1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VENTURE HOLDINGS COMPANY LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 3714 38-3470015
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
33662 JAMES J. POMPO DRIVE
FRASER, MICHIGAN 48026
810-294-1500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES E. BUTLER, JR.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
VENTURE HOLDINGS COMPANY LLC
33662 JAMES J. POMPO DRIVE
FRASER, MICHIGAN 48026
810-294-1500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
FREDRICK M. MILLER, ESQ. PAUL LIEBERMAN, ESQ.
DYKEMA GOSSETT PLLC PAUL LIEBERMAN, P.C.
400 RENAISSANCE CENTER 1471 S. WOODWARD AVENUE, SUITE 250
DETROIT, MICHIGAN 4243-1668 BLOOMFIELD HILLS, MICHIGAN 48302
(313) 568-6975 (248)335-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
11% Senior Notes Due 2007....... $125,000,000 100% $125,000,000 $34,750
- --------------------------------------------------------------------------------------------------------------------------------
12% Senior Subordinated Notes
Due 2009...................... $125,000,000 100% $125,000,000 $34,750
- --------------------------------------------------------------------------------------------------------------------------------
Guarantees of 11% Senior Notes
Due 2007...................... (2) (2) (2) (2)
- --------------------------------------------------------------------------------------------------------------------------------
Guarantees of 12% Senior
Subordinated Notes Due 2009... (2) (2) (2) (2)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
(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 Notes or the Senior Subordinated Notes registered
hereby.
------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
TABLE OF ADDITIONAL REGISTRANTS
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
EXACT NAME OF GUARANTOR REGISTRANT JURISDICTION OF PRIMARY STANDARD INDUSTRIAL
AS SPECIFIED IN ITS CHARTER INCORPORATION IRS EMPLOYER IDENTIFICATION NO. CLASSIFICATION CODE NUMBER
--------------------------------------------------------------------------------------------------------------------
Vemco, Inc. Michigan 38-2737797 3714
--------------------------------------------------------------------------------------------------------------------
Venture Industries Corporation Michigan 38-2034680 3714
--------------------------------------------------------------------------------------------------------------------
Venture Mold & Engineering
Corporation Michigan 38-2556799 3714
--------------------------------------------------------------------------------------------------------------------
Venture Leasing Company Michigan 38-2777356 3714
--------------------------------------------------------------------------------------------------------------------
Vemco Leasing, Inc. Michigan 38-2777324 3714
--------------------------------------------------------------------------------------------------------------------
Venture Holdings Corporation Michigan 38-2793543 3714
--------------------------------------------------------------------------------------------------------------------
Venture Service Company Michigan 38-3024165 3714
--------------------------------------------------------------------------------------------------------------------
Experience Management LLC Michigan 38-3382308 3714
--------------------------------------------------------------------------------------------------------------------
Venture Europe, Inc. Michigan 38-3464213 3714
--------------------------------------------------------------------------------------------------------------------
Venture EU Corporation Michigan 38-3470019 3714
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
3
SUBJECT TO COMPLETION, DATED JULY 9, 1999
PROSPECTUS
VENTURE HOLDINGS COMPANY LLC [VENTURE LOGO]
OFFER TO EXCHANGE
11% SENIOR NOTES DUE 2007 12% SENIOR SUBORDINATED NOTES DUE 2009
FOR ALL OF ITS FOR ALL OF ITS OUTSTANDING
OUTSTANDING AND 12% SENIOR SUBORDINATED NOTES DUE 2009
11% SENIOR NOTES DUE 2007
TERMS OF THE EXCHANGE OFFER
- Expires 5:00 p.m. New York City time, , 1999, unless
extended.
- All Outstanding Notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of the Outstanding Notes may be withdrawn any time prior to the
expiration of the Exchange Offer.
- Not subject to any condition, other than that the Exchange Offer not
violate applicable law or any applicable interpretation of the Staff of
the Securities and Exchange Commission.
- The Company will not receive any proceeds from the Exchange Offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- The terms of the Exchange Notes and the Outstanding Notes are
substantially identical, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes.
- There is no existing market for the Exchange Notes, and the Company does
not intend to apply for their listing on any securities exchange.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
PRIOR TO TENDERING THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
July 9, 1999
4
THE PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT CONTAINED
IN OR DELIVERED WITH THE PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM JAMES E. BUTLER, EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, 33662 JAMES J. POMPO DRIVE, FRASER, MICHIGAN 48026, TELEPHONE
NUMBER 810-294-1500. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY 1999.
TABLE OF CONTENTS
PAGE
----
Summary..................................................... 1
Risk Factors................................................ 18
The Exchange Offer.......................................... 28
The Acquisition............................................. 36
Use of Proceeds............................................. 36
Capitalization.............................................. 38
Unaudited Pro Forma Financial Statements.................... 39
Selected Consolidated Financial Data of Venture............. 49
Selected Consolidated Financial Data of Peguform............ 51
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 53
Quantitative and Qualitative Disclosures About Market
Risk...................................................... 63
Business.................................................... 64
Management.................................................. 86
Stock Ownership............................................. 90
Certain Transactions........................................ 90
Description of Certain Indebtedness......................... 94
Description of Exchange Notes............................... 96
Certain U.S. Federal Income Tax Considerations.............. 147
Plan of Distribution........................................ 151
Legal Matters............................................... 151
Experts..................................................... 152
Index to Consolidated Financial Statements.................. F-1
i
5
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements regarding, among other
things, our financial condition and business strategy. We have based these
forward-looking statements on our current expectations and projections about
future events. While we believe these expectations and projections are
reasonable, such forward-looking statements are inherently subject to risks,
uncertainties and assumptions about us, including, among other things:
- Our substantial leverage;
- Our ability to service our debt;
- Our ability to properly integrate our acquisitions;
- International, national and local general economic and market conditions;
- Demographic changes;
- The size and growth of the automobile market or the plastic automobile
component market;
- Our ability to sustain, manage or forecast our own growth;
- The size, timing and mix of purchases of our products;
- New product development and introduction;
- Existing government regulations and changes in, or the failure to comply
with, government regulations;
- Adverse publicity;
- Our dependence upon original equipment manufacturers;
- Liability and other claims asserted against us;
- Competition;
- The loss of significant customers or suppliers;
- Work stoppages and other labor relations matters;
- Fluctuations and difficulty in forecasting operating results;
- Changes in business strategy or development plans;
- Business disruptions;
- Product recalls;
- Warranty costs;
- The ability to attract and retain qualified personnel;
- The ability to protect technology;
- Retention of earnings;
- Control and the level of affiliated transactions; and
- Other factors referenced in this prospectus.
ii
6
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
EXCHANGE RATES
When we refer to "dollars," "US$," or "$," we mean United States dollars.
When we refer to "German Marks" or "DEM," we mean German Marks. Except as we say
otherwise herein, conversion of German Marks have been translated to United
States dollars in the financial statements and other information we have
included in this prospectus at the rate of DEM 1.6767 per United States dollar,
the Noon Buying Rate (as defined) as of December 31, 1998. You should not
interpret these conversions as expectations that the German Mark amounts
actually represent such United States dollar amounts or could be converted into
United States dollar amounts at the rates indicated or used, or at any other
rates.
Our debt structure may cause us to encounter currency or exchange risks.
Any devaluation of any local currency used by us against the United States
dollar may have an adverse effect on us, which may be material. See "Risk
Factors -- Substantial Foreign Operations."
The following table provides the German Mark exchange rate, set forth in
DEMs per dollar, solely for your convenience. We do not represent that the DEM
amounts shown in this prospectus could be converted into United States dollars
at such rate or any other rate.
DEMS PER UNITED STATES DOLLAR
---------------------------------------------
YEAR/PERIOD
CALENDAR PERIOD END HIGH LOW AVERAGE(1)
- --------------- ----------- ------ ------ ----------
1997....................................... 1.7987 1.8905 1.5380 1.7347
1998....................................... 1.6767 1.8565 1.5872 1.7597
1999 (through May 28, 1999)................ 1.8680 1.8774 1.6524 1.7800
- -------------------------
(1) Average of the noon buying rate in New York City for cable transfers in
DEMs, as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate"), during the period. On May 28, 1999, the Noon
Buying Rate with respect to the DEM was $1.00 = 1.8680 DEM.
iii
7
SUMMARY
On May 28, 1999, Venture Holdings Trust and two of its subsidiaries,
Venture Beteiligungs GmbH and Venture Verwaltungs GmbH, acquired Peguform GmbH
(the "Acquisition") for a purchase price of DEM 850 million (approximately
$455.0 million as of May 28, 1999), subject to adjustments. The purchase price
was funded with the proceeds of the sale of the Outstanding Notes together with
borrowings under the new senior credit facility provided to Venture Holdings
Trust by a syndicate of bank lenders (the "New Credit Agreement").
