "Shareholders"), hold beneficially all of the outstanding
capital stock of the Company. Circumstances may
12
18
occur in which the interests of the Shareholders could be in conflict with the
interests of the holders of the Notes. For example, if the Company encounters
financial difficulties, or is unable to pay certain of its debts as they mature,
the interests of the Shareholders might conflict with those of the holders of
the Notes. In addition, the Shareholders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risks to the holders of the Notes.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide variety of
international, federal, state and local laws and regulations, including those
governing the use, storage, handling, generation, treatment, emission, release,
discharge and disposal of certain materials, substances and wastes, the
remediation of contaminated soil and groundwater, and the health and safety of
employees (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to such
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims.
The Company has taken steps, including the installation of a Facilities
Coordinator, to reduce the environmental risks associated with its operations
and believes that it is currently in substantial compliance with applicable
Environmental Laws. Currently, the Company is involved in negotiations with the
State of Ohio Environmental Protection Agency ("OEPA") concerning air emissions
from the Byesville, Ohio facility. The Company has installed control equipment
and conducted air compliance inspections to bring the operations into compliance
with applicable Environmental Laws. The Company is in the process of negotiating
a consent decree with OEPA to settle a civil penalty for past air permitting and
emissions violations. In addition, the Company has received a notice of
violation letter from OEPA for past violations of air pollution control laws at
the Company's Circleville, Ohio facility. Under the applicable Environmental
Laws, the government can seek civil penalties. The Company has reserved
approximately $250,000 to cover liabilities associated with these two matters;
however, no assurance can be given that the actual amount of these liabilities
will not exceed this reserve.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA") and similar state laws impose liability, without
regard to fault or to the legality of the original action, on certain classes of
persons (referred to as potentially responsible parties or "PRPs") associated
with the release or threat of release of certain hazardous substances into the
environment. Generally, liability to the government under CERCLA is joint and
several. Financial responsibility for the remediation of contaminated property
or for natural resource damages can extend to properties owned by third parties.
The Company has received a letter dated October 30, 1996 from a group of
corporations which has entered into an agreement with the United States
Environmental Protection Agency ("EPA") to prepare a remedial design for curing
a failed third-party landfill site in Circleville, Ohio. This letter alleges
that the Company is a PRP under CERCLA in connection with the historic disposal
of hazardous substances at the landfill. The Company has also received a letter
dated December 6, 1996 from a PRP having potential liability with respect to a
failed third-party landfill site in Byesville, Ohio. The letter provides notice
of a private contribution action relating to the Company's alleged PRP liability
under CERCLA in connection with the historic disposal of hazardous substances at
the landfill. The Company is currently investigating these claims but has no
reason to believe that any liability associated with these claims will have a
material effect on the Company's financial position or results of operations.
Based upon its experience to date, the Company believes that the future
cost of compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Laws, will occur over a number of years
and not have a material adverse effect on the Company's financial position or
results of operations. However, future events, such as new information, changes
in existing Environmental Laws or their interpretation, and more vigorous
enforcement by regulatory authorities, may give rise to additional expenditures
or liabilities that could be material.
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SEASONALITY
The Company's automotive business is subject to seasonal fluctuations and,
historically, the Company has reported lower net sales and profitability in its
fiscal fourth quarter due principally to the closure of many automotive OEM
facilities in July due to model changeover and summer vacation.
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act and applicable state laws, or
pursuant to an exemption therefrom. Subject to the obligation by the Company to
file a Shelf Registration Statement covering resales of Old Notes in certain
circumstances, the Company does not intend to register the Old Notes under the
Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Additionally, as a
result of the Exchange Offer, it is expected that a substantial decrease in the
aggregate principal amount of Old Notes outstanding will occur. As a result, it
is unlikely that a liquid trading market will exist for the Old Notes at any
time. This lack of liquidity will make transactions more difficult and may
reduce the trading price of the Old Notes. See "The Exchange Offer" and "Old
Notes; Registration Rights."
ABSENCE OF PUBLIC MARKET
There is no existing market for the New Notes and, although the Notes have
been approved for trading in the PORTAL Market upon issuance to "qualified
institutional buyers" (as defined in Rule 144A), there can be no assurance as to
the liquidity of any markets that may develop for the Notes, the ability of
holders to sell the Notes or the price at which holders would be able to sell
the Notes. Future trading prices of the New Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. Historically, the
market for securities similar to the New Notes, including non-investment grade
debt, has been subject to disruptions that have caused substantial volatility in
the prices of such securities. There can be no assurance that any market for the
New Notes, if such market develops, will not be subject to similar disruptions.
The Initial Purchaser has advised the Company that it currently intends to make
a market in the New Notes offered hereby. However, the Initial Purchaser is not
obligated to do so and any market making may be discontinued at any time without
notice.
USE OF PROCEEDS OF NEW NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby. In consideration
for issuing the New Notes as contemplated in this Prospectus, the Company will
receive, in exchange, Old Notes in like principal amount. The form and terms of
the New Notes are identical in all material respects to the form and terms of
the Old Notes, except as otherwise described herein under "The Exchange
Offer--Terms of the Exchange Offer." The Old Notes surrendered in exchange for
the New Notes will be retired and cancelled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase in the outstanding
debt of the Company.
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CAPITALIZATION
The following table sets forth the cash and the capitalization of LDM at
September 29, 1996, on a historical basis, and of the Company, on an as adjusted
basis, giving effect to the Initial Offering and application of the net proceeds
therefrom and the Molmec Acquisition. The historical and as adjusted data should
be read in conjunction with the historical financial statements of LDM and the
Unaudited Pro Forma Consolidated Financial Information of the Company included
elsewhere herein.
AS OF SEPTEMBER 29, 1996
(DOLLARS IN THOUSANDS)
---------------------------
HISTORICAL AS ADJUSTED
---------- -----------
Cash................................................ $ 2,122 $ 10,891
======= ========
Short-term borrowings............................... $21,023 $ 1,889
Long-term debt, including current portion:
Senior Credit Facility(1)......................... -- --
Other long-term debt.............................. 30,763 14,322
10 3/4% Senior Subordinated Notes due 2007........ -- 110,000
------- --------
Total long-term debt, including current
portion...................................... 30,763 124,322
Stockholders' equity................................ 17,322 17,083
------- --------
Total capitalization........................... $69,108 $143,294
======= ========
- ------------------------------
(1) The Senior Credit Facility provides borrowings of up to $31 million of
revolving loans for working capital, capital expenditures and general
corporate purposes and is secured by liens on substantially all of the
assets of the Company. See "Description of Senior Debt -- Senior Credit
Facility".
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement by and among the Company, the
Guarantors and the Initial Purchaser, the Company has agreed (i) to file a
registration statement with respect to an offer to exchange the Old Notes for
New Notes of the Company with terms substantially identical to the Old Notes
(except that the New Notes will not contain terms with respect to transfer
restrictions) within 30 days after the date of original issuance of the Old
Notes and (ii) to use best efforts to cause such registration statement to
become effective under the Securities Act within 90 days after such issue date.
In the event that applicable law or interpretations of the staff of the
Commission do not permit the Company to file the registration statement
containing this Prospectus or to effect the Exchange Offer, or if certain
holders of the Old Notes notify the Company that they are not permitted to
participate in, or would not receive freely tradeable New Notes pursuant to, the
Exchange Offer, the Company will use its best efforts to cause to become
effective a Shelf Registration Statement with respect to the resale of the Old
Notes and to keep the Shelf Registration Statement effective until three years
after the effective date thereof. The interest rate on the Old Notes is subject
to increase under certain circumstances if the Company is not in compliance with
its obligations under the Registration Rights Agreement. See "Old Notes;
Registration Rights."
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company
or, if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. See "Old
Notes; Registration Rights."
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RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, the Company believes that, except as
described below, New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than a holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such New Notes. Any holder who tenders in the Exchange Offer with the
intention or for the purpose of participating in a distribution of the New Notes
cannot rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Unless an
exemption from registration is otherwise available, any such resale transaction
should be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K under the
Securities Act. This Prospectus may be used for an offer to resell, resale or
other retransfer of New Notes only as specifically set forth herein. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $110 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Old Notes which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Indenture and the Registration Rights
Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Old Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the provisions of Section 2 of
the Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the New Notes from the Company.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions specified below under
"--Certain Conditions to the Exchange Offer."
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Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See --"Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
- --"Certain Conditions to the Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of Old Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 10 3/4% per annum, payable
semi-annually, on each January 15 and July 15, commencing July 15, 1997. Holders
of New Notes will receive interest on July 15, 1997 from the date of initial
issuance of the New Notes, plus an amount equal to the accrued interest on the
Old Notes from the most recent date to which interest has been paid to the date
of exchange thereof for New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
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 exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the
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Company. Any Old 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 Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above under "--Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old 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.
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 sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any 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 Old Notes
tendered, and no New Notes will be issued in exchange for any such Old 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 (the
"TIA").
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. In addition, either
(i) Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at the Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under --"Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Old Notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
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ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder of Old Notes. The transfer of registered
ownership may take considerable time and may not be able to be completed prior
to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter Transmittal or a notice of withdrawal, as the case may be, are required
to be guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of Notes or a timely Book-Entry Confirmation of such Old
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 Old Notes are not accepted for exchange for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
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BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of the Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the address
set forth below under "--Exchange Agent" on or prior to the Expiration Date or,
if the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
(3) New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the Old Notes 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
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered 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 three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on 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 Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes were registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the
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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 Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old 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 Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" above at any time on or
prior to the Expiration Date.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent of
the Exchange Offer. Questions and request for assistance, request for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
IBJ SCHRODER BANK & TRUST COMPANY
By Mail: Telephone Number: By Hand or Overnight Delivery:
P.O. Box 84 (212) 858-2103 One State Street
Bowling Green Station New York, N.Y. 10004
New York, N.Y. 10274-0084 Facsimile Number: Attention: Reorganization
Attention: Reorganization Operations Department,
Operations Department (212) 858-2611 Securities Processing Window,
Attention: Reorganization Subcellar One (SC-1)
Operations Department
Telex: 177754
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Old Notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of Notes tendered, or if tendered Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory
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evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old 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
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission, New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes (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. In addition, to comply with
the securities laws of certain jurisdictions, if applicable, the New Notes may
not be offered or sold unless they have been registered or complied with. The
Company has agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the New Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the New Notes reasonably requests in writing.
22
28
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- FISCAL YEAR 1996
The following unaudited pro forma condensed consolidated statement of
operations of the Company, for the fiscal year ended September 29, 1996, gives
effect to the Molmec Acquisition and the Initial Offering as if such events had
occurred on September 25, 1995. The following unaudited pro forma condensed
consolidated balance sheet at September 29, 1996 gives effect to the Molmec
Acquisition and the Initial Offering as if such events had occurred on that
date. The unaudited pro forma consolidated financial information does not
purport to represent what the Company's financial position or results of
operations would actually have been had the transactions occurred on the dates
indicated above or to project the Company's financial position or results of
operations for any future date or period. This unaudited pro forma consolidated
financial information should be read in conjunction with the accompanying notes
and with the historical financial statements of LDM and Molmec, including the
notes thereto, and the information set forth in "Summary Financial Data",
"Selected Financial Data", "Management's Discussion and Analysis of Operations
and Financial Condition -- LDM" and "Management's Discussion and Analysis of
Operations and Financial Condition -- Molmec", all included elsewhere herein.
The Company's 1996 pro forma EBITDA of approximately $26.8 million includes
a $1.2 million charge related to Molmec's termination of its existing key-man
bonus program. The Company believes that this charge may be viewed as a
non-recurring item. If such charge were excluded, the Company's 1996 pro forma
EBITDA would be approximately $28.0 million.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 29, 1996
(DOLLARS IN THOUSANDS)
MOLMEC
LDM MOLMEC MOLMEC PRO FINANCING
HISTORICAL HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS PRO FORMA
---------- ---------- ----------- --------- ----------- ---------
Net sales:
Product sales................ $192,471 $81,052 $81,052 $273,523
Mold sales................... 25,288 7,595 7,595 32,883
-------- ------- ------- --------
217,759 88,647 88,647 306,406
Cost of sales:
Product cost of sales........ 160,094 61,780 $ 1,058(a) 62,838 222,932
Mold cost of sales........... 22,802 6,927 6,927 29,729
-------- ------- ------- ------- --------
182,896 68,707 1,058 69,765 252,661
-------- ------- ------- ------- --------
Gross profit................... 34,863 19,940 (1,058) 18,882 53,745
Selling, general and
administrative expenses...... 26,418 12,440 1,564(b) 14,004 40,422
-------- ------- ------- ------- --------
Operating profit............. 8,445 7,500 (2,622) 4,878 13,323
Interest expense............... 3,280 1,461 (1,141)(c) 320 $ 9,667(e) 13,267
Other expense, net............. 57 57
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before income
taxes and minority
interests................. 5,108 6,039 (1,481) 4,558 (9,667) (1)
Provision for income taxes..... 4,014 1,823(d) 1,823 (3,867)(f) 1,970
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before minority
interests.................... 1,094 6,039 (3,304) 2,735 (5,800) (1,971)
Minority interest.............. 79 79
-------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before accounting
change and extraordinary
item......................... $ 1,173 $ 6,039 $(3,304) $ 2,735 $(5,800) $ (1,892)
======== ======= ======= ======= ======= ========
23
29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 29, 1996
(DOLLARS IN THOUSANDS)
ACQUISITION
LDM MOLMEC AND VALUATION FINANCING
HISTORICAL HISTORICAL OF MOLMEC ADJUSTMENTS PRO FORMA
---------- ---------- ------------- ----------- ---------
ASSETS
Current Assets:
Cash............................. $ 2,122 $(55,390)(g) $ 64,159(n) $ 10,891
Accounts receivable (less
allowance for doubtful
accounts)..................... 35,481 $11,859 47,340
Inventories...................... 11,833 3,364 671(h) 15,868
Mold costs....................... 7,129 578 7,707
Other current assets............. 1,648 443 2,091
-------- ------- -------- -------- --------
Total current assets............... 58,213 16,244 (54,719) 64,159 83,897
Property, plant, and equipment,
net.............................. 58,956 15,241 5,100(i) 79,297
Molmec goodwill.................... 34,456(j) 34,456
Other assets....................... 1,956 588 (350)(k) 4,686(o) 6,880
-------- ------- -------- -------- --------
$119,125 $32,073 $(15,513) $ 68,845 $204,530
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings............ $ 21,023 $ 544 $ (544)(l) $(19,134)(p) $ 1,889
Accounts payable................. 30,834 9,397 40,231
Accrued liabilities.............. 11,800 1,640 13,440
Advance payments from
customers..................... 3,661 3,661
Income taxes payable............. 2,459 (160)(q) 2,299
Current maturities of long-
term debt..................... 28,742 1,595 (1,395)(l) (28,282)(p) 660
-------- ------- -------- -------- --------
Total current liabilities.......... 98,519 13,176 (1,939) (47,576) 62,180
Long-term debt due after one
year............................. 2,021 9,183 (4,202)(l) 110,000(r) 123,662
6,660(p)
Deferred income taxes.............. 841 841
Minority interests................. 422 422
Other long-term liabilities........ 342 342
Stockholders' equity............... 17,322 9,372 (9,372)(m) (239)(q) 17,083
-------- ------- -------- -------- --------
$119,125 $32,073 $(15,513) $ 68,845 $204,530
======== ======= ======== ======== ========
24
30
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION -- FISCAL YEAR 1996
(DOLLARS IN THOUSANDS)
(a) To increase Molmec's cost of sales by $523 to reflect the first-in,
first-out method of accounting for inventory costs and to increase
depreciation expense by $535 as a result of the allocation of the purchase
price of Molmec.
(b) Reflects (i) amortization of goodwill, amounting to $2,297, from the
acquisition of Molmec, assuming a 15 year amortization period, less (ii)
assumed savings of $733 from a planned reduction of personnel.
(c) To reduce pro forma interest expense for the interest on Molmec debt
obligations not assumed by LDM.
(d) To provide income taxes on the pro forma pretax income of Molmec using an
assumed effective tax rate of 40%.
(e) Represents the incremental interest expense, using an interest rate of
10 3/4%, on the Notes, the amortization of additional debt issuance costs,
and the additional fees associated with the Senior Credit Facility.
(f) Tax effect of incremental of pro forma adjustments to pretax income using an
incremental income tax rate of 40%.
(g) Reflects the assumed cash acquisition cost of Molmec, including costs
related to the Acquisition.
(h) To adjust Molmec inventory to the first-in, first-out method of accounting
for inventory costs.
(i) To adjust property, plant and equipment of Molmec to fair value.
(j) To record goodwill related to the acquisition of Molmec, amounting to
$34,456.
(k) To eliminate Molmec assets not acquired.
(l) To adjust for Molmec debt obligations not assumed by LDM.
(m) To eliminate the historical stockholders' equity of Molmec.
(n) Cash proceeds from the Notes, net of debt issuance costs and debt assumed to
be repaid with the proceeds from the Notes.
(o) Incremental debt issuance costs related to the Notes and the Senior Credit
Facility.
(p) Reflects the elimination of debt assumed to be repaid with the proceeds from
the Notes and the reclassification to long-term of the Multi-Option
Adjustable Rate Notes assuming a replacement letter of credit is obtained.
(q) To write off debt issuance costs related to debt repaid with the proceeds
from the Notes along with the applicable income tax effect.
(r) Reflects the increase in debt related to borrowings on the Notes.
25
31
UNAUDITED PRO FORMA CONSOLIDATED INTERIM FINANCIAL INFORMATION --
THREE MONTH PERIOD ENDED DECEMBER 29, 1996
The following unaudited pro forma condensed consolidated statement of
operations of the Company, for the three month period ended December 29, 1996,
gives effect to the Molmec Acquisition and the Initial Offering as if such
events had occurred on September 30, 1996. The following unaudited pro forma
condensed consolidated balance sheet at December 29, 1996 gives effect to the
Molmec Acquisition and the Initial Offering as if such events had occurred on
that date. The unaudited pro forma consolidated financial information does not
purport to represent what the Company's financial position or results of
operations would actually have been had the transactions occurred on the dates
indicated above or to project the Company's financial position or results of
operations for any future date or period. This unaudited pro forma consolidated
financial information should be read in conjunction with the accompanying notes
and with the historical financial statements of LDM and Molmec, including the
notes thereto, and the information set forth in "Summary Financial Data",
"Selected Financial Data", "Management's Discussion and Analysis of Operations
and Financial Condition -- LDM" and "Management's Discussion and Analysis of
Operations and Financial Condition -- Molmec", all included elsewhere herein.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
LDM MOLMEC MOLMEC MOLMEC FINANCING
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ---------- ----------- --------- ----------- ---------
Net sales:
Product sales................. $51,059 $19,610 $ $19,610 $ $70,669
Mold sales.................... 1,206 1,934 1,934 3,140
------- ------- ------- ------- ------- -------
52,265 21,544 21,544 73,809
Cost of sales:
Product cost of sales......... 43,525 14,681 134(a) 14,815 58,340
Mold cost of sales............ 792 1,828 1,828 2,620
------- ------- ------- ------- ------- -------
44,317 16,509 134 16,643 60,960
------- ------- ------- ------- ------- -------
Gross margin.................... 7,948 5,035 (134) 4,901 12,849
Selling, general and
administrative expenses....... 6,263 2,390 388(b) 2,778 9,041
------- ------- ------- ------- ------- -------
Operating profit.............. 1,685 2,645 (522) 2,123 3,808
Interest expense................ 1,361 194 (119)(c) 75 1,980(e) 3,416
Other expense, net.............. (294) (294)
------- ------- ------- ------- ------- -------
Income from continuing
operations before income taxes
and minority interest......... 618 2,451 (403) 2,048 (1,980) 686
Provision for income taxes...... 353 (819)(d) 819 (792)(f) 380
------- ------- ------- ------- ------- -------
Income from continuing
operations before minority
interest and extraordinary
item.......................... 265 2,451 (1,222) 1,229 (1,188) 306
Minority interest
(income)/loss................. 51 51
------- ------- ------- ------- ------- -------
Net income...................... $ 316 $ 2,451 $(1,222) $ 1,229 $(1,188) $ 357
======= ======= ======= ======= ======= =======
26
32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
ACQUISITION
LDM MOLMEC AND VALUATION FINANCING
HISTORICAL HISTORICAL OF MOLMEC ADJUSTMENTS PRO FORMA
---------- ---------- ------------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents........ $ 2,199 $ 751 $(57,040)(g) $ 61,193(n) $ 7,103
Trade accounts receivable, less
allowance for doubtful
accounts)..................... 30,514 9,838 40,352
Inventories...................... 13,235 2,406 673(h) 16,314
Mold costs....................... 13,965 161 14,126
Other current assets............. 1,518 318 1,836
-------- ------- -------- -------- --------
Total current assets.......... 61,431 13,474 (56,367) 61,193 79,731
Property, plant, and equipment less
accumulated depreciation......... 62,378 14,916 5,000(i) 82,294
Molmec goodwill.................... 34,255(j) 34,255
Other assets....................... 2,952 575 (575)(k) 5,170(o) 8,122
-------- ------- -------- -------- --------
Totals........................ $126,761 $28,965 $(17,687) $ 66,363 $204,402
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings............ $ 24,900 $ 1,044 $ (1,044)(l) $(23,266)(p) $ 1,634
Accounts payable................. 32,794 5,617 38,411
Accrued liabilities.............. 7,420 974 8,394
Advance mold payments from
customers..................... 11,229 11,229
Income taxes payable............. 2,053 2,053
Current maturities of long-
term debt..................... 27,687 1,600 (1,300)(l) (26,971)(p) 1,016
-------- ------- -------- -------- --------
Total current liabilities..... 106,083 9,235 (2,344) (50,237) 62,737
Long-term debt net of current
portion.......................... 1,867 7,907 (3,520)(l) 116,600(q) 122,854
Deferred income taxes.............. 821 821
Minority interest in
subsidiaries..................... 371 371
Stockholders' equity............... 17,619 11,823 (11,823)(m) 17,619
-------- ------- -------- -------- --------
Totals........................ $126,761 $28,965 $(17,687) $ 66,363 $204,402
======== ======= ======== ======== ========
27
33
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
INTERIM FINANCIAL INFORMATION -- THREE MONTH PERIOD ENDED
DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
(a) To increase Molmec's cost of sales to reflect increased depreciation expense
of $134 as a result of the allocation of the purchase price of Molmec.
(b) Reflects (i) amortization of goodwill, amounting to $571, from the
acquisition of Molmec, assuming a 15 year amortization period, less (ii)
assumed savings of $183 from a planned reduction of personnel.
(c) To reduce pro forma interest expense for the interest on Molmec debt
obligations not assumed by LDM.
(d) To provide income taxes on the pro forma pretax income of Molmec using an
assumed effective tax rate of 40%.
(e) Represents the incremental interest expense, using an interest rate of
10 3/4%, on the Notes, the amortization of additional debt issuance costs,
and the fees associated with the Senior Credit Facility.
(f) Tax effect of incremental pro forma adjustments to pretax income using an
incremental income tax rate of 40%.
(g) Reflects the assumed cash acquisition cost of Molmec, including costs
related to the Acquisition.
(h) To adjust Molmec inventory to the first-in, first-out method of accounting
for inventory costs.
(i) To adjust the property, plant and equipment of Molmec to fair value.
(j) To record goodwill related to the Molmec transaction, amounting to $34,225.
(k) To eliminate Molmec assets not acquired.
(l) To adjust for Molmec debt obligations not assumed by LDM.
(m) To eliminate the historical stockholder's equity of Molmec.
(n) Cash proceeds from the Notes, net of debt issuance costs and debt assumed to
be repaid with the proceeds from the Notes.
(o) Incremental debt issuance costs related to the Notes and the Senior Credit
Facility.
(p) Reflects the elimination of debt assumed to be repaid with the proceeds of
the Notes and the reclassification to long-term of the Multi-Option
Adjustable Rate Notes assuming a replacement letter of credit is obtained.
(q) Reflects the addition of the $110,000, 10 3/4% notes and the
reclassification of current maturities of long-term debt to long-term debt.
28
34
SELECTED FINANCIAL DATA -- LDM
(DOLLARS IN THOUSANDS)
The following table sets forth selected historical financial data of LDM
Technologies, Inc. for the fiscal years ended September 27, 1992, September 26,
1993, September 25, 1994, September 24, 1995 and September 29, 1996 and the
quarters ended December 24, 1995 and December 29, 1996. The selected financial
data for fiscal years 1994, 1995 and 1996 were derived from the audited
consolidated financial statements of LDM included elsewhere in this Prospectus.
The selected financial data for fiscal years 1992 and 1993 and the quarters
ended December 24, 1995 and December 29, 1996 were derived from the unaudited
consolidated financial statements of LDM. The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- LDM" and the historical consolidated financial
statements of LDM presented elsewhere in this Prospectus.
YEAR ENDED
-----------------------------------------------------------------------------
UNAUDITED AUDITED
----------------------------- ---------------------------------------------
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA
Net sales(a)................ $76,243 $110,251 $177,597 $220,991 $217,759
Cost of sales............... 59,456 90,674 151,692 182,408 182,896
Gross profit................ 16,787 19,577 25,905 38,584 34,863
Selling, general and
administrative expenses... 14,735 14,679 17,137 23,515 26,418
Operating profit............ 2,052 4,898 8,768 15,069 8,444
Interest expense............ 339 779 2,144 3,178 3,280
Income from continuing
operations, before
extraordinary items(b).... 600 3,026 2,570 6,248 1,173
OTHER FINANCIAL DATA
EBITDA(c)................... $ 4,820 $ 8,228 $ 15,110 $ 21,261 $ 16,473
Depreciation and
amortization.............. 3,680 3,810 6,593 6,778 8,006
Capital expenditures........ 1,900 4,000 29,023 15,150 20,286
Adjusted capital
expenditures(d)........... 1,900 4,000 11,594 9,340 8,360
Ratio of earnings to fixed
charges(e)................ 2.9 5.3 3.5 3.9 1.9
Ratio of EBITDA to interest
expense................... 14.2 10.6 7.1 6.7 5.0
QUARTER ENDED
---------------------------
UNAUDITED
---------------------------
DECEMBER 24, DECEMBER 29,
1995 1996
------------ ------------
STATEMENT OF OPERATIONS DATA
Net sales(a)................ $ 53,147 $ 52,265
Cost of sales............... 44,950 44,317
Gross profit................ 8,197 7,948
Selling, general and
administrative expenses... 6,727 6,263
Operating profit............ 1,470 1,685
Interest expense............ 899 1,361
Income from continuing
operations, before
extraordinary items(b).... (157) 316
OTHER FINANCIAL DATA
EBITDA(c)................... $ 3,109 $ 4,008
Depreciation and
amortization.............. 1,720 1,978
Capital expenditures........ 3,349 5,300
Adjusted capital
expenditures(d)........... 1,827 4,059
Ratio of earnings to fixed
charges(e)................ 1.4 1.4
Ratio of EBITDA to interest
expense................... 3.46 2.94
UNAUDITED AUDITED UNAUDITED
--------------------------------------------- ----------------------------- ------------
AT AT AT AT AT AT
SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29, DECEMBER 24,
1992 1993 1994 1995 1996 1995
------------- ------------- ------------- ------------- ------------- ------------
BALANCE SHEET DATA
Cash........................ $ 1,224 $ 318 $ 976 $ 1,138 $ 2,122 $ 1,042
Total assets................ 36,390 50,353 86,777 107,655 119,125 105,120
Total debt.................. 6,998 12,971 36,489 44,936 51,786 48,795
Stockholders' equity........ 11,548 14,586 17,319 23,635 17,322 24,184
UNAUDITED
------------
AT
DECEMBER 29,
1996
------------
BALANCE SHEET DATA
Cash........................ $ 1,820
Total assets................ 126,761
Total debt.................. 54,454
Stockholders' equity........ 17,619
- ------------------------------
(a) In 1993, the Company acquired a 75% interest in Como, a manufacturer of
consumer thermoplastic components. Net sales of Como for fiscal years 1996,
1995 and 1994 were $22.1 million, $31.8 million, and $31.3 million,
respectively, and for the quarters ended in December, 1996 and 1995 were
$5.6 million and $6.0 million, respectively. See Note 6, "Segment Data from
Continuing Operations" in the Notes to LDM's Consolidated Financial
Statements.
(b) During the fiscal years ended September 27, 1992 and September 26, 1993, LDM
settled separate lawsuits for approximately $1.2 million and $1.4 million,
respectively, relating to an acquisition made in 1988 and the subsequent
sale or transfer of certain of the acquired business assets to LDM.
(c) EBITDA is defined as income from continuing operations before the effect of
changes in accounting principles and extraordinary items plus the following:
interest, income taxes, depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. However, EBITDA should not be considered in
isolation as a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(d) Adjusted capital expenditures exclude the following items: (i) approximately
$12.0 million in capital expenditures during fiscal year 1996, approximately
$5.8 million during fiscal year 1995, approximately $1.2 million for the
three month period ended December 29, 1996, and approximately $1.5 million
for the three month period ended December 24, 1995 associated with the
construction of the Company's new Design Center in Auburn Hills, Michigan,
and (ii) approximately $17.4 million in fiscal year 1994 related to the
acquisition of the Leamington, Ontario facility.
(e) For purposes of the ratio of earnings to fixed charges, (i) earnings include
earnings from continuing operations before the following: income taxes,
minority interests, the effect of changes in accounting, extraordinary items
and fixed charges and (ii) fixed charges include interest on all
indebtedness, amortization of deferred financing costs and the portion of
rental expense that the Company believes to be representative of interest.
29
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LDM
GENERAL
LDM is a leading Tier I designer and manufacturer of highly engineered
plastic instrument panel and exterior components supplied primarily to North
American automotive OEMs. LDM supplies components and subassemblies for a
variety of light duty trucks, sport utility vehicles, minivans and passenger
cars, including: Ford's F-series truck, Expedition and Explorer sport utility
vehicles, Windstar minivan, and Contour/Mystique and Taurus/Sable passenger
cars; General Motors' Sonoma, Blazer, and Jimmy sport utility vehicles, and
Grand Prix/Cutlass, Cadillac Deville and Seville passenger cars; Volkswagen's
Golf/Jetta passenger cars; and Chrysler's Dakota light truck, Caravan/Voyager
minivan and Neon passenger car. LDM is a privately held Michigan corporation
incorporated in 1985 to pursue acquisitions in the automotive industry. In
addition to automotive products, LDM's net sales include consumer product sales
and mold sales. Molds used in LDM's operations are requisitioned by LDM's
customers and are purchased from mold builders who design and construct the
molds under LDM supervision. Upon delivery and acceptance of the molds, title is
passed to customers and revenue is recognized.
RESULTS OF CONTINUING OPERATIONS
YEAR ENDED SEPTEMBER 29, 1996 COMPARED TO YEAR ENDED SEPTEMBER 24, 1995
NET SALES: Net sales for fiscal year 1996 were $217.8 million, a decrease of
$3.2 million, or 1.5%, from $221.0 million in fiscal year 1995. For fiscal year
1996, net sales, before intersegment eliminations of $2.3 million, were
comprised of $173.3 million of automotive product sales, $21.5 million of
consumer and other product sales, and $25.3 million of mold sales.
Automotive product sales in fiscal year 1996 were $173.3 million, a
decrease of $10.5 million, or 5.7%, from $183.8 million in fiscal year 1995.
This decrease was principally due to LDM's ceasing production of certain
products related to the General Motors Blazer, Ford Taurus/Sable and the
Volkswagen Golf/Jetta. The reductions in these programs were partially offset by
product launches related to the Ford F-Series truck, General Motors Grand
Prix/Cutlass, and the Cadillac Deville/Concourse. Consumer and other product
sales were $21.5 million, a decrease of $9.2 million, or 29.9%, from $30.7
million in fiscal year 1995. This decline was primarily attributable to a
decline in television housing sales to a television manufacturer due to adverse
market conditions and a decline in television housing sales to a television
manufacturer that resourced the product to a local supplier. Mold sales were
$25.3 million, an increase of $18.6 million, from $6.7 million in fiscal year
1995. The increase in mold sales in fiscal year 1996 was principally due to new
platform launches associated with the Contour/Mystique, Sonoma/Blazer, Bravada,
Cadillac Deville/Concourse and Grand Prix/Cutlass.
GROSS MARGIN: Gross profit for fiscal year 1996 was $34.9 million, or 16.0% of
net sales, compared to $38.6 million, or 17.5% of net sales, for fiscal year
1995. Gross profit from automotive operations in the United States was $33.4
million, or 20.9% of net sales, for fiscal year 1996, compared to $30.4 million,
or 19.7% of net sales, for fiscal year 1995. This increase was principally due
to favorable changes in material cost. The gain in the United States was offset
by a decrease in the gross profit of the Company's Canadian automotive
operations. Gross profit (loss) for the Company's Canadian operations for fiscal
year 1996 was ($0.2 million), or 0.5% of net sales, compared to $4.0 million, or
11.5% of net sales for fiscal year 1995. This decrease was driven by higher
scrap and labor costs resulting from the launch of products at the Company's
Leamington, Ontario facility related to the General Motors Grand Prix/Cutlass
and Cadillac Deville/Concourse programs. The higher scrap also caused a capacity
shortage in certain tonnage machines resulting in increased outsourcing costs.
Gross profit from consumer and other products was $1.6 million, or 7.3% of net
sales, for fiscal year 1996, compared to $4.2 million, or 13.1% of net sales,
for fiscal year 1995. This decrease was primarily attributable to a 29.9%
decrease in consumer product sales during this period.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for fiscal
year 1996 were $26.4 million, or 12.1% of net sales, compared to $23.5 million,
or 10.6% of net sales for fiscal year 1995. The
30
36
increase in SG&A expenses as a percentage of net sales is primarily attributable
to increased design, engineering, and program management personnel costs.
INTEREST EXPENSE: Interest expense for fiscal year 1996 was $3.3 million, or
1.5% of net sales, compared to $3.2 million, or 1.4% of net sales, for fiscal
year 1995.
INCOME TAXES: The provision for income taxes for the fiscal year ended 1996 was
$4.0 million with an effective tax rate of 78.6%, as compared to $5.1 million
with an effective tax rate of 43.8% in fiscal year 1995. The increase in the
effective tax rate in fiscal year 1996 was the result of the Company not
utilizing Canadian net operating losses and an Internal Revenue Service
settlement of prior year taxes. See Note 8, "Income Taxes" in the Notes to LDM's
Consolidated Financial Statements.
YEAR ENDED SEPTEMBER 24, 1995 COMPARED TO YEAR ENDED SEPTEMBER 25, 1994
NET SALES: Net sales for fiscal year 1995 were $221.0 million, an increase of
$43.4 million, or 24.4%, from $177.6 million in fiscal year 1994. For fiscal
year 1995, net sales, before intersegment eliminations of $0.2 million, were
comprised of $183.8 million of automotive product sales, $30.7 million of
consumer and other product sales, and $6.7 million of mold sales.
Automotive product sales were $183.8 million, an increase of $60.1 million,
or 48.6%, from $123.7 million in fiscal year 1994. This increase was principally
due to a full year's production of parts related to the Ford Contour/Mystique
and General Motors' Blazer and Sonoma. LDM also began the production of parts
related to the Ford F-Series truck and the Ford T-bird/Cougar, formerly
manufactured by one of the Company's competitors. As a result of production
problems experienced by this competitor, Ford requested that LDM assume
responsibility for these parts during the OEM's production run for these models.
Consumer and other sales were $30.7 million, an increase of $0.1 million, or
0.3%, from $30.6 million in fiscal year 1994. Mold sales were $6.7 million, a
decrease of $16.6 million, from $23.3 million in fiscal year 1994. Mold sales in
fiscal year 1995 decreased primarily as a result of fewer new platform launches
as compared to fiscal year 1994, which had a significant number of new platform
launches for the Contour/Mystique, Sonoma/Blazer and Grand Prix/Cutlass.
GROSS MARGIN: Gross profit for fiscal year 1995 was $38.6 million, or 17.5% of
net sales, compared to $25.9 million, or 14.6% of net sales, for fiscal year
1994. Gross profit from automotive operations in the United States was $30.4
million, or 19.7% of net sales, for fiscal year 1995, compared to $17.7 million,
or 15.3% of net sales, for fiscal year 1994. This increase was principally due
to a 48.6% increase in automotive product sales. Gross profit for fiscal year
1995 from Canadian automotive operations was $4.0 million, or 11.5% of net
sales, compared to $3.9 million, or 10.9% of net sales, for fiscal year 1994.
Gross profit from consumer and other products was $4.2 million, or 13.1% of net
sales, for fiscal year 1995, compared to $4.3 million, or 13.6% of net sales,
for fiscal year 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses for fiscal year 1995
were $23.5 million, or 10.6% of net sales, compared to $17.1 million, or 9.7% of
net sales, for fiscal year 1994. The increase in SG&A expenses as a percentage
of net sales is primarily attributable to increased design, engineering and
program management personnel costs.
INTEREST EXPENSE: Interest expense for fiscal year 1995 was $3.3 million, or
1.5% of net sales, compared to $2.1 million, or 1.4% of net sales, for fiscal
year 1994.
INCOME TAXES: The provision for income taxes for fiscal year 1995 was $5.1
million with an effective tax rate of 43.8%, as compared to $3.8 million with an
effective tax rate of 58.0% for fiscal year 1994.
QUARTER ENDED DECEMBER 29, 1996 COMPARED TO QUARTER ENDED DECEMBER 24, 1995
NET SALES: Net sales for the three month period ending December 29, 1996 ("first
quarter 1997") were $52.3 million, a decrease of $0.9 million, or 1.7%, from
$53.2 million in the three month period ended December 24, 1995 ("first quarter
1996"). First quarter 1997 net sales, before elimination's of $0.4 million, were
comprised of $45.6 million of automotive product sales, $5.9 million of consumer
and other product sales, and $1.2 million of mold sales.
Automotive product sales in the first quarter of 1997 were $45.6 million,
an increase of $2.9 million, or 6.9%, from $42.7 million in the first quarter of
1996. This was principally due to increased production of parts
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for the F-Series truck. Consumer and other product sales in the first quarter of
1997 were $5.9 million, an increase of $0.6 million, or 10.6%, from $5.4 million
in the first quarter of 1996. This was primarily due to increased sales related
to office furniture products. First quarter 1997 mold sales were $1.2 million, a
decrease of $4.5 million, from $5.7 million in the first quarter of 1996. The
lower mold sales reflect lower launch activity compared to the first quarter of
1996.
GROSS MARGIN: Gross profit for the first quarter of 1997 was $7.9 million, or
15.2% of net sales, compared to $8.2 million, or 15.4% of net sales for the
first quarter of 1996. Gross profit from automotive operations in the United
States was $8.8 million, or 23.3% of net sales, for the first quarter of 1997,
compared to $5.6 million, or 14.8% of net sales for the first quarter of 1996.
The increase in gross profit was primarily the result of lower launch activity
in the first quarter of 1997, versus the first quarter of 1996 and increases in
direct material productivity. The gain in the United States was partially offset
by a decrease in gross profit of the Company's Canadian automotive operations.
First quarter 1997 gross profit (loss) from the Canadian automotive operation
was ($1.1 million), or (12.8%) of net sales, compared to $1.3 million, or 13.3%
of net sales for the first quarter of 1996. This decrease was driven by higher
scrap and manufacturing overhead costs related to the General Motors Grand
Prix/Cutlass and Cadillac Deville/Concourse programs. Gross profits from
consumer and other products was $0.2 million, or 3.4% of net sales for the first
quarter of 1997, compared to $0.5, or 8.3% of net sales for the first quarter of
1996.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for the first
quarter of 1997 were $6.3 million, or 12.0% of net sales, compared to $6.7
million, or 12.7% of net sales for the first quarter of 1996. The decrease of
SG&A expenses as a percentage of net sales was primarily due to the reduction of
commissions related to discontinued products and the expiration of certain
commission contracts.
INTEREST EXPENSE: Interest expense for the first quarter of 1997 was $1.4
million, or 2.6% of net sales, compared to $0.9 million, or 1.7% of net sales
for the first quarter of 1996. The increase of interest expense as a percentage
of net sales was primarily attributable to the acceleration of debt acquisition
costs associated with certain senior debt due to be retired in January of 1997.
INCOME TAXES: The provision for income taxes for the first quarter of 1997 was
$0.4 million with an effective tax rate of 57.1%, as compared to $0.6 million
with an effective tax rate of 131.2% for the first quarter of 1996. The higher
effective tax rate in the first quarter of 1996 was the result of the Company
not utilizing the tax benefit related to its Canadian net operating losses to
offset taxable income generated in the United Sates.
LIQUIDITY AND CAPITAL RESOURCES -- THE COMPANY
The Company's principal capital requirements are to fund working capital
needs, to meet required debt payments, and capital expenditures for facility
maintenance and expansion. The Company anticipates that its operating cash flow,
together with available borrowings under the Senior Credit Facility, will be
sufficient to meet its working capital and capital expenditure requirements and
its debt obligations. As of December 29, 1996 on a pro forma basis after giving
effect to the Molmec Acquisition and the Initial Offering, the Company would
have had $122.9 million of long-term debt outstanding and would have had the
ability to borrow approximately $24.2 million in revolving loans under the
Senior Credit Facility.
The Company believes that its capital expenditures (exclusive of any
potential acquisitions) will be approximately $9.0 million to $13.5 million in
each of the three fiscal years subsequent to fiscal year 1996, including
maintenance capital expenditures of approximately $4.0 million to $6.0 million
per fiscal year. However, the Company's capital expenditures may be greater than
currently anticipated as a result of new business opportunities.
Capital expenditures for LDM for fiscal year 1996 were $20.2 million
compared to $15.1 million for fiscal year 1995 and $29.0 million in fiscal year
1994. Maintenance capital expenditures for fiscal year 1996 were approximately
$5.2 million, compared to $3.1 million for fiscal year 1995 and $2.7 for fiscal
year 1994. In fiscal year 1996, LDM completed its new design center in Auburn
Hills, which required $12.0 million in capital expenditures during fiscal year
1996 and $5.8 million during fiscal year 1995. Other major capital expenditure
additions in fiscal year 1996 included robotic painting machines and expanded
painting capabilities. Major capital expenditure additions in fiscal year 1995
included leasehold improvements and welding and abatement equipment. Capital
expenditure additions in fiscal year 1994 included expanded press capabilities,
the
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purchase of the Leamington facility for $17.4 million, and expanded warehouse
facilities. Capital expenditures for Como for fiscal years 1996, 1995 and 1994
were $0.4 million, $0.4 million and $1.2 million, respectively.
Capital expenditures for the first quarter of 1997 were $5.3 million
compared to $3.4 million for the first quarter of 1996. Capital expenditure
additions in the first quarter of 1997 included two presses, secondary equipment
supporting the F-Series Truck program and expenditures related to the Auburn
Hills Design Center.
The Company's liquidity is affected by both the cyclical nature of its
business and levels of net sales to its major customers. The Company's ability
to meet its working capital and capital expenditure requirements and service its
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control.
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SELECTED FINANCIAL DATA -- MOLMEC
(DOLLARS IN THOUSANDS)
The following table sets forth selected historical financial data of
Molmec, Inc. for the three years ended December 31, 1995. The selected financial
data for the years ended December 31, 1993, 1994 and 1995 were derived from the
audited financial statements of Molmec included elsewhere in this Prospectus.
The selected financial data for the nine-month period from January 1, 1995 to
September 24, 1995 and the nine-month period from January 1, 1996 to September
29, 1996 and twelve-month period from September 25, 1995 through September 29,
1996, are derived from the unaudited financial statements of Molmec included
elsewhere in this Prospectus which, in the opinion of management, include all
adjustments, consisting of only normal, recurring adjustments, necessary for a
fair presentation of the financial condition and results of operations of Molmec
for such periods. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Molmec" and the historical financial statements of Molmec
presented elsewhere in this Prospectus.
UNAUDITED
---------------------------------------------
AUDITED TWELVE MONTHS
--------------------------- NINE MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, ----------------------------- -------------
--------------------------- SEPTEMBER 24, SEPTEMBER 29, SEPTEMBER 29,
1993 1994 1995 1995 1996 1996
------- ------- ------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA
Net sales...................... $69,393 $79,963 $82,867 $60,653 $66,433 $88,648
Cost of sales.................. 59,091 71,336 72,901 54,569 50,375 68,708
Gross profit................... 10,302 8,627 9,966 6,084 16,058 19,940
Selling, general and
administrative expenses...... 8,856 9,185 9,285 6,731 8,686 11,240
Stock plan compensation
expense(a)................... -- -- -- -- 1,200 1,200
Operating profit............. 1,446 (558) 681 (648) 6,172 7,500
Interest expense, net.......... 609 715 1,546 1,085 1,001 1,461
Net income (loss).............. 1,277 (6) (864) (1,733) 5,021 5,889
OTHER FINANCIAL DATA
EBITDA(b)...................... $ 3,316 $ 1,459 $ 3,105 $ 970 $ 7,940 $10,075
Depreciation and
amortization................. 1,870 2,016 2,424 1,618 1,769 2,575
Capital expenditures........... 1,140 4,236 6,933 6,589 1,046 1,389
AUDITED
------------------ UNAUDITED
AT DECEMBER 31, ------------------------------------
------------------ AT SEPTEMBER 24, AT SEPTEMBER 29,
1994 1995 1995 1996
------- ------- ---------------- ----------------
BALANCE SHEET DATA
Cash...................... $ -- $ -- $ -- $ --
Total assets.............. 35,102 32,585 35,856 32,074
Total debt................ 17,957 18,364 19,849 11,322
Stockholders' equity...... 4,727 3,676 2,887 9,372
- ------------------------------
(a) Relates to the termination of the existing key-man bonus program.
(b) EBITDA is defined as income from continuing operations before the effect of
changes in accounting principles plus interest, income taxes, depreciation
and amortization and less equity income from joint venture and gain on sale
of joint venture. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- MOLMEC
GENERAL
LDM believes Molmec is an industry leader in the design, manufacture and
integration of fluid and air management components and assemblies for
under-the-hood use. Products manufactured by Molmec include cowl vent
assemblies, fluid reservoirs including degas bottles, battery trays and covers,
air deflectors and sight shields. Molmec provides components and subassemblies
for a variety of light duty trucks, sport utility vehicles, minivans and
passenger cars, including: Ford's F-Series truck, Windstar minivan, and
Taurus/Sable, Mustang, Crown Victoria/Grand Marquis and Contour/Mystique
passenger cars; General Motors' Grand Prix/Cutlass passenger car; and Chrysler's
Dakota light truck and Caravan/Voyager minivan. During 1993 and 1994, the
majority of Molmec's senior management team was replaced with a more experienced
and professional management team which has led to a substantial increase in
sales and improved operating performance. The new management team implemented a
number of operating changes which included (i) establishing a product-focused
manufacturing strategy for Molmec's individual facilities, (ii) replacing low
margin products with design-intensive integrated systems, (iii) expanding
design, program management and engineering capabilities, and (iv) implementing a
cost reduction program through value analysis and "lean manufacturing"
initiatives. As a result of these efforts and the growing market for
under-the-hood components, Molmec's net sales and EBITDA have increased
substantially from approximately $69.4 million and $3.3 million, respectively,
for the fiscal year ended December 31, 1993, to approximately $88.6 million and
$10.1 million, respectively, for the twelve-month period ended September 29,
1996.
RESULTS OF OPERATIONS
NINE-MONTH PERIOD FROM JANUARY 1, 1996 TO SEPTEMBER 29, 1996 COMPARED TO THE
NINE-MONTH PERIOD FROM JANUARY 1, 1995 TO SEPTEMBER 24, 1995
NET SALES: Net sales for the nine-month period ended September 29, 1996 were
$66.4 million, an increase of $5.7 million or 9.5%, from the prior period. The
increase in net sales is primarily the result of achieving a full period of
sales on the Ford Taurus/Sable and Chrysler Caravan/Voyager minivan programs,
which were launched during 1995.
GROSS PROFIT: Gross profit for the nine-month period ended September 29, 1996,
was $16.1 million, or 24.2% of net sales, compared to $6.1 million or 10.0% of
net sales for the prior period. This improvement in gross profits was primarily
due to (i) operational efficiencies achieved by new program managers and a new
cross functional organization established in early 1995, (ii) the full period
impact of higher margin products initiated in fiscal year 1995 and (iii) major
cost reduction programs launched in late 1995 and early 1996.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
nine-month period ended September 29, 1996 were $9.9 million, or 14.9% of net
sales compared to $6.7 million, or 11.1% of net sales for the prior period. This
increase of $3.2 million was the result of a charge of $1.2 million related to
the termination of the existing key-man bonus program, the bonus expense of $0.7
million associated with the new key-man bonus program and higher expenses
associated with engineering and design expenditures.
INTEREST EXPENSE: Interest expense for the nine-month period ended September 29,
1996 was $1.0 million, or 1.5% of net sales, compared to $1.1 million, or 1.8%
of net sales, for the prior period.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES: Net sales for fiscal year 1995 were $82.9 million, an increase of
$2.9 million, or 3.6%, from $80.0 million for fiscal year 1994. The increase was
principally due to higher tooling sales partially offset by lower sales for
selected Ford passengers cars, including the Mustang and T-Bird, and the
Chrysler Caravan/Voyager minivans.
GROSS PROFIT: Gross profit for fiscal year 1995 was $10.0 million, or 12.0% of
net sales compared to $8.6 million, or 10.8% of net sales, for fiscal year 1994.
Higher gross profit in 1995 was attributable to lower
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operating costs for direct labor and manufacturing overhead and improved margins
associated with new products launched. Gross profit improved significantly
despite the major Ford Taurus and Chrysler Caravan/Voyager minivan product
launchings, as well as the opening of a new manufacturing facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses for fiscal year 1995
were $9.3 million, or 11.2% of net sales, compared to $9.2 million, or 11.5% of
net sales for fiscal year 1994.
INTEREST EXPENSE: Interest expense for fiscal year 1995 was $1.5 million, or
1.9% of net sales, compared to $0.7 million, or 0.9% of net sales, for fiscal
year 1994. The increase in interest expense was attributable to increased levels
of debt outstanding and slightly higher interest rates in fiscal year 1995
compared to fiscal year 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SALES: Net sales for fiscal year 1994 were $80.0 million, an increase of
$10.6 million, or 15.2%, from $69.4 million for fiscal year 1993. This increase
is primarily the result of higher under-the-hood component sales. In fiscal year
1994, Molmec launched six new programs, including cowl screen programs on the
Ford Mustang and Windstar, which accounted for the majority of the sales
increase. Partially offsetting these increases was a decrease of $3.4 million in
tooling sales.
GROSS PROFIT: Gross profit for fiscal year 1994 was $8.6 million, or 10.8% of
net sales, compared to $10.3 million, or 14.8% of net sales, for fiscal year
1993. Lower profit for fiscal year 1994 resulted from inefficiencies associated
with new program launches and the outsourcing of certain molding and painting
jobs due to capacity issues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses for fiscal year 1994
were $9.2 million, or 11.5% of net sales, for fiscal year 1994, compared to $8.9
million, or 12.8% of net sales for fiscal year 1993. The decrease in SG&A
expenses as a percentage of net sales was primarily attributable to higher sales
in fiscal year 1994.
INTEREST EXPENSE: Interest expense for fiscal year 1994 was $0.7 million, or
0.9% of net sales, compared to $0.6 million, or 0.9% of net sales, for fiscal
year 1993. The increase in interest expense was attributable to increased levels
of debt outstanding in fiscal year 1994.
CAPITAL EXPENDITURES:
Capital expenditures were $1.0 million for the nine-month period ended September
29, 1996 compared to $6.6 million for the nine-month period ended September 24,
1995. Capital expenditures for fiscal years 1995, 1994 and 1993 were $6.9
million, $4.2 million and $1.1 million, respectively. A significant portion of
the capital expenditures for fiscal year 1995 related to the construction of the
new Hartland facility and the purchase of machinery for this facility. A
significant portion of the increase in capital expenditures in fiscal year 1994
related to machinery and equipment purchased to manufacture new parts for the
Ford Taurus/Sable passenger car and Windstar minivan.
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BUSINESS
Unless the context otherwise requires, all references in this Prospectus to
the Company shall mean LDM Technologies, Inc., its consolidated subsidiaries and
the Molmec business. References to LDM shall mean LDM Technologies, Inc. and its
consolidated subsidiaries excluding Molmec. References to Molmec shall mean
Molmec, Inc.
GENERAL
LDM is a leading Tier I designer and manufacturer of highly engineered
plastic instrument panel and exterior trim components supplying primarily North
American automotive original equipment manufacturers. Instrument panel
components manufactured by LDM include cluster finish panels, center trim
panels, air vents, coin and cup holders, ashtrays, gloveboxes, telephone holders
and consoles. Exterior trim components manufactured by LDM include front and
rear bumper fascias, end caps, body side claddings, rocker panels and grills. As
part of LDM's business strategy to target growing niche markets that require
significant design and engineering capabilities, it recently consummated the
acquisition of Molmec, a Tier I automotive supplier of close tolerance, plastic
components for under-the-hood fluid and air management applications. The
Company, on a pro forma basis, had fiscal year 1996 net sales of $306.4 million
and EBITDA of $26.8 million.
The Company's major OEM customers include Ford, General Motors, Volkswagen
and Chrysler, with pro forma fiscal year 1996 net product sales (which excludes
mold sales) to these customers representing approximately 43%, 30%, 7% and 3%,
respectively, of pro forma fiscal year 1996 net product sales. The Company
supplies components and subassemblies for a variety of light duty trucks, sport
utility vehicles, minivans and passenger cars including: Ford's F-series truck,
Expedition and Explorer sport utility vehicles, Windstar minivan, and
Contour/Mystique and Taurus/Sable passenger cars; General Motors' Sonoma, Blazer
and Jimmy sport utility vehicles, and Grand Prix/Cutlass, Cadillac Deville and
Seville passenger cars; Volkswagen's Golf/Jetta passenger car and Chrysler's
Dakota light truck, Caravan/Voyager minivan, and Neon passenger car.
The Company is a full-service supplier with advanced computer design and
engineering capabilities which have enabled the Company to penetrate OEM new
product programs during the concept stage of the product life cycle and promote
long-term customer relationships. The Company recently constructed its Auburn
Hills Design Center to enhance its conceptual design and development
capabilities. The Company has been recognized as a quality supplier by its OEM
customers and, in addition, has received Ford's Q1 Award and is in the process
of being QS 9000 certified. To improve the Company's ability to support its OEM
customers internationally, the Company is finalizing alliances with certain
European automotive suppliers that manufacture products which complement the
Company's three automotive lines of business and have strong product technology
and engineering capabilities.
The Company conducts molding, class A painting and assembly operations in
eleven locations in Michigan, Indiana, Ohio, Tennessee and Canada. In addition
to its injection molding expertise, the Company also possesses a broad range of
paint application capabilities, including recently developed robotic paint
application technology which it believes provides it with competitive advantages
in serving the exterior trim market.
LDM, a privately held Michigan corporation, was incorporated in 1985 to
pursue acquisitions in the automotive industry. In 1986, LDM began to focus on
the market for highly engineered plastic components when it acquired Arrow
Molded Plastics, Inc. To strengthen its presence in this market, LDM acquired
Knapp Plastics Ltd., a manufacturer of exterior trim components in 1993 and
purchased selected assets of Windsor Plastic Products Ltd., a manufacturer of
instrument panel components in 1994. The acquisition of Molmec is a continuation
of LDM's efforts to strengthen its position as a leading Tier I supplier of
niche thermoplastic components and systems. Management believes that each of
these acquisitions has enhanced the Company's growth opportunities by providing
new customers, niche product capabilities, additional manufacturing capacity and
cost reductions through economies of scale. Through a combination of these and
other acquisitions and internal growth, LDM's net sales and EBITDA have
increased from approximately $76.2 million and $4.8 million, respectively, in
fiscal year 1992 to approximately $306.4 million and
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$26.8 million, respectively, on a pro forma basis in fiscal year 1996, which
represents a CAGR of 42% and 53%, respectively.
THE MOLMEC ACQUISITION
On January 22, 1997, LDM acquired substantially all of the assets of
Molmec, a privately held Michigan corporation incorporated in 1959, for
approximately $55 million in cash, subject to certain adjustments, and the
assumption of certain liabilities including $5.0 million of indebtedness and
$11.6 million of current liabilities as of September 29, 1996.
The Molmec Acquisition is a continuation of LDM's efforts to strengthen its
position as a leading Tier I supplier of niche thermoplastic components and
systems to the North American automotive market. LDM believes Molmec is an
industry leader in the design, manufacture and integration of fluid and air
management components and assemblies for under-the-hood use. Products
manufactured by Molmec include cowl vent assemblies, fluid reservoirs including
degas bottles, battery trays and covers, air deflectors and sight shields.
Molmec's largest OEM customers are Ford and Chrysler, which accounted for
approximately 57% and 11%, respectively, of Molmec's net product sales for the
twelve-month period ended September 29, 1996. Molmec provides components and
subassemblies for a variety of light duty trucks, sport utility vehicles,
minivans and passenger cars, including: Ford's F-Series truck, Windstar minivan,
and Taurus/Sable, Mustang, Crown Victoria/Grand Marquis and Contour/Mystique
passenger cars; General Motors' Grand Prix/Cutlass passenger car; and Chrysler's
Dakota light truck and Caravan/Voyager minivan.
The Molmec Acquisition is expected to provide the Company with a number of
benefits including:
- An established position and design and engineering capabilities in the
growing market for under-the-hood components.
- A broader range of customers and product lines, which will further
diversify the Company's revenue base. For example, the Company believes
the Molmec Acquisition will provide LDM with a long-term position in
Chrysler's and Ford's supply base for exterior and under-the-hood
products.
- A number of cost reduction opportunities, which include (i) consolidating
corporate offices, (ii) achieving economies of scale in purchasing raw
materials, (iii) minimizing outsourcing requirements due to increased
manufacturing capacity and (iv) reducing other corporate overhead
expenses.
- A management team with significant expertise and customer relationships
in the under-the-hood market.
During 1993 and 1994, the majority of Molmec's senior management was
replaced with a more experienced and professional management team which has led
to a substantial increase in sales and improved operating performance. The new
management team implemented a number of operating changes which included (i)
establishing a product-focused manufacturing strategy for Molmec's individual
facilities, (ii) replacing low margin products with design-intensive integrated
systems, (iii) expanding design, program management and engineering
capabilities, and (iv) implementing a cost reduction program through value
analysis and "lean manufacturing" initiatives. As a result of these efforts and
the growing market for under-the-hood components, Molmec's net sales and EBITDA
have increased substantially from approximately $69.4 million and $3.3 million,
respectively, for the fiscal year ended December 31, 1993, to approximately
$88.6 million and $10.1 million, respectively, for the twelve-month period ended
September 29, 1996.
INDUSTRY OVERVIEW
The North American automotive industry is currently experiencing a number
of trends which are significant to the Company's business.
Increasing Utilization of Plastic. In recent years, OEMs have focused
their efforts on developing and employing lower cost and lighter materials,
such as plastic, in the design of components. Plastic provides OEMs with a
number of design advantages over metal including increased design
flexibility and aesthetic appeal, resistance to corrosion and improved
fuel-efficiency performance due to lighter weight materials. Substituting
plastic for metal can also reduce manufacturing costs by eliminating
machining costs,
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reducing painting costs, facilitating assembly, minimizing tooling costs
and consolidating the number of parts used in a vehicle. The Company
believes that while the majority of opportunities for converting metal into
plastic have already occurred in exterior and interior trim applications,
there are significant growth opportunities in the use of plastic in
under-the-hood components. Suppliers of under-the-hood components, such as
Molmec, are increasingly being asked to develop complex under-the-hood
systems, including plastic transmission covers that consolidate engine
mounts and drive shaft seals and battery trays that integrate fluid
reservoirs. According to an industry source, the amount of plastic used for
the under-the-hood applications for which the Company has been or expects
to be providing products has increased at a CAGR of approximately 11%
between 1991 and 1996, from approximately 174 million pounds in 1991 to an
estimated 293 million pounds in 1996. Use of plastic for these applications
is expected to increase at a CAGR of approximately 5% between 1996 and
2006, from an estimated 293 million pounds to an estimated 485 million
pounds, respectively.
Expansion of OEM Supplier Responsibilities. Since the 1980s, OEMs such
as Ford, General Motors and Chrysler have been actively reducing their
supplier base to include only those suppliers which accept significant
responsibility for product management and meet increasingly strict
standards for product quality, on time delivery and manufacturing costs.
These suppliers are expected to control many aspects of the production of
system components, including design, development, component sourcing,
manufacturing, quality assurance, testing and delivery to the customer's
assembly plant.
Globalization of the OEM Supplier Base. Several OEMs have announced
certain models designed for the world automobile market ("World Car"). This
departure from the historical practice of designing separate models for
each regional market will generally require suppliers to establish
international design and manufacturing capabilities through internal
development, joint ventures or acquisitions. As a result, certain domestic
and European OEMs have encouraged their existing suppliers to establish
foreign production support for World Car programs.
Market-based Pricing. In an effort to reduce costs and to ensure the
affordability and competitiveness of their products, OEMs are sourcing
automotive components using a market-based pricing approach. In using such
a market-based approach, OEMs establish a target price, or the price the
market is willing to pay for a vehicle, and systematically divide this
price into system and component target prices. In addition, under
market-based pricing, the OEMs often require annual price reductions for
the vehicle's systems and components. As a result, the market-based
approach to pricing has generally required automotive suppliers to focus on
continually reducing product costs while improving quality standards.
BUSINESS STRATEGY
The Company has developed and is implementing a business strategy to
achieve continued growth while enhancing its competitive position as a Tier I
OEM supplier. The Company's growth is being principally driven by (i) a
strategic focus on niche products, such as under-the-hood components, that the
Company believes possess strong secular growth potential and require significant
design and engineering capabilities and (ii) selected acquisitions to take
advantage of the consolidation trends in the OEM supplier industry. In addition,
the Company continually seeks to enhance its Tier I relationships through a
number of initiatives, including (i) expanding its full service capabilities in
response to increasingly rigorous OEM purchasing and manufacturing policies,
(ii) establishing a global position through participation on World Car programs
and the establishment of alliances with foreign suppliers, and (iii) improving
cost competitiveness through the implementation of lean manufacturing
methodologies and value engineering programs.