Following the closing of the offering of the Outstanding Notes on May 27,
1999, Venture Holdings Trust effected a Trust Contribution (as defined in the
indentures governing the Outstanding Notes) by contributing its assets,
including the capital stock of the guarantor subsidiaries owned by it (other
than the membership interest in Venture Holdings Company LLC, a wholly-owned
subsidiary of the Trust) to Venture Holdings Company LLC, which assumed all of
Venture Holdings Trust's obligations under the Outstanding Notes and the
indentures, and Venture Holdings Trust was released from such obligations.
This summary highlights the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
It may not contain all of the information that you should consider. You should
carefully consider the matters discussed under the caption "Risk Factors." As
used in this Prospectus, unless otherwise stated, the term (1) "Issuer" refers
to Venture Holdings Trust prior to the Trust Contribution and Venture Holdings
Company LLC, as successor to Venture Holdings Trust, after the Trust
Contribution; (2) "Trust" refers to Venture Holdings Trust; (3) "Venture" refers
to the Issuer and its subsidiaries prior to the Acquisition; (4) "Peguform"
refers to Peguform GmbH and its subsidiaries prior to the Acquisition; and (5)
when describing the business of Venture and Peguform, "Company," "our," "us,"
and "we" refer to Venture and Peguform after the Acquisition.
THE EXCHANGE OFFER
On May 27, 1999, we privately placed $125.0 million of 11% Senior Notes due
2007 and $125.0 million of 12% Senior Subordinated Notes due 2009. The
Outstanding Notes are, and the Exchange Notes will be, guaranteed by all of our
wholly-owned domestic subsidiaries.
Simultaneously with the private placement, the subsidiary guarantors and
the Issuer entered into a Registration Rights Agreement with the initial
purchasers of the Outstanding Notes. Under the Registration Rights Agreement, we
must deliver this Prospectus to the holders of the Outstanding Notes and must
complete the Exchange Offer on or before December 8, 1999. If the Exchange Offer
does not take place on or before December 8, 1999, we must pay liquidated
damages to the holders of the Outstanding Notes until the Exchange Offer is
completed. You may exchange your Outstanding Notes for Exchange Notes with
substantially the same terms in this Exchange Offer. You should read the
discussion under the heading "Summary of Terms of the Exchange Notes" and
"Description of Exchange Notes" for further information regarding the Exchange
Notes.
We believe that holders of the Outstanding Notes may resell the Exchange
Notes without complying with the registration and prospectus delivery provisions
of the Securities Act of 1933, if certain conditions are met. You should read
the discussion under the headings "Summary of the Exchange Offer" and "The
Exchange Offer" for further information regarding the Exchange Offer and resales
of the Exchange Notes.
1
8
THE COMPANY
We are a leading worldwide full-service supplier of high quality molded and
painted plastic parts for automotive original equipment manufacturers, commonly
known as OEMs, and other direct, or "Tier I," suppliers to the OEMs. We rank
among the largest designers and manufacturers of interior and exterior plastic
components and systems to the North American and European automotive markets.
Exterior products include such items as front and rear bumper fascias and
systems, body side moldings, hatchback doors, fenders, grille opening panels and
reinforcements, farings, wheel lips, spoilers and large body panels such as
hoods, sunroofs, doors and convertible hardtops. Interior products include
instrument panel systems, door panels, airbag covers, side wall trim,
garnishment molding systems and consoles. On a pro forma basis for the twelve
months ended December 31, 1998, our net sales totaled $1,933.5 million and our
Adjusted EBITDA (as defined) totaled $195.1 million, and on a pro forma basis
for the three months ended March 31, 1999 (three months ended December 31, 1998
for Peguform), our net sales totaled $511.7 million and our EBITDA totaled $49.8
million.
Our principal customers include every major North American OEM, eleven of
the twelve major European OEMs, several major Japanese OEMs, and leading Tier I
suppliers, as detailed below:
TIER I
OEMS SUPPLIERS
---- ---------
AB Volvo Ford Motor Company PSA Peugeot Citroen Autoliv,
S.A.
Adam Opel AG General Motors Renault SA TRW Inc.
Corporation
Audi AG Isuzu Motors Limited Seat, S.A.
Bayerische Motoren Mitsubishi Motors Skoda Automobilova
Werke AG (BMW) Corporation
DaimlerChrysler AG Nissan Motor Co., Ltd Volkswagen AG
Porsche AG
We are a full-service supplier and an industry leader in manufacturing
plastic components, modules and systems and in applying new design and
engineering technology to develop innovative products, create new applications
and reduce product development time. We, and our affiliated companies, have the
capability to provide our customers state-of-the-art design and advanced
engineering services 24 hours a day around the world. We operate 57 facilities
in 9 countries, including the United States, Canada, Germany, Spain, France,
Hungary, the Czech Republic, Mexico, and the Netherlands, and expect to start
operations in Brazil in the third quarter of 1999. Our comprehensive
manufacturing capabilities include custom injection molding, automated painting
and assembly, and material and product testing. We also have extensive tool
making capabilities. Our engineering focuses on anticipating actual production
issues and integrating part design with tool design to create an efficient
manufacturing process. We refer to this emphasis as "design for manufacture."
We primarily emphasize the design and manufacture of components and
integrated systems, and manufacture those components and systems as a
sole-source supplier. We currently supply components or systems on over 150
models, including 4 out of 5 of the top selling models in both the United States
and Europe. We supply components for many popular models, such as the Volvo V40
and S40; Audi A4 and TT; BMW 3 Series and 5 Series; DaimlerChrysler A-Class,
"LH" cars (Chrysler LHS, Concorde, 300M and Dodge Intrepid), Dakota and Durango
trucks and "JA" cars (Cirrus, Stratus and Breeze); Ford F-series truck,
Explorer, Expedition, Mustang, Navigator and Windstar; Chevrolet Corvette,
General Motors "M" vans (Astro and Safari), Yukon, Tahoe,
2
9
Suburban, Grand Am, Grand Prix and GMC and Chevrolet full size vans (Express and
Savana); Porsche 986 and 996; Peugeot 206; Citroen Xsara; Renault Twingo; Seat
Ibiza and Cordoba; Skoda Felicia and Octavia; and Volkswagen Golf, Passat and
Bora. We believe that the depth of our product mix, the diversity of models for
which we are a supplier and our geographic coverage reduce our risks associated
with historical downturns in the automotive industry.
OUR INDUSTRY
The automotive industry has been, and continues to be, significantly
influenced by several trends which we believe will enhance our strategic
position and growth prospects:
- INCREASED OUTSOURCING BY OEMS. In an effort to reduce costs, speed
product design and simplify manufacturing, OEMs have increasingly
outsourced the manufacture of many components and integrated systems
which were previously manufactured internally. Suppliers such as
ourselves have benefited from this outsourcing trend as the aggregate
number and value of components and integrated systems which we
manufacture have increased dramatically.
- CONSOLIDATION OF SUPPLIER BASE BY OEMS. Since the 1980s, OEMs have been
reducing the number of suppliers that may bid for business. As a result
of this trend, the OEMs are focusing on the development of long-term,
sole-source relationships with suppliers who can provide more complex
components and integrated systems on a just-in-time basis, while
maintaining strict, high quality standards. These requirements are
accelerating the trend toward consolidation of the OEMs' supplier base,
as those suppliers who lack the capital or production expertise to meet
the OEMs' needs either exit the business or are merged with larger
suppliers.
- INCREASED EMPHASIS ON PROGRAM MANAGEMENT AND INTEGRATED SYSTEMS. In
conjunction with the supplier base consolidation, OEMs are transitioning
from merely purchasing components to placing responsibility for design,
engineering and manufacturing of full component systems on their
preferred Tier I suppliers. These expanded requirements can best be
addressed by full-service suppliers such as ourselves with sufficient
technological and manufacturing resources to meet such demands.
- INCREASING UTILIZATION OF PLASTIC. OEMs have continued to increase the
use of plastics in their vehicles due to its lighter weight, greater
design flexibility and cost advantage on many models. According to
industry data, the average plastic content per passenger vehicle has
increased from approximately 222 pounds in 1987 to approximately 242
pounds in 1997, and is projected to grow to approximately 266 pounds per
vehicle by 2007. We believe our early involvement as a full-service
supplier to OEMs of plastic components and integrated systems, as well as
our extensive plastics manufacturing technologies, position us to benefit
from the expanded utilization of plastics.