Grow the Under-the Hood Systems Line of Business. The Company has
pursued a strategic plan to focus on niche products within growing markets
that typically require significant design and engineering capabilities. As
an example, Molmec has been designated a long-term supplier of various
exterior and under-the-hood applications to Ford and Chrysler. The Company
intends to capitalize on the Molmec Acquisition by focusing on numerous
metal-to-plastic conversion opportunities, such as intake manifolds, valve
covers, engine covers and transmission covers. In addition, the Company
intends to establish alliances with one or more European under-the-hood
suppliers. The Company believes such alliances
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would provide numerous benefits, including potential access to innovative
under-the-hood products being developed by such manufacturers. One such
alliance has resulted in a purchase order to develop prototype plastic
composite transmission shifters for Ford Europe.
Target Selected Acquisitions to Enhance Growth Opportunities. LDM's
acquisition strategy is focused on enhancing and expanding its three
existing lines of business to provide additional growth. Since its
incorporation in 1985, LDM has completed three such strategic acquisitions,
including Arrow Molded Plastics, Inc. (1986), Knapp Plastics Ltd. (1993)
and selected assets of Windsor Plastic Products Ltd. (1994). The
acquisition of Molmec is a continuation of LDM's efforts to strengthen its
position as a leading Tier I supplier of niche thermoplastic components and
systems. Management believes that each of these acquisitions has enhanced
the Company's growth opportunities by providing new customers, niche
product capabilities, additional manufacturing capacity and cost reductions
through economies of scale. In addition, the Company's experience as a Tier
I supplier has enabled it to improve the operating performance of its
acquisitions.
Full-Service Capabilities. In response to the evolving purchasing and
manufacturing policies of the OEMs, the Company has made substantial
investments to develop comprehensive, full-service capabilities, including
component design and engineering, prototype production, tooling and
manufacturing. This full-service product management capability enables the
Company to penetrate OEM product programs during the product conception
stage and provide OEMs with design, engineering and technology expertise.
The Company has recently made significant investments in creative design
capabilities that enhance its ability to participate in the early stages of
customer programs utilizing, for instance, computer aided simulation as a
way to reduce the cost and time required to develop new products. To
support its advanced engineering efforts, the Company recently constructed
its Auburn Hills Design Center which provides it with a state-of-the-art
facility.
Establish Global Position. The Company began to establish its position
as a World Car supplier through its participation in the Ford
Contour/Mystique program beginning in 1989 and Volkswagen Golf/Jetta World
Car program beginning in 1993. An international development team was formed
in 1993 to focus on serving existing World Car programs and expanding the
Company's global supplier capabilities. Partly as a result of this effort,
the Company is finalizing alliances with certain European suppliers. These
suppliers make products that complement the Company's three lines of
business and also have innovative product technology and engineering
capabilities that can strengthen those of the Company. These suppliers
include a company specializing in intricate instrument panel components, a
global supplier of exterior trim fascia and an under-the-hood components
specialist with a long-term relationship with Chrysler to supply degas
bottles. These alliances are expected to provide the Company with a
European production capability and access to European product development.
For example, one of the Company's alliances is focused on developing
plastic composite transmission shifters for Ford Europe. There can be no
assurance that any such alliances will be finalized on terms acceptable to
the Company. See "Business -- International Alliances."
Improve Cost Competitiveness. The OEMs conversion toward market driven
pricing and long-term productivity commitments have forced suppliers to
focus on eliminating waste and optimizing productivity. The Company has
been successful in implementing lean manufacturing methodologies and
continues to emphasize their implementation as a means of achieving cost
advantages. In particular, the Company emphasizes kanban production
scheduling and materials management techniques and direct labor
productivity improvement methods established by in-plant process
improvement teams. The Company has recently launched an aggressive value
engineering program to pursue cost reductions through increased use of
recycled materials, standardized fasteners and reduced product weight.
AUTOMOTIVE PRODUCTS
The Company designs and manufactures highly-engineered, plastic instrument
panel, exterior trim and under-the-hood components. In recent years, the Company
has significantly expanded its design and
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engineering capabilities which provide the Company with a competitive advantage
in obtaining new business. The Company's three automotive lines of business are
as follows:
Instrument Panel Components. The Company focuses on the production of
complex products such as instrument panel subassemblies which require the
integration of multiple components. Instrument panel components
manufactured by the Company include cluster finish panels, center trim
panels, air vents, coin and cup holders, ashtrays, gloveboxes, telephone
holders and consoles. Certain products in this line of business demand
functional aesthetics appeal and typically require the Company to provide
innovative and design intensive solutions for application requirements
stipulated by OEMs. Historically, LDM's largest customer for its instrument
panel components has been Ford. Instrument panel components and other
interior trim products represented approximately 61% of LDM's fiscal year
1996 net automotive product sales.
Exterior Trim Components. Exterior trim systems manufactured by the
Company include front and rear bumper fascias, end caps, body side
claddings and moldings, rocker panels and grills. The Company's broad range
of exterior trim class A painting capabilities provides it with a
competitive advantage in supplying exterior trim to domestic and foreign
OEMs. The Company is able to provide both high-bake high solids painting,
which is traditionally preferred by domestic OEMs, and low-bake, two
component painting, which is preferred by foreign OEMs. The Company
believes it is also a leader in the development of dry paint technology, a
sophisticated form of insert molding of films upon which exterior paint is
extruded. The Company has also recently developed paint application
technology utilizing innovative robotic applications which has enabled the
Company to reduce costs by improving paint transfer efficiency.
Historically, LDM's largest customer for its exterior trim components has
been General Motors. Exterior trim component sales represented
approximately 39% of LDM's fiscal year 1996 net automotive product sales.
Under-the-Hood Components. The Company is a designer and manufacturer
of fluid and air management components for under-the-hood applications such
as cowl vent assemblies, fluid reservoirs including degas bottles, battery
trays and covers, air deflectors and sight shields. The Company believes
that it supplies, through Molmec, the majority of Ford's cowl vent
assemblies for North American car and truck platforms. OEMs are
increasingly substituting plastic for metal in under-the-hood components
and systems in an effort to reduce cost, noise and weight, to enhance
design flexibility, to improve airflow and to increase aesthetic appeal.
Historically, Molmec's largest customer for its under-the-hood components
has been Ford. Under-the-hood component sales represented approximately
60%, of Molmec's fiscal year 1995 net product sales.
CONSUMER PRODUCTS
Como, a manufacturer of consumer and office products, was acquired by LDM
in 1993. Como is a manufacturer of plastic injection molded products for the
electronics, computer, television, office furniture, appliance, transportation
and business machine markets. Como's extensive finishing capabilities include
painting, EMI/RFI shielding, hot stamping, induction bonding, pad printing and
machining of molded parts. With injection molding machines ranging from 230 tons
to 3,000 tons, Como has the ability to produce a broad range of molded parts,
including injection molded, structural foam and counter pressure structural foam
parts. Como sales represented approximately 11.5% of LDM's fiscal year 1996 net
product sales. See Note 6, "Segment Data from Continuing Operations" of the
Notes to LDM's Consolidated Financial Statements.
CUSTOMERS
The Company's principal customers are Ford, General Motors, Volkswagen and
Chrysler for which it supplies components and subassemblies for a variety of
light duty trucks, minivans and passenger cars. While the Company's products are
generally used on a diverse group of over 40 models, the Company's sales and
marketing efforts have been directed towards those sectors of the automotive
market which have experienced strong consumer demand and growth in sales. The
Company supplies components and subassemblies for a variety of light duty
trucks, sports utility vehicles, minivans and passenger cars including: Ford's
F-Series
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truck, Expedition and Explorer sport utility vehicles, Windstar minivan, and
Contour/Mystique and Taurus/Sable passenger cars; General Motors' Sonoma Blazer
and Jimmy sport utility vehicles, and Grand Prix/Cutlass, Cadillac Deville and
Seville passenger cars; Volkswagen's Golf/Jetta passenger car and Chrysler's
Dakota light truck, Caravan/Voyager minivan, and Neon passenger car.
The approximate percentage of net production sales to the principal
customers for LDM, Molmec and the Company on a pro forma basis for the
twelve-month period ended September 29, 1996 are shown below:
YEAR ENDED SEPTEMBER 29, 1996
-----------------------------
CUSTOMER LDM MOLMEC PRO FORMA
-------- ------ ------- ----------
Ford........................................................ 37.2% 56.5% 42.9%
General Motors.............................................. 41.4 3.3 30.1
Volkswagen.................................................. 10.0 -- 7.0
Chrysler.................................................... -- 11.2 3.3
Other Automotive............................................ -- 23.5 7.0
Other Non-Automotive........................................ 11.4 5.5 9.7
----- ----- -----
Total.................................................. 100.0% 100.0% 100.0%
The Company's customers typically award purchase orders on a limited source
basis that normally cover components to be supplied for a particular car model.
Such purchase orders generally provide for supplying the customer's requirements
for a model year, although, in practice, such purchase orders are typically
renewed until the component is redesigned or eliminated in a model change.
Products under development are assigned a selling price which is
reevaluated from time to time during the product development cycle. Prior to
production, the Company and the customer generally agree on a final price,
which, in some instances, may be subject to negotiated price reductions or
increases over the term of the project. Consequently, the Company's ability to
improve operating performance is generally dependent primarily on its ability to
reduce costs and operate more efficiently.
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The Company has been chosen as a supplier on a variety of light trucks
(including pick-up trucks, minivans, full size vans and sport utility vehicles)
and passenger car models. The following table presents an overview of the major
models, listed alphabetically, for which LDM and Molmec currently produce
components for their OEM customers:
MODEL
--------------------------------------------------------
CUSTOMER LDM MOLMEC
- --------------------------------------- -------------------- --------------------
General Motors-truck................... APV/Transport
Astro/Safari
Blazer
Bravada
Jimmy
Sonoma/Blazer
Sonoma Pick-up
1500 Series
General Motors-car..................... Achieva/Grand Am Achieva/Grand Am
Alero Firebird/Camaro
Corvette Grand Prix/Cutlass
Deville/Concourse
El Dorado
Firebird/Camaro
Grand Prix/Cutlass
Malibu/Century
Seville
Ford-truck............................. Aerostar Aerostar
Expedition Econoline
Explorer Explorer
F-Series truck F-Series truck
F-250/F-350 F-250/F-350
Villager
Windstar
Ford-car............................... Continental Continental
Contour/Mystique Contour/Mystique
Mustang Crown Victoria/Grand
Probe Marquis
T-Bird/Cougar Mark VIII
Taurus/Sable Mustang
Town Car T-Bird/Cougar
Taurus/Sable
Town Car
Chrysler-truck......................... Caravan/Voyager
Dakota
Chrysler-car........................... Neon
Volkswagen............................. Golf/Jetta Concept
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INTERNATIONAL ALLIANCES
In an effort to expand its capabilities to support World Car programs, the
Company is finalizing alliances with three European suppliers. The Company
believes that these suppliers have products that complement the Company's three
lines of business and also have innovative product technology and engineering
capabilities. These alliances, categorized by the Company's line of business,
are as follows:
Instrument Panel Components. The Company is finalizing a joint venture
with a foreign supplier specializing in intricate instrument panel
components such as air vents. The Company believes that, when finalized,
this joint venture will provide the Company with access to state-of-the-art
air vent technology and the capability to supply instrument panel
components for Ford and other OEMs on a global basis. As a result of this
preliminary understanding, the joint venture was selected as a supplier of
air vents for the new Ford Escort, a World Car program that is being
launched in 1999.
Exterior Trim Components. The Company has entered into an agreement in
principle with a large global manufacturer, to supply fascias, wheel liners
and grills for the Volkswagen A4 program in Mexico. When finalized, the
Company will have the majority equity position in this venture.
Under-the-Hood Components. The Company has entered into a stock
purchase agreement to acquire an 80% interest in a U.S. affiliate of a
foreign under-the-hood product specialist with manufacturing capabilities
in both injection and blow molding for a purchase price of approximately
$2.5 million in cash. Consummation of this stock purchase is subject to
usual and customary closing conditions. If consummated, the Company
believes this alliance may provide potential access to innovative
under-the-hood products not currently produced by the Company.
DESIGN AND PRODUCT ENGINEERING
The Company is a full service Tier I supplier with advanced design and
engineering capabilities which enable it to design innovative, high-quality
products that provide value to its customers. LDM recently built its Auburn
Hills Design Center to provide an environment for trend-setting conceptual
design and product development. The Company has made other significant
investments in conceptual design capabilities that allow it to participate in
the earliest stages of programs. For instance, the Company has embraced
computer-aided simulation directly linked to customer computer networks as a
means to reduce the cost and time required to develop new products. The
industrial design activity has augmented the Company's traditional modeling
methods with computer-aided technology reducing staff requirements as well as
simplifying the integration of design and engineering functions. The Company has
transitioned from computer-aided design shell to solid modeling providing a
direct link to rapid prototyping. The Company's design staff employs state-
of-the-art ALIAS computer software to provide three-dimensional virtual modeling
and product animation. Analytical tools employed include finite element analysis
for structural analysis, kinematics for mechanisms, computational fluid dynamics
for airflow studies and moldfilling analysis for injection molding optimization
and warp prediction.
MANUFACTURING
The Company's OEM customers are focusing on suppliers capable of delivering
quality products, controlling manufacturing costs and integrating, through
design capabilities, multiple components into larger systems. The Company has
responded to this challenge by implementing a lean manufacturing program and
adopting advanced processing technology.
The Company's lean manufacturing program has focused on "kanban" production
scheduling and materials management techniques and labor productivity
improvements. Kanban management techniques are characterized by flexible
production scheduling as well as vendor scheduling, reduced work queues, more
frequent vendor deliveries and reduced inventory levels. Through kanban, the
Company has experienced increased inventory turnover and generally reduced
inventory levels.
The Company continually seeks to achieve labor productivity improvement and
has established a work environment which encourages employee involvement in
identifying and eliminating waste. A key factor in the
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Company's operations is maintaining the flexibility to respond to the demands of
different product runs and changing product delivery requirements while
continuously increasing production efficiency.
The Company believes its broad base of class A paint application
capabilities positions it well for supplying the domestic and foreign exterior
trim market. The Company is able to provide both high-bake high solids painting,
which is traditionally preferred by domestic OEMs, and low-bake, two component
painting, which is preferred by foreign OEMs. The Company has also recently
developed paint application technology utilizing innovative robotic applications
which has enabled the Company to reduce costs by improving paint transfer
efficiency.
All of the Company's manufacturing facilities are in the process of
obtaining QS 9000 certification, the standard recently adopted by the Automotive
Industry Action Group. Chrysler and General Motors have each indicated that by
July 1, 1997 and December 31, 1997, respectively, they will allow only Tier I
supplier facilities with QS 9000 certification to bid on new manufacturing
business.
While the Company believes it will achieve QS 9000 certification for its
applicable facilities by the respective dates previously described above, no
assurance can be given that any of the Company's facilities will in fact be
certified.
COMPETITION
The automotive supplier industry in which the Company competes is highly
competitive. A large number of actual or potential competitors exist including
the internal component supply operations of the OEMs as well as independent
suppliers, many of which are larger than the Company. The Company believes its
principal competitors in its three lines of business include: Progressive
Dynamics Inc., Summit Polymers Inc. and Manchester Plastics, a business unit of
Collins & Aikman Corporation, in instrument panel components; Magna
International Inc., Venture Holdings Corporation, and JPE, Inc., in exterior
trim components; and Huron Inc., Key Plastics Inc. and Lacks Industries in
under-the-hood components.
The Company principally competes for new business both at the initial
development of new models and upon the redesign of existing models by its major
customers. New model development generally begins two to four years prior to the
marketing of such models to the public. Because of the large investment by OEMs
and Tier I suppliers in tooling and the long lead time required to commence
production, OEMs and Tier I suppliers generally do not change a supplier during
a model production run.
PROPERTIES
The Company conducts molding, painting and assembly operations in
approximately one million square feet of space in a total of eleven locations
including five plants located in Michigan (Clarkston, Fowlerville, Hartland, New
Hudson and Rochester Hills), one plant in Indiana (Columbus), three plants in
Ohio (Circleville, Napoleon and Byesville), one plant in Tennessee (Franklin)
and one plant in Canada (Leamington, Ontario). Each of the Byesville, Franklin,
Leamington, New Hudson, Hartland, Fowlerville and Clarkston facilities are owned
by the Company. The Circleville and Napoleon facilities are leased from
unaffiliated parties. The Rochester Hills and Columbus facilities and Troy,
Michigan administrative offices are leased from affiliated parties. See "Certain
Transactions". The utilization and capacity of the Company's facilities
fluctuates based upon the mix of components the Company produces and the vehicle
models for which they are being produced.
In October 1996, LDM relocated its principal executive offices and design
and engineering staff from Troy, Michigan to Auburn Hills, Michigan. The Auburn
Hills offices are owned by the Company. The Company believes that its facilities
and equipment are in good condition and are adequate for the Company's present
and anticipated future operations.
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene, polycarbonate and
acrylonitrile-butadiene-styrene, paint, and steel for production molds, all of
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which are available from many sources. The resins used in the Company's business
historically have been subject to price fluctuations. In the past, the Company
has been unable to pass price increases in resins through to its customers.
There can be no assurance that a material increase in the price of resin will
not adversely affect the Company's results of operations. The Company has not
experienced significant raw material shortages and does not anticipate raw
material shortages in the foreseeable future.
EMPLOYEES
As of September 29, 1996, the Company's workforce included approximately
2,495 employees, of which 554 were salaried workers, and 1,941 were hourly
workers including temporary and part-time employees. The Company has
approximately 293 hourly employees represented by the Canadian Automobile
Workers union at its Leamington, Canada facility and approximately 213 hourly
employees represented by the United Auto Workers at its Como facility. The
Company's three-year contract with the bargaining unit for the Leamington
facility expires January 15, 1998. None of the Company's other employees are
subject to collective bargaining agreements. The Company has not experienced any
work stoppages and considers relations with its employees to be good.
ENVIRONMENTAL COMPLIANCE
The Company's operations and properties are subject to a wide variety of
federal, state and local laws and regulations, including those governing the
use, storage, handling, generation, treatment, emission, release, discharge and
disposal of certain materials, substances and wastes, the remediation of
contaminated soil and groundwater, and the health and safety of employees
(collectively, "Environmental Laws"). As such, the nature of the Company's
operations exposes it to the risk of claims with respect to such matters and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
The Company has taken steps, including the installation of a Facilities
Coordinator, to reduce the environmental risks associated with its operations
and believes that it is currently in substantial compliance with applicable
Environmental Laws. Currently, the Company is involved in negotiations with the
State of Ohio Environmental Protection Agency ("OEPA") concerning air emissions
from the Byesville, Ohio facility. The Company has installed control equipment
and conducted air compliance inspections to bring the operations into compliance
with applicable Environmental Laws. The Company is in the process of negotiating
a consent decree with OEPA to settle civil penalty for past air permitting and
emissions violations. In addition, the Company has received a notice of
violation letter from OEPA for past violations of air pollution control laws at
the Company's Circleville, Ohio facility. Under the applicable Environmental
Laws, the government can seek civil penalties. The Company has reserved
approximately $250,000 to cover liabilities associated with these two matters;
however, no assurance can be given that the actual amount of these liabilities
will not exceed this reserve.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA") and similar state laws impose liability, without
regard to fault or to the legality of the original action, on certain classes of
persons (referred to as potentially responsible parties or "PRPs") associated
with the release or threat of release of certain hazardous substances into the
environment. Generally, liability to the government under CERCLA is joint and
several. Financial responsibility for the remediation of contaminated property
or for natural resource damages can extend to properties owned by third parties.
The Company has received a letter dated October 30, 1996 from a group of
corporations which has entered into an agreement with the United States
Environmental Protection Agency ("EPA") to prepare a remedial design for curing
a failed third-party landfill site in Circleville, Ohio. This letter alleges
that the Company is a PRP under CERCLA in connection with the historic disposal
of hazardous substances at the landfill. The Company has also received a letter
dated December 6, 1996 from a PRP having potential liability with respect to a
failed third-party landfill site in Byesville, Ohio. The letter provides notice
of a private contribution action relating to the Company's alleged PRP liability
under CERCLA in connection with the historic disposal of hazardous substances at
the landfill. The Company is currently investigating these claims but has no
reason to believe that any liability associated with these claims will have a
material effect on the Company's financial position or results of operations.
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Based upon its experience to date, the Company believes that the future
cost of compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Laws, will occur over a number of years
and not have a material adverse effect on the Company's financial position or
results of operations. However, future events, such as new information, changes
in existing Environmental Laws or their interpretation, and more vigorous
enforcement by regulatory authorities, may give rise to additional expenditures
or liabilities that could be material.
LEGAL PROCEEDINGS
The Company is, from time to time, involved in routine litigation arising
out of the ordinary course of its business. The Company believes currently
pending or threatened litigation will not have a material adverse effect on the
consolidated financial condition or results of operations of the Company.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The directors, executive officers and significant employees of the Company
are as follows.
NAME AGE POSITION
---- --- --------
Joe Balous............... 71 Chairman of the Board, Secretary and Director
Richard J. Nash.......... 52 President, Chief Executive Officer and Director
Gary E. Borushko......... 51 Chief Financial Officer
Gordon F. Steil.......... 47 Vice President of Manufacturing
William Kessler.......... 50 Vice President of Development
Vincent P. Buscemi....... 48 Group Vice President -- Sales
Michael T. Heneka........ 49 Group Vice President -- Sales
George F. Opie........... 45 Vice President of Product Engineering &
Development
Robert C. Vamos.......... 48 Executive Vice President of Manufacturing
Barry A. Kempa........... 40 Special Projects
- -------------------------
Joe Balous is a cofounder and shareholder of LDM. He has served as Chairman
of the Board, Secretary and a director since LDM's inception in 1985. Prior to
cofounding LDM, he held interests in a variety of automotive manufacturing
concerns along with an active interest in real estate development.
Richard J. Nash is a cofounder and shareholder of LDM. He has served as
President, Chief Executive Officer and a director of LDM since its inception in
1985. Prior to cofounding LDM, he had interests in several automotive-related
manufacturing concerns, including stamping, zinc diecasting and machine tool
fabrication concerns. Mr. Nash practiced law until 1980.
Gary E. Borushko, Chief Financial Officer, has been employed by LDM as Vice
President Finance or Chief Financial Officer since 1987. Along with his
financial responsibilities, he is actively involved with LDM's acquisition
strategy.
Gordon F. Steil, Vice President of Manufacturing, has been employed by LDM
since 1987 and has served in various manufacturing management capacities. He was
named Vice President of Manufacturing in 1991.
William Kessler, Vice President of Development, joined LDM in 1993. Prior
to joining LDM, Mr. Kessler was vice president of sales at Velcro Industries for
22 years. His current responsibilities include sales, industrial design and
international liaison.
Vincent P. Buscemi, Group Vice President -- Sales, has represented LDM and
its subsidiaries at General Motors since 1982. In 1991 he was named to his
current position.
Michael T. Heneka, Group Vice President -- Sales, has represented LDM and
its subsidiaries at the Ford Motor Company since 1982. In 1991 he was named to
his current position.
George F. Opie, Vice President of Product Engineering & Development, who
joined LDM in 1988 as the Manager of Product Design, was named to his current
position in 1995.
Robert C. Vamos, Executive Vice President of Manufacturing, joined Molmec
in 1992 as Vice President of Manufacturing and was named President in 1993.
Prior to 1992, he held various manufacturing management positions with the Budd
Company. Upon consummation of the Molmec Acquisition, he was named to his
current position.
Barry A. Kempa, Special Projects, joined Molmec in 1985. His
responsibilities at Molmec included materials management and cost reduction
initiatives. Upon consummation of the Molmec Acquisition, he was named to his
current position.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to each of the
Company's five highest paid executive officers and significant employees for
fiscal year 1996.
SUMMARY COMPENSATION TABLE(1)
SALARY OTHER ANNUAL ALL OTHER
NAME YEAR ($) BONUS COMPENSATION COMPENSATION
---- ---- ------- --------- ------------ ------------
Richard J. Nash........................... 1996 550,000 750,000 -- 2,917(2)
President and Chief Executive Officer 1995 550,000 1,000,000 -- --
1994 550,000 -- --
Joe Balous................................ 1996 -- -- 1,395,000(3) --
Chairman of Board and Secretary 1995 -- -- 1,185,000(3) --
1994 -- -- 430,000(3) --
Michael Polselli(4)....................... 1996 300,000 -- -- 3,000(2)
Treasurer 1995 300,000 250,000 --
1994 300,000 100,000 --
Vincent P. Buscemi........................ 1996 -- -- 446,346(5) --
Group Vice President -- Sales 1995 -- -- 448,326(5) --
1994 -- -- 348,310(5) --
Michael T. Heneka......................... 1996 -- -- 419,398(5) --
Group Vice President -- Sales 1995 -- -- 336,481(5) --
1994 -- -- 243,107(5) --
- ------------------------------
(1) This table does not include any value that might be attributable to certain
job related benefits, the amount of which for any executive officer does not
exceed the lesser of $50,000 or 5% of combined salary and bonus for such
executive officer.
(2) Represents contributions to the Company's 401(k) plan.
(3) Consulting fees paid to a management company owned by Joe Balous.
(4) Resigned effective September, 1996. See "Certain Transactions".
(5) Represents sales commission paid to a company owned by such individual.
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BENEFICIAL OWNERSHIP OF CAPITAL STOCK
All of the outstanding capital stock of the Company is owned beneficially
and equally by the Shareholders, Messrs. Richard J. Nash and Joe Balous.
CERTAIN TRANSACTIONS
On April 22, 1996, LDM and the Shareholders entered into a stock redemption
agreement which provides that upon the death of either Shareholder, LDM is
required to purchase, and their respective estates are required to sell, all of
the capital stock of LDM owned by such Shareholder, as the case may be, at a
price equal to $33.0 million, which amount would be payable upon receipt of the
proceeds of life insurance policies owned by LDM on each of the lives of the
Shareholders. Pursuant to the terms of the stock redemption agreement, LDM is
required to maintain life insurance policies of $33.0 million and $28.0 million
on the lives of Mr. Nash and Mr. Balous, respectively. The annual premiums for
such policies of insurance are approximately $900,000.
On September 29, 1996, LDM contributed $4.0 million in cash to the capital
of its then 83% owned subsidiary, Industrial Machining Corporation of America
("IMCA"), and immediately thereafter exchanged its stock of IMCA, together with
$500,000 in cash and a $3.0 million 6.5% promissory note maturing on September
29, 1998, for all of the LDM stock held by Michael Polselli, a former
shareholder. See Note 1, "Operations and Significant Accounting Policies" of the
Notes to LDM's Consolidated Financial Statements.
Como, a 75% owned subsidiary of LDM, leases its general office and plant
facility and certain equipment from entities controlled by such subsidiary's
minority stockholder. Payments pursuant to these leases were $487,000 during
fiscal year 1996. Como also pays management fees to its minority stockholder
based on a percentage of sales. Such management fees were $120,799 during fiscal
year 1996.
In September 1996, the Company entered into a five-year lease for its Troy
offices with the Shareholders and a relative of one of the Shareholders. Monthly
rent expense pursuant to this lease is $15,000 per month. See "Business --
Properties".
During fiscal year 1996, the Company paid consulting fees of $1,395,000 to
a management company owned by Joe Balous.
The terms of these leases are not the result of arms-length bargaining;
however, the Company believes that such transactions are on terms no less
favorable to the Company than would be obtained if such transactions or
arrangements were arms-length transactions with non-affiliated persons. See
"Business -- Properties".
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DESCRIPTION OF NEW NOTES
The New Notes will be issued, and the Old Notes were issued, under an
indenture (the "Indenture") dated as of January 15, 1997 by and among the
Company, the Guarantors and IBJ Schroder Bank & Trust Company, as Trustee (the
"Trustee"). For purposes of the following summary, the Old Notes and the New
Notes shall be collectively referred to as the "Notes". 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, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. A copy of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The definitions of
certain capitalized terms used in the following summary are set forth below
under "-- Certain Definitions." For purposes of this section, references to the
"Company" include only LDM Technologies, Inc. and not its Subsidiaries.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Debt of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders. Any Notes that remain outstanding after
the completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
Any Old Notes that remain outstanding after completion of the Exchange
Offer, together with the New Notes issued in connection with the Exchange Offer,
will be treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $110,000,000 and
will mature on January 15, 2007. Interest on the Notes will accrue at the rate
of 10 3/4% per annum and will be payable semiannually in cash on each January 15
and July 15 commencing on July 15, 1997, to the persons who are registered
Holders at the close of business on the January 1 and July 1 immediately
preceding the applicable interest payment date. Interest on the Old Notes will
accrue from and including the most recent date to which interest has been paid
or, if no interest has been paid, from and including the date of issuance.
Holders whose Old Notes are accepted for exchange will receive accrued interest
thereon to, but not including, the date of issuance of the New Notes, such
interest to be payable with the first interest payment on the New Notes, but
will not receive any payment in respect of interest on the Old Notes accrued
after the issuance of the New Notes. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after January 15,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed
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during the twelve-month period commencing on January 15 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
YEAR PERCENTAGE
---- ----------
2002........................................................ 105.375%
2003........................................................ 103.583%
2004........................................................ 101.792%
2005 and thereafter......................................... 100.000%
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to January 15, 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem up to 25% of the Notes originally issued at a redemption price equal
to 110.750% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 75% of the
principal amount of Notes originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 120 days after the consummation of any such Public Equity
Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of a Public
Equity Offering, selection of the Notes or portions thereof for redemption shall
be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt shall
first be paid in full in cash or Cash Equivalents, or such payment duly provided
for to the satisfaction of the holders of Senior Debt, before any payment or
distribution of any kind or character is made on account of any Obligations on
the Notes, or for the acquisition of any of the Notes for cash or property or
otherwise. If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on, unpaid drawings for letters of credit issued in
respect of, or regularly accruing fees with respect to, any Senior Debt, no
payment of any kind or character shall be made by or on behalf of the Company or
any other Person on its or their
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behalf with respect to any Obligations on the Notes or to acquire any of the
Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issues of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180 days from the
date the payment on the Notes was due and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.