- GLOBALIZATION OF THE OEM SUPPLIER BASE. OEMs are increasingly seeking to
identify preferred suppliers that can meet their needs on a global scale
and not just regionally. To facilitate global expansion by such preferred
suppliers, in certain instances OEMs are committing to sole-source
relationships to enhance the economic viability of new production
facilities. Such relationships also facilitate the efforts of OEMs to
develop certain models for the world automotive market. Our recent
establishment of facilities in Mexico and Brazil will further augment our
already significant capabilities to design and manufacture plastic
components and systems worldwide.
3
10
THE ACQUISITION
Venture has, for many years, been a key supplier to North American OEMs.
Venture's extensive design and manufacturing expertise, coupled with strategic
acquisitions, has enabled it to diversify its customer base and technological
capabilities, such that Venture has become a leading participant in the supply
of molded and painted interior and exterior plastic components and systems to
North American OEMs. For the five year period ended December 31, 1998, Venture's
net sales grew from $205.6 million to $645.2 million, a compounded annual growth
rate ("CAGR") of 25.7%, and its EBITDA grew from $40.1 million to $94.2 million,
a CAGR of 18.6%. In 1996, Venture expanded its customer relationships and
technological capabilities through strategic acquisitions of Bailey Corporation
("Bailey") and of certain assets of AutoStyle Plastics, Inc. ("AutoStyle" and,
together with Bailey, the "1996 Acquisitions").
A key element of Venture's business strategy has been to increase its
global presence to meet its OEM customers' global needs. Venture considers the
Acquisition an attractive opportunity to further this strategy. Peguform has
been a leading international designer and manufacturer of complete interior
modules, door panels and dashboards and of exterior modules and other structural
plastic body parts, including bumper fascias and hatchback doors. As a result of
the Acquisition, we now operate manufacturing facilities in Germany, Spain,
France and the Czech Republic. In addition, Peguform had recently followed
certain of its key OEM customers into Mexico and Brazil. Our manufacturing
network is enhanced by 9 module centers across Europe, serving as final assembly
units located directly at, or very close to, selected customers' car assembly
plants. Peguform's proven ability to gain development orders for new and
successor models is enhanced by its product engineering efforts, including such
innovations as thermoplastic bumpers, a proprietary slush molding process, a
thermoplastic hatchback door and painting technologies such as electro-static
painting and the use of water-based paint. For the twelve-months ended December
31, 1998, Peguform had net sales of $1,260.6 million.
We now have an established and significant presence in Europe as a result
of the Acquisition, which complements our strengths in North America, giving us
the ability to service existing OEM customers much more broadly than either
Venture or Peguform could individually. Additionally, we believe that the
Acquisition enhances the businesses of both Venture and Peguform in additional
ways, representing mutually beneficial synergies that go beyond the expansion of
geographic reach, including the following:
- EXPANDED ENGINEERING CAPABILITIES;
- COMPLEMENTARY TECHNOLOGY;
- STRENGTHENED AND EXPANDED CUSTOMER RELATIONSHIPS; AND
- OPERATIONAL EFFICIENCIES.
COMPETITIVE STRENGTHS
We believe we have the following key competitive strengths, which enhance
our ability to compete successfully in our industry:
- LEADING MARKET POSITION. We are among the largest suppliers of interior
and exterior plastic components and systems to the North American and
European automotive markets. We currently supply components or systems on
over 150 models, including 4 out of 5 of the top selling models in both
the United States and Europe. We believe that OEMs increasingly favor
large, multi-national, integrated suppliers with whom they can establish
global strategic
4
11
relationships. These strategic relationships require suppliers to be able
to offer their customers worldwide manufacturing, and design and
engineering resources.
- DIVERSIFIED GLOBAL CUSTOMER BASE. Our principal customers include every
major North American OEM, 11 of the 12 major European OEMs, several major
Japanese OEMs, and leading Tier I suppliers. As a result, we are less
dependent on revenues from any single geographic market than competitors
that are less diversified. We believe the geographic breadth of our
customer base and our full-service capabilities position us to further
benefit from the current consolidation and globalization trends in the
automotive industry.
- WORLDWIDE FULL-SERVICE PROGRAM MANAGEMENT CAPABILITIES. As OEMs have
focused increasingly on shortening vehicle design and production cycles
and reducing design and production costs, suppliers who have the ability
to cost-effectively take an idea or design from concept to mass
production ("art to part") are being involved at the initial stages of
the process. We are successful in meeting the increased demands by OEMs
for their suppliers to provide full-service program management because of
our expertise in design and engineering, tooling, and multiple
manufacturing processes. As a result, we have increasingly been selected
as a sole-source supplier for vehicle components and integrated systems.
We believe that the evolution of the OEM relationship into strategic
partnerships provides a significant advantage to us because of our
ability to meet a customer's art to part needs on a global basis.
- MULTIPLE EXTERIOR AND INTERIOR PLASTIC TECHNOLOGIES. We believe that we
are one of only a small number of automotive suppliers that can provide
its customers with both full-service program management capability and a
wide array of alternative plastic molding and painting technologies on a
global basis. We possess the latest technologies associated with
thermoplastic injection molding, compression molding, reaction injection
molding ("RIM"), slush molding, sheet molding compounds, composite
technologies, and water-based paints. By possessing a wide range of
plastic design and manufacturing technologies, we are able to distinguish
ourselves from our competition by offering the process that will best
meet the customers' needs, while often lowering design and production
costs and shortening the product development cycle.
- JUST-IN-TIME/SEQUENTIAL SHIPPING CAPABILITIES. As OEMs have moved to
just-in-time inventory management, the timeliness and reliability of
shipments by their suppliers have become increasingly important. To
service our customers more effectively, we utilize just-in-time
manufacturing and sourcing systems, which enable us to meet our
customers' requirements for on-time deliveries while minimizing the
carrying levels of inventory. Our international production facilities and
module centers are strategically located close to our OEM customers'
facilities. We also offer our customers sequential shipping, in which
components are sent to the OEMs in the specific order in which vehicles
are to be assembled, based on as little as two hours lead time. We
believe we have established a reputation as a highly reliable and timely
supplier able to meet our customers' demanding delivery requirements.
- EXPERIENCED MANAGEMENT TEAM. We believe our management's long history of
mutually successful relationships with a wide variety of OEM and Tier I
customers will provide a competitive advantage as the industry trends of
consolidation, outsourcing and globalization continue. Our management
team is highly experienced and has significant expertise in the North
American, European and other automotive markets. We have gained
additional experience in global operations through affiliate companies of
Venture, including operations in Australia, Asia and Africa, all of which
share the Venture name. As evidenced by the 1996 Acquisitions, our
management team has a proven track record of successfully assimilating
and integrating large, strategic acquisitions.
5
12
BUSINESS STRATEGY
Our business strategy is to use our competitive strengths to further our
position as a leading automotive supplier. The principal components of this
strategy are as follows:
- INVEST IN LEADING-EDGE DESIGN, ENGINEERING AND MANUFACTURING
TECHNOLOGIES. As OEMs worldwide continue to increasingly outsource
manufacturing of components and integrated systems, they have placed
greater reliance on the design and engineering capabilities of their
supplier base. We have made a substantial commitment to new product
technology and design, including establishing an Advanced Engineering
Center and offering the capability to provide 24-hour-a-day global design
and engineering services to our customers. The Advanced Engineering
Center integrates the use of CAD/CAM and utilizes the latest optical
design technology to rapidly and cost effectively replicate and modify
existing designs, as well as to design new prototypes, using a
proprietary reverse engineering process, licensed from an affiliate,
called reverse engineering automated process for rapid prototyping
("REAP"). We also believe it is highly important to be able to offer a
broad range of manufacturing processes and technologies to our customers
for the production of a wide array of plastic components and systems.
Both the 1996 Acquisitions and the Acquisition fit this strategy by
enhancing our ability to provide customers with multiple exterior and
interior technologies, specifically by adding expertise in sheet molding
compounds, slush molding and composite technologies, as well as
sophisticated painting processes. We intend to continue to invest
significantly in our design, engineering and manufacturing capabilities
in order to meet our customers' needs for innovation, quality,
reliability, lower costs and reduced lead times. We believe our continued
ability to design, engineer, tool and manufacture highly engineered
components, modules and systems will provide additional opportunities to
supply an increasing number of products to existing customers and expand
our customer base.
- CONTINUE TO DEVELOP AND MANUFACTURE HIGH QUALITY PRODUCTS. We believe we
maintain an excellent reputation with the OEMs for providing high quality
products and customer service at competitive prices. Our reputation is
exemplified by our receipt of several major quality awards from our OEM
customers in both North America and Europe. Quality levels are currently
being standardized across OEMs through the QS-9000 program which is
expected to lower the cost of maintaining separate quality programs. All
of our manufacturing, tooling and design facilities historically operated
by Venture, and nine manufacturing facilities previously operated by
Peguform are QS-9000 certified.
- EMPHASIZE CONTINUOUS IMPROVEMENT PROCESSES. Venture follows "lean
manufacturing" and "Kaizen," or continuous improvement, philosophies that
seek to identify and eliminate waste in our own operations and in those
of our customers and suppliers. These philosophies emphasize employee
involvement in all phases of our operations by (1) empowering employees
at all levels with responsibility for their work, which leads to a
quicker identification of production issues; (2) forming cross-functional
teams to investigate opportunities for process improvements; and (3)
rewarding employee participation and involvement through financial
incentives. We have successfully implemented these philosophies in the
1996 Acquisitions, and are implementing these philosophies throughout
Peguform.
- MAXIMIZE OPERATING EFFICIENCIES AND LOWER COST STRUCTURE AT ACQUIRED
COMPANIES. We believe there are a number of areas in which we can achieve
annual cost savings related to the Acquisition. We have successfully
effected significant cost savings in past acquisitions. With respect to
the 1996 Acquisitions, we have been able to employ our lean manufacturing
process, which enables us to grow our business with existing management
and assets, and less capital expenditures. These operational efficiencies,
combined with our tooling and design capabilities, have helped us to
achieve substantial cost savings. We expect the principal components of
cost
6
13
savings related to the recent Acquisition will be in the areas of material
and tooling costs, as further described below:
Materials Cost Savings. We believe there are many opportunities to
reduce materials costs in areas such as raw materials, paint and other
materials, due to the similarities in plastic components manufactured by
Venture and Peguform. In some cases, these materials are currently
purchased from the same suppliers. Additionally, we expect to gain
increased purchasing leverage due to the Acquisition, resulting in more
favorable materials costs throughout our entire operation. As a result
of our analysis of the same or comparable materials, and their
respective costs and volumes at Venture and Peguform, we believe we can
achieve approximately $15.0 million in materials cost savings in our
first full year of operations following the Acquisition.
Tooling Cost Savings. Peguform has historically outsourced all of its
tooling requirements. Venture has consistently invested in maintaining a
sophisticated, in-house tooling capability. We believe Venture's tooling
capabilities not only provide a competitive advantage, but also
typically result in lower tooling costs than would otherwise be the case
if tooling were outsourced to other tooling manufacturers. We and our
affiliated companies currently have capacity to manufacture in-house a
significant portion of the tooling requirements which Peguform has
traditionally outsourced.
Other Operating Efficiencies. In addition to materials and tooling cost
savings, we believe there are other opportunities to improve Peguform's
cost structure. Some of these opportunities include elimination of
redundant administrative expense items, shared design, engineering and
program management resources, manufacturing efficiencies and production
of certain components in-house that are currently outsourced by
Peguform.
- STRATEGIC EXPANSION. We are committed to continue our strategic,
geographic expansion in order to serve our customer base globally. In
addition, we expect to make selective acquisitions and investments, or
enter into strategic alliances, to broaden our service offerings and
further enhance our systems integration capability. We believe that the
consolidation of the automotive supplier base and geographic expansion of
our customers will present additional opportunities for growth.
SUMMARY OF THE EXCHANGE OFFER
REGISTRATION RIGHTS
AGREEMENT..................... We sold the Outstanding Notes on May 27, 1999
to the initial purchasers -- Banc One Capital
Markets, Inc. and Goldman, Sachs & Co. The
initial purchasers then sold the Outstanding
Notes to institutional investors.
Simultaneously with the initial sale of the
Outstanding Notes, we entered into a
Registration Rights Agreement, which provides
for the Exchange Offer.
You may exchange your Outstanding Notes for
Exchange Notes, which have substantially
identical terms. The Exchange Offer satisfies
your rights under the Registration Rights
Agreement. After the Exchange Offer is over,
you will not be entitled to any exchange or
registration rights with respect to your
Outstanding Notes.
THE EXCHANGE OFFER............ We are offering to exchange $125.0 million
total principal amount of our 11% Senior Notes
due 2007 and $125.0 million total principal
amount of our 12% Senior Subordinated Notes
7
14
due 2009, which have been registered under the
Securities Act, for your 11% Outstanding Senior
Notes due 2007 or your 12% Outstanding Senior
Subordinated Notes due 2009 sold in the May
1999 private offering. To exchange your
Outstanding Notes, you must properly tender
them, and we must accept them. We will exchange
all Outstanding Notes that you validly tender
and do not validly withdraw. We will issue
registered Exchange Notes at or promptly after
the end of the Exchange Offer.
RESALES....................... We believe that you can offer for resale,
resell and otherwise transfer the Exchange
Notes without complying with the registration
and prospectus delivery requirements of the
Securities Act if:
- you acquire the Exchange Notes in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the Exchange Notes;
and
- you are not an "affiliate" of ours, as
defined in Rule 405 of the Securities Act.
If any of these conditions is not satisfied and
you transfer any Exchange Note without
delivering a proper prospectus or without
qualifying for a registration exemption, you
may incur liability under the Securities Act.
We do not assume or indemnify you against such
liability.
Each broker-dealer acquiring Exchange Notes for
its own account in exchange for Outstanding
Notes, which it acquired through market-making
or other trading activities, must acknowledge
that it will deliver a proper prospectus when
any Exchange Notes are transferred. A
broker-dealer may use this Prospectus for an
offer to resell, a resale or other retransfer
of the Exchange Notes.
EXPIRATION DATE............... The Exchange Offer expires at 5:00 p.m., New
York City time, , 1999, unless
we extend the expiration date.
CONDITIONS TO THE EXCHANGE
OFFER......................... The Exchange Offer is subject to customary
conditions, some of which we may waive.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES........... We issued the Outstanding Notes as global
securities. When the Outstanding Notes were
issued, we deposited them with The Huntington
National Bank, as book-entry depositary. The
Huntington National Bank issued a
certificateless depositary interest in each
note, which represents a 100% interest in the
notes, to The Depositary Trust Company ("DTC").
Beneficial interests in the Outstanding Notes,
which are held by direct or indirect
participants in DTC through the certificateless
depositary interest, are shown on records
maintained in book-entry form by DTC.
8
15
You may tender your Outstanding Notes through
book-entry transfer in accordance with DTC's
Automated Tender Offer Program ("ATOP"). To
tender your Outstanding Notes by a means other
than book-entry transfer, a Letter of
Transmittal must be completed and signed
according to the instructions contained in the
letter. The Letter of Transmittal and any other
documents required by the Letter of Transmittal
must be delivered to the Exchange Agent by
mail, facsimile, hand delivery or overnight
courier. In addition, you must deliver the
Outstanding Notes to the Exchange Agent or
comply with the procedures for guaranteed
delivery. See "The Exchange Offer -- Procedures
for Tendering Outstanding Notes" for more
information.
Do not send Letters of Transmittal and
certificates representing Outstanding Notes to
the Company. Send these documents only to the
Exchange Agent. See "The Exchange
Offer -- Exchange Agent" for more information.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If you are a beneficial owner whose Outstanding
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and wish to tender your Outstanding
Notes in the Exchange Offer, please contact the
registered holder as soon as possible and
instruct it to tender on your behalf and comply
with our instructions set forth elsewhere in
this Prospectus.
WITHDRAWAL RIGHTS............. You may withdraw the tender of your Outstanding
Notes at any time before 5:00 p.m. New York
City time on , 1999, unless we
extend the date.
APPRAISAL OR DISSENTERS'
RIGHTS........................ Holders of Outstanding Notes do not have any
appraisal or dissenters' rights in the Exchange
Offer. If you do not tender your Outstanding
Notes or the Company rejects your tender, you
will not be entitled to any further
registration rights under the Registration
Rights Agreement, except under limited
circumstances. However, your notes will remain
outstanding and entitled to the benefits of the
Indentures. Holders should read the discussion
under the heading "Risk Factors -- Consequences
of a Failure to Exchange Outstanding Notes" for
further information.
FEDERAL INCOME TAX
CONSIDERATIONS................ The exchange of notes is not a taxable exchange
for United States federal income tax purposes.