After giving effect to the Transactions, on a pro forma basis, at September
29, 1996, the aggregate amount of Senior Debt would have been approximately
$16.2 million.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
all other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Agreement and all other Senior Debt to permit the repurchase of the Notes
as provided below. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
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If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
the Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and the
Restricted Subsidiaries may incur Acquired Indebtedness, in each case if on the
date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.0 to 1.0, if such incurrence occurs on or prior to January 15,
1998, or 2.25 to 1.0, if such incurrence occurs after January 15, 1998.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of the Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the covenant described under "--
Limitation on Incurrence of Additional Indebtedness" or (iii) the aggregate
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amount of Restricted Payments (including such proposed Restricted Payment) made
subsequent to the Issue Date (the amount expended for such purposes, if other
than in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company) shall
exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); plus (x) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company; plus (y) without
duplication of any amounts included in clause (iii) (x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of clauses
(iii) (x) and (y), any net cash proceeds from a Public Equity Offering to the
extent used to redeem the Notes); plus (z) an amount equal to the consolidated
net Investments on the date of Revocation made by the Company and/or any of the
Restricted Subsidiaries in any Subsidiary of the Company that has been
designated an Unrestricted Subsidiary after the Issue Date upon its
redesignation as a Restricted Subsidiary in accordance with the covenant
described under "-- Limitation on Designations of Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for shares of Qualified
Capital Stock of the Company, or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) the payment of premiums not to exceed $1,500,000
in any fiscal year for insurance on the lives of stockholders of the Company,
the proceeds of which insurance are intended to fund repurchases by the Company
of Capital Stock of the Company owned by such stockholders; (5) the purchase,
redemption or acquisition of Capital Stock of the Company with the proceeds of
insurance from insurance companies not Affiliated with the Company; (6)
Permitted Tax Payments; and (7) so long as no Default or Event of Default shall
have occurred and be continuing, other Restricted Payments in an aggregate
amount not to exceed $2,500,000. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with clause
(iii) of the immediately preceding paragraph, amounts expended pursuant to
clauses (1), (2), (4) and (7) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
the Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 80% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 180 days of receipt thereof
either (A) to prepay any Senior Debt and, in the case of any Senior Debt under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset
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Sale or in properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto, or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the
181st day after an Asset Sale or such earlier date, if any, as the Board of
Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5,000,000 resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5,000,000, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) the
Indenture; (3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary; (4) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person or the properties or assets of the Person so acquired; (5) agreements
existing on the Issue Date to the
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extent and in the manner such agreements are in effect on the Issue Date; or (6)
an agreement governing Refinancing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above; provided, however, that the provisions relating to
such encumbrance or restriction contained in any such Refinancing Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in their reasonable and good faith
judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of the Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit
any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to
own any Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. The Company will not, and will not cause or permit any
of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of the Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date; (B) Liens securing Senior
Debt and Liens securing Guarantor Senior Debt; (C) Liens securing the Notes and
any Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary
on assets of any Subsidiary of the Company; (E) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the Indenture and which has been incurred in
accordance with the provisions of the Indenture; provided, however, that such
Liens (A) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any property or
assets of the Company or any of the Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will
not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness
that is senior in right of payment to the Notes or any Guarantee and subordinate
in right of payment to any other Indebtedness of the Company or the applicable
Guarantor, as the case may be.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
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covenant described under "-- Limitation on Incurrence of Additional
Indebtedness;" (iii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
No Guarantor (other than any Guarantor whose Guarantee is to be released in
accordance with the terms of the Guarantee and the Indenture in connection with
any transaction complying with the provisions of the covenant described under
"-- Limitation on Asset Sales") will, and the Company will not cause or permit
any Guarantor to, consolidate with or merge with or into any Person other than
the Company or any other Guarantor unless: (i) the entity formed by or surviving
any such consolidation or merger (if other than the Guarantor) is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; (iv) immediately after giving effect to such
transaction and the use of any net proceeds therefrom on a pro forma basis, the
Company could satisfy the provisions of clause (ii) of the first paragraph of
this covenant; and (v) the Company shall have delivered to the Trustee an
officers' certificate and Opinion of Counsel, each stating that such
consolidation or merger and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied. Any merger or
consolidation of a Guarantor with and into the Company (with the Company being
the surviving entity) or another Guarantor need only comply with clause (v) of
this paragraph.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $250,000 shall be approved
by the Board of Directors of the Company or such Restricted Subsidiary, as the
case may be, such approval to be evidenced by a Board Resolution stating that
such Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Restricted Subsidiary enters into an
Affiliate Transaction (or a series of related Affiliate Transactions related to
a common plan) that involves an aggregate fair market value of more than
$2,500,000, the Company or
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such Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Company or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors or
senior management; (ii) consulting fees paid by the Company consistent with past
practice; (iii) transactions exclusively between or among the Company and any of
the Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; and (iv) Restricted Payments permitted by the Indenture.
Issuance of Subsidiary Guarantees. If (a) any Domestic Wholly Owned
Restricted Subsidiary incurs any Indebtedness or (b) any Restricted Subsidiary
(whether or not a Domestic Wholly Owned Restricted Subsidiary) guarantees any
Indebtedness of the Company or any of its Restricted Subsidiaries (other than a
Subsidiary of such Restricted Subsidiary) then, in either case, the Company
shall cause such Domestic Wholly Owned Restricted Subsidiary or such Restricted
Subsidiary, as the case may be, to (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Domestic Wholly Owned Restricted Subsidiary or such Restricted
Subsidiary, as the case may be, shall unconditionally guarantee (each, a
"Guarantee") all of the Company's obligations under the Notes and the Indenture
on the terms set forth in the Indenture and (ii) deliver to the Trustee an
opinion of counsel that such supplemental indenture has been duly authorized,
executed and delivered by such Domestic Wholly Owned Restricted Subsidiary or
such Restricted Subsidiary, as the case may be, and constitutes a legal, valid,
binding and enforceable obligation of such Domestic Wholly Owned Restricted
Subsidiary or such Restricted Subsidiary, as the case may be. Thereafter, such
Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as
the case may be, shall be a Guarantor for all purposes of the Indenture.
Each Guarantee will be subordinated to Guarantor Senior Debt on the same
basis as the Notes are subordinated to Senior Debt. In the event all of the
Capital Stock of a Guarantor is sold by the Company and/or one or more of its
Subsidiaries and the sale complies with the provisions set forth under "--
Limitation on Asset Sales," such Guarantor's Guarantee will be released.
Conduct of Business. The Company and the Restricted Subsidiaries will not
engage in any businesses which are not either (i) the same, similar or related
to the businesses in which the Company and the Restricted Subsidiaries are
engaged on the Issue Date or (ii) Permitted Investments.
Payments for Consent. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture, the Notes or the Guarantees unless such
consideration is offered to be paid or agreed to all holders of the Notes who so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of Indebtedness of such Subsidiary owed to the Company and the
Restricted Subsidiaries on such date; and
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(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Incurrence of Additional Indebtedness" at
the time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment in the Designation Amount
pursuant to the covenant described under "-- Limitation on Restricted Payments"
for all purposes of the Indenture. The Indenture further provides that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"-- Limitation on Restricted Payments."
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if
(a) no default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted outstanding
immediately following such Revocation would, if incurred at such time, have
been permitted to be incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Reports to Holders. The Indenture provides that the Company will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual and quarterly reports and such information,
documents and other reports specified in Section 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA sec. 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default:"
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the covenant
described under "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets,"
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which will constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(iv) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary (or the payment
of which is guaranteed by the Company or any Restricted Subsidiary),
whether such Indebtedness now exists or is created after the Issue Date,
which default (a) is caused by a failure to pay principal of such
Indebtedness after any applicable grace period provided in such
Indebtedness on the date of such default (a "payment default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a payment default or the maturity of which has been so
accelerated, aggregates $2,500,000;
(v) one or more judgments in an aggregate amount in excess of
$2,500,000 shall have been rendered against the Company or any of the
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or any Guarantee of a Significant Subsidiary is declared
to be null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any of the Guarantors which is a
Significant Subsidiary denies its liability under its Guarantee (other than
by reason of release of a Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above shall occur and be continuing, the Trustee or the Holders of at least
25% in principal amount of outstanding Notes may declare the principal of and
accrued interest on all the Notes to be due and payable by notice in writing to
the Company and the Trustee specifying the respective Events of Default and that
it is a "notice of acceleration," and the same shall become immediately due and
payable. If an Event of Default specified in clause (vi) above occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
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Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations any Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "-- Events of Default" will no longer constitute an
Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date of
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustees
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Debt,
including, without limitation, those arising under the Indenture and (B) after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency,
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reorganization or similar laws affecting creditors' rights generally; and (ix)
certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Notes whose holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the Notes; (v)
make any change in provisions of the Indenture protecting the right of each
Holder to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
Holders of a majority in principal amount of Notes to waive Defaults or Events
of Default; (vi) amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the event of
a Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; (vii) modify or change any provision of the
Indenture or the related definitions affecting the subordination or ranking of
the Notes or any Guarantee in a manner which adversely affects the Holders; or
(viii) release any Guarantor from any of its obligations under its Guarantee or
the Indenture otherwise than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and any Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but 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.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of
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Default, the Trustee will exercise such rights and powers vested in it by the
Indenture, and use the same degree of care and skill in its exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "-- Certain
Covenants -- Limitation on Transactions with Affiliates."
"Alliance Debt" means Indebtedness of the person to become a Subsidiary of
the Company upon consummation of the transactions contemplated by the stock
purchase agreement to be entered into among the Company, the Corporation (as
defined therein), GKG (as defined therein) and Valk (as defined therein).
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any person other than the Company, a Guarantor, or an Unleveraged Wholly Owned
Restricted Subsidiary of (a) any Capital Stock of any Restricted Subsidiary; or
(b) any other property or assets of the Company or any Restricted Subsidiary
other than in the ordinary course of business; provided, however, that Asset
Sales shall not include (i) a transaction or series of related transactions for
which the Company or the Restricted Subsidiaries receive aggregate consideration
of less than $500,000 and (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
by the covenant described under "-- Certain Covenants -- Merger, Consolidation
and Sale of Assets."
"Blockage Period" has the meaning set forth under "-- Subordination."
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); or (iii) any Person or Group
(other than the Permitted Holder(s)) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company.
"Change of Control Offer" has the meaning set forth under "-- Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "-- Change
of Control."
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to the Company, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
the Company and the Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense, (C) Consolidated Non-cash Charges and (D) the amount of Permitted Tax
Payments made during such period, less any non-cash items increasing
Consolidated Net
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Income for such period, all as determined on a consolidated basis for the
Company and the Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
the Company for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA (provided that such Consolidated EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income" attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If the Company or any of the Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if the
Company or any Restricted Subsidiary had directly incurred or otherwise assumed
such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (i) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(including amortization or write-off of deferred financing costs of the Company
and the Restricted Subsidiaries during such period and any premium or penalty
paid in connection with redeeming or retiring Indebtedness of the Company and
the Restricted Subsidiaries prior to the stated maturity thereof pursuant to the
agreements governing such Indebtedness), plus (ii) the product of (x) the amount
of all dividend payments on any series of Preferred Stock of the Company (other
than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be
paid or accrued during such period times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of the Company, expressed
as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any
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amortization of debt discount, (b) the net costs under Interest Swap
Obligations, (c) all capitalized interest and (d) the interest portion of any
deferred payment obligation; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary or is merged or consolidated with the
Company or any Restricted Subsidiary, (d) the net income (but not loss) of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted by a
contract, operation of law or otherwise, (e) the net income of any Person, other
than a Restricted Subsidiary, except to the extent of cash dividends or
distributions paid to the Company or to a Restricted Subsidiary by such Person,
(f) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), (h) the amount of Permitted Tax Payments made during such period
and (i) in the case of a successor to the Company by consolidation or merger or
as a transferee of the Company's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets. For
purposes of calculating cumulative Consolidated Net Income pursuant to clause
(w) of the first paragraph under "-- Certain Covenants -- Limitation on
Restricted Payments," Consolidated Net Income shall be increased (to the extent
Consolidated Net Income has been reduced thereby) by the amount of premiums (not
to exceed $1,500,000 in any fiscal year) for insurance on the lives of
stockholders of the Company the proceeds of which insurance are intended to fund
repurchases by the Company of Capital Stock of the Company owed by such
stockholders.
"Consolidated Net Worth" of the Company means the consolidated
stockholders' equity of the Company, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of the Company.
"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charges constituting an extraordinary item or loss
or any such charge which requires an accrual of or a reserve for cash charges
for any future period).
"Covenant Defeasance" has the meaning set forth under "-- Legal Defeasance
and Covenant Defeasance."
"Credit Agreement" means the Credit Agreement dated as of the Issue Date,
between the Company, the lenders party thereto in their capacities as lenders
thereunder and Bank America Business Credit, Inc., as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted by the covenant described under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness") or adding
Restricted Subsidiaries as additional borrowers or guarantors thereunder) all or
any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
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"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Default Notice" has the meaning set forth under "-- Subordination."
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$10,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
"Designation" has the meaning set forth under "-- Certain Covenants --
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "-- Certain Covenants
- -- Limitations on Designation of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means that portion of 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, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Domestic Wholly Owned Restricted Subsidiary" means a Wholly Owned
Restricted Subsidiary incorporated or otherwise organized or existing under the
laws of the United States, any state thereof or any territory or possession of
the United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantee" has the meaning set forth under "-- Certain Covenants --
Issuance of Subsidiary Guarantees."
"Guarantor" means (i) on the Issue Date, each of LDM Holdings, L.L.C., LDM
Canada Limited Partnership and LDM Technologies Company and (ii) each other
Person that in the future executes a Guarantee pursuant to the covenant
described under "-- Certain Covenants -- Issuance of Subsidiary Guarantees" or
otherwise; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its Guarantee is released in
accordance with the terms of the Indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor, (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on,
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and all other amounts owing in respect of, (x) all Interest Swap Obligations and
(y) all obligations under Currency Agreements, in each case whether outstanding
on the Issue Date or thereafter incurred. Notwithstanding the foregoing,
"Guarantor Senior Debt" shall not include (i) any Indebtedness of such Guarantor
to a Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of
such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of,
any shareholder, director, officer or employee of such Guarantor or any
Subsidiary of such Guarantor (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services, (iv) Indebtedness
represented by Disqualified Capital Stock, (v) any liability for federal state,
local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred
in violation of the Covenant described under "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness," (vii) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company and (viii) any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of such Guarantor.
"incur" has the meaning set forth under "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Initial Purchaser" means Smith Barney Inc.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, (i) any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash
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or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any Person, and (ii) any premiums paid by such Person
for insurance on the lives of stockholders of such Person, the proceeds of which
insurance are intended to fund repurchases by such Person of Capital Stock of
such Person owned by such stockholder. "Investment" shall exclude extensions of
trade credit by the Company and the Restricted Subsidiaries on commercially
reasonable terms in accordance with normal trade practices of the Company or
such Restricted Subsidiary, as the case may be. If the Company or any Wholly
Owned Restricted Subsidiary sells or otherwise disposes of any Common Stock of
any Wholly Owned Restricted Subsidiary that is not a Guarantor such that, after
giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, all of the outstanding Common Stock of such Wholly Owned
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Wholly Owned Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under "-- Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of the Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth under "-- Certain Covenants
- -Limitation on Asset Sales."
"Net Proceeds Offer Amount" has the meaning set forth under "-- Certain
Covenants - Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" had the meaning set forth under "--
Certain Covenants - Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--
Certain Covenants - Limitation on Asset Sales."
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holder(s)" means (i) each of Joe Balous and Richard J. Nash and
(ii) any person or entity controlled by either, or both of, Joe Balous or
Richard J. Nash.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and any Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (x) $45,000,000, reduced by any required permanent repayments
with the Net Cash Proceeds of Asset Sales (which are accompanied by a
corresponding permanent commitment reduction) thereunder and (y) the sum of
80% of the net book value of accounts
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receivable of the Company and the Restricted Subsidiaries and (b) 60% of
the net book value of the inventory of the Company and the Restricted
Subsidiaries;
(iii) other Indebtedness of the Company and the Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any Guarantor and Interest Swap Obligations of any
Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and the Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with the Indenture to
the extent the notional principal amount of such Interest Swap Obligations
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligations relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary to the Company, a
Guarantor or an Unleveraged Wholly Owned Restricted Subsidiary for so long
as such Indebtedness is held by the Company, a Guarantor or an Unleveraged
Wholly Owned Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company, a Guarantor or an Unleveraged Wholly Owned
Restricted Subsidiary; provided that if as of any date any Person other
than the Company, a Guarantor or an Unleveraged Wholly Owned Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vii) Indebtedness of the Company to a Guarantor or an Unleveraged
Wholly Owned Restricted Subsidiary for so long as such Indebtedness is held
by a Guarantor or an Unleveraged Wholly Owned Restricted Subsidiary, in
each case subject to no Lien; provided that (a) any Indebtedness of the
Company to any Guarantor or Unleveraged Wholly Owned Restricted Subsidiary
is unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the Notes and (b) if as of
any date any Person other than a Guarantor or Unleveraged Wholly Owned
Restricted Subsidiary owns or holds any such Indebtedness or any person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company;
(viii) 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, however, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) additional Indebtedness of the Company and the Guarantors in an
aggregate principal amount not to exceed $7,500,000 at any one time
outstanding; and
(xii) Indebtedness of Restricted Subsidiaries that are not Guarantors
in an aggregate principal amount not to exceed $2,500,000 at any one time
outstanding.
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"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Guarantor or an Unleveraged Wholly Owned Restricted Subsidiary
or that will merge or consolidate into the Company or a Guarantor or an
Unleveraged Wholly Owned Restricted Subsidiary, (ii) investments in the Company
by any Restricted Subsidiary; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written agreement, to
the Company's obligations under the Notes and the Indenture; (iii) investments
in cash and Cash Equivalents; (iv) loans and advances to employees and officers
of the Company and the Restricted Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $1,000,000 at any one
time outstanding; (v) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or the Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (vi) Investments in
Restricted Subsidiaries that are not Guarantors or Unleveraged Wholly Owned
Restricted Subsidiaries not to exceed $1,000,000 at any one time outstanding;
(vii) Investments in Unrestricted Subsidiaries not to exceed $1,000,000 at any
one time outstanding; (viii) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers; (ix)
Investments made by the Company or the Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
the covenant described under "-- Certain Covenants - Limitation on Asset Sales";
(x) Investments in persons, including, without limitation, joint ventures,
engaged in a business similar or related to the businesses in which the Company
and the Restricted Subsidiaries are engaged on the Issue Date not to exceed
$7,500,000 at any one time outstanding and (xi) a guarantee by the Company of up
to $2,500,000 aggregate principal amount of Alliance Debt.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of the Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary acquired in the ordinary course of
business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets so
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acquired and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements; and
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the covenant described under "-- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness"; provided that (A) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and were not granted in connection with, or in anticipation of,
the incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and (B) such Liens do not extend to or cover any property or
assets of the Company or of any of the Restricted Subsidiaries other than
the property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary.
"Permitted Tax Payments" means distributions to the stockholders of the
Company to reimburse them for federal and state income taxes actually paid and
attributable to the income of the Company for any tax period during which the
Company is not a taxable entity for federal or state, as the case may be, income
tax purposes pursuant to an election under Subchapter S of the Internal Revenue
Code of 1986, as amended, or a similar provision under state law, as the case
may be.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Public Equity Offering" has the meaning set forth under "-- Redemption --
Optional Redemption upon Public Equity Offerings."
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Reference Date" has the meaning set forth under "-- Certain Covenants --
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the covenant described under "-- Certain Covenants - Limitation on Incurrence of
Additional Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi),
(vii), (viii), (ix), (xi) or (xii) of the definition of Permitted Indebtedness),
in each case that does not (1) result in an increase in the aggregate principal
amount of Indebtedness of such Person as of the date of such proposed
Refinancing (plus the amount of any premium required to be paid under the terms
of the instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced;
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provided that (x) if such Indebtedness being Refinanced is Indebtedness of the
Company, then such Refinancing Indebtedness shall be Indebtedness solely of the
Company and (y) if such Indebtedness being Refinanced is subordinate or junior
to the Notes or a Guarantee, then such Refinancing Indebtedness shall be
subordinate to the Notes or such Guarantee, as the case may be, at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the Issue Date between the Company, and the Initial Purchaser.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Payment" has the meaning set forth under "-- Certain Covenants
- -- Limitations on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "-- Certain Covenants -- Limitation
on Designations of Unrestricted Subsidiaries." Any such Designation may be
revoked by a Board Resolution of the Company delivered to the Trustee, subject
to the provisions of such covenant.
"Revocation" has the meaning set forth under "-- Certain Covenants --
Limitation on Designations of Unrestricted Subsidiaries."
"Revolving Credit Facility" means one or more revolving credit facilities
under the Credit Agreement.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Senior Debt" means, (i) the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Restricted Subsidiary or any
Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Restricted Subsidiary (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by the Company, (vi) Indebtedness incurred in violation of the covenant
described under "-- Certain Covenants -- Limitation on Incurrence of Additional
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Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth under "-- Certain Covenants --
Merger, Consolidation and Sale of Assets."
"Term Loan Facility" means one or more term loan facilities under the
Credit Agreement.
"Unleveraged Wholly Owned Restricted Subsidiary" means a Wholly Owned
Restricted Subsidiary that has no Indebtedness outstanding (other than
Indebtedness owed to the Company or a Guarantor).
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date the making of such payment.
"Wholly Owned Restricted Subsidiary" of the Company means any Restricted
Subsidiary of which all the outstanding voting securities (other than in the
case of a foreign Restricted Subsidiary, directors' qualifying shares or an
immaterial amount of shares required to be owned by other Persons pursuant to
applicable law) are owned by the Company or any Wholly Owned Restricted
Subsidiary.
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DESCRIPTION OF SENIOR DEBT
MOLMEC BONDS
In December 1994, the Michigan Strategic Fund (the "Fund") sold $5.0
million in aggregate principal amount of its Variable Rate Demand Limited
Obligation Revenue Bonds, Series 1994 (the "Molmec Bonds"), to finance, for the
benefit of Molmec, the acquisition of and equipment in connection with the
construction of Molmec's Hartland facility. LDM assumed this debt in the Molmec
Acquisition. The Molmec Bonds are subject to the terms of a trust indenture (the
"Molmec Indenture") with Society Bank (the "Molmec Trustee"). The Molmec Bonds
mature December 1, 2014 and pay interest at the variable rate each June 1 and
December 1. The current variable rate on the Molmec Bonds, which rate is
adjusted weekly, is 4% but is subject to a maximum rate of 12%.
The Molmec Bonds are subject to redemption in whole or in part at the
direction of Molmec prior to maturity on any interest payment date at the
principal amount thereof plus accrued interest to the redemption date. The
Molmec Bonds are convertible to fixed rate bonds at the option of Molmec. The
Molmec Bonds are backed by an irrevocable letter of credit issued to the Molmec
Trustee.
The Loan Agreement between the Fund and Molmec sets forth events of
default, including: (a) Molmec's failure to pay any loan repayments in the
amounts and at the times provided in the agreement; (b) Molmec's having made any
untrue representations or warranties in connection with the issuance, sale and
delivery of the bonds; and (c) the occurrence of an event of default under the
Molmec Indenture or the Molmec Reimbursement Agreement (as defined). Pursuant to
a Reimbursement Agreement with Comerica dated December 1, 1994 and the First
Amendment to the Reimbursement Agreement dated May 12, 1995 (the "Molmec
Reimbursement Agreement"), Molmec agreed, among other things, to: (1) preserve
and maintain its corporate existence; (2) maintain a specific tangible effective
net worth; (3) maintain a specific debt to tangible net worth ratio; and (4)
maintain a specific working capital amount. Events of default under the Molmec
Indenture and Molmec Reimbursement Agreement include entry of a judgment against
Molmec involving aggregate liability of $300,000 or more which remains
unsatisfied for over 30 days, Molmec's suspension of business or commencement of
bankruptcy proceedings, Molmec's failure to meet its minimum funding obligations
under ERISA, and a change in control over Molmec's assets having a materially
adverse effect on the business' assets, operations or financial condition. In
connection with LDM's assumption of the Molmec Bonds, the Molmec Reimbursement
Agreement has been amended to provide that LDM is the primary obligor
thereunder.
ARROW BONDS
In April, 1995, Arrow N.A., Inc. ("Arrow"), then a wholly owned subsidiary
of LDM which subsequently merged into LDM, sold $9.0 million in aggregate
principal amount of its Multi-Option Adjustable Rate Notes due April 11, 2015
(the "Arrow Bonds"). The Arrow Bonds are subject to a Reimbursement Agreement
(the "Arrow Reimbursement Agreement") between Arrow and The Huntington National
Bank (the "Bank") and Trust Indenture (the "Arrow Indenture") dated April 1,
1995 with the Bank, as trustee (the "Arrow Trustee"), and are backed by an
irrevocable letter of credit. The Arrow Bonds were issued to finance the
acquisition, construction and improvement of LDM's new corporate headquarters
and design facilities in Auburn Hills, Michigan. The Arrow Bonds mature on April
1, 2015 and pay interest monthly. The current interest rate is 6.99% and may not
exceed 12% per annum. Pursuant to Arrow's merger with LDM in September, 1996,
LDM assumed all of Arrow's obligations under Arrow's letter of credit documents
with the Bank. Although the Arrow Bonds were initially backed by a guaranty
agreement between LDM and the Bank, the guaranty agreement has been extinguished
by virtue of the merger and related amendments to the Arrow Reimbursement
Agreement.
Under the Arrow Reimbursement Agreement, LDM has agreed, among other
things, to: (a) maintain the lien created by the mortgage as a first lien,
subject only to permitted encumbrances; (b) maintain at all times a ratio of
current assets to current liabilities of not less than 0.75 to 1.00: (c)
restrict its aggregate annual capital expenditures to no more than $9.0 million
without the Bank's prior written consent; (d) maintain a
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tangible net worth of not less than the sum of (1) $13.5 million, plus (2) the
aggregate amount of Arrow's net income for each of its fiscal quarters; (e)
maintain a ratio of (1) EBITDA to (2) debt service of not less than 2.00 to
1.00; and (f) refrain from causing or permitting any of its property to become
subject to a lien or encumbrance except in the ordinary course of business. The
Company intends to obtain a replacement letter of credit with respect to the
Arrow Bonds.
Upon conversion of the Arrow Bonds to a different interest rate, the Arrow
Bonds are subject to mandatory tender by the holders.
The Arrow Indenture sets forth events of default including: (i) failure to
pay any principal, premium or interest on any Arrow Bonds as the interest
becomes due and payable; (ii) failure to pay amounts due to holders of any
tendered Arrow Bonds; (iii) failure to perform any obligation in the Arrow
Indenture; (iv) receipt by the Arrow Trustee of a written notice from the Bank
that default has occurred under the terms of the Arrow Reimbursement Agreement;
(v) the Bank commences bankruptcy, insolvency, or reorganization proceedings, or
has any such proceedings commenced against it; or (vi) a receiver, conservator,
liquidator, or trustee is appointed for the Bank or any substantial part of its
property. Upon occurrence of an event of default in the Arrow Indenture, the
Arrow Trustee will declare the principal of all Arrow Bonds then outstanding,
together with an accrued interest, to be due and payable immediately.
COMO LINE OF CREDIT AND REVOLVING LOAN
Como has a line of credit with KeyBank which provides for borrowings up to
the lesser of aggregate advances of $3.5 million or 80% of eligible accounts
receivable and 50% of eligible inventory. Borrowings outstanding under the line
of credit were approximately $1.6 million at September 29, 1996. Interest
accrues at the bank's prime rate (8.25% at September 30, 1996) plus 0.5%. The
line of credit expired on January 31, 1997. The long-term debt and line of
credit are collateralized by substantially all the assets of Como and are
guaranteed by LDM up to $1.0 million.
SENIOR CREDIT FACILITY
On January 22, 1997, LDM, the Guarantors and Bank of America Business
Credit, Inc. entered into a new five-year credit facility (the "Senior Credit
Facility"). The Senior Credit Facility is secured by substantially all of the
assets of the Company and the Guarantors. The Senior Credit Facility provides
for advances to LDM of up to (i) 85% of eligible accounts receivable, and (ii)
the lesser of $12.0 million or 60% of eligible inventory, up to a maximum
availability of $45.0 million. The Senior Credit Facility provides for the
issuance of commercial and stand-by letters of credit up to a portion of the
$45.0 million Senior Credit Facility. The Senior Credit Facility bears interest
at rates based upon a prime rate or a LIBOR rate, in each case plus an
applicable basis point spread; and that LDM will pay an issuance fee with
respect to letters of credit based on a percentage of the full amount of such
letters of credit, and an unused line fee equal to a percentage of the unused
portion of the Senior Credit Facility. The Senior Credit Facility contains
customary covenants, including financial covenants relating to, among other
things, minimum net worth, fixed charge coverage ratios and capital expenditure
limitations.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE EXCHANGE OFFER
The following summary of the material anticipated federal income tax
consequences of the issuance of New Notes and the Exchange Offer is based upon
the provisions of the Internal Revenue Code of 1986, as amended, the final,
temporary and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. The following
summary is not binding on the Internal Revenue Service ("IRS") and there can be
no assurance that the IRS will take a similar view with respect to the tax
consequences described below. No ruling has been or will be requested by the
Company from the IRS on any tax matters relating to the New Notes or the
Exchange Offer. This discussion is for general information only and does not
purport to address all of the possible federal income tax consequences or any
state, local or foreign tax consequences of the acquisition, ownership and
disposition of the Old Notes, the New Notes or the Exchange Offer. It is limited
to investors who will hold the Old Notes and the New Notes as capital assets and
does not address the federal income tax consequences that may be relevant to
particular investors in light of their unique circumstances or to certain types
of investors (such as dealers in securities; insurance companies; financial
institutions; foreign corporations; partnerships; trusts; nonresident
individuals; and tax-exempt entities) who may be subject to special treatment
under federal income tax laws.
INDEBTEDNESS
The Old Notes and the New Notes should be treated as indebtedness of the
Company. In the unlikely event the Old Notes or the New Notes were treated as
equity, the amount treated as a distribution on any such Old Note or New Note
would first be taxable to the holder as dividend income to the extent of the
Company's current and accumulated earnings and profits, and would next be
treated as a return of capital to the extent of the holder's tax basis in the
Old Notes or New Notes, with any remaining amount treated as a gain from the
sale of an Old Note or a New Note. In addition, in the event of equity
treatment, amounts received in retirement of an Old Note or a New Note might in
certain circumstances be treated as a dividend, and the Company could not deduct
amounts paid as interest on such Old Notes or New Notes. The remainder of this
discussion assumes that the Old Notes and the New Notes will constitute
indebtedness.
EXCHANGE OFFER
The exchange of the Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" because the New Notes should not be
considered to differ materially in kind or extent from the Old Notes. Rather,
the New Notes received by a holder of the Old Notes should be treated as a
continuation of the Old Notes in the hands of such holder. As a result, there
should be no federal income tax consequences to holders exchanging the Old Notes
for the New Notes pursuant to the Exchange Offer.
INTEREST
A holder of an Old Note or a New Note will be required to report stated
interest on the Old Note and the New Note as interest income in accordance with
the holder's method of accounting for tax purposes. Because the Old Notes were
issued at 100.00% of par there is no original issue discount pursuant to the de
minimis exception to the "original issue discount" rules.
TAX BASIS IN OLD NOTES AND NEW NOTES
A holder's tax basis in an Old Note will be the holder's purchase price for
the Old Note. If a holder of an Old Note exchanges the Old Note for a New Note
pursuant to the Exchange Offer, the tax basis of the New Note immediately after
such exchange should equal the holder's tax basis in the Old Note immediately
prior to the exchange.
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DISPOSITION OF OLD NOTES OR NEW NOTES
The sale, exchange, redemption or other disposition of an Old Note or a New
Note, except in the case of an exchange pursuant to the Exchange Offer (see the
above discussion), generally will be a taxable event. A holder generally will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of any property received upon such sale, exchange,
redemption or other taxable disposition of the Old Note or the New Note (except
to the extent attributable to accrued interest) and (ii) the holder's adjusted
tax basis in such debt instrument. Such gain or loss will be capital gain or
loss, and will be long term if the Old Notes have been held for more than one
year at the time of the sale or other disposition.
PURCHASERS OF OLD NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquired Old Notes other than at par, including those
provisions of the Internal Revenue Code relating to the treatment of "market
discount," and "amortizable bond premium." Any such purchaser should consult its
tax advisor as to the consequences to him of the acquisition, ownership, and
disposition of Old Notes.