You will not recognize any taxable gain or loss
or any interest income as a result of the
exchange. For additional information regarding
federal income tax considerations, you should
read the discussion under the heading "Certain
United States Federal Income Tax Consequences."
USE OF PROCEEDS............... We will not receive any proceeds from the
issuance of the Exchange Notes, and we will pay
the expenses of the Exchange Offer.
9
16
EXCHANGE AGENT................ The Huntington National Bank is serving as the
Exchange Agent in the Exchange Offer. The
Exchange Agent's address, and telephone and
facsimile numbers are listed in the section of
this Prospectus entitled "The Exchange
Offer -- Exchange Agent" and in the Letter of
Transmittal.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes, except that the Exchange Notes will be registered
under the Securities Act. As a result, the Exchange Notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damage provisions contained in the Outstanding Notes. The Exchange
Notes represent the same debt as the Outstanding Notes. Both the Outstanding
Notes and the Exchange Notes are governed by the same Indentures.
TOTAL AMOUNT OF NOTES......... $125.0 million in principal amount of 11%
Senior Notes due 2007 and $125.0 million in
principal amount of 12% Senior Subordinated
Notes due 2009.
MATURITY...................... June 1, 2007 with respect to the Senior
Exchange Notes and June 1, 2009 with respect to
the Senior Subordinated Exchange Notes.
INTEREST...................... Annual rate -- 11% for the Senior Exchange
Notes.
Annual rate -- 12% for the Senior Subordinated
Exchange Notes.
Payment frequency -- every 6 months on June 1
and December 1.
First payment -- December 1, 1999.
ISSUER........................ Venture Holdings Company LLC, as successor to
Venture Holdings Trust.
GUARANTORS.................... Each of the following wholly owned domestic
subsidiaries of the Company: Vemco, Inc.; Vemco
Leasing, Inc.; Venture Industries Corporation;
Venture Holdings Corporation; Venture Leasing
Company; Venture Mold & Engineering
Corporation; Venture Service Company;
Experience Management LLC; Venture Europe,
Inc.; and Venture EU Corporation.
RANKING....................... The Senior Exchange Notes are general unsecured
debts. They rank senior in right of payment to
all of our subordinated debts, including the
Senior Subordinated Exchange Notes. The Senior
Exchange Notes will rank equally in right of
payment with all of our current and future
unsecured senior indebtedness. As of May 31,
1999, the Outstanding Senior Notes were
effectively subordinated to $395.5 million of
secured debt of the Company and the guarantors.
10
17
The Senior Subordinated Exchange Notes are
senior subordinated debts. They rank behind all
of our current and future senior indebtedness,
and equally with all of our current and future
subordinated indebtedness. As of May 31, 1999,
the Outstanding Senior Subordinated Notes were
subordinated to $725.5 million of senior debt
of the Company and the guarantors, including
the Outstanding Senior Notes.
In addition, the Exchange Notes will be
effectively subordinated to all of the debt of
non-guarantor subsidiaries.
OPTIONAL REDEMPTION........... On or after June 1, 2003 we may redeem some or
all of the Senior Exchange Notes at any time at
the redemption prices listed in the section
"Description of Exchange Notes" under the
heading "Optional Redemption." On or after June
1, 2004 we may redeem some or all of the Senior
Subordinated Exchange Notes at any time at the
redemption prices listed in that section.
Before June 1, 2002, we may redeem up to 35% of
the Exchange Notes with the proceeds of certain
offerings of equity as described in
"Description of Exchange Notes -- Optional
Redemption."
MANDATORY OFFER TO
REPURCHASE.................... If we sell certain assets or experience
specific kinds of changes of control, we must
offer to repurchase the Exchange Notes at the
prices listed in the section "Description of
Exchange Notes."
BASIC COVENANTS OF
INDENTURES.................... We issued the Outstanding Notes and we will
issue the Exchange Notes under separate
indentures, with The Huntington National Bank
as trustee. The indentures, among other things,
restrict our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other transactions;
and
- sell certain assets or merge with or into
other companies.
For more details, see "Description of Exchange
Notes."
USE OF PROCEEDS............... We will not receive any cash proceeds in the
Exchange Offer.
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with an investment in the Notes, see "Risk Factors."
11
18
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL AND OPERATING DATA OF THE
COMPANY
The following table sets forth summary unaudited consolidated pro forma
financial and operating data of the Company. The summary unaudited consolidated
pro forma statement of operations and other data for the year ended December 31,
1998 give effect to the Acquisition, the offering of the Outstanding Notes and
the New Credit Agreement, as if they had occurred as of January 1, 1998. The
summary unaudited consolidated pro forma balance sheet data as of December 31,
1998 gives effect to the Acquisition, the offering of the Notes and the New
Credit Agreement, as if they had occurred as of such date. The summary unaudited
consolidated pro forma statement of operations and other data for the three
months ended March 31, 1999 give effect to the Acquisition, the offering of the
Outstanding Notes and the New Credit Agreement, as if they had occurred as of
January 1, 1999. The summary unaudited consolidated pro forma balance sheet as
of March 31, 1999 gives effect to the Acquisition, the offering of the
Outstanding Notes and the New Credit Agreement, as if they had occurred as of
such date. The unaudited consolidated pro forma statement of operations does not
include pro forma adjustments for certain non-recurring costs and charges,
consisting of (1) the prepayment charge of $3.9 million on the redemption of our
$78.9 million of 9 3/4% Senior Subordinated Notes (the "1994 Notes") and (2) the
related $1.9 million write-off of deferred financing costs. See "Use of
Proceeds" and "Capitalization." The summary unaudited pro forma financial data
do not purport to represent what the Company's results of operations actually
would have been if the Acquisition had occurred as of such date and are not
necessarily indicative of future operating results or financial position. The
information contained in this table should be read in conjunction with "Selected
Consolidated Financial Data of Venture," "Selected Consolidated Financial Data
of Peguform," "Unaudited Pro Forma Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of Venture and Peguform, including the notes thereto,
appearing elsewhere in this prospectus.
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998(1) 1999(2)
------------ ------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $1,933,452 $ 511,730
Gross profit................................................ 254,903 68,871
Income from operations...................................... 62,078 21,134
Interest expense(3)......................................... 72,726 18,126
Net income (loss) before taxes.............................. (7,284) 3,325
Net income.................................................. 2,224 5,582
OTHER FINANCIAL DATA:
EBITDA(4)................................................... $ 169,003 $ 49,781
Adjusted EBITDA(5).......................................... 195,096 --
Depreciation and amortization............................... 100,253 27,294
Capital Expenditures........................................ 102,377 16,844
SELECTED RATIOS:
Adjusted EBITDA to Interest Expense......................... 2.7x --
Total debt to Adjusted EBITDA............................... 4.5x --
12
19
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998(1) 1999(2)
------------ ------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................................. $ 238,863 $ 248,964
Property, plant and equipment -- net........................ 512,565 508,247
Total assets................................................ 1,302,376 1,307,566
Total debt.................................................. 882,257 875,874
Trust principal(6).......................................... 69,901 78,096
- -------------------------
(1) Operating data for Peguform is based on the 12-month period ended December
31, 1998.
(2) Operating data for Peguform is based on the 3-month period ended December
31, 1998, and balance sheet data for Peguform represents amounts at December
31, 1998.
(3) Represents gross interest expense and does not include interest income of
$3,364 and $317 at Peguform for the 12-months ended and 3-months ended
December 31, 1998, respectively. See "Unaudited Consolidated Pro Forma
Statement of Operations."
(4) EBITDA represents income from operations, net of minority interest, before
deducting taxes (including the Michigan single business tax), depreciation,
amortization, interest and payment to beneficiary in lieu of taxes. EBITDA
is not presented as an alternative to net income, as a measure of operating
results or as an indicator of the Company's performance, nor is it presented
as an alternative to cash flow or as a measure of liquidity, but rather to
provide additional information related to debt service capacity. EBITDA
should not be considered in isolation or 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. EBITDA, while
commonly used, is not calculated uniformly by all companies and should not
be used as a comparative measure without further analysis, nor does EBITDA
necessarily represent funds available for discretionary use. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of liquidity and operating results.
(5) Adjusted EBITDA is EBITDA plus (i) a non-recurring charge of $11,093 at
Peguform related to start-up production costs on the Mercedes A-Class
hatchback program; and (ii) $15,000 of anticipated materials cost savings,
which we believe can be achieved in the first full year of operations after
the Acquisition, based upon management's estimates of materials cost savings
expected from a combination of: (a) increased purchasing volume; (b) taking
advantage of lower cost arrangements for specific materials currently
enjoyed by either Venture or Peguform, and applying such lower costs on a
Company-wide basis by leveraging existing suppliers or alternate suppliers;
and (c) efficiencies expected from a more coordinated purchasing function in
Europe. See "Risk Factors -- Risks Associated with the Acquisition; Ability
to Achieve Anticipated Cost Savings."
(6) Represents amount as adjusted downward for (a) the elimination of Peguform's
stockholders' equity, adjusted by $1,498 for accumulated other comprehensive
income relating to Peguform's minimum pension liability, and (b) the
repayment of the 1994 Notes of $78,940, the pre-payment premium of $3,848
paid to retire the 1994 Notes early and the write-off of $1,866 and $1,777
in unamortized financing costs as of December 31, 1998 and March 31, 1999,
respectively, associated with the repayment of the 1994 Notes.
13
20
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA OF VENTURE
The following table sets forth summary historical financial and operating
data of Venture. The summary income statement data and balance sheet data as of
and for each of the fiscal years in the five-year period ended December 31, 1998
were derived from the audited consolidated financial statements of Venture. The
summary historical financial data for the 3 months ended March 31, 1999 and 1998
have been derived from Venture's unaudited condensed consolidated financial
statements. The information contained in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of Venture,
including the notes thereto, appearing elsewhere in this prospectus.
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN
(DOLLARS IN THOUSANDS) THOUSANDS)
INCOME STATEMENT DATA(1)(2):
Net sales..................................... $244,112 $251,142 $351,777 $624,113 $645,196 $166,612 $165,992
Cost of products sold......................... 199,717 211,262 302,940 521,361 532,809 133,616 133,070
-------- -------- -------- -------- -------- -------- --------
Gross profit.................................. 44,395 39,880 48,837 102,752 112,387 32,996 32,922
Selling, general and administrative expense... 19,200 20,129 26,588 57,217 59,689 14,855 14,270
Payment to beneficiary in lieu of taxes....... 3,405 577 666 472 535 -- --
-------- -------- -------- -------- -------- -------- --------
Income from operations...................... 21,790 19,174 21,583 45,063 52,163 18,141 18,652
Interest expense.............................. 14,345 15,032 19,248 30,182 36,641 7,145 9,479
-------- -------- -------- -------- -------- -------- --------
Net income before extraordinary items and
taxes..................................... 7,445 4,142 2,335 14,881 15,522 10,996 9,173
Net extraordinary loss on early retirement of
debt........................................ -- -- 2,738 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income after extraordinary items.......... 7,445 4,142 (403) 14,881 15,522 10,996 9,173
Tax provision(3).............................. -- -- 336 3,358 1,954 1,465 1,067
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. 7,445 4,142 (739) 11,523 13,568 9,531 8,106
OTHER FINANCIAL DATA:
EBITDA(4)..................................... $ 41,021 $ 37,001 $ 46,123 $ 80,391 $ 94,216 $ 28,336 $ 30,205
Depreciation and amortization................. 14,070 16,068 22,628 32,147 39,320 9,079 10,794
Capital expenditures.......................... 22,798 20,339 64,593 33,012 24,706 8,371 2,688
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................... $ 85,258 $ 74,354 $ 83,404 $125,101 $168,655 $156,076 $178,756
Property, plant and equipment -- net.......... 111,472 116,299 203,975 205,765 200,544 205,529 196,226
Total assets.................................. 234,435 231,602 498,067 524,122 541,315 564,341 550,516
Total debt.................................... 153,118 152,463 299,996 336,188 364,939 357,796 362,656
Trust principal............................... 49,356 53,498 52,759 64,282 77,113 73,813 85,219
- -------------------------
(1) The Issuer operates as a holding company and has no independent operations
of its own. Separate financial statements of the Issuer's subsidiaries have
not been presented because we do not believe that such information would be
material to a decision to exchange your Outstanding Notes.
(2) The results for 1996 include the operations of Bailey from August 26, 1996,
and of AutoStyle from June 3, 1996.
(3) This provision relates solely to Venture Holdings Corporation (which
operates Bailey) and its subsidiaries (see Note 2 above). Other significant
subsidiaries and the Issuer have elected "S" corporation status under the
Internal Revenue Code of 1986, as amended (the "Code") or are limited
liability companies ("LLCs") (taxed as partnerships) and, consequently, do
not incur liability for federal and certain state income taxes.
14
21
(4) EBITDA represents income from operations before deducting taxes (including
the Michigan single business tax), depreciation, amortization, interest and
payment to beneficiary in lieu of taxes. EBITDA is not presented as an
alternative to net income, as a measure of operating results or as an
indicator of Venture's performance, nor is it presented as an alternative to
cash flow or as a measure of liquidity, but rather to provide additional
information related to debt service capacity. EBITDA should not be
considered in isolation or 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. EBITDA, while commonly used, is not
calculated uniformly by all companies and should not be used as a
comparative measure without further analysis, nor does EBITDA necessarily
represent funds available for discretionary use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a discussion of liquidity and operating results.
15
22
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA OF PEGUFORM
The following table sets forth summary historical financial and operating
data of Peguform. The summary income statement data and balance sheet data as of
and for the two year period ended September 30, 1998 were derived from the
audited consolidated financial statements of Peguform. The summary income
statement data and balance sheet data as of and for the three month period ended
December 31, 1997 and 1998 are derived from unaudited financial statements of
Peguform. The information contained in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Peguform, including the
notes thereto, appearing elsewhere in this prospectus.
Solely for the convenience of the readers, the following consolidated
financial statements have been translated to United States dollars at the rate
of DEM 1.6767 per United States dollar, the Noon Buying Rate as of December 31,
1998. The translation should not be construed as a representation that the
amounts shown could be converted into United States dollars at such rate or any
other rate.
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------
1997 1998 1997 1998
----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales............................... $ 992,953 $1,179,518 $263,518 $344,561
Other revenues.......................... 10,567 27,272 754 1,177
---------- ---------- -------- --------
Total revenues.......................... 1,003,520 1,206,790 264,272 345,738
Cost of products sold................... 884,146 1,077,184 241,233 309,789
---------- ---------- -------- --------
Gross profit............................ 119,374 129,606 23,039 35,949
Selling, general and administrative
expenses.............................. 92,102 119,902 22,613 30,660
Other expenses.......................... 4,487 1,436 5,298 951
Interest expense (net).................. 13,877 14,309 4,064 3,777
---------- ---------- -------- --------
Income before income taxes............ 8,908 (6,041) (8,936) 561
Taxes on income......................... 3,596 3,614 534 476
Minority interest....................... 369 (301) (2) (275)
---------- ---------- -------- --------
Net income.............................. $ 4,943 $ (9,354) $ (9,468) $ 360
OTHER FINANCIAL DATA:
EBITDA(1)............................... $ 77,278 $ 64,947 $ 9,735 $ 19,575
EBITDA (as adjusted)(2)................. 76,040
Depreciation and amortization........... 52,381 52,922 14,196 14,645
Capital Expenditures.................... 60,842 85,616 22,101 14,156
16
23
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------
1997 1998 1997 1998
----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(3)...................... $ 45,668 $ 43,061 $ 78,255 $ 25,443
Property, plant and equipment -- net.... 291,178 319,198 297,206 312,021
Total assets............................ 625,446 663,224 676,969 651,635
Total debt.............................. 245,464 273,287 323,199 272,261
Total stockholders equity............... 130,239 128,011 119,930 128,419
- -------------------------
(1) EBITDA represents income from operations, net of minority interest, before
deducting taxes, depreciation, amortization, and interest. EBITDA is not
presented as an alternative to net income, as a measure of operating results
or as an indicator of Peguform's performance, nor is it presented as an
alternative to cash flow or as a measure of liquidity, but rather to provide
additional information related to debt service capacity. EBITDA should not
be considered in isolation or 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. EBITDA, while commonly used, is
not calculated uniformly by all companies and should not be used as a
comparative measure without further analysis, nor does EBITDA necessarily
represent funds available for discretionary use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a discussion of liquidity and operating results.
(2) EBITDA (as adjusted) represents EBITDA plus a non-recurring charge of
$11,093 related to start-up production costs on the Mercedes A-Class
hatchback program.
(3) Working capital does not include loans payable to Peguform's parent of
$158,031 at September 30, 1997, $183,957 at September 30, 1998, $209,922 at
December 31, 1997 and $164,850 at December 31, 1998. All outstanding
intercompany loans will be repaid as part of the purchase price upon
consummation of the Acquisition.
17
24
RISK FACTORS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934 including, in particular, the statements about the Company's plans,
strategies, and prospects under the headings "Summary," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Business."