BACKUP WITHHOLDING
Unless a holder provides its correct taxpayer identification number
(employer identification number or social security number) to the Company and
certifies that such number is correct, generally under the federal income tax
backup withholding rules, 31% of (1) the interest paid on the Old Notes and the
New Notes, and (2) proceeds of sale of the Old Notes and the New Notes, must be
withheld and remitted to the United States Treasury. Therefore, each holder
should complete and sign the Substitute Form W-9 included so as to provide the
information and certification necessary to avoid backup withholding. However,
certain holders (including, among others, certain foreign individuals) are not
subject to these backup withholding and reporting requirements. For a foreign
individual to qualify as an exempt foreign recipient, that exchanging holder
must submit a statement, signed under penalties of perjury, attesting to that
individual's exempt foreign status. Such statements can be obtained from the
Company. For further information concerning backup withholding and instructions
for completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if the Old Notes are held in more than one name), contact the Company's
Chief Financial Officer, 2500 Executive Hills Drive, Auburn Hills, Michigan
48326 or telephone number (810) 858-2800.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the IRS.
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OLD NOTES; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company agreed to file
with the Commission the Exchange Offer Registration Statement on the appropriate
form under the Securities Act with respect to an offer to exchange the Old Notes
for the New Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of Old Notes who are able to
make certain representations the opportunity to exchange their Old Notes for New
Notes. If (i) the Company is not permitted to file the Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy, (ii) any holder
of Old Notes notifies the Company within the specified time period that (a) due
to a change in law or policy it is not entitled to participate in the Exchange
Offer, (b) due to a change in law or policy it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holder or (c)
it is a broker-dealer and owns Old Notes acquired directly from the Company or
an affiliate of the Company or (iii) the Company has not consummated the
Exchange Offer within 120 days of the Issue Date and holders of majority in
principal amount of Old Notes outstanding so request, the Company will file with
the Commission the Shelf Registration Statement to cover resales of the Transfer
Restricted Notes (as defined) by the holders thereof. The Company will use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Notes" means each Old Note until (i) the date on
which such Old Note has been exchanged by a person other than a broker-dealer
for a New Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of an Old Note for a New Note, the date on
which such New Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of this Prospectus, (iii) the date
on which such Old Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Old Note may be distributed to the public pursuant to Rule
144 under the Securities Act without volume or manner of sale restrictions.
Under existing Commission interpretations, the New Notes would, in general,
be freely transferable after the Exchange Offer without further registration
under the Securities Act; provided that in the case of broker-dealers
participating in the Exchange Offer, a prospectus meeting the requirements of
the Securities Act will be delivered upon resale by such broker-dealer in
connection with resales of the New Notes. The Company has agreed, for a period
of 180 days after consummation of the Exchange Offer, to make available a
prospectus meeting the requirements of the Securities Act to any such
broker-dealer for use in connection with any resale of any New Notes acquired in
the Exchange Offer. A broker-dealer which delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company
or, if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
The Registration Rights Agreement provides that (i) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the Company
will file an Exchange Offer Registration Statement with the Commission on or
prior to 30 days after the date of original issuance of the Old Notes (the
"Issue
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86
Date"), (ii) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, the Company will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior to
90 days after the Issue Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will commence the
Exchange Offer and use its best efforts to issue, on or prior to 20 business
days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, New Notes in exchange for all Old Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company will file prior to the later of (x) 60
days after the Issue Date or (y) 30 days after such filing obligation arises and
use their best efforts to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 90 days after such obligation arises.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended until the third anniversary of
the Issue Date or such shorter period that will terminate when all the Transfer
Restricted Notes covered by the Shelf Registration Statement have been sold
pursuant thereto or cease being Transfer Restricted Notes. If (a) the Company
fails to file any of the registration statements required by the Registration
Rights Agreement on or before the date specified for such filing, (b) any of
such registration statements are not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), (c) the Company fails to consummate the Exchange Offer within 20
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter,
subject to certain exceptions, ceases to be effective or usable in connection
with the Exchange Offer or resales of Transfer Restricted Notes, as the case may
be, during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
then the interest rate on Transfer Restricted Notes will increase ("Additional
Interest"), with respect to the first 90-day period immediately following the
occurrence of such Registration Default by 0.50% per annum and will increase by
an additional 0.50% per annum with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of 1.50%
per annum. Following the cure of all Registration Defaults, the accrual of
Additional Interest will cease and the interest rate will revert to the original
rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the New Note initially will be
represented by a single, permanent global certificate in definitive, fully
registered form (the "Global Note"). The Global Note will be deposited on the
Issue Date with, or on behalf of, DTC and registered in the name of a nominee of
DTC.
Notes (i) originally purchased by or transferred to foreign purchasers or
Accredited Investors who are not QIBs or (ii) held by QIBs who elect to take
physical delivery of their certificates instead of holding their interest
through the Global Note (and which are thus ineligible to trade through DTC)
(collectively referred to herein as the "Non-Global Purchasers") will be issued
in registered certificated form ("Certificated Notes"). Upon the transfer to a
QIB of any Certificated Note initially issued to a Non-Global Purchaser, such
Certificated Note will, unless the transferee requests otherwise or the Global
Note has previously been exchanged in whole for Certificated Notes, be exchanged
for an interest in the Global Note.
THE GLOBAL NOTE
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of Notes of the individual beneficial
interest represented by such Global Note to the respective accounts for persons
who have accounts with DTC and (ii) ownership of beneficial interest in the
Global Note will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with
81
87
respect to interests of persons who have accounts with DTC ("Participants")) and
the records of Participants (with respect to interests of persons other than
Participants). Such accounts initially will be designated by or on behalf of the
Initial Purchaser and ownership of beneficial interests in the Global Note will
be limited to Participants or persons who hold interest through Participants.
QIBs may hold their interests in the Global Note directly through DTC, if they
are Participants in such system, or indirectly through organizations which are
Participants in such system.
So long as DTC or its nominee is the registered owner or holder of the New
Notes, DTC or such nominee, as the case may be, will considered the sole owner
or holder of the New Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any paying agent of the Trustee will 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 or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of 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 DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interest in the Global Note held through such Participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell Notes to persons in states which required physical delivery of
the Certificated Notes, or to pledge such securities, such holder must transfer
its interest in the Global Note in accordance with the normal procedures of DTC
and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more Participants
to whose account the DTC interests in the Global Note are credited and only in
respect of such portion of the aggregate principal amount of Notes as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Note for Certificated Notes, which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchaser or the
Trustee will
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have any responsibility for the performance by DTC or its Participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days, Certificated Notes will be issued in exchange for the Global
Note.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any holder which is (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Notes directly from the
Company or (iii) broker-dealers who acquired Notes as a result of market-making
or other trading activities) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business, and such
holders are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of such New Notes; provided that broker-dealers ("Participating Broker-Dealers")
receiving New Notes in the Exchange Offer will be subject to a prospectus
delivery requirement with respect to resales of such New Notes. To date, the
Staff has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the Exchange Offer
(other than a resale of an unsold allotment from the sale of the Old Notes to
the Initial Purchasers) with the Prospectus contained in the Exchange Offer
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
in connection with the resale of such New Notes. The Company and the Guarantors
have agreed that, for a period of 180 days after the Expiration Date, they will
make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
the Company as set forth in "The Exchange Offer--Purpose and Effect of the
Exchange Offer." In addition, each holder who is a broker-dealer and who
receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New 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 New 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 at 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 and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any 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.
83
89
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters regarding the validity of the New Notes offered
hereby will be passed upon for the Company by Dickinson, Wright, Moon, Van Dusen
& Freeman, Detroit, Michigan.
EXPERTS
The consolidated financial statements of LDM Technologies, Inc. at
September 29, 1996 and September 24, 1995 and for each of the three years in the
period ended September 29, 1996, included in this Prospectus and Registration
Statement 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.
The financial statements of Molmec, Inc. at December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995, included in
this Prospectus and Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing. Reference is made
to the report, which includes an explanatory paragraph with respect to the
change in method of accounting for inventories as discussed in Note 1 to the
financial statements.
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90
INDEX TO FINANCIAL STATEMENTS
PAGE
----
LDM TECHNOLOGIES, INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of September 29, 1996 and
September 24, 1995........................................ F-3
For each of the three years in the period ended September
29, 1996:
Consolidated Statements of Income......................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Interim Balance Sheets............... F-22
Condensed Consolidated Interim Statements of Income......... F-23
Condensed Consolidated Statements of Interim Cash Flows..... F-24
Notes to Condensed Consolidated Interim Financial
Statements................................................ F-25
MOLMEC, INC.
Report of Independent Public Accountants.................... F-26
Balance Sheets as of December 31, 1995 and December 31,
1994...................................................... F-27
For each of the three years in the period ended December 31,
1995:
Statements of Operations.................................. F-28
Statements of Stockholders' Investment.................... F-29
Statements of Cash Flows.................................. F-30
Notes to Financial Statements............................... F-31
Balance Sheet as of September 24, 1995...................... F-36
For the period ended from January 1 through September 24,
1995:
Statement of Operations................................... F-37
Statement of Stockholders' Investment..................... F-38
Statement of Cash Flows................................... F-39
Notes to Financial Statements............................... F-40
Balance Sheet as of September 29, 1996...................... F-44
For the period from September 25, 1995 through September 29,
1996:
Statement of Operations................................... F-45
Statement of Stockholders' Investment..................... F-46
Statement of Cash Flows................................... F-47
Notes to Financial Statements............................... F-48
For the period from January 1 through September 29, 1996:
Statement of Operations................................... F-52
Statement of Stockholders' Investment..................... F-53
Statement of Cash Flows................................... F-54
Notes to Financial Statements............................... F-55
F-1
91
REPORT OF INDEPENDENT AUDITORS
Board of Directors
LDM Technologies, Inc.
We have audited the accompanying consolidated balance sheets of LDM
Technologies, Inc. as of September 29, 1996, and September 24, 1995 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended September 29, 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.
Since the date of completion of our audit of the accompanying consolidated
financial statements and initial issuance of our report thereon dated November
22, 1996, which report contained an explanatory paragraph regarding the
Company's ability to continue as a going concern, the Company, as discussed in
Note 11, has completed a debt issuance resulting in net proceeds of
approximately $105 million and has obtained a new senior credit facility which
provides available borrowings of $45 million under revolving loans. Therefore,
the conditions that raised substantial doubt about whether the Company will
continue as a going concern no longer exist.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LDM
Technologies, Inc. at September 29, 1996, and September 24, 1995 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 29, 1996 in conformity with generally
accepted accounting principles.
Detroit, Michigan
November 22, 1996, except for
Note 11, as to which the
date is January 22, 1997 ERNST & YOUNG LLP
F-2
92
LDM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, SEPTEMBER 24,
1996 1995
------------- -------------
ASSETS
Current assets
Cash...................................................... $ 2,121,862 $ 1,137,849
Accounts receivable....................................... 35,481,400 29,331,702
Inventories............................................... 11,833,202 12,797,877
Mold costs................................................ 7,128,974 5,702,240
Prepaid expenses.......................................... 454,427 375,966
Refundable income tax..................................... 364,725 --
Deferred income taxes..................................... 828,500 1,144,500
------------ ------------
Total current assets................................. 58,213,090 50,490,134
Cash and equivalents restricted as to use................... 658,018 7,343,552
Net property, plant and equipment, at cost.................. 58,955,956 46,499,743
Other....................................................... 1,298,132 3,322,066
------------ ------------
$119,125,196 $107,655,495
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit and revolving loan........................ $ 1,800,976 $ 20,102,490
Lines of credit and revolving loan in default............. 19,134,290 --
Accounts payable.......................................... 30,834,395 25,236,694
Demand notes payable to shareholders...................... 87,500 87,500
Accrued liabilities....................................... 7,597,886 5,804,723
Accrued compensation...................................... 4,201,751 3,969,980
Advance mold payments from customers...................... 3,661,046 509,640
Income taxes payable...................................... 2,459,567 2,106,655
Current maturities of long-term debt...................... 1,320,583 2,909,054
Long-term debt in default................................. 27,421,760 --
------------ ------------
Total current liabilities......................... 98,519,754 60,726,736
Long-term debt due after one year........................... 2,020,845 21,837,306
Deferred income taxes....................................... 841,000 774,019
Minority interests.......................................... 421,532 682,420
Stockholders' equity
Common stock ($.10 par value; 100,000 shares authorized,
600 shares and 700 shares issued and outstanding in
1996 and 1995, respectively)........................... 60 70
Additional paid in capital................................ 94,072 109,751
Retained earnings......................................... 17,290,116 23,561,845
Currency translation adjustments.......................... (62,183) (36,652)
------------ ------------
Total stockholders' equity........................ 17,322,065 23,635,014
------------ ------------
$119,125,196 $107,655,495
============ ============
See accompanying notes.
F-3
93
LDM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED
-----------------------------------------------
SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 25,
1996 1995 1994
------------- ------------- -------------
Net sales
Product sales.................................... $192,470,660 $214,289,121 $154,261,899
Mold sales....................................... 25,288,234 6,702,224 23,334,700
------------ ------------ ------------
217,758,894 220,991,345 177,596,599
Cost of sales
Product cost of sales............................ 160,093,701 176,057,556 129,342,527
Mold cost of sales............................... 22,802,654 6,350,269 22,349,088
------------ ------------ ------------
182,896,355 182,407,825 151,691,615
------------ ------------ ------------
Gross margin....................................... 34,862,539 38,583,520 25,904,984
Selling, general and administrative expenses....... 26,418,453 23,514,930 17,136,576
------------ ------------ ------------
Operating profit................................... 8,444,086 15,068,590 8,768,408
Other expenses
Interest......................................... 3,279,904 3,177,826 2,144,093
Other, net....................................... 56,108 353,313 65,200
------------ ------------ ------------
3,336,012 3,531,139 2,209,293
------------ ------------ ------------
Income from continuing operations before income
taxes, minority interest and extraordinary
item............................................. 5,108,074 11,537,451 6,559,115
Provision for income taxes......................... 4,013,745 5,058,205 3,802,730
------------ ------------ ------------
Income from continuing operations before minority
interest and extraordinary item.................. 1,094,329 6,479,246 2,756,385
Minority interest (income) loss.................... 79,078 (231,735) (186,725)
------------ ------------ ------------
Income from continuing operations before
extraordinary item............................... 1,173,407 6,247,511 2,569,660
Extraordinary item, gain on debt refinancing, no
income tax effect................................ 753,510 -- --
------------ ------------ ------------
Income from continuing operations.................. 1,926,917 6,247,511 2,569,660
Income (loss) from discontinued operations, net of
income taxes and minority interest............... (57,610) 86,546 182,283
------------ ------------ ------------
Net income......................................... $ 1,869,307 $ 6,334,057 $ 2,751,943
============ ============ ============
See accompanying notes.
F-4
94
LDM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL CURRENCY
---------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL
------ ------ ---------- ----------- ----------- -----------
Balance at September 23, 1993....... 700 $ 70 $109,751 $14,475,845 $ -- $14,585,666
Net income for 1994............... -- -- 2,751,943 -- 2,751,943
Currency translation adjustment... -- -- -- (18,157) (18,157)
---- ---- -------- ----------- -------- -----------
Balance at September 25, 1994....... 700 70 109,751 17,227,788 (18,157) 17,319,452
Net income for 1995............... -- -- 6,334,057 -- 6,334,057
Currency translation adjustment... -- -- -- (18,495) (18,495)
---- ---- -------- ----------- -------- -----------
Balance at September 24, 1995....... 700 70 109,751 23,561,845 (36,652) 23,635,014
Redemption of a stockholder's
interest (Note 1)............... (100) (10) (15,679) (8,141,036) (8,156,725)
Net income for 1996............... 1,869,307 1,869,307
Currency translation adjustment... (25,531) (25,531)
---- ---- -------- ----------- -------- -----------
Balance at September 29, 1996....... 600 $ 60 $ 94,072 $17,290,116 $(62,183) $17,322,065
==== ==== ======== =========== ======== ===========
See accompanying notes.
F-5
95
LDM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
---------------------------------------------
SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 25,
1996 1995 1994
------------- ------------- -------------
OPERATING ACTIVITIES
Net income.................................................. $ 1,869,307 $ 6,334,057 $ 2,751,943
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 8,005,518 6,777,781 6,593,367
Extraordinary gain on retirement of debt.................. (753,510) -- --
(Gain) loss on sale of property and equipment............. 102,853 (39,318) 9,365
Deferred income taxes..................................... 382,981 (612,211) (83,469)
Other..................................................... (505,206) 526,540 536,988
Changes in assets and liabilities, net of the 1996 effect
of the distribution of IMCA:
Accounts and notes receivable........................... (7,379,182) (1,916,290) (10,115,257)
Refundable income taxes................................. (364,725) -- --
Inventory and mold costs................................ (974,530) (1,258,995) (1,745,129)
Prepaid expenses........................................ (78,461) 59,861 (119,597)
Other assets............................................ 6,997 (224,050) 213,307
Accounts payable and accrued liabilities................ 12,247,032 5,253,495 7,618,345
Income taxes payable.................................... 352,912 (112,952) 2,140,743
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 12,911,986 14,787,918 7,800,606
INVESTING ACTIVITIES
Purchase of Canadian operations, net of cash acquired....... -- -- (17,428,500)
Additions to property, plant and equipment.................. (20,286,378) (15,149,972) (11,594,156)
Proceeds from disposal of property and equipment............ 284,310 100,600 15,300
Cash and cash equivalents restricted for construction of new
corporate facility........................................ 6,685,534 (7,343,552) --
Other....................................................... 1,246,889 (1,222,779) (1,541,907)
------------ ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES................ (12,069,645) (23,615,703) (30,549,263)
FINANCING ACTIVITIES
Redemption of stockholder's interest, including cash owned
by IMCA of $212,968....................................... (4,712,968) -- --
Proceeds from issuance of long-term debt.................... 35,493,596 9,000,000 15,864,603
Net proceeds (repayments) from borrowings on line of
credit.................................................... (14,667,223) 3,831,837 11,501,854
Payments on notes payable and long-term debt................ (16,134,416) (3,529,752) (3,877,002)
Other....................................................... 162,683 (312,315) (83,363)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 141,672 8,989,770 23,406,092
------------ ------------ ------------
Net increase in cash........................................ 984,013 161,985 657,435
Cash at beginning of year................................... 1,137,849 975,864 318,429
------------ ------------ ------------
Cash at end of year......................................... $ 2,121,862 $ 1,137,849 $ 975,864
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................... $ 2,502,411 $ 2,931,301 $ 1,351,126
============ ============ ============
Income taxes paid........................................... $ 3,050,739 $ 5,328,489 $ 2,109,105
============ ============ ============
Interest capitalized........................................ $ 780,478 $ 161,770 $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
On September 29, 1996 LDM Technologies, Inc. issued a note payable to a
former shareholder in the amount of $3,000,000 as part of the consideration for
the redemption of LDM Technologies, Inc. common stock owned by that shareholder.
In connection with that transaction, the stock of IMCA was distributed to the
former shareholder (Note 1).
See accompanying notes.
F-6
96
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of LDM
Technologies, Inc. (the "Company") and its majority owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
On September 29, 1996, the Company entered into a series of transactions
which resulted in a reorganization of its corporate structure and the redemption
of a shareholder's interest in the Company. The reorganization was undertaken to
redeem the shareholder's stock and to allow the Company to qualify as a Small
Business Corporation ("S Corporation") for tax purposes. The Company and its
shareholders have not yet decided to file such election with the Internal
Revenue Service.
The Company is currently in default with respect to certain of its bank
borrowings as a result of covenant violations which have not been waived by the
banks (see Notes 4 and 5). As a result, the banks may declare the borrowings to
be due and payable. Other than the classification of the debt in default as
current liabilities, no adjustments have been made in the financial statements
to reflect the potential effects of the defaults. As discussed in Note 11, the
Company is currently pursuing a replacement letter of credit with respect to its
$8.8 million Multi-Option Adjustable Rate Notes and a refinancing of all other
debt in default. The Company also intends to refinance the $3 million note
payable to a former shareholder.
DISCONTINUED OPERATIONS
Effective at the close of business on September 29, 1996, the Company
contributed $4,000,000 in cash to the capital of its 83% owned subsidiary,
Industrial Machining Corporation of Arkansas ("IMCA") and immediately exchanged
its stock of IMCA plus $500,000 in cash and a two year 6.5% interest bearing
promissory note in the amount of $3,000,000 for all of the LDM stock held by the
shareholder. No gain or loss was recognized on the distribution of IMCA, since
its carrying value was deemed to approximate fair value. IMCA's results of
operation have been classified as discontinued operations in the accompanying
statements of income. The net assets of IMCA, which are not included in the
September 29, 1996 balance sheet, consisted of the following at the date of
distribution:
Assets
Cash...................................................... $4,212,968
Accounts receivable....................................... 1,229,484
Inventory................................................. 512,471
Other current assets...................................... 47,974
----------
Total current assets.............................. 6,002,897
Property, plant and equipment............................. 295,454
----------
Total assets...................................... $6,298,351
==========
Liabilities and Equity
Accrued expenses.......................................... $1,352,398
Other liabilities......................................... 155,200
Equity, including $134,025 of minority interest........... 4,790,753
----------
Total liabilities and equity...................... $6,298,351
==========
F-7
97
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMCA had net sales of $4,737,007, $6,285,214, and $6,721,381 and net income
(loss) of ($69,410), $104,272, and $219,618, for the nine months ended September
30, 1996 and the years ended December 31, 1995 and 1994, respectively.
DESCRIPTION OF BUSINESS
The Company's domestic automotive operations are conducted through
divisions and, in Canada, through LDM Technologies Company ("LDM Canada"). Such
operations principally consist of manufacturing of molded plastic interior and
exterior components for sale principally to several North American automobile
manufacturers and their suppliers. GL Industries of Indiana, Inc. (d/b/a Como
Products) ("Como"), a 75% owned subsidiary of the Company, is a manufacturer of
molded plastic products for end-use application primarily in the consumer
appliance, office products, and commercial furniture markets.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company operates with a 52/53 week fiscal year ending on the last
Sunday in September. The fiscal years ended September 29, 1996, September 24,
1995 and September 25, 1994 included 53, 52 and 52 weeks, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
At September 29, 1996 and September 24, 1995, approximately $658,000 and
$7,344,000 were held by a trustee and have been restricted to expenditures for
construction of a new corporate headquarters facility.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventories at September 29, 1996 and September 24, 1995
consist of the following:
1996 1995
----------- -----------
Raw materials and supplies.......................... $ 7,713,312 $ 8,220,108
Work-in-process..................................... 1,368,032 1,615,383
Finished goods...................................... 2,751,858 2,962,386
----------- -----------
Total............................................... $11,833,202 $12,797,877
=========== ===========
MOLDS
Molds used in Company operations are requisitioned by the Company's
customers and are purchased from mold builders who design and construct the
molds under Company supervision. Upon delivery and acceptance of the molds,
title is passed to customers and revenue is recognized.
F-8
98
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation of property, plant and equipment is determined principally
using the straight-line method based upon the following estimated useful lives:
ESTIMATED USEFUL
LIFE (YEARS)
----------------
Buildings and improvements.................................. 10 - 20
Machinery and equipment..................................... 3 - 12
Transportation equipment.................................... 3 - 10
Furniture and fixtures...................................... 3 - 12
Leasehold improvements are amortized using the straight-line method over
the useful life of the improvement or the term of the lease, whichever is less.
Effective September 26, 1994, the Company extended the estimated useful
lives of certain machinery and equipment from five to ten years to conform to
the Company's actual experience with such machinery and equipment. The extended
useful lives are being used to depreciate the remaining September 26, 1994
undepreciated costs of such machinery and equipment at that date and the cost of
acquisitions of such machinery and equipment after that date. In the fiscal year
ended September 24, 1995, the effect of the change was to decrease depreciation
expense by approximately $1,680,000 and increase net income by approximately
$1,008,000, after a $672,000 provision for income taxes.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Short and long-term debt: The carrying amounts of the Company's
borrowings under its short-term revolving credit agreements approximate
their fair value. Substantially all of the Company's long-term debt carries
variable interest rates and, accordingly, the carrying amount approximates
fair value. Given that the duration of the remaining non-variable rate
long-term debt is two years or less and given the related party nature and
subordination of certain borrowings, the Company does not believe it is
practicable to estimate a fair value for these securities; however, the
Company believes the carrying value does not differ materially from fair
value.
IMPACT OF ACCOUNTING STANDARD TO BE ADOPTED IN THE FISCAL YEAR ENDING IN
SEPTEMBER, 1997
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of the fiscal year ending
in September, 1997 and, based on current circumstances, does not believe the
effect of adoption will be material.
F-9
99
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION AND FOREIGN OPERATIONS
LDM Canada was capitalized in November, 1993 with $1,350,000 of equity and
approximately $2,000,000 of intercompany loans. In November, 1993, LDM Canada
purchased the business and certain assets of a Canadian plastics manufacturer
for cash of approximately $17,428,500, which was funded with corporate cash of
$4,563,897 and $12,864,603 of bank loans.
The summarized financial position of LDM Canada at September 29, 1996 and
September 24, 1995 is as follows:
1996 1995
----------- -----------
Current assets.................................. $13,056,390 $ 6,637,883
Property, plant and equipment................... 16,040,296 15,557,675
Intangible assets............................... 165,283 393,518
----------- -----------
Total assets.................................... $29,261,969 $22,589,076
=========== ===========
Current liabilities (exclusive of intercompany
payables)..................................... $25,419,352 $ 9,832,802
Noncurrent liabilities.......................... 2,407 8,615,617
Liabilities to LDM Technologies, Inc.:
Subordinated debt............................. 3,908,825 2,547,116
Current trade payables and interest........... 654,327 76,597
Stockholder's equity (deficit).................. (722,942) 1,516,944
----------- -----------
Total liabilities and stockholder's equity...... $29,261,969 $22,589,076
=========== ===========
Sales and net income of LDM Canada, included in the Company's consolidated
financial statements are as follows:
YEAR ENDED SEPTEMBER
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Sales.............................. $31,036,436 $33,777,902 $29,095,708
Gross profit (loss)................ (168,241) 4,008,490 3,937,619
Net income (loss).................. (2,214,355) 165,263 38,334
3. PROPERTY, PLANT AND EQUIPMENT
At September 29, 1996 and September 24, 1995 property, plant and equipment,
at cost, consists of the following:
1996 1995
------------ ------------
Land, buildings and improvements..................... $ 27,657,829 $ 11,093,637
Machinery and equipment.............................. 59,960,713 56,032,774
Transportation equipment............................. 1,947,778 1,976,714
Furniture and fixtures............................... 2,703,408 2,107,899
Construction in process.............................. 3,515,676 7,254,579
------------ ------------
Total................................................ 95,785,404 78,465,603
Less accumulated depreciation........................ (36,829,448) (31,965,860)
------------ ------------
Net property, plant, and equipment................... $ 58,955,956 $ 46,499,743
============ ============
4. LINES OF CREDIT AND REVOLVING LOAN
In December, 1995, LDM Technologies, Inc. refinanced its credit facilities.
The new credit facilities include a revolving loan up to the maximum principal
sum of $25,000,000, standby letters of credit up to $2,000,000 outstanding at
any one time (provided that the outstanding principal balance of the revolving
loan
F-10
100
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LINES OF CREDIT AND REVOLVING LOAN (CONTINUED)
plus the outstanding balance of the letters of credit does not exceed
$25,000,000) and a line of credit up to the principal sum of $15,000,000. The
line of credit expired on November 30, 1996 and all outstanding borrowings on
the revolving loan must be paid in full on March 31, 1997. Additionally, under
the facilities, LDM Technologies, Inc. has two term loans of $6,920,000 and
$2,061,111 at September 29, 1996 (see Note 5).
The total outstanding principal of all of the above credit facilities in
aggregate may not exceed the borrowing base which is defined as the sum of 85%
of the eligible accounts receivable plus the lesser of 30% of eligible inventory
or $2,000,000, plus the fixed asset borrowing base. The fixed asset borrowing
base is calculated using a range of 70% to 85% of the appraised value of various
fixed assets. In addition to the limitations imposed by the borrowing base, the
maximum principal amount available under the revolving loan is reduced by a
reserve amount determined by the bank. The amount of this reserve at September
29, 1996 is $4,519,429, which represents guarantees of debt by the Company for
LDM Canada ($3,500,000) and Como ($1,000,000) and an outstanding letter of
credit for worker's compensation in the amount of $19,429. Borrowings are
collateralized by substantially all of the Company's otherwise unencumbered
assets.
All advances under the revolving loan and the line of credit bear interest
at the prime commercial rate or the applicable Eurodollar Rate, as elected by
LDM Technologies, Inc. Subsequent to September 29, 1996, the Eurodollar rate
will no longer be available to the Company.
The applicable interest rate on all loans within the new credit facility
are subject to adjustment within a range of plus .5% to minus .5% based upon the
leverage ratio of the Company which is the ratio of total liabilities to
adjusted tangible net worth. This calculation is performed on a quarterly basis.
At September 29, 1996, under the revolving loan LDM Technologies, Inc. had
$8,000,000 outstanding bearing interest at the Eurodollar rate (7.4% at
September 29, 1996) and $7,500,000 outstanding bearing interest at the bank's
prime rate (8.25% at September 29, 1996). LDM Technologies, Inc. had no
borrowings outstanding under the line of credit at September 29, 1996. Credit
available under the revolving loan and the line of credit was $4,980,571 and
$15,000,000, respectively at September 29, 1996.
The line of credit, revolving note and long-term debt agreements contain
covenants which, among other things, limit additional borrowings, investments
(including investments in subsidiaries), commitments under new leases, loans or
advances made by LDM Technologies, Inc. and capital expenditures and limit the
payment of dividends to no more than 10% of the net income for the year to which
the dividends pertain. The covenants also require the maintenance of adjusted
tangible net worth of not less than $14,000,000 at September 29, 1996. Adjusted
tangible net worth is defined as tangible net worth (stockholders' equity less
intangibles, deferred costs and loans or advances to affiliates of LDM
Technologies, Inc.) plus subordinated debt. Additionally, the covenants require
the maintenance of a ratio of total liabilities to tangible net worth of not
greater than 5.50:1. LDM Technologies, Inc. is in breach of the covenants
related to advances to its subsidiaries, maintenance of adjusted tangible net
worth and the ratio of total liabilities to tangible net worth. The Company has
not obtained waivers for these defaults.
LDM CANADA:
LDM Canada has a line of credit from the Bank of Nova Scotia for a maximum
of $4,000,000 bearing interest at the bank's prime rate plus 1%. The line of
credit is due on demand. At September 29, 1996, LDM Canada had drawn $3,634,290
on that line of credit.
As collateral for the Bank of Nova Scotia credit facilities, LDM Canada has
provided the bank with a security interest in substantially all of the assets of
LDM Canada. In addition, LDM Canada has a postponement agreement covering
$3,500,000 of promissory notes due to LDM Technologies, Inc. and a
F-11
101
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LINES OF CREDIT AND REVOLVING LOAN (CONTINUED)
guarantee from LDM Technologies, Inc. for $3,500,000 in favor of the Bank of
Nova Scotia. See Note 5 for a discussion of defaults on the Bank of Nova Scotia
debt.