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. See "Forward-Looking Statements." All
forward-looking statements attributable to the Company or persons acting on our
behalf are expressly qualified in their entirety by the following cautionary
statements.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF THE COMPANY AND PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THESE NOTES.
We have now and will continue to have a significant amount of indebtedness.
The following chart shows certain important credit statistics and is presented
assuming we had completed the Acquisition and the financing thereof, as of March
31, 1999:
AT MARCH 31, 1999
PRO FORMA,
AS ADJUSTED
-----------------
(DOLLARS IN
THOUSANDS)
Total indebtedness (excludes $2,975 of outstanding letters
of credit)................................................ $875,874
Trust principal............................................. 78,096
Debt to equity ratio........................................ 11.2x
On a pro forma basis for the year ended December 31, 1998, our earnings
were insufficient to cover fixed charges by $4.7 million. On a pro forma basis
for the three months ended March 31, 1999, the ratio of earnings to fixed
charges was 1.2x.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the Exchange Notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds;
specifically our New Credit Agreement and the indenture governing our
$205 million of 9 1/2% Senior Notes due 2005 (the "1997 Senior Notes")
contain many covenants that are more restrictive than those applicable to
these Notes. Failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
18
25
We are required to refinance $125.0 million principal amount outstanding
under the New Credit Agreement within 18 months from May 27, 1999, utilizing the
proceeds from the sale of securities that are pari passu in right of payment
with, or junior to, the Senior Subordinated Exchange Notes. We cannot assure you
that we will be able to refinance such amount on favorable terms or at all. If
we do not refinance the $125.0 million principal amount, we would be in default
under the New Credit Agreement and the indentures for the Exchange Notes.
See "Description of Exchange Notes" and "Description of Certain
Indebtedness."
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness,
including the Exchange Notes, and to fund planned capital expenditures and
research and development efforts will depend on our ability to generate cash in
the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under the New Credit Agreement will be adequate to meet
our future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized as anticipated or that future borrowings will be
available to us under the New Credit Agreement in an amount sufficient to enable
us to pay our indebtedness, including these Exchange Notes, or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness,
including these Exchange Notes, on or before maturity. We cannot assure you that
we will be able to refinance any of our indebtedness, including the New Credit
Agreement, the 1997 Senior Notes or these Exchange Notes, on commercially
reasonable terms or at all.
COMPANY STRUCTURE; NOT ALL SUBSIDIARIES ARE GUARANTORS -- THE ISSUER IS LIMITED
IN ITS ACCESS TO ITS SUBSIDIARIES' CASH FLOWS. YOUR RIGHT TO RECEIVE PAYMENTS ON
THESE EXCHANGE NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR
SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE, OR REORGANIZE.
The Issuer must rely entirely upon distributions from its domestic and
foreign subsidiaries and repayment of principal and interest on intercompany
loans made by the Issuer to its subsidiaries to generate the funds necessary to
meet its obligations, including payment of principal and interest on the
Issuer's Notes. We expect payments of interest by our foreign subsidiaries on
these intercompany loans to result in the repatriation of a portion of their
cash flow. We cannot predict whether these interest payments will be
recharacterized in a way that has adverse tax or other consequences for us, or
whether they will become subject to restrictions on the transfer of funds into
or out of foreign countries, which would adversely affect our ability to pay our
outstanding indebtedness, including the Exchange Notes. The ability of the
Issuer's subsidiaries to pay dividends and make other payments or advances to
the Issuer will depend upon their operating results and will be subject to
applicable laws and contractual restrictions contained in the instruments
governing any indebtedness of such subsidiaries. Although the indentures
governing the Exchange Notes limit the ability of such subsidiaries to enter
into consensual restrictions on their ability to pay dividends and make other
payments to the Issuer, such limitations are subject to a number of significant
qualifications. In addition, certain countries in which our subsidiaries are
organized place limits on the remittance of dividends, and such limitations may
limit the amount of cash available from our foreign subsidiaries
19
26
to service our debt. See "Description of Exchange Notes -- Certain
Covenants -- Dividend and Other Payment Restrictions Affecting Subsidiaries."
Some but not all of our subsidiaries will be guarantors of the Exchange
Notes. In the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us. Assuming we had completed this offering on March 31, 1999, on a pro forma
basis after giving effect to the Acquisition, and the financing thereof, the
Exchange Notes would have been effectively junior to all indebtedness and other
liabilities of these non-guarantor subsidiaries. The non-guarantor subsidiaries
generated 66.9% of our consolidated revenues in the twelve-month period ended
December 31, 1998, on a pro forma basis, and 67.9% of our consolidated revenues
in the three-month period ended March 31, 1999, on a pro forma basis. The
non-guarantor subsidiaries held 57.0% of our consolidated assets as of December
31, 1998, on a pro forma basis, and 56.5% of our consolidated assets as of March
31, 1999 on a pro forma basis.
The New Credit Agreement grants to the lenders thereunder security
interests in the assets of the domestic subsidiaries of the Issuer that are
guarantors of the Exchange Notes, including the capital stock of certain
subsidiaries of the Issuer that will not guarantee the Exchange Notes. As a
result, if an event of default occurs under the New Credit Agreement, the
lenders thereunder would be entitled to exercise certain remedies which would
have the effect of preventing such subsidiaries from making payments in respect
of the Notes. See "Description of Certain Indebtedness."
ADDITIONAL BORROWINGS AVAILABLE -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND
OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD
FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indentures do not fully prohibit us or our subsidiaries from
doing so. As of March 31, 1999, on a pro forma basis our New Credit Agreement
would permit additional borrowing of up to $194.7 million, and all of those
borrowings would be senior to the Senior Subordinated Exchange Notes and the
subsidiary guarantees thereof, and effectively senior to the Senior Exchange
Notes and the subsidiary guarantees thereof. If new debt is added to our current
debt levels, the related risks that we now face could intensify.
See "Capitalization," "Selected Consolidated Financial Data of Venture,"
"Selected Consolidated Financial Data of Peguform" and "Description of Exchange
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" and "Description of Certain Indebtedness -- New Credit
Agreement."
RISKS ASSOCIATED WITH THE ACQUISITION; ABILITY TO ACHIEVE ANTICIPATED COST
SAVINGS -- WE MAY NOT RECEIVE THE DESIRED BENEFITS FROM THE ACQUISITION.
We cannot assure you that the Company will realize the expected benefits of
the Acquisition. Also, we may experience difficulty integrating Peguform's
operations with Venture's, and we may not derive the expected cost savings from
the integration. The integration of Peguform into Venture's business will
require the expertise of several key managers who are remaining with us, but may
not remain during the entire period of integration.
We estimate that we will realize certain cost savings from the Acquisition,
including: (1) materials cost savings in respect of which we have included $15.0
million in cost savings in Adjusted EBITDA; (2) tooling cost savings; and (3)
operating efficiencies. See "Summary -- Business Strategy." The expected cost
savings from the integration of Peguform's operation with Venture's, including
any materials cost savings, are based on our estimates and assumptions, which
20
27
are inherently uncertain and are subject to significant business, economic and
other uncertainties and contingencies, all of which are difficult to predict and
many of which are beyond our control. A portion of the materials cost savings
and operating efficiencies are premised on the assumption that certain
purchasing costs and levels of efficiency realized by either Venture or Peguform
prior to the Acquisition will continue to be achieved. Other estimates were
based on a management consensus as to what levels of purchasing and similar
efficiencies should be achievable by an entity our size. Estimates of potential
cost savings are forward-looking statements that are inherently uncertain. A
portion of our anticipated cost savings, in particular a portion of anticipated
tooling cost savings, will not be realized for one or more years. Actual cost
savings, if any, could differ materially from those projected.
All of these forward-looking statements are based on our estimates and
assumptions, which although we believe to be reasonable, are inherently
uncertain and difficult to predict; therefore, undue reliance should not be
placed upon such estimates. The following important factors (as well as the
factors set forth in "Forward-Looking Statements"), among others, could cause us
not to achieve the cost savings contemplated herein or otherwise cause our
results of operations to be adversely affected in future periods: (1) inability
to negotiate more favorable terms with suppliers; (2) inability to achieve
future sales levels or other operating results that support the cost savings;
and (3) operational inefficiencies in our distribution or other systems. Many of
these factors are beyond our control. In addition, there can be no assurance
that unforeseen costs and expenses or other factors will not offset the
estimated cost savings or other components, or our plan in whole or in part.