COMO:
Como has a line of credit with KeyBank which provides for borrowings up to
the lesser of aggregate advances of $3,500,000 or 80% of eligible accounts
receivable and 50% of eligible inventory. Borrowings outstanding under the line
of credit were $1,620,976 at September 29, 1996. Interest accrues at the bank's
prime rate (8.25% at September 29, 1996) plus 0.5%. Additional borrowings
available at September 29, 1996 are $598,643. The line of credit expires on
January 31, 1997.
The long-term debt and line of credit are collateralized by substantially
all the assets of Como and are guaranteed by LDM Technologies, Inc. The
guarantee is limited to $1,000,000.
Summary of line of credit and revolving debt at September 29, 1996:
Borrowings under lines of credit:
LDM Canada - In Default................................ $ 3,634,290
Como................................................... 1,620,976
-----------
5,255,266
Borrowings under revolving debt:
LDM Technologies, Inc. - In Default.................... 15,500,000
Como................................................... 180,000
-----------
$20,935,266
===========
Borrowings in default and not in default aggregate $19,134,290 and
$1,800,976, respectively.
The weighted average interest rates on all short-term borrowings as of
September 29, 1996 and September 24, 1995 was 7.91% and 6.79%, respectively.
F-12
102
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at September 29, 1996 and September 24, 1995 consists of the
following:
LDM TECHNOLOGIES, INC.:
1996 1995
------------ -----------
Multi-Option Adjustable Rate Notes, principal payable in
various annual installments ranging from $200,000 to
$780,000 commencing April 1, 1996; ending April 1, 2015,
plus interest payable monthly at the higher of the 30 day
commercial paper rate or 90 day commercial paper rate
(5.49% at September 29, 1996). Borrowings are
collateralized by funds held by trustee of $658,000 at
September 29, 1996 and by the corporate headquarters
facility which had a carrying value of approximately
$15,941,000 at September 29, 1996, as well as a Huntington
National Bank standby letter of credit in the amount of
$9,168,000 for which a fee of 1 1/2% per annum is charged.
The loan is presently in default (See Note 4). ........... $ 8,800,000 $ 9,000,000
Note payable to Huntington National Bank, payable in monthly
installments of $120,000 through March 31, 1997, at which
time the balance is due, plus monthly interest based on a)
.25 over the bank's prime rate, b) the applicable
Eurodollar Rate or c) the adjusted treasury rate, as
elected by the Company. Borrowings are secured by
substantially all of the otherwise unencumbered assets of
the Company. The loan is presently in default (See Note
4). ...................................................... 6,920,000 --
Note payable to former shareholder, payable in monthly
installments of $90,000 with a final payment of $930,000
due on September 27, 1998, plus interest at 6.5%. The note
is subordinate to all Huntington National Bank debt. ..... 3,000,000 --
Note payable to Huntington National Bank, payable in monthly
installments of $18,403, plus interest at a fixed rate of
7.7% through March 31, 1997 at which time the balance is
due. Borrowings are collateralized by a manufacturing
facility and its assets with a net carrying value of
$6,892,000. The loan is presently in default (See Note
4)........................................................ 2,061,111 2,281,944
Note payable to bank. ...................................... -- 2,225,000
Mortgage note payable to bank. ............................. -- 684,000
------------ -----------
Total....................................................... 20,781,111 14,190,944
Current maturities of long-term debt........................ (1,080,000) (824,236)
Long-term debt in default................................... (17,781,111) --
------------ -----------
Long-term debt due after one year........................... $ 1,920,000 $13,366,708
============ ===========
F-13
103
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
LDM Technologies, Inc. has the option to convert the interest rate on the
Multi-Option Adjustable Rate Notes to the Six Month, One Year, Three Year, Five
Year, Seven Year, or the Fixed Interest Rates Modes.
LDM CANADA:
1996 1995
----------- -----------
Term loan payable to the Bank of Nova Scotia. The loan bears
interest at LDM Canada's election of either LIBOR plus 2%
or U.S. prime rate plus 1.5%, with monthly principal
payments of $11,100 and a final payment of $1,345,100 due
November 2000. The loan is for a five year term with an
amortization of 15 years but is presently in default ..... $ 1,889,000 $ --
Term loan payable to the Bank of Nova Scotia. The loan bears
interest at LDM Canada's election of either LIBOR plus 2%
or U.S. prime rate plus 1.5% with monthly principal
payments of $111,740. The loan is for a five year term
with an amortization of five years but is presently in
default .................................................. 5,586,973 --
Term loan payable to the Bank of Nova Scotia. The loan bears
interest at the Bank's prime lending rate plus 1.5% with
monthly principal payments of $23,449 Canadian and a final
payment of $25,917 due November 2000. The loan is for a
five year term with an amortization of five years but is
presently in default ..................................... 1,217,064 --
Term loan payable to the Bank of Nova Scotia. The loan bears
interest at the Bank's prime lending rate plus 1.5% with
monthly principal payments of $15,907 commencing September
1996 and a final payment of $15,908 due August 2001. The
loan is for a five year term with an amortization of five
years but is presently in default ........................ 947,612 --
Promissory notes payable to Barclays Bank of Canada (52.71%)
and Gentra Canada Investments Inc. (47.29%) (as
assignees) ............................................... -- 9,811,781
Other ...................................................... 6,740 8,635
----------- -----------
Total....................................................... 9,647,389 9,820,416
Current maturities of long-term debt........................ (4,333) (1,454,818)
Long-term debt in default-Bank of Nova Scotia............... (9,640,649) --
----------- -----------
Long-term debt due after one year........................... $ 2,407 $ 8,365,598
=========== ===========
Under the terms of its debt agreements, LDM Canada has agreed to various
restrictive covenants relating to financial statement ratios including minimum
working capital and tangible net worth requirements. LDM Canada is in breach of
these covenants. The Bank of Nova Scotia has not waived the covenant
requirements and accordingly, the debt due to the Bank of Nova Scotia has been
classified in current liabilities. Due to the covenant violations, LDM
Technologies, Inc. has agreed to postpone the repayment of its $3,500,000 loan
to LDM Canada in favor of the Bank of Nova Scotia, and additionally has provided
a guarantee of $3,500,000 to the Bank of Nova Scotia on the outstanding loans
(See Note 4 also).
F-14
104
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
During the year ended September 29, 1996, LDM Canada retired the notes
payable to Barclays Bank of Canada and Gentra Canada, resulting in a $753,510
extraordinary gain on extinguishment. Because of the Canadian operating losses,
there was no tax effect related to the gain.
COMO:
Note payable to KeyBank, due in monthly installments of
$19,687 plus interest at the bank's prime rate (8.25% at
September 29, 1996) plus 0.5% through February 1998....... $ 334,688 $ 735,000
Current maturities of long-term debt........................ (236,250) (630,000)
------------ -----------
Long-term debt due after one year........................... $ 98,438 $ 105,000
============ ===========
Total
Aggregate long-term debt.................................... $ 30,763,188 $24,746,360
Aggregate current maturities of long-term debt.............. (1,320,583) (2,909,054)
Aggregate long-term debt in default......................... (27,421,760) --
------------ -----------
Aggregate long-term debt due after one year................. $ 2,020,845 $21,837,306
============ ===========
Annual maturities of long-term debt are as follows:
FISCAL YEAR
-----------
1997...................................................... $28,742,343
1998...................................................... 2,020,845
-----------
Total..................................................... $30,763,188
===========
6. SEGMENT DATA FROM CONTINUING OPERATIONS
The Company currently operates in two principal industries; automotive
components and consumer products. Machined parts operations for marine outboard
engine manufacturers were discontinued in 1996. The Company's automotive
components include the design and manufacture of plastic injection molded
products for certain North American original equipment manufacturers of cars,
minivans and sport utility vehicles. The Company's products include exterior and
interior trim components. The Company's consumer
F-15
105
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SEGMENT DATA FROM CONTINUING OPERATIONS (CONTINUED)
products segment manufacturers plastic molded products for the consumer
appliance, office products and commercial furniture markets.
YEAR ENDED
---------------------------------------------
SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 25,
1996 1995 1994
------------- ------------- -------------
Net sales
Automotive products
U.S. operations............................... $161,060,037 $154,592,897 $115,863,730
Canadian operations........................... 36,970,296 34,709,953 30,656,226
------------ ------------ ------------
198,030,933 189,302,850 146,519,956
Consumer and other non automotive
products-Como................................. 22,058,056 31,845,361 31,299,795
Eliminations -- intersegment sales............... (2,330,095) (156,866) (223,152)
------------ ------------ ------------
Total revenue...................................... $217,758,894 $220,991,345 $177,596,599
============ ============ ============
Operating profit (loss)
Automotive products
U.S. operations............................... $ 9,712,195 $ 10,254,006 $ 4,467,327
Canadian operations........................... (1,444,962) 2,300,345 2,023,717
------------ ------------ ------------
8,267,233 12,554,351 6,491,044
Consumer and other non automotive
products-Como................................. 176,853 2,514,239 2,277,364
------------ ------------ ------------
Total operating profit............................. 8,444,086 15,068,590 8,768,408
Corporate expenses, net............................ 56,108 353,313 65,200
Interest expense................................... 3,279,904 3,177,826 2,144,093
------------ ------------ ------------
Income from continuing operations before taxes,
minority interest and extraordinary item......... $ 5,108,074 $ 11,537,451 $ 6,559,115
============ ============ ============
Identifiable assets
Automotive products
U.S. operations............................... $ 81,966,346 $ 75,402,101 $ 55,997,414
Canadian operations........................... 29,019,086 22,418,557 18,764,488
------------ ------------ ------------
110,985,432 97,820,658 74,761,902
Consumer and other non automotive
products-Como................................. 8,139,764 8,493,987 9,792,459
General corporate assets......................... -- -- 305,322
------------ ------------ ------------
Total assets....................................... $119,125,196 $106,314,645 $ 84,859,683
============ ============ ============
Depreciation and amortization expense
Automotive products
U.S. operations............................... $ 5,274,032 $ 4,583,521 $ 4,647,074
Canadian operations........................... 2,027,751 1,423,101 1,261,973
------------ ------------ ------------
7,301,783 6,006,622 5,909,047
Consumer and other non automotive
products-Como................................. 614,952 671,775 612,167
------------ ------------ ------------
Total depreciation and amortization................ $ 7,916,735 $ 6,678,397 $ 6,521,214
============ ============ ============
Capital expenditures
Automotive products
U.S. operations............................... $ 17,104,697 $ 12,248,949 $ 9,338,835
Canadian operations........................... 2,691,850 2,219,873 967,782
------------ ------------ ------------
19,796,547 14,468,822 10,306,617
Consumer and other non automotive
products-Como................................. 401,048 387,365 1,178,444
------------ ------------ ------------
Total capital expenditures....................... $ 20,197,595 $ 14,856,187 $ 11,485,061
============ ============ ============
F-16
106
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SEGMENT DATA FROM CONTINUING OPERATIONS (CONTINUED)
Operating profit is total revenue less operating expenses, excluding
interest expense and general corporate expenses. Identifiable assets by industry
include assets directly identified with those operations.
During the years ended September 1996, 1995 and 1994, approximately 90%,
86% and 83% of consolidated sales were to customers in the automotive industry.
Following is a summary of customers that accounted for more than 10% of
consolidated net product sales:
YEAR ENDED
---------------------------------------------
SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 25,
1996 1995 1994
------------- ------------- -------------
Ford Motor Company................. $71,519,000 $60,925,000 $23,672,000
General Motors Corporation......... 79,640,000 87,657,000 64,050,000
Volkswagen A.G. ................... 19,172,000 25,963,000 27,152,000
As of September 29, 1996 receivables from Ford Motor Company, General
Motors Corporation, and Volkswagen A.G. represented 41%, 35% and 2% of total
accounts receivable, respectively, and at September 24, 1995 receivables from
said customers were 23%, 48% and 7% of total accounts receivable, respectively.
7. RELATED PARTY TRANSACTIONS
Como leases its general office and plant facilities, in addition to certain
computer and manufacturing equipment, from corporations whose directors and
stockholders include Como's minority stockholder. Lease rental payments made to
these corporations for 1996, 1995, and 1994 were $487,000, $533,300 and
$513,621, respectively. Como also pays management fees to its minority
stockholder based on a percentage of sales. Selling, general and administrative
expenses include $120,799, $205,611 and $205,037 in 1996, 1995 and 1994,
respectively, for management fees to the minority stockholder.
The Company leases certain corporate administrative facilities from its
shareholders. Lease rental payments were $156,000 for each of its three years
ended in September, 1996, 1995 and 1994. The Company also pays the repairs and
maintenance, insurance and property taxes on these facilities.
The Company formerly purchased tooling services from a related entity,
which is owned by its stockholders. Such purchases totaled approximately
$1,376,000 and $366,000 for the fiscal years ended in 1995 and 1994,
respectively.
F-17
107
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The Company's provision for income taxes for continuing operations for the
years ended September 29, 1996, September 24, 1995 and September 25, 1994 is
comprised of the following:
1996 1995 1994
---------- ---------- ----------
Domestic
Federal
Current............................................. $2,770,364 $4,515,416 $3,222,090
Deferred............................................ 612,181 (693,716) (236,200)
---------- ---------- ----------
3,382,545 3,821,700 2,985,890
State and local
Current............................................. 840,400 1,138,960 639,268
Deferred............................................ 16,800 (14,400) 1,100
---------- ---------- ----------
857,200 1,124,560 640,368
Foreign
Current............................................. 20,000 16,120 24,841
Deferred............................................ (246,000) 95,825 151,631
---------- ---------- ----------
(226,000) 111,945 176,472
---------- ---------- ----------
Total income tax provision............................... $4,013,745 $5,058,205 $3,802,730
========== ========== ==========
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and tax basis of the Company's assets and
liabilities. At September 29, 1996 and September 24, 1995 deferred tax assets
and liabilities are comprised of the following:
1996 1995
---------- ----------
DEFERRED TAX ASSETS:
Canadian net operating loss carryovers...................... $2,528,000 $ 957,335
Accounts receivable......................................... 69,700 93,500
Inventory................................................... 256,600 383,000
Other accrued liabilities................................... 167,700 291,200
Employee benefits........................................... 334,500 171,800
Marketable equity securities................................ -- 205,000
---------- ----------
Total deferred tax assets................................. 3,356,500 2,101,835
Less valuation allowances for Canadian loss carryovers...... (728,000) --
---------- ----------
Total net deferred tax asset................................ 2,628,500 2,101,835
DEFERRED TAX LIABILITIES:
Property, plant and equipment............................... 2,641,000 1,731,354
---------- ----------
Net deferred tax asset (liability).......................... $ (12,500) $ 370,481
========== ==========
For Canadian income tax purposes, approximately $5,812,000 of net operating
losses are available at September 29, 1996 for carryover against taxable income
in future years. These carryovers expire $1,082,000 in 2002 and $4,730,000 in
2003. The net operating loss carryforwards include timing differences,
principally tax depreciation in excess of financial statement depreciation of
approximately $4,138,000 for which a $1,800,000 deferred tax liability has been
recorded. For financial statement purposes, a valuation allowance of $728,000
has been established for the full amount of the Canadian carryovers less the
timing differences, principally the excess of tax depreciation over financial
statement depreciation at September 29, 1996.
F-18
108
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
A reconciliation of the Company's income tax expense at the federal
statutory tax rate to the actual income tax expense follows:
YEAR ENDED
SEPTEMBER 29, SEPTEMBER 24, SEPTEMBER 25,
1996 1995 1994
------------- ------------- -------------
Tax at federal statutory rate of 34%....... $1,736,745 $3,922,733 $2,230,099
State and local taxes, net of federal tax
effect................................... 565,762 742,210 422,643
Settlement of prior years' income tax
liabilities.............................. 581,574 -- --
Nondeductible expenses..................... 211,474 314,430 1,062,084
Effect of Canadian operations.............. 857,000 -- --
Other, net................................. 61,190 78,832 87,904
---------- ---------- ----------
Provision for income taxes................. $4,013,745 $5,058,205 $3,802,730
========== ========== ==========
9. RETIREMENT AND PROFIT SHARING PLANS
The Company provides defined contribution retirement plans to substantially
all employees of LDM Technologies, Inc. and Como. Costs under the plans amounted
to $251,732, $256,482 and $194,748 in 1996, 1995 and 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES
LEASES AND PURCHASE COMMITMENTS
The Company leases certain of its facilities, furniture and fixtures, and
equipment. Rental expense, including short-term cancelable leases, approximated
$1,865,000, $2,000,000 and $1,305,000 for the years ended September 29, 1996,
September 24, 1995 and September 25, 1994, respectively. Future commitments
under noncancelable operating leases for the Company are as follows:
RELATED UNRELATED
FISCAL YEAR PARTIES PARTIES TOTAL
----------- ---------- ---------- ----------
1997................................ $ 678,000 $1,293,000 $1,971,000
1998................................ 678,000 870,000 1,548,000
1999................................ 678,000 813,000 1,491,000
2000................................ 678,000 762,000 1,440,000
2001................................ 663,000 539,000 1,202,000
Thereafter.......................... 747,000 317,000 1,064,000
---------- ---------- ----------
Total............................... $4,122,000 $4,594,000 $8,716,000
========== ========== ==========
At September 29, 1996, the Company has committed to purchase equipment
aggregating approximately $1,615,000.
STOCK REDEMPTION AGREEMENT
On April 22, 1996 the Company and two of its shareholders entered into a
binding stock redemption agreement providing the following:
- Upon the death of a shareholder, the Company is required to purchase and
the shareholder's estate is required to sell all of the shareholder's
stock at a price equal to $33,000,000. This amount is payable
F-19
109
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
upon receipt of the proceeds of the life insurance policies owned by the
Company on the shareholders life. Any shortfall between the insurance
proceeds and the amount payable to the shareholder's estate will require
funding by the Company, subject to restrictions in the Company's loan
agreements.
- The Company is required to purchase and maintain life insurance policies
of $33,000,000 and $28,000,000 respectively on the life of the
shareholders for as long as the Stock Redemption Agreement is in effect.
The aggregate premium for these policies presently approximates $900,000
per year. Further, the Company is prohibited from assigning, pledging or
borrowing against these life insurance policies without the consent of the
insured shareholder.
- The Agreement may be terminated by mutual agreement of all parties or by
any shareholder after October 22, 1996 with respect to that shareholder's
stock only.
CONTINGENCY
The Company has been notified of violations and possible violations of
certain permitted air emission levels for organic compounds at two of its plant
locations. It is the Company's policy to accrue environmental expenses when it
is both probable that a liability has been incurred and the amount can be
reasonably estimated. The Company believes that, based on available information,
the ultimate liability with respect to these issues will not materially exceed
the recorded liability of $250,000; however, the ultimate resolution of such
matters cannot be predicted with certainty.
The Company has received letters from a corporation and a group of
corporations, which have entered into agreements with the United States
Environmental Protection Agency to prepare remedial designs for curing two
separate failed land fill sites. In each letter, the Company was identified as a
potentially responsible party for its alleged waste disposal at such landfills.
The Company has no reason to believe that any liability associated with these
landfills will have a material impact on the Company's financial position or
results of operations and, accordingly, no liability for such contingencies has
been accrued in the accompanying financial statements.
11. SUBSEQUENT EVENTS
BUSINESS ACQUISITION AND ISSUANCE OF DEBT
Acquisition
On November 4, 1996, the Company signed a definitive agreement to acquire,
effective December 1, 1996, the business and certain net assets of Molmec, Inc.
for approximately $55 million in cash, subject to certain adjustments and the
assumption of certain liabilities, aggregating approximately $16.6 million as of
September 29, 1996 (the "Acquisition"). The acquisition was consummated on
January 22, 1997.
The Acquisition will be accounted for using the purchase method.
Accordingly, the assets acquired and the liabilities assumed will be recorded at
fair values and the excess of the purchase price over the net assets acquired
will be recorded as goodwill and amortized over 15 years.
Issuance of Debt
On January 22, 1997, the Company issued, in a private placement (the
"Initial Offering"), $110 million aggregate principal amount of its 10 3/4%
Senior Subordinated Notes due 2007, Series A (the "Notes"). The net proceeds of
the Initial Offering, which amounted to approximately $105 million, were used to
repay debt in default amounting to $37.8 million, to repay the $3 million note
payable to a former shareholder, to fund the Acquisition and for general
corporate purposes. In addition, the Company obtained a new senior credit
facility which provides available borrowings of $45 million under revolving
loans. The Company also obtained a replacement letter of credit with respect to
its $8.8 million Multi-Option Adjustable Rate Notes.
F-20
110
LDM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
The Company intends to register Exchange Notes, which will have
substantially the same terms and conditions as the Notes, with the Securities
and Exchange Commission and to exchange the Exchange Notes for the Notes. The
Notes are, and the Exchange Notes will be, guaranteed by LDM Canada, but will
not be guaranteed by Como. Financial information for LDM Canada is disclosed in
Note 2. Financial information for Como is disclosed in Note 6.
The following unaudited pro forma condensed consolidated results of
operations of the Company, for the fiscal year ended September 29, 1996, gives
effect to the Acquisition and the Offering as if such events had occurred on
September 25, 1995. The following unaudited pro forma condensed consolidated
balance sheet data at September 29, 1996 gives effect to the Acquisition and the
Offering as if such events had occurred on that date. The unaudited pro forma
consolidated financial information does not purport to represent what the
Company's financial position or results of operations would actually have been
had the transactions occurred on the dates indicated above or to project the
Company's financial position or results of operations for any future date or
period.
YEAR ENDED
SEPTEMBER 29,
1996
--------------
(IN THOUSANDS)
Net sales................................................... $306,406
Cost of sales............................................... 252,661
--------
Gross margin................................................ 53,745
Selling, general and administrative expenses................ 40,422
Other expenses, principally interest........................ 13,324
--------
Loss from continuing operations before income taxes,
minority interests and extraordinary item................. (1)
Provision for income taxes.................................. 1,970
--------
Loss from continuing operations before minority interest and
extraordinary item........................................ (1,971)
Minority interest........................................... 79
--------
Loss from continuing operations before extraordinary item... $ (1,892)
========
SEPTEMBER 29,
1996
--------------
(IN THOUSANDS)
Current assets.............................................. $ 83,897
Noncurrent assets........................................... 120,633
--------
$204,530
========
Current liabilities......................................... $ 62,180
Noncurrent liabilities...................................... 125,267
Stockholders' equity........................................ 17,083
--------
$204,530
========
F-21
111
LDM TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 29, SEPTEMBER 29,
1996 1996
(UNAUDITED) (NOTE)
------------ -------------
ASSETS
Current assets
Cash...................................................... $ 1,820 $ 2,122
Accounts receivable....................................... 30,514 35,482
Raw materials............................................. 7,870 7,713
Work in process........................................... 1,943 1,368
Finished goods............................................ 3,422 2,752
Mold costs................................................ 13,965 7,129
Deferred income taxes..................................... 751 829
Other current assets...................................... 767 454
-------- --------
Total current assets................................. 61,052 57,849
Cash and equivalents restricted as to use................... 379 658
Net property, plant, and equipment.......................... 62,378 58,956
Other ...................................................... 2,952 1,298
-------- --------
Totals................................................. $126,761 $118,761
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit and revolving loan in default............. $ 23,266 $ 20,935
Long-term debt in default................................. 28,241 27,422
Accounts payable.......................................... 32,794 30,834
Accrued liabilities....................................... 4,823 7,598
Accrued compensation...................................... 2,597 4,202
Advance mold payments from customers...................... 11,229 3,661
Income taxes payable...................................... 2,053 2,095
Current maturities of long-term debt...................... 1,080 1,320
-------- --------
Total current liabilities......................... 106,083 98,067
Long-term debt due after one year........................... 1,867 2,109
Deferred income taxes....................................... 821 841
Minority interests.......................................... 371 422
Stockholders' Equity
Common stock (par value $.10, issued and outstanding 600
shares; authorized 100,000 shares).....................
Additional paid in capital................................ 94 94
Retained earnings......................................... 17,607 17,290
Foreign currency translation adjustments.................. (82) (62)
-------- --------
Total stockholders' equity........................ 17,619 17,322
-------- --------
Totals $126,761 $118,761
======== ========
See accompanying notes.
Note: The balance sheet at September 29, 1996 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements and notes to audited
consolidated financial statements contained herein.
F-22
112
LDM TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
---------------------------
THREE MONTHS ENDED
---------------------------
DECEMBER 29, DECEMBER 24,
1996 1995
------------ ------------
Revenues:
Net product sales......................................... $51,059 $47,406
Net tooling sales......................................... 1,206 5,741
------- -------
52,265 53,147
Cost of Sales
Cost of product sales..................................... 43,525 39,732
Cost of tooling sales..................................... 792 5,218
------- -------
44,317 44,950
------- -------
Gross margin................................................ 7,948 8,197
Selling, general and administrative expenses.............. 6,263 6,727
------- -------
Operating profit............................................ 1,685 1,470
Interest expense............................................ (1,361) (899)
Other income (expense), net................................. 294 (93)
------- -------
Income from continuing operations before income taxes,
minority interest, and extraordinary item................. 618 478
Provision for income taxes.................................. 353 647
------- -------
Income from continuing operations before minority interest
and extraordinary item.................................... 265 (169)
Minority interest loss...................................... 51 12
------- -------
Income (loss) from continuing operations before
extraordinary item........................................ 316 (157)
Extraordinary gain on debt refinancing, no income tax
effect.................................................... 0 754
------- -------
Net income.................................................. $ 316 $ 597
======= =======
See accompanying notes.
F-23
113
LDM TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INTERIM CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
-----------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 29, DECEMBER 24,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 316 $ 597
Gain on refinancing of debt............................... (754)
Other..................................................... 5 382
Depreciation and amortization............................. 2,452 1,792
Increase (decrease) in cash due to changes in:
Accounts receivable.................................... 4,969 1,742
Inventory and mold costs............................... (8,238) 699
Other current assets................................... (313) 177
Accounts payable and accrued liabilities............... 5,128 (7,319)
Income taxes payable................................... (42) (118)
Other assets........................................... 215 199
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES..... 4,492 (2,603)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment................ (5,300) (3,349)
Proceeds from disposals of property, plant and
equipment.............................................. 2
Use of investments restricted to property, plant and
equipment.............................................. 279 1,425
Deposits for purchase of Molmec........................... (2,000) --
------- -------
NET CASH USED FOR INVESTING ACTIVITIES............... (7,019) (1,924)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 9,407
Costs associated with debt acquisition.................... (443) (182)
Payments on long-term debt................................ (683) (2,229)
Net proceeds (repayments) from line of credit
borrowings............................................. 3,351 (2,565)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 2,225 4,431
Net cash change............................................. (302) (96)
Cash at beginning of period................................. 2,122 1,138
------- -------
Cash at end of period....................................... $ 1,820 $ 1,042
======= =======
F-24
114
LDM TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month periods ended December 1996
are not necessarily indicative of the results that may be expected for the year
ended September 28, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant Company's
and Subsidiaries' annual financial statements included elsewhere herein.
F-25
115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders,
Molmec, Inc.:
We have audited the accompanying balance sheets of MOLMEC, INC. (a Michigan
corporation) as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' investment and cash flows for each of the three years
in the period 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 financial position of Molmec, Inc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1,
1995, the Company changed its method of accounting for inventories.
Detroit, Michigan,
April 2, 1996, except as to the Arthur Andersen LLP
information presented in Note 12 for
which the date is January 22, 1997.
F-26
116
MOLMEC, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
ASSETS
Current assets:
Accounts receivable --
Trade (less allowance for doubtful accounts of $38,000
in 1995 and 1994)...................................... $10,780,921 $12,015,832
Other................................................... 246,852 599,265
Inventories --
Raw materials and component parts....................... 2,093,473 2,356,645
Work-in-process and finished goods...................... 1,747,876 1,884,436
Prepaid tooling........................................... 937,344 1,638,215
Prepaid expenses and other................................ 214,693 169,429
----------- -----------
Total current assets............................... 16,021,159 18,663,822
----------- -----------
Property, plant and equipment, at cost:
Land...................................................... 688,893 688,893
Buildings and improvements................................ 9,642,887 6,959,794
Machinery and equipment................................... 24,344,638 19,718,104
Furniture and fixtures.................................... 1,588,291 1,472,347
Construction-in-progress.................................. -- 618,551
----------- -----------
36,264,709 29,457,689
Less -- Accumulated depreciation and amortization......... 20,297,927 17,978,866
----------- -----------
Net property, plant and equipment.................. 15,966,782 11,478,823
----------- -----------
Other assets:
Restricted cash and cash equivalents...................... -- 2,471,124
Deposits.................................................. -- 1,885,884
Cash surrender value of officers' life insurance (face
amount of $7,200,000 and $9,800,000 in 1995 and 1994,
respectively)........................................... 349,780 352,328
Other, net................................................ 247,259 250,127
----------- -----------
Total other assets................................. 597,039 4,959,463
----------- -----------
$32,584,980 $35,102,108
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current portion of long-term debt --
Real estate............................................. $ 296,123 $ 280,999
Equipment and other..................................... 1,298,877 669,001
Borrowings under line of credit........................... 5,824,571 6,360,621
Accounts payable.......................................... 8,820,920 10,729,405
Accounts payable -- related parties....................... 406,907 318,222
Accrued workers' compensation............................. 150,085 105,991
Accrued liabilities....................................... 776,156 807,235
----------- -----------
Total current liabilities.......................... 17,573,639 19,271,474
----------- -----------
Long-term liabilities, less current portions above:
Real estate debt........................................ 1,667,343 1,963,735
Equipment and other debt................................ 9,277,462 8,682,667
Accrued workers' compensation........................... 290,234 300,000
Other long-term liabilities............................. 100,000 157,234
----------- -----------
Total long-term liabilities........................ 11,335,039 11,103,636
----------- -----------
Commitments
Stockholders' investment:
Common stock, $1 par value, 1,500,000 shares authorized,
100,736 and 102,144 shares issued and outstanding in
1995 and 1994, respectively............................. 100,736 102,144
Paid-in capital........................................... 209,239 325,207
Retained earnings......................................... 3,526,870 4,391,311
----------- -----------
3,836,845 4,818,662
Less -- Notes receivable from sale of stock................. 160,543 91,664
----------- -----------
Total stockholders' investment..................... 3,676,302 4,726,998
----------- -----------
$32,584,980 $35,102,108
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-27
117
MOLMEC, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------- ----------- -----------
Net sales:
Molding............................................. $72,661,670 $73,411,584 $59,457,910
Tooling............................................. 10,205,694 6,551,600 9,935,255
----------- ----------- -----------
82,867,364 79,963,184 69,393,165
----------- ----------- -----------
Cost of sales:
Material............................................ 18,253,264 19,673,951 17,735,492
Component costs..................................... 13,763,173 15,198,306 10,537,074
Direct labor........................................ 6,080,403 7,246,749 5,609,244
Manufacturing and subcontracting expenses........... 24,732,300 23,052,407 15,915,273
Tooling............................................. 10,071,876 6,164,889 9,294,273
----------- ----------- -----------
72,901,016 71,336,302 59,091,356
----------- ----------- -----------
Gross profit..................................... 9,966,348 8,626,882 10,301,809
Selling and administrative expenses................... 9,285,017 9,184,737 8,856,217
----------- ----------- -----------
Operating income (loss).......................... 681,331 (557,855) 1,445,592
----------- ----------- -----------
Other income (expense):
Gain on sale of joint venture....................... -- 1,146,933 --
Interest expense, net............................... (1,545,772) (714,638) (609,007)
Equity income from joint venture.................... -- 119,113 440,137
----------- ----------- -----------
Total other income (expense)..................... (1,545,772) 551,408 (168,870)
----------- ----------- -----------
Net income (loss)..................................... $ (864,441) $ (6,447) $ 1,276,722
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-28
118
MOLMEC, INC.
STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
COMMON PAID-IN RETAINED NOTES
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
-------- --------- ----------- ---------- -----------
Balance December 31, 1992........... $151,808 $ 443,997 $ 7,604,678 $ (91,664) $ 8,108,819
Distributions to stockholders..... -- -- (29,972) -- (29,972)
Net income........................ -- -- 1,276,722 -- 1,276,722
-------- --------- ----------- --------- -----------
Balance December 31, 1993........... 151,808 443,997 8,851,428 (91,664) 9,355,569
Distributions to stockholders..... -- -- (1,000,000) -- (1,000,000)
Redemption of stock............... (49,664) (118,790) (3,453,670) -- (3,622,124)
Net loss.......................... -- -- (6,447) -- (6,447)
-------- --------- ----------- --------- -----------
Balance December 31, 1994........... 102,144 325,207 4,391,311 (91,664) 4,726,998
Redemption of stock............... (2,918) (183,337) -- -- (186,255)
Sale of common stock.............. 1,510 67,369 -- (68,879) --
Net loss.......................... -- -- (864,441) -- (864,441)
-------- --------- ----------- --------- -----------
Balance December 31, 1995........... $100,736 $ 209,239 $ 3,526,870 $(160,543) $ 3,676,302
======== ========= =========== ========= ===========
The accompanying notes are an integral part of these statements.
F-29
119
MOLMEC, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ (864,441) $ (6,447) $ 1,276,722
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations --
LIFO provision (credit)................................... 165,169 (21,483) (203,882)
Depreciation and amortization............................. 2,423,793 2,016,439 1,870,128
Gain on sale of joint venture............................. -- (1,146,933) --
Equity income from joint venture.......................... -- (119,113) (440,137)
(Gain) loss on sale of property, plant and equipment...... (18,343) 2,319 (432,277)
Source (use) of cash resulting from change in assets and
liabilities --
Accounts receivable..................................... 1,587,324 (1,931,274) (2,167,215)
Inventories............................................. 234,563 (1,310,963) (313,566)
Prepaid expenses........................................ 655,607 (1,298,242) 203,555
Other assets............................................ 2,868 13,901 43,565
Accounts payable........................................ (1,898,800) 3,317,392 2,098,341
Accrued liabilities and other........................... (53,985) (402,180) 84,833
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS............. 2,233,755 (886,584) 2,020,067
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of joint venture......................... -- 3,760,134 --
Dividends received from joint venture....................... -- -- 145,000
Proceeds from sale of property, plant and equipment......... 39,300 8,425 827,282
Decrease in cash surrender value of officers' life
insurance, net............................................ 2,548 18,053 46,046
Deposits on machinery and equipment......................... -- (1,885,884) --
(Increase) decrease in restricted cash and cash
equivalents............................................... 2,471,124 (2,471,124) --
Purchases of property, plant and equipment.................. (5,046,825) (4,235,743) (1,140,354)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES................. (2,533,853) (4,806,139) (122,026)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit
agreement................................................. (536,050) 2,537,025 (976,404)
Redemption of common stock.................................. (107,255) (3,622,124) --
Distributions to stockholders............................... -- (1,000,000) (29,972)
Proceeds from long-term debt................................ 1,956,065 8,612,683 --
Repayment of long-term debt................................. (1,012,662) (834,861) (891,665)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 300,098 5,692,723 (1,898,041)
----------- ----------- -----------
Change in cash and cash equivalents......................... -- -- --
Cash and cash equivalents, beginning of year................ -- -- --
----------- ----------- -----------
Cash and cash equivalents, end of year...................... $ -- $ -- $ --
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION --
Cash paid for interest.................................... $ 1,553,000 $ 677,000 $ 607,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY --
Issuance of 1,510 shares of common stock in exchange for a
note receivable........................................... $ 68,879 $ -- $ --
=========== =========== ===========
Retirement of 1,459 shares of common stock in exchange for a
note payable.............................................. $ 79,000 $ -- $ --
=========== =========== ===========
Purchases of property, plant and equipment funded by
deposits on machinery and equipment....................... $ 1,885,884 $ -- $ --
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-30
120
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS OF THE COMPANY
Molmec, Inc. (the Company) is engaged in the manufacturing and assembly of
plastic parts primarily for the domestic automotive industry. The Company grants
credit on standard industry terms.
For the years ended December 31, 1995, 1994 and 1993 sales to two customers
represented 68%, 72% and 66%, respectively of net sales.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash includes investments in a money market fund which invests
primarily in highly liquid government obligations with a maturity of three
months or less.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. Automotive manufacturers comprise
a significant portion of the Company's customer base. Trade receivables from the
Company's two largest customers represented approximately 66% and 65% of the
Company's total trade receivables as of December 31, 1995 and 1994,
respectively.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
INVENTORIES
The Company values certain raw material inventory and the raw material
content of finished goods inventory at the lower of cost, using the last-in,
first-out (LIFO) method of accounting, or market. The total value of this
inventory at December 31, 1994 was $1,502,955.
At December 31, 1994, the remaining inventory was valued using the
first-in, first-out (FIFO) method. During 1995, the Company changed its method
of accounting for the remaining inventory to the LIFO method of accounting to
conform with the raw materials inventory. The effect of the change in 1995 was
to increase the net loss by $165,000. The cumulative effect of this accounting
change can not be reasonably determined.
Under the LIFO method, quantity increments are valued at the most recent
purchase price and base quantities are valued in base year dollars. Had the FIFO
method been used for all inventories, inventories would have been increased by
$868,373 and $703,204 at December 31, 1995 and 1994, respectively.
INVESTMENT IN JOINT VENTURE
During 1994, the Company sold its 50% share in a joint venture. This
investment was accounted for on the equity method. The joint venture was in a
similar line of business to that of the Company. As a result of the sale, the
Company recorded a gain on the sale, net of related reorganization expenses,
which has been reflected in the accompanying 1994 statement of operations.
F-31
121
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciable property, stated at cost, is depreciated over the estimated
useful lives of the assets, using principally accelerated methods as follows:
Buildings and improvements............................... 15 to 39 years
Machinery and equipment.................................. 5 to 7 years
Furniture and fixtures................................... 3 to 7 years
Amortizable assets are amortized over a 15 year period.
HARTLAND PLANT CONSTRUCTION
During 1994, the Company began construction of a new plant located in
Hartland, Michigan. The Company financed the construction through the issuance
of $5,000,000 in Demand Limited Obligation Revenue Bonds. The proceeds from the
bonds were restricted in their use to costs related to the construction of the
Hartland plant.
As of December 31, 1994, the unused proceeds from the bond issuance
amounted to $2,471,124 which was reflected as restricted cash and cash
equivalents in the accompanying 1994 balance sheet. The Company also purchased
and received certain machinery and equipment totaling approximately $354,000 for
the Hartland plant which were classified in property, plant and equipment as of
December 31, 1994.
During 1995, construction on the plant was completed using the balance of
the restricted cash. The Company began depreciating all related assets over
their estimated useful lives. No depreciation expense was taken on these assets
for the year ended December 31, 1994, as they had not yet been placed into
service.
RECLASSIFICATIONS
Certain items in prior years financial statements have been reclassified to
conform with the presentation used in the year ended December 31, 1995.
2. LINE OF CREDIT
The Company has a line of credit with a bank. The Company may borrow up to
$11,000,000 with interest at 1 1/4% above the prime rate (9.75% and 9% at
December 31, 1995 and 1994, respectively). Borrowings under this line of credit
are secured by trade accounts receivable and totaled $5,824,571 and $6,360,621
at December 31, 1995 and 1994, respectively.
F-32
122
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1995 1994
----------- -----------
Demand Limited Obligation Revenue Bonds, interest at a
variable rate (4% at December 31, 1995), payable in annual
installments ranging from $160,000 to $630,000 plus
interest beginning December 1996 through 2009,
collateralized by a letter of credit and a first security
interest in substantially all assets of the Company....... $ 5,000,000 $ 5,000,000
Term loan, interest at 9.93%, payable in monthly
installments of $41,667 plus interest through November
2001, collateralized by all assets of the Company......... 2,958,333 3,458,333
Subordinated notes payable to shareholders, interest at 18%,
collateralized by a real estate mortgage and a second
security interest in all property of the Company.......... 1,500,000 --
Mortgage note, interest at 8.5%, payable in monthly
installments of $8,333 plus interest through July 1995,
$10,417 from August 1995 through July 1998 and $12,500
from August 1998 through July 1999, collateralized by real
estate.................................................... 1,248,333 1,359,024
Term loan, interest at 8.5%, payable in monthly installments
of $25,000 plus interest through February 2000,
collateralized by trade accounts receivable, inventories,
real estate, machinery and equipment and furniture and
fixtures.................................................. 1,225,000 1,525,000
Term loan, interest at 9%, payable in monthly installments
of $3,036 through August 2002, collateralized by
equipment................................................. 242,858 --
Capital lease obligation, interest at 10%, payable in
monthly installments of $4,827 through March 1999,
collateralized by equipment............................... 156,673 --
Notes payable, other........................................ 208,608 254,045
----------- -----------
12,539,805 11,596,402
Less -- Current portion..................................... 1,595,000 950,000
----------- -----------
$10,944,805 $10,646,402
=========== ===========
The following is a summary of future principal payments at December 31,
1995:
YEAR ENDED AMOUNT
---------- ------
1996...................................................... $ 1,595,000
1997...................................................... 1,604,093
1998...................................................... 1,619,628
1999...................................................... 2,307,670
2000...................................................... 1,165,211
Thereafter................................................ 4,248,203
-----------
$12,539,805
===========
The term loan agreements and line of credit (see Note 2) above contain
various restrictive covenants which, among other restrictions, require certain
levels of stockholders' investment, net income, debt to equity and working
capital. As of December 31, 1995, the Company was in violation of certain of
these covenants. On
F-33
123
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
April 2, 1996, the Company entered into an agreement with the bank which
provides for a waiver of the non-compliance.
The fair value of long-term debt has been estimated using the expected
future cash flows discounted at market interest rates. The carrying amount of
long-term debt approximates fair value.
4. WORKERS' COMPENSATION INSURANCE
The Company established a self-insurance program in prior years to provide
statutory workers' compensation coverage. Reinsurance coverage is carried for
risks in excess of $300,000 per occurrence and $1,390,934 in aggregate for the
two year period ending July 1, 1996. The Company incurred workers' compensation
expense of approximately $363,000, $502,000 and $431,000 during the years ended
December 31, 1995, 1994 and 1993, respectively.
5. INCOME TAXES
The Company has elected to be treated as a Small Business Corporation under
Subchapter S of the Internal Revenue Code. Therefore, taxable income of the
Company is included in the taxable income of the individual stockholders, and no
provision for Federal income taxes has been included in the statement of
operations.
6. STOCK REPURCHASE AGREEMENTS
Under the provisions of agreements between the Company and its
stockholders, the Company has agreed, among other things, to purchase at an
agreed value the shares held by any stockholder in the event of his death or
termination of employment. The agreements are partially funded by both term and
whole life insurance policies on the lives of the stockholders.
7. EMPLOYEE CASH AND STOCK BONUS PLAN
Effective April 11, 1995, the Board of Directors approved a Cash and Stock
Bonus Plan. The Plan provides for a fixed percentage of pre-tax operating income
to be set aside and distributed in the form of cash and common stock to certain
key employees of the Company, as determined by the Board of Directors. Stock
awards vested upon three years employment from the date of grant. The Plan also
provided for additional awards upon sale or merger of the Company. The Company
did not issue any awards during 1995.
8. TRANSACTIONS WITH RELATED PARTIES
The Company purchases certain tooling from an affiliated entity. These
purchases totaled approximately $2,650,000, $2,059,000 and $1,641,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Company leases a manufacturing facility from an affiliated entity. The
lease requires monthly payments of $13,500 through August 1999.
9. ENVIRONMENTAL RESERVE
During 1993, the Company became aware of the need to perform some
environmental clean-up at one of its plants. The Company is in the process of
identifying the required clean-up costs and performing the necessary clean-up.
The Company has a reserve of $100,000 as of December 31, 1995 which reflects the
Company's best estimate of the remaining clean-up cost. The Company will
continue to review the adequacy of the reserve on a periodic basis and make such
adjustments to its reserve as may then be appropriate.
F-34
124
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. REDEMPTION OF STOCK
During 1994, the Company repurchased the outstanding shares of stock of one
of its stockholders. A total of 49,664 shares of stock were redeemed for
approximately $3,600,000. This transaction was financed through a term loan from
a bank.
11. BENEFIT PLAN
Effective January 1, 1989, the Company adopted the Molmec, Inc. MI Choice
Retirement and Savings 401k Plan and Trust (the Plan).
All full-time employees of the Company are eligible to participate in the
Plan once they have completed one year of credited service and have attained age
eighteen.
The Plan is a defined contribution plan, qualified as a profit sharing plan
under Section 401(k) of the Internal Revenue Code. The Plan allows eligible
employees to contribute up to 15% of their compensation not to exceed certain
limits set forth by the Internal Revenue Service. The Plan provides that the
Company may make an annual matching contribution of up to $1,000 per
participant. Effective January 1, 1996, the Company amended the Plan to limit
the annual matching contribution to years in which the Company generates net
income.
Contributions made by the Company amounted to approximately $80,000,
$75,000 and $81,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
12. SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company sold substantially all of its
assets and liabilities.
F-35
125
MOLMEC, INC.
BALANCE SHEET
AS OF SEPTEMBER 24, 1995
(UNAUDITED)
ASSETS
Current assets:
Accounts receivable --
Trade (less allowance for doubtful accounts of $38,000)... $ 12,640,472
Other..................................................... 262,523
Inventories --
Raw materials and component parts....................... 2,428,583
Work-in-process and finished goods...................... 2,117,566
Prepaid tooling........................................... 990,923
Prepaid expenses and other................................ 297,075
------------
Total current assets............................... 18,737,142
------------
Property, plant and equipment, at cost:
Land...................................................... 688,893
Buildings and improvements................................ 9,391,302
Machinery and equipment................................... 24,322,587
Furniture and fixtures.................................... 1,570,439
------------
35,973,221
Less -- Accumulated depreciation and amortization....... (19,537,059)
------------
Net property, plant and equipment.................. 16,436,162
------------
Other Assets:
Cash surrender value of officers' life insurance (face
amount of $7,200,000 in 1995)........................... 332,413
Other, net................................................ 350,330
------------
Total other assets................................. 682,743
------------
Total assets....................................... $ 35,856,047
============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current portion of long-term debt --
Real estate............................................. $ 295,582
Equipment and other..................................... 712,418
Borrowings under line of credit........................... 7,558,437
Accounts payable.......................................... 11,432,272
Accounts payable -- related parties....................... 282,899
Accrued workers' compensation............................. 161,045
Accrued compensation...................................... 427,586
Accrued liabilities....................................... 358,750
------------
Total current liabilities.......................... 21,228,989
------------
Long-term liabilities, less current portions above:
Real estate debt.......................................... 1,740,833
Equipment and other debt.................................. 9,541,760
Accrued workers' compensation............................. 300,000
Other long-term liabilities............................... 157,194
------------
Total long-term liabilities........................ 11,739,787
------------
Commitments
Stockholders' investment:
Common stock, $1 par value, 1,500,000 shares authorized,
102,195 shares issued and outstanding................... 102,195
Paid-in capital........................................... 287,236
Retained earnings......................................... 2,658,383
------------
3,047,814
Less -- Notes receivable from sale of stock........ 160,543
------------
Total stockholders' investment..................... 2,887,271
------------
Total liabilities and stockholders' equity......... $ 35,856,047
============
The notes to the financial statements should be read in
conjunction with this balance sheet.
F-36
126
MOLMEC, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1 THROUGH SEPTEMBER 24, 1995
(UNAUDITED)
Net sales:
Molding................................................... $52,201,499
Tooling................................................... 8,451,499
-----------
60,652,998
-----------
Cost of sales:
Material.................................................. 13,323,952
Component costs........................................... 10,128,579
Direct labor.............................................. 4,592,190
Manufacturing and subcontracting expenses................. 18,055,855
Tooling................................................... 8,468,840
-----------
54,569,416
-----------
Gross profit........................................... 6,083,582
Selling and administrative expenses......................... 6,731,343
-----------
Operating loss......................................... (647,761)
-----------
Interest expense............................................ 1,085,167
-----------
Net loss.................................................... $(1,732,928)
===========
The notes to the financial statements should be read in
conjunction with this statement.
F-37
127
MOLMEC, INC.
STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE PERIOD FROM JANUARY 1 THROUGH SEPTEMBER 24, 1995
(UNAUDITED)
COMMON PAID-IN RETAINED NOTE
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
-------- --------- ----------- ---------- -----------
Balance at December 31, 1994....... $102,144 $ 325,207 $ 4,391,311 $ (91,664) $ 4,726,998
Redemption of common stock....... (1,459) (105,340) -- -- (106,799)
Sale of common stock............. 1,510 67,369 -- (68,879) --
Net loss......................... (1,732,928) (1,732,928)
-------- --------- ----------- --------- -----------
Balance at September 24, 1995...... $102,195 $ 287,236 $ 2,658,383 $(160,543) $ 2,887,271
======== ========= =========== ========= ===========
The notes to the financial statements should be read in
conjunction with this statement.
F-38
128
MOLMEC, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1 THROUGH SEPTEMBER 24, 1995
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,732,928)
Adjustments to reconcile net loss to net cash provided by
operations --
LIFO provision............................................ 341,423
Depreciation and amortization............................. 1,617,894
Gain on sale of property, plant and equipment............. (18,855)
Source (use) of cash resulting from change in assets and
liabilities --
Accounts receivable, net............................... (287,898)
Inventories............................................ (646,491)
Prepaid tooling........................................ 647,292
Prepaid expenses and other............................. (127,646)
Other assets........................................... 2,370,921
Accounts payable....................................... 667,544
Accrued liabilities, accrued compensation and other.... 34,115
-----------
NET CASH PROVIDED BY OPERATIONS...................... 2,865,371
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment......... 32,800
Purchases of property, plant and equipment.................. (4,703,294)
Decrease in cash surrender value of officers' life
insurance, net............................................ 19,915
-----------
NET CASH USED IN INVESTING ACTIVITIES................ (4,650,579)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement............... 1,197,816
Net borrowings under debt agreement......................... 1,456,105
Repayment of long-term debt................................. (761,914)
Redemption of common stock.................................. (106,799)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 1,785,208
-----------
Change in cash and cash equivalents......................... --
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $ --
===========
SUPPLEMENTAL CASH FLOW INFORMATION --
Cash paid for interest...................................... $ 1,080,139
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY --
Issuance of 1,510 shares of common stock in exchange for a
note receivable........................................... $ 68,879
===========
Purchases of property, plant and equipment funded by
deposits on machinery and equipment....................... $ 1,885,884
===========
The notes to the financial statements should be read in
conjunction with this statement.
F-39
129
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS OF THE COMPANY
Molmec, Inc. (the Company) is engaged in the manufacturing and assembly of
plastic parts primarily for the domestic automotive industry. The Company grants
credit on standard industry terms.
For the period ended September 24, 1995, sales to two customers represented
59% of net sales.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. Automotive manufacturers comprise
a significant portion of the Company's customer base. Trade receivables from the
Company's two largest customers represented approximately 64% of the Company's
total trade receivables as of September 24, 1995.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
INVENTORIES
The Company values certain raw material inventory and the raw material
content of finished goods inventory at the lower of cost, using the last-in,
first-out (LIFO) method of accounting, or market.
At December 31, 1994, the remaining inventory was valued using the
first-in, first-out (FIFO) method. During 1995, the Company changed its method
of accounting for the remaining inventory to the LIFO method to conform with the
raw material inventory. The effect of the change in 1995 was to increase net
loss by $341,243. The cumulative effect of this accounting change is not
reasonably determinable.
Under the LIFO method, quantity increments are valued at the most recent
purchase price and base quantities are valued in base year dollars. Had the FIFO
method been used for all inventories, inventories would have been increased by
approximately $1,044,000 at September 24, 1995.
DEPRECIATION AND AMORTIZATION
Depreciable property, stated at cost, is depreciated over the estimated
useful lives of the assets, using principally accelerated methods as follows:
Buildings and improvements.................................. 15 to 39 years
Machinery and equipment..................................... 5 to 7 years
Furniture and fixtures...................................... 3 to 7 years
Other depreciable assets are amortized over a 15 year period.
F-40
130
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. LINE OF CREDIT
The Company has a line of credit with a bank. The Company may borrow up to
$11,000,000 with interest at prime rate plus 1 1/4% (10% at September 24, 1995).
Borrowings under this line of credit are secured by trade accounts receivable
and total $7,558,437 at September 24, 1995.
3. LONG-TERM DEBT
Long-term debt consists of the following at September 24, 1995:
Demand Limited Obligation Revenue Bonds, interest at a
variable rate (4% at September 24, 1995), payable in
annual installments ranging from $160,000 to $630,000 plus
interest beginning December 1996 through 2009,
collateralized by a letter of credit and a first security
interest in substantially all assets of the Company....... $ 5,000,000
Term loan, interest at 9.93%, payable in monthly
installments of $41,667 plus interest through November
2001, collateralized by all assets of the Company......... 3,083,333
Subordinated notes payable to stockholders, interest at 18%,
collateralized by a real estate mortgage and a second
security interest in all property of the Company.......... 1,000,000
Mortgage note, interest at 8.5%, payable in monthly
installments of $10,417 from October 1995 through July
1998 and $12,500 from August 1998 through July 1999,
collateralized by the related real estate................. 1,279,583
Term loan, interest at 8.5%, payable in monthly installments
of $25,000 plus interest through February 2000,
collateralized by trade accounts receivable, inventories,
real estate, machinery and equipment and furniture and
fixtures.................................................. 1,300,000
Term loan, interest at 9%, payable in monthly installments
of $3,036 through August 2002, collateralized by
equipment................................................. 251,965
Capital lease obligation, interest at 10%, payable in
monthly installments of $4,827 through March 1999,
collateralized by equipment............................... 167,103
Notes payable, other........................................ 208,609
-----------
12,290,593
Less -- Current portion..................................... 1,008,000
-----------
$11,282,593
===========
The following is a summary of future principal payments of long-term debt
at September 24, 1995:
YEAR ENDED AMOUNT
---------- -----------
1996................................................. $ 1,008,000
1997................................................. 1,597,891
1998................................................. 1,609,966
1999................................................. 2,356,301
2000................................................. 1,235,211
Thereafter........................................... 4,483,224
-----------
$12,290,593
===========
The term loan agreements and line of credit (see Note 2) contain various
restrictive covenants which, among other restrictions, require certain levels of
stockholders' investment, net income, debt to equity and
F-41
131
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
working capital. As of September 24, 1995, the Company was not in compliance
with certain of these covenants. These events of noncompliance were subsequently
cured by the Company.
The fair value of long-term debt has been estimated using the expected
future cash flows discounted at market interest rates. The carrying amount of
long-term debt approximates fair value.
4. WORKERS' COMPENSATION INSURANCE
The Company has a self-insurance program to provide statutory workers'
compensation coverage. Reinsurance coverage is carried for risks in excess of
$300,000 per occurrence and $1,390,934 in aggregate for the two year period
ending July 1, 1996. The Company incurred workers' compensation expense of
approximately $285,000 during the period ended September 24, 1995.
5. INCOME TAXES
The Company has elected to be treated as a Small Business Corporation under
Subchapter S of the Internal Revenue Code. Therefore, taxable income of the
Company is included in the taxable income of the individual stockholders, and no
provision for Federal income taxes has been included in the statement of
operations.
6. STOCK REPURCHASE AGREEMENTS
Under the provisions of agreements between the Company and its
stockholders, the Company has agreed, among other things, to purchase at an
agreed value the shares held by any stockholder in the event of his death or
termination of employment. The agreements are partially funded by both term and
whole life insurance policies on the lives of the stockholders.
7. EMPLOYEE CASH AND STOCK BONUS PLAN
Effective April 11, 1995, the Board of Directors approved a Cash and Stock
Bonus Plan (Stock Plan). The Stock Plan provides for a fixed percentage of
pre-tax operating income to be set aside and distributed in the form of cash and
common stock to certain key employees of the Company, as determined by the Board
of Directors. Stock awards vested upon three years employment from the date of
grant. The Stock Plan also provides for additional awards upon sale or merger of
the Company. The Company did not issue any awards during 1995.
8. TRANSACTIONS WITH RELATED PARTIES
The Company purchases certain tooling from an affiliated entity. These
purchases totaled approximately $1,615,160 for the period ended September 24,
1995.
The Company leases a manufacturing facility from an affiliated entity. The
lease requires monthly payments of $13,500 through August 1999.
9. ENVIRONMENTAL RESERVE
During 1993, the Company became aware of the need to perform some
environmental clean-up at one of its plants. The Company is in the process of
identifying the required clean-up costs and performing the necessary clean-up.
The Company has a reserve of $58,000 as of September 24, 1995 which reflects the
Company's best estimate of the remaining clean-up cost. The Company will
continue to review the adequacy of the reserve on a periodic basis and make such
adjustments to the reserve as may then be appropriate.
F-42
132
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. BENEFIT PLAN
Effective January 1, 1989, the Company adopted the Molmec, Inc. MI Choice
Retirement and Savings 401k Plan and Trust (the Plan).
All full-time employees of the Company are eligible to participate in the
Plan once they have completed one year of credited service and have attained age
eighteen.
The Plan is a defined contribution plan, qualified as a profit sharing plan
under Section 401(k) of the Internal Revenue Code. The Plan allows eligible
employees to contribute up to 15% of their compensation not to exceed certain
limits set forth by the Internal Revenue Service. The Plan provides that the
Company may make an annual matching contribution of up to $1,000 per
participant. Effective January 1, 1996, the Company amended the Plan to limit
the annual matching contribution to years in which the Company generates net
income.
Contributions made by the Company amounted to approximately $80,000 for the
period ended September 24, 1995.
11. SUBSEQUENT EVENT
Subsequent to September 24, 1995, the Company sold substantially all of its
assets and liabilities.
F-43
133
MOLMEC, INC.
BALANCE SHEET
AS OF SEPTEMBER 29, 1996
(UNAUDITED)
ASSETS
Current assets:
Accounts receivable --
Trade (less allowance for doubtful accounts of
$33,055)............................................... $11,794,315
Other................................................... 64,509
Inventories --
Raw materials and component parts....................... 1,738,423
Work-in-process and finished goods...................... 1,625,659
Prepaid tooling........................................... 577,998
Prepaid expenses and other................................ 443,261
-----------
Total current assets.................................. 16,244,165
-----------
Property, plant and equipment, at cost:
Land...................................................... 758,875
Buildings and improvements................................ 9,958,142
Machinery and equipment................................... 24,753,445
Furniture and fixtures.................................... 1,825,219
-----------
37,295,681
Less -- Accumulated depreciation and amortization......... 22,054,626
-----------
Net property, plant and equipment..................... 15,241,055
-----------
Other assets:
Cash surrender value of officers' life insurance (face
amount of $7,200,000 in 1996)........................... 349,780
Other, net................................................ 238,500
-----------
Total other assets.................................... 588,280
-----------
Total assets.......................................... $32,073,500
===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current portion of long-term debt --
Real estate............................................. $ 296,123
Equipment and other..................................... 1,298,877
Borrowings under line of credit........................... 543,803
Accounts payable.......................................... 8,907,660
Accounts payable -- related parties....................... 490,352
Accrued workers' compensation............................. 106,473
Accrued compensation...................................... 668,000
Accrued liabilities....................................... 865,237
-----------
Total current liabilities............................. 13,176,525
-----------
Long-Term liabilities, less current portions above:
Real estate debt.......................................... 1,427,765
Equipment and other debt.................................. 7,755,072
Accrued workers' compensation............................. 241,906
Other long-term liabilities............................... 100,000
-----------
Total long-term liabilities........................... 9,524,743
-----------
Commitments
Stockholders' investment:
Common stock, $1 par value, 1,500,000 shares authorized,
110,699 shares issued and outstanding................... 110,699
Paid-in capital........................................... 874,276
Retained earnings......................................... 8,547,800
-----------
9,532,775
Less -- Notes receivable from sale of stock............... 160,543
-----------
Total stockholders' investment........................ 9,372,232
-----------
Total liabilities and stockholders' equity............ $32,073,500
===========
The notes to the financial statements should be read in conjunction with this
balance sheet.
F-44
134
MOLMEC, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 25, 1995 THROUGH SEPTEMBER 29, 1996
(UNAUDITED)
Net sales:
Molding................................................... $81,052,739
Tooling................................................... 7,594,925
-----------
88,647,664
-----------
Cost of sales:
Material.................................................. 19,278,350
Component costs........................................... 14,983,547
Direct labor.............................................. 5,671,246
Manufacturing and subcontracting expenses................. 21,846,851
Tooling................................................... 6,927,264
-----------
68,707,258
-----------
Gross profit......................................... 19,940,406
-----------
Operating expenses:
Selling and administrative expenses....................... 11,239,954
Stock Plan compensation expense........................... 1,200,000
-----------
Total operating expenses............................. 12,439,954
-----------
Operating income..................................... 7,500,452
Interest expense............................................ 1,461,484
-----------
Net income before cumulative effect of change in accounting
principle................................................. 6,038,968
Cumulative effect of change in accounting principle......... (149,551)
-----------
Net income.................................................. $ 5,889,417
===========
The notes to the financial statements should be read in conjunction with this
statement.
F-45
135
MOLMEC, INC.
STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE PERIOD FROM SEPTEMBER 25, 1995 THROUGH SEPTEMBER 29, 1996
(UNAUDITED)
COMMON PAID-IN RETAINED NOTES
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
------ ------- -------- ---------- -----
Balance at September 25, 1995......... $102,195 $287,236 $2,658,383 $(160,543) $2,887,271
Sale of common stock................ 9,963 665,037 -- -- 675,000
Purchase of common stock............ (1,459) (77,997) (79,456)
Net income.......................... -- -- 5,889,417 -- 5,889,417
-------- -------- ---------- --------- ----------
Balance at September 29, 1996......... $110,699 $874,276 $8,547,800 $(160,543) $9,372,232
======== ======== ========== ========= ==========
The notes to the financial statements should be read in conjunction with this
statement.
F-46
136
MOLMEC, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 25, 1995 THROUGH SEPTEMBER 29, 1996
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 5,889,417
Adjustments to reconcile net income to net cash provided
by operations --
LIFO credit............................................ (523,408)
Depreciation and amortization.......................... 2,574,698
Loss on sale of property, plant and equipment.......... 512
Distribution of stock to employees (see note 7)........ 675,000
Cumulative effect of change in accounting principle.... 149,551
Source (use) of cash resulting from change in assets
and liabilities --
Accounts receivable, net............................. 1,044,171
Inventories.......................................... 1,555,924
Prepaid tooling...................................... 412,925
Prepaid expenses and other........................... (146,186)
Other assets......................................... 111,830
Accounts payable..................................... (2,317,159)
Accrued liabilities, accrued compensation and
other............................................... 577,041
-----------
NET CASH PROVIDED BY OPERATIONS................... 10,004,316
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment....... 9,000
Decrease in cash surrender value of officers' life
insurance, net......................................... (17,367)
Purchases of property, plant and equipment................ (1,389,103)
-----------
NET CASH USED IN INVESTING ACTIVITIES............. (1,397,470)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit agreement............. (7,014,634)
Redemption of common stock................................ (79,456)
Proceeds from issuance of long-term debt.................. 537,418
Repayment of long-term debt............................... (2,050,174)
-----------
NET CASH USED IN FINANCING ACTIVITIES............. (8,606,846)
-----------
Change in cash and cash equivalents......................... --
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $ --
===========
Supplemental cash flow information -- Cash paid for
interest.................................................. $ 1,548,281
===========
The notes to the financial statements should be read in conjunction with this
statement.
F-47
137
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS OF THE COMPANY
Molmec, Inc. (the Company) is engaged in the manufacturing and assembly of
plastic parts primarily for the domestic automotive industry. The Company grants
credit on standard industry terms. The Company's fiscal year is on a calendar
basis.
For the period ended September 29, 1996, sales to two customers represented
63% of net sales.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. Automotive manufacturers comprise
a significant portion of the Company's customer base. Trade receivables from the
Company's two largest customers represented approximately 64% of the Company's
total trade receivables as of September 29, 1996.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
INVENTORIES
The Company values all inventories at the lower of cost, using the last-in,
first-out (LIFO) method of accounting, or market. Effective January 1, 1996 the
Company changed its LIFO method to more accurately reflect LIFO costs. The
cumulative effect of this accounting change on periods prior to January 1, 1996
resulted in a $149,551 decrease in net income in 1996. The effect of this change
on the results of operations in 1996 was to decrease net income before
cumulative effect of change in accounting principles by approximately $415,000.
Under the LIFO method, quantity increments are valued at the most recent
purchase price and base quantities are valued in base year dollars. Had the FIFO
method been used for all inventories, inventories would have been increased by
$670,770 at September 29, 1996.
DEPRECIATION AND AMORTIZATION
Depreciable property, stated at cost, is depreciated over the estimated
useful lives of the assets, using principally accelerated methods as follows:
Buildings and improvements.................................. 15 to 39 years
Machinery and equipment..................................... 5 to 7 years
Furniture and fixtures...................................... 3 to 7 years
Amortizable assets are amortized over a 15 year period.
F-48
138
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. LINE OF CREDIT
The Company has a line of credit with a bank. The Company may borrow up to
$11,000,000 with interest at prime rate plus 1/2% (8.25% at September 29, 1996).
Borrowings under this line of credit are secured by trade accounts receivable
and total $543,803 at September 29, 1996.
3. LONG-TERM DEBT
Long-term debt consists of the following at September 29, 1996:
Demand Limited Obligation Revenue Bonds, interest at a
variable rate (4% at September 29, 1996), payable in
annual installments ranging from $160,000 to $630,000 plus
interest beginning December 1996 through 2009,
collateralized by a letter of credit and a first security
interest in substantially all assets of the Company....... $ 5,000,000
Term loan, interest at 9.93%, payable in monthly
installments of $41,667 plus interest through November
2001, collateralized by all assets of the Company......... 2,541,666
Subordinated notes payable to stockholders, interest at 18%,
collateralized by a real estate mortgage and a second
security interest in all property of the Company.......... 500,000
Mortgage note, interest at 8.5%, payable in monthly
installments of $10,417 from August 1995 through July 1998
and $12,500 from August 1998 through July 1999,
collateralized by the related real estate................. 1,154,598
Term loan, interest at 8.25%, payable in monthly
installments of $25,000 plus interest through February
2000, collateralized by trade accounts receivable,
inventories, real estate, machinery and equipment and
furniture and fixtures.................................... 1,000,000
Term loan, interest at 9%, payable in monthly installments
of $3,036 through August 2002, collateralized by
equipment................................................. 212,501
Capital lease obligation, interest at 10%, payable in
monthly installments of $4,827 through March 1999,
collateralized by equipment............................... 181,206
Notes payable, other........................................ 187,866
-----------
10,777,837
Less -- Current portion..................................... 1,595,000
-----------
$ 9,182,837
===========
The following is a summary of future principal payments of long-term debt
at September 29, 1996:
YEAR ENDED AMOUNT
- ---------- -----------
1997........................................................ $ 1,595,000
1998........................................................ 1,604,824
1999........................................................ 2,380,120
2000........................................................ 1,274,832
2001........................................................ 1,180,307
Thereafter.................................................. 2,742,754
-----------
$10,777,837
===========
The term loan agreements and line of credit (see Note 2) contain various
restrictive covenants which, among other restrictions, require certain levels of
stockholders' investment, net income, debt to equity and working capital.
F-49
139
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
The fair value of long-term debt has been estimated using the expected
future cash flows discounted at market interest rates. The carrying amount of
long-term debt approximates fair value.
4. WORKERS' COMPENSATION INSURANCE
The Company has a self-insurance program to provide statutory workers'
compensation coverage. Reinsurance coverage is carried for risks in excess of
$300,000 per occurrence and $1,590,833 in aggregate for the two year period
ending July 1, 1998. The Company incurred workers' compensation expense of
approximately $388,000 during the period ended September 29, 1996.
5. INCOME TAXES
The Company has elected to be treated as a Small Business Corporation under
Subchapter S of the Internal Revenue Code. Therefore, taxable income of the
Company is included in the taxable income of the individual stockholders, and no
provision for Federal income taxes has been included in the statement of
operations.
6. STOCK REPURCHASE AGREEMENTS
Under the provisions of agreements between the Company and its
stockholders, the Company has agreed, among other things, to purchase at an
agreed value the shares held by any stockholder in the event of his death or
termination of employment. The agreements are partially funded by both term and
whole life insurance policies on the lives of the stockholders.
7. EMPLOYEE CASH AND STOCK BONUS PLAN
Effective April 11, 1995, the Board of Directors approved a Cash and Stock
Bonus Plan (Stock Plan). The Stock Plan provided for a fixed percentage of
pre-tax operating income to be set aside and distributed in the form of cash and
common stock to certain key employees of the Company, as determined by the Board
of Directors. Stock awards vested upon three years employment from the date of
grant. The Stock Plan also provided for additional awards upon sale or merger of
the Company.
On June 18, 1996, as part of a settlement with key employees to terminate
the Stock Plan, the Company granted to certain key employees 9,963 shares of
common stock, valued at $675,000, plus an additional cash payment of
approximately $525,000. The Stock Plan was terminated on June 18, 1996.
Effective January 1, 1996, the Board of Directors approved a Key Employee
Cash Bonus Plan (Cash Plan). The Cash Plan provides for a fixed percentage of
pre-tax operating income to be set aside and paid in cash to certain key
employees of the Company, as determined annually by the Board of Directors. The
Company has accrued approximately $668,000 for expected payments under this plan
as of September 29, 1996.
8. TRANSACTIONS WITH RELATED PARTIES
The Company purchases certain tooling from an affiliated entity. These
purchases totaled approximately $2,726,026 for the period ended September 29,
1996.
The Company leases a manufacturing facility from an affiliated entity. The
lease requires monthly payments of $13,500 through August 1999.
F-50
140
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. ENVIRONMENTAL RESERVE
During 1993, the Company became aware of the need to perform some
environmental clean-up at one of its plants. The Company is in the process of
identifying the required clean-up costs and performing the necessary clean-up.
The Company has a reserve of $100,000 as of September 29, 1996 which reflects
the Company's best estimate of the remaining clean-up cost. The Company will
continue to review the adequacy of the reserve on a periodic basis and make such
adjustments to the reserve as may then be appropriate.
10. BENEFIT PLAN
Effective January 1, 1989, the Company adopted the Molmec, Inc. MI Choice
Retirement and Savings 401k Plan and Trust (the Plan).
All full-time employees of the Company are eligible to participate in the
Plan once they have completed one year of credited service and have attained age
eighteen.
The Plan is a defined contribution plan, qualified as a profit sharing plan
under Section 401(k) of the Internal Revenue Code. The Plan allows eligible
employees to contribute up to 15% of their compensation not to exceed certain
limits set forth by the Internal Revenue Service. The Plan provides that the
Company may make an annual matching contribution of up to $1,000 per
participant. Effective January 1, 1996, the Company amended the Plan to limit
the annual matching contribution to years in which the Company generates net
income.
Contributions made by the Company amounted to approximately $80,000 for the
period ended September 29, 1996.
11. SUBSEQUENT EVENT
Subsequent to September 29, 1996 the Company sold substantially all of its
assets and liabilities.
F-51
141
MOLMEC, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1 THROUGH SEPTEMBER 29, 1996
(UNAUDITED)
Net sales:
Molding................................................... $60,592,568
Tooling................................................... 5,840,730
-----------
66,433,298
-----------
Cost of sales:
Material.................................................. 14,349,038
Component costs........................................... 11,348,953
Direct labor.............................................. 4,183,033
Manufacturing and subcontracting expenses................. 15,170,406
Tooling................................................... 5,324,228
-----------
50,375,658
-----------
Gross profit................................................ 16,057,640
-----------
OPERATING EXPENSES:
Selling and administrative expenses......................... 8,686,280
Stock plan compensation expense............................. 1,200,000
-----------
Total operating expenses.................................... 9,886,280
-----------
Operating income............................................ 6,171,360
Interest expense............................................ 1,000,879
-----------
Net income before cumulative effect of change in accounting
principle................................................. 5,170,481
Cumulative effect of change in accounting principle......... (149,551)
-----------
Net income.................................................. $ 5,020,930
===========
The notes to the financial statements should be read in conjunction with this
statement.
F-52
142
MOLMEC, INC.
STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE PERIOD FROM JANUARY 1 THROUGH SEPTEMBER 29, 1996
(UNAUDITED)
COMMON PAID-IN RETAINED NOTES
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
-------- -------- ---------- ---------- ----------
Balance at December 31, 1995.......... $100,736 $209,239 $3,526,870 $(160,543) $3,676,302
Sale of common stock................ 9,963 665,037 -- -- 675,000
Net income.......................... -- -- 5,020,930 -- 5,020,930
-------- -------- ---------- --------- ----------
Balance at September 29, 1996......... $110,699 $874,276 $8,547,800 $(160,543) $9,372,232
======== ======== ========== ========= ==========
The notes to the financial statements should be read in conjunction with this
statement.
F-53
143
MOLMEC, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1 THROUGH SEPTEMBER 29, 1996
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 5,020,930
Adjustments to reconcile net income to net cash provided by
operations --
LIFO credit............................................... (347,154)
Depreciation and amortization............................. 1,768,799
Distribution of stock to employees (see note 7)........... 675,000
Cumulative effect of change in accounting principle....... 149,551
Source (use) of cash resulting from change in assets and
liabilities --
Accounts receivable, net............................... (831,051)
Inventories............................................ 674,870
Prepaid tooling........................................ 359,346
Prepaid expenses and other............................. (228,568)
Other assets........................................... 8,759
Accounts payable....................................... 170,185
Accrued liabilities, accrued compensation and other.... 665,141
-----------
NET CASH PROVIDED BY OPERATIONS...................... 8,085,808
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment......... 2,500
Purchases of property, plant and equipment.................. (1,045,572)
-----------
NET CASH USED IN INVESTING ACTIVITIES................ (1,043,072)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit agreement............... (5,280,768)
Proceeds from issuance of long-term debt.................... 37,458
Repayment of long-term debt................................. (1,799,426)
-----------
NET CASH USED IN FINANCING ACTIVITIES................ (7,042,736)
-----------
Change in cash and cash equivalents......................... --
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $ --
===========
SUPPLEMENTAL CASH FLOW INFORMATION --
Cash paid for interest...................................... $ 1,075,420
===========
The notes to the financial statements should be read in conjunction with this
statement.
F-54
144
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS OF THE COMPANY
Molmec, Inc. (the Company) is engaged in the manufacturing and assembly of
plastic parts primarily for the domestic automotive industry. The Company grants
credit on standard industry terms.
For the period ended September 29, 1996, sales to two customers represented
63% of net sales.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. Automotive manufacturers comprise
a significant portion of the Company's customer base. Trade receivables from the
Company's two largest customers represented approximately 64% of the Company's
total trade receivables as of September 29, 1996.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.
INVENTORIES
The Company values all inventories at the lower of cost, using the last-in,
first-out (LIFO) method of accounting, or market. Effective January 1, 1996 the
Company changed its LIFO method to more accurately reflect LIFO costs. The
cumulative effect of this accounting change on periods prior to January 1, 1996
resulted in a $149,551 decrease in net income in 1996. The effect of this change
on the results of operations in 1996 was to decrease net income before
cumulative effect of change in accounting principles by approximately $415,000.
Under the LIFO method, quantity increments are valued at the most recent
purchase price and base quantities are valued in base year dollars. Had the FIFO
method been used for all inventories, inventories would have been increased by
$670,770 at September 29, 1996.
DEPRECIATION AND AMORTIZATION
Depreciable property, stated at cost, is depreciated over the estimated
useful lives of the assets, using principally accelerated methods as follows:
Buildings and improvements.................................. 15 to 39 years
Machinery and equipment..................................... 5 to 7 years
Furniture and fixtures...................................... 3 to 7 years
Amortizable assets are amortized over a 15 year period.
F-55
145
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. LINE OF CREDIT
The Company has a line of credit with a bank. The Company may borrow up to
$11,000,000 with interest at prime rate plus 1/2% (8.25% at September 29, 1996).
Borrowings under this line of credit are secured by trade accounts receivable
and total $543,803 at September 29, 1996.
3. LONG-TERM DEBT
Long-term debt consists of the following at September 29, 1996:
Demand Limited Obligation Revenue Bonds, interest at a
variable rate (4% at September 29, 1996), payable in
annual installments ranging from $160,000 to $630,000 plus
interest beginning December 1996 through 2009,
collateralized by a letter of credit and a first security
interest in substantially all assets of the Company....... $ 5,000,000
Term loan, interest at 9.93%, payable in monthly
installments of $41,667 plus interest through November
2001, collateralized by all assets of the Company......... 2,541,666
Subordinated notes payable to stockholders, interest at 18%,
collateralized by a real estate mortgage and a second
security interest in all property of the Company.......... 500,000
Mortgage note, interest at 8.5%, payable in monthly
installments of $10,417 from August 1995 through July 1998
and $12,500 from August 1998 through July 1999,
collateralized by the related real estate................. 1,154,598
Term loan, interest at 8.25%, payable in monthly
installments of $25,000 plus interest through February
2000, collateralized by trade accounts receivable,
inventories, real estate, machinery and equipment and
furniture and fixtures.................................... 1,000,000
Term loan, interest at 9%, payable in monthly installments
of $3,036 through August 2002, collateralized by
equipment................................................. 212,501
Capital lease obligation, interest at 10%, payable in
monthly installments of $4,827 through March 1999,
collateralized by equipment............................... 181,206
Notes payable, other........................................ 187,866
-----------
10,777,837
Less -- Current portion..................................... 1,595,000
-----------
$ 9,182,837
===========
The following is a summary of future principal payments of long-term debt
at September 29, 1996:
YEAR ENDED AMOUNT
---------- -----------
1997...................................................... $ 1,595,000
1998...................................................... 1,604,824
1999...................................................... 2,380,120
2000...................................................... 1,274,832
2001...................................................... 1,180,307
Thereafter................................................ 2,742,754
-----------
$10,777,837
===========
The term loan agreements and line of credit (see Note 2) contain various
restrictive covenants which, among other restrictions, require certain levels of
stockholders' investment, net income, debt to equity and working capital.
F-56
146
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
The fair value of long-term debt has been estimated using the expected
future cash flows discounted at market interest rates. The carrying amount of
long-term debt approximates fair value.
4. WORKERS' COMPENSATION INSURANCE
The Company has a self-insurance program to provide statutory workers'
compensation coverage. Reinsurance coverage is carried for risks in excess of
$300,000 per occurrence and $1,590,833 in aggregate for the two year period
ending July 1, 1998. The Company incurred workers' compensation expense of
approximately $310,000 during the period ended September 29, 1996.
5. INCOME TAXES
The Company has elected to be treated as a Small Business Corporation under
Subchapter S of the Internal Revenue Code. Therefore, taxable income of the
Company is included in the taxable income of the individual stockholders, and no
provision for Federal income taxes has been included in the statement of
operations.
6. STOCK REPURCHASE AGREEMENTS
Under the provisions of agreements between the Company and its
stockholders, the Company has agreed, among other things, to purchase at an
agreed value the shares held by any stockholder in the event of his death or
termination of employment. The agreements are partially funded by both term and
whole life insurance policies on the lives of the stockholders.
7. EMPLOYEE CASH AND STOCK BONUS PLAN
Effective April 11, 1995, the Board of Directors approved a Cash and Stock
Bonus Plan (Stock Plan). The Stock Plan provided for a fixed percentage of
pre-tax operating income to be set aside and distributed in the form of cash and
common stock to certain key employees of the Company, as determined by the Board
of Directors. Stock awards vested upon three years employment from the date of
grant. The Stock Plan also provided for additional awards upon sale or merger of
the Company.
On June 18, 1996, as part of a settlement with key employees to terminate
the Stock Plan, the Company granted to certain key employees 9,963 shares of
common stock, valued at $675,000, plus an additional cash payment of
approximately $525,000. The Stock Plan was terminated on June 18, 1996.
Effective January 1, 1996, the Board of Directors approved a Key Employee
Cash Bonus Plan (Cash Plan). The Cash Plan provides for a fixed percentage of
pre-tax operating income to be set aside and paid in cash to certain key
employees of the Company, as determined annually by the Board of Directors. The
Company has accrued approximately $668,000 for expected payments under this plan
as of September 29, 1996.
8. TRANSACTIONS WITH RELATED PARTIES
The Company purchases certain tooling from an affiliated entity. These
purchases totaled approximately $1,691,186 for the period ended September 29,
1996.
The Company leases a manufacturing facility from an affiliated entity. The
lease requires monthly payments of $13,500 through August 1999.
F-57
147
MOLMEC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. ENVIRONMENTAL RESERVE
During 1993, the Company became aware of the need to perform some
environmental clean-up at one of its plants. The Company is in the process of
identifying the required clean-up costs and performing the necessary clean-up.
The Company has a reserve of $100,000 as of September 29, 1996 which reflects
the Company's best estimate of the remaining clean-up cost. The Company will
continue to review the adequacy of the reserve on a periodic basis and make such
adjustments to the reserve as may then be appropriate.
10. BENEFIT PLAN
Effective January 1, 1989, the Company adopted the Molmec, Inc. MI Choice
Retirement and Savings 401k Plan and Trust (the Plan).
All full-time employees of the Company are eligible to participate in the
Plan once they have completed one year of credited service and have attained age
eighteen.
The Plan is a defined contribution plan, qualified as a profit sharing plan
under Section 401(k) of the Internal Revenue Code. The Plan allows eligible
employees to contribute up to 15% of their compensation not to exceed certain
limits set forth by the Internal Revenue Service. The Plan provides that the
Company may make an annual matching contribution of up to $1,000 per
participant. Effective January 1, 1996, the Company amended the Plan to limit
the annual matching contribution to years in which the Company generates net
income.
Contributions made by the Company amounted to approximately $80,000 for the
period ended September 29, 1996.
11. SUBSEQUENT EVENT
Subsequent to September 29, 1996 the Company sold substantially all of its
assets and liabilities.
F-58
148
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS OFFERING
MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY, ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS OFFERING MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN 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
PAGE
----
Prospectus Summary.................... 1
Risk Factors.......................... 10
Use of Proceeds of New Notes.......... 14
Capitalization........................ 15
The Exchange Offer.................... 15
Unaudited Pro Forma Consolidated
Financial Information............... 23
Notes to Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... 25
Unaudited Pro Forma Consolidated
Interim Financial Information....... 26
Notes to Unaudited Pro Forma Condensed
Consolidated Interim Financial
Information......................... 28
Selected Financial Data -- LDM........ 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations -- LDM................ 30
Selected Financial Data -- Molmec..... 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations -- Molmec............. 35
Business.............................. 37
Management............................ 48
Beneficial Ownership of Capital
Stock............................... 50
Certain Transactions.................. 50
Description of New Notes.............. 51
Description of Senior Debt............ 76
Certain U.S. Federal Income Tax
Considerations Relating to the
Exchange Offer...................... 78
Old Notes; Registration Rights........ 80
Book Entry; Delivery and Form......... 81
Plan of Distribution.................. 83
Legal Matters......................... 84
Experts............................... 84
Index to Financial Statements......... F-1
======================================================
======================================================
$110,000,000
LDM LOGO
LDM TECHNOLOGIES, INC.
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
------------
PROSPECTUS
------------
OFFER TO EXCHANGE 10 3/4%
SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A FOR 10 3/4%
SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B
, 1997
======================================================
149
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 through 571 of the Michigan Business Corporation Act (the
"MBCA") govern the indemnification of officers, directors and other persons. In
this regard, the MBCA provides for indemnification of directors and officers
acting in good faith and in a manner they reasonably believe to be in, or not
opposed to, the best interest of the Company or its shareholders (and, with
respect to a criminal proceeding, if they have no reasonable cause to believe
their conduct to be unlawful). Such indemnification may be made against (a)
expenses (including attorney's fees), judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding (other than an
action by, or in the right of, the Company) arising by reason of the fact that
they were serving as a director, officer, employee or agent of the Company (or
some other entity at the Company's request), and (b) expenses (including
attorney's fees) and amounts paid in settlement actually and reasonably incurred
in connection with a threatened, pending or completed action or suit by, or in
the right of, the Company, unless the director or officer is found liable to the
Company and an appropriate court does not determine that he or she is
nevertheless fairly and reasonably entitled to indemnification. The MBCA
requires indemnification for expenses to the extent that a director or office is
successful in defending against any such action, suit or proceeding, and
otherwise requires in general that the indemnification provided for in (a) and
(b) above be made only on a determination by a majority vote of a quorum of the
Board of Directors comprised of members who were not parties to or threatened to
be made parties to such action. In certain circumstances, the MBCA further
permits advances to cover such expenses before a final determination that
indemnification is permissible, upon receipt of (i) a written affirmation by the
director or officer of his or her good faith belief that he or she has met the
applicable standard of conduct set forth in the MBCA, and (ii) a written
undertaking by or on behalf of the director or officer to repay such amounts
unless it shall ultimately be determined that he or she is entitled to
indemnification and a determination that the facts then known to those making
the advance would not preclude indemnification. The Company's Articles of
Incorporation do not provide indemnification rights.
The Company's Bylaws contain indemnification provisions which provide that
the Company shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he or she is or was a director, officer or employee of the
Company or is, or while serving as such a director, officer or employee was,
serving at the request of the Company as a director, officer, employee or agent
of another corporation, against all liability and reasonable expenses (including
attorney's fees), judgments, penalties, fees and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers and directors 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.
II-1
150
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
- ------- ----------------------- ----------
3.1 Articles of Incorporation of LDM Technologies, Inc. (the
"Company"), as amended
3.2 Articles of Organization of LDM Holdings, L.L.C. ("LDM
Holdings")
3.3 Certificate of Limited Partnership of LDM Canada Limited
Partnership ("LDM Partnership"), as amended
3.4 Articles of Incorporation of Arrow Molded Plastics of
Canada, Inc., Certificate of Incorporation of 3001422 Nova
Scotia Company, and Certificates of Status, of Registration,
and of Amalgamation for LDM Technologies Company ("LDM
Canada")
3.5 By-laws of the Company
3.6 Operating Agreement of LDM Holdings
3.7 Amended and Restated Limited Partnership Agreement of LDM
Partnership
3.8 Articles of Association of LDM Canada
4.1 Indenture dated as of January 15, 1997 by and among the
Company, LDM Holdings, LDM Partnership, LDM Canada and IBJ
Schroder Bank & Trust Company, as Trustee
4.2 Form of 10 3/4% Senior Subordinated Note Due 2007, Series B
4.3 Form of Guarantee
5 Opinion of Dickinson, Wright, Moon, Van Dusen and Freeman
10.1 Purchase Agreement dated November 4, 1996, as amended on
November 27, 1996, December 23, 1996 and January 21, 1997
between the Company and Molmec, Inc.
10.2 Loan and Security Agreement dated as of January 22, 1997 by
and between the Company, as Borrower, and BankAmerica
Business Credit, Inc. ("BankAmerica"), as Agent for the
Lenders
10.3 Pledge and Security Agreements dated as of January 22, 1997
between the Company, LDM Holdings, LDM Partnership, and LDM
Holding Canada, Inc., as Pledgors, in favor of BankAmerica,
as Agent for the Lenders
10.4 Intellectual Property Security Agreement dated as of January
22, 1997 made by the Company in favor of BankAmerica, as
Agent for Lenders
10.5 Registration Rights Agreement dated as of January 22, 1997
between the Company, LDM Holdings, LDM Partnership, LDM
Canada and Smith Barney, Inc.
10.6 Interim Stock Redemption Agreement dated April 22, 1996
between the Company and Richard J. Nash, Michael Polselli,
and Joe Balous
10.7 Stockholder Consent Agreement dated June 10, 1996 between
the Company, GL Industries of Indiana, Inc., Lawrence M.
Luke, and Lawrence M. Luke as Trustee of Revocable Living
Trust Dated March 22, 1996
10.8 Agreement for Exchange of Stock dated July 25, 1996, as
amended on September 27, 1996 between the Company and
Michael Polselli
10.9 Promissory Note dated September 28, 1996 between the Company
and Michael Polselli
10.10 Debt Subordination Agreement dated September 28, 1996
between The Huntington National Bank and Michael Polselli
10.11 Production and Non-Competition Agreement dated October 31,
1996 between the Company and DDM Plastics, Inc.
10.12 Stock Purchase Agreement dated as of December 31, 1996 among
Geiger technic, Inc., the Company and others
II-2
151
10.13 Lease Agreement dated January 7, 1986, as amended on September 8, 1986 and December 1, 1994
between Arrow Moulded Plastics, Inc., as lessee, and C.J. Edwards Company, Inc., as lessor
10.14 First Amended and Restated Lease Agreement dated April 28, 1993 between G.L. Industries of
Indiana, Inc., as lessee, and CPC Associates, Inc., lessor
10.15 Lease Agreement dated August 14, 1984, as amended on August 13, 1994 and June 1, 1996 between
the Company, as lessee, and M.O.L. Investments, as assigned by Molmec, Inc. to the Company on
January 21, 1997
10.16 Lease Agreement dated September 1, 1996 between the Company, as lessee, and Richard J. Nash,
Susanna Nash, and Joe Balous as Trustee of the Joe Balous Revocable Living Trust, as lessors
10.17 Loan Agreement dated as of December 1, 1994 between Molmec, Inc. and the Michigan Strategic
Fund
10.18 Amended and Restated Credit Facility and Security Agreement, Accounts Receivable, Inventory
and Equipment dated March 1, 1996 between G.L. Industries of Indiana, Inc. and Keybank
National Association
10.19 Employment Agreement dated as of January 21, 1997 between the Company and Barry A. Kempa
12 Statement of Ratio of Earnings to Fixed Charges*
12.1 Pro Forma Computation of Ratio of Earnings to Fixed Charges*
21 Subsidiaries and Affiliates of the Company
23.1 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman (included in Exhibit 5)
23.2 Consent of Ernst & Young for the Company*
23.3 Consent of Arthur Andersen for Molmec*
25 Statement of Eligibility and Qualification, Form T-1, of IBJ Schroder Bank & Trust Company
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- -------------------------
* Filed herewith.
The Registrant hereby agrees to furnish to the Securities and Exchange
Commission, upon request, copies of the following Indentures relating to the
issuance of revenue bonds, which Indentures define the rights of holders of
long-term debt of the Registrant:
Trust Indenture dated as of December 1, 1994 between the Michigan
Strategic Fund and Society Bank Michigan
Trust Indenture dated as of April 1, 1995 between Arrow N.A., Inc. and
The Huntington National Bank
(b) Financial Statement Schedules
None.
All financial statement schedules have been omitted since the required
information is not present, is not present in amounts sufficient to require
submission of the schedule or because the required information is included in
the financial statements or notes thereto.
II-3
152
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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.
(c) 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.
II-4
153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Auburn Hills, State of Michigan, on the 21st day of March, 1997.
LDM TECHNOLOGIES, INC.
By: /s/ RICHARD J. NASH
------------------------------------
Richard J. Nash
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment thereto has been signed below by the
following persons in the capacities indicated on March 21, 1997.
SIGNATURE TITLE
--------- -----
/s/ RICHARD J. NASH Director, President and Chief Executive Officer
- ------------------------------------------------ (principal executive officer)
Richard J. Nash
/s/ JOE BALOUS Chairman of the Board and Secretary
- ------------------------------------------------
Joe Balous
/s/ GARY E. BORUSHKO Chief Financial Officer (principal financial
- ------------------------------------------------ officer)
Gary E. Borushko
/s/ JOSEPH E. BLAKE Director of Finance (principal accounting officer)
- ------------------------------------------------
Joseph E. Blake
II-5
154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Auburn Hills, State of Michigan, on the 21st day of March, 1997.
LDM HOLDINGS, L.L.C.
By: LDM TECHNOLOGIES, INC.
Its: Member
By: /s/ RICHARD J. NASH
----------------------------------
Richard J. Nash
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment thereto has been signed below by the
following persons in the capacities indicated on March 21, 1997.
SIGNATURES TITLE
---------- -----
/s/ RICHARD J. NASH Director, President and Chief Executive Officer
- ------------------------------------------------ (principal executive officer)
Richard J. Nash
/s/ GARY E. BORUSHKO Principal Financial and Accounting Officer
- ------------------------------------------------
Gary E. Borushko
II-6
155
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Auburn Hills, State of Michigan, on the 21st day of March, 1997.
LDM CANADA LIMITED PARTNERSHIP
By: LDM Holdings, L.L.C.
------------------------------------
Its: general partner
By: LDM Technologies, Inc.
------------------------------------
Its: Member
By: /s/ RICHARD J. NASH
------------------------------------
Richard J. Nash
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment thereto has been signed below by the
following persons in the capacities indicated on March 21, 1997.
SIGNATURES TITLE
---------- -----
/s/ GARY E. BORUSHKO Principal Financial and Accounting Officer
- ------------------------------------------------
Gary E. Borushko
II-7
156
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement or amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Auburn Hills, State of Michigan, on the 21st day of March, 1997.
LDM TECHNOLOGIES COMPANY
By: /s/ RICHARD J. NASH
------------------------------------
Richard J. Nash
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment thereto has been signed below by the
following persons in the capacities indicated on March 21, 1997.
SIGNATURES TITLE
---------- -----
/s/ RICHARD J. NASH Director, President and Chief Executive Officer
- ------------------------------------------------ (principal executive officer)
Richard J. Nash
/s/ JOE BALOUS Chairman of the Board and Secretary
- ------------------------------------------------
Joe Balous
/s/ GARY E. BORUSHKO Chief Financial Officer
- ------------------------------------------------ (principal financial and accounting officer)
Gary E. Borushko
II-8
157
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
12 Statement of Ratio of Earnings to Fixed Charges
12.1 Pro Forma Computation of Ratio of Earnings to Fixed Charges
23.2 Consent of Ernst & Young for the Company
23.3 Consent of Arthur Andersen for Molmec