SUBORDINATION OF SENIOR SUBORDINATED EXCHANGE NOTES -- YOUR RIGHT TO RECEIVE
PAYMENTS ON THE SENIOR SUBORDINATED EXCHANGE NOTES IS JUNIOR TO OUR EXISTING
INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES
OF THE SENIOR SUBORDINATED EXCHANGE NOTES ARE JUNIOR TO ALL OUR GUARANTORS'
EXISTING INDEBTEDNESS AND POSSIBLY ALL THEIR FUTURE BORROWINGS.
The Senior Subordinated Exchange Notes and related guarantees rank behind
all of the Issuer's and the guarantors' existing indebtedness and all of the
Issuer's and the guarantors' existing and future borrowings, except any future
indebtedness that expressly provides that it ranks equal with, or is
subordinated in right of payment to, the Senior Subordinated Exchange Notes and
the related guarantees. As a result, upon any distribution to the Issuer's or
the guarantors' creditors in a bankruptcy, liquidation or reorganization or
similar proceeding relating to the Issuer or the guarantors or their property,
the holders of their senior debt will be entitled to be paid in full in cash
before any payment may be made with respect to the Senior Subordinated Exchange
Notes or the related guarantees.
In addition, all payments on the Senior Subordinated Exchange Notes and
related guarantees will be blocked in the event of a payment default on senior
debt and may be blocked for up to 179 of 360 consecutive days in the event of
certain non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to the Issuer or the guarantors, holders of the Senior
Subordinated Exchange Notes will participate with trade creditors and all other
holders of the Issuer's and the guarantors' subordinated indebtedness in the
assets remaining after the Issuer and the guarantors have paid all of the senior
debt. However, because the Senior Subordinated Note indenture requires that
amounts otherwise payable to holders of the Senior Subordinated Exchange Notes
in a bankruptcy or similar proceeding be paid to holders of senior debt instead,
holders of the Senior Subordinated Exchange Notes may receive less, ratably,
than holders of trade payables in any such proceeding. In any of these cases,
the Issuer and the guarantors may not have sufficient funds to pay all of their
respective creditors, and holders of Senior Subordinated Exchange Notes may not
receive any funds.
21
28
Assuming we had completed the offering of the Outstanding Notes on March
31, 1999, on a pro forma basis giving effect to the Acquisition and the
financing thereof, as of such date, the Outstanding Senior Subordinated Notes
and guarantees would have been subordinated to $725.5 million of senior debt
(excluding $3.0 million of outstanding letters of credit) of the Issuer and the
guarantors, including the Outstanding Senior Notes, and approximately $194.7
million would have been available for borrowing as additional senior secured
debt under our New Credit Agreement. We will be permitted to borrow substantial
additional indebtedness, including senior debt, in the future under the terms of
the indentures.
EFFECTIVE SUBORDINATION OF SENIOR EXCHANGE NOTES TO SECURED SENIOR
DEBT -- ALTHOUGH YOUR RIGHT TO RECEIVE PAYMENTS ON THE SENIOR EXCHANGE NOTES IS
SENIOR OR PARI PASSU TO OUR EXISTING INDEBTEDNESS, THE SENIOR EXCHANGE NOTES ARE
UNSECURED. THEREFORE, YOUR RIGHTS MAY EFFECTIVELY BE SUBORDINATED TO THE RIGHTS
OF HOLDERS OF SECURED INDEBTEDNESS.
Holders of any secured indebtedness of the Issuer will have claims that are
prior to the claims of the holders of the Senior Exchange Notes with respect to
the assets securing such other indebtedness. Notably, the Issuer is a party to
the New Credit Agreement which is secured by liens on all domestic assets. The
Senior Exchange Notes will be effectively subordinated to all such secured
indebtedness. In the event of any distribution or payment of the assets of the
Issuer or the guarantors in any foreclosure, dissolution, winding-up,
liquidation, reorganization, or other bankruptcy proceeding, holders of secured
indebtedness will have a prior claim to the assets of the Issuer and the
guarantors that constitute their collateral. Holders of the Senior Exchange
Notes will participate ratably with all holders of unsecured indebtedness of the
Issuer that is deemed to be of the same class as the Senior Exchange Notes, and
potentially with all other general creditors of the Issuer and the guarantors,
based upon the respective amounts owed to each holder or creditor, in the
remaining assets. In any of the foregoing events, there can be no assurance that
there would be sufficient assets to pay amounts due on the Senior Exchange
Notes. As a result, holders of the Senior Exchange Notes may receive less,
ratably, than holders of secured indebtedness.
Assuming we had completed the offering of the Outstanding Notes on March
31, 1999, on a pro forma basis after giving effect to the Acquisition, and the
financing thereof, as of such date, the aggregate amount of secured indebtedness
of the issuer and the guarantors (including borrowings under the New Credit
Agreement) would have been approximately $395.5 million, and approximately
$194.7 million would have been available for additional borrowing under the New
Credit Agreement. The indentures will permit the incurrence of substantial
additional secured indebtedness by the Issuer and the guarantors in the future.
22
29
RELIANCE ON MAJOR CUSTOMERS; THE OEM SUPPLIER INDUSTRY -- WE ARE DEPENDENT UPON
A GROUP OF CUSTOMERS WHOSE NEEDS ARE CYCLICAL AND LARGELY DEPENDENT UPON
CUSTOMER DEMAND.
We compete in the global OEM automobile supplier industry in which OEMs may
exert considerable pressure on suppliers such as us. Our sales to our major OEM
customers for the year ended December 31, 1998 on a pro forma basis, were
approximately:
YEAR ENDED
DECEMBER 31, 1998
-----------------
- - Volkswagen Group: (including Audi AG, Skoda Automobilova,
Seat, S.A. and Volkswagen AG) 30.1%
- - General Motors Corporation: 12.6%
- - DaimlerChrysler AG: 10.5%
- - Ford Motor Company: 8.2%
- - PSA Peugeot Citroen: 5.8%
Sales to these customers consist of large numbers of different parts,
tooling and other services, which are sold to separate operating groups within
each customer's organization. Purchase orders from these customers generally
cover a particular model year rather than a specific quantity of products. The
loss of a significant number of operating groups or purchase orders, or a
decrease in demand for certain models could have a material adverse affect on
us. The failure to obtain purchase orders for new models or the failure to
continue business on redesigned existing models could also adversely affect us.
Furthermore, the OEMs can exert considerable pressure on their suppliers for
increased quality standards, price reductions or additional engineering
capabilities. Increased costs may result from such changes and adversely affect
the Company.
Finally, the OEM supplier industry is very cyclical and dependent upon the
overall strength of consumer demand for light trucks and passenger cars. The
industry is also subject to regulatory requirements, trade agreements and other
factors beyond our control. The automotive industry, for which we supply
components and systems, may experience downturns. An economic recession
generally has a greater impact on highly leveraged companies like us. A decrease
in overall consumer demand for motor vehicles in general, or specific segments,
could adversely affect us.
UNIONIZED WORKFORCE -- WE MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER
LABOR RELATIONS MATTERS.
Certain of our North American employees, most of our European employees,
and many employees of the OEMs and our other customers are unionized. Work
stoppages, slow-downs or other labor disputes could adversely affect our output.
In the year ended December 31, 1998, for example, our operations were affected
by a prolonged labor dispute at General Motors. In addition, collective
bargaining agreements with unionized employees at each of the three major U.S.
OEMs expire in the Fall of 1999, and any disputes arising from the negotiation
of new agreements could adversely affect our operations. We have recently
negotiated a new collective bargaining agreement with the employees at our
Seabrook, New Hampshire facility. The new agreement expires in June 2002.
Employees at our Conneaut, Ohio facility have recently voted to be represented
by the Teamsters union. Negotiations regarding a new collective bargaining
agreement with these employees has not yet begun.
23
30
COMPETITION -- WE MAY NOT CONTINUE TO PERFORM SUCCESSFULLY IN OUR HIGHLY
COMPETITIVE INDUSTRY.
We compete in a highly competitive industry. Many actual or potential
competitors exist, including the internal component operations of the OEMs as
well as independent suppliers. Many of these competitors are larger than us. The
industry is becoming increasingly competitive due to supplier consolidations and
the spin-off of formerly in-house OEM plastics manufacturing facilities. We
compete on the basis of geographic presence, quality, cost, timely delivery and
customer service and, increasingly, design and engineering capability, painting
capability, new product innovation, broad product offerings, product testing
capability and ability to reduce the time from concept to mass production. As
the OEMs strive to reduce new model development cost and timing, innovation,
design and engineering will become increasingly important in distinguishing
competitors. We may not be able to continue to compete successfully in this
environment.
RAW MATERIALS -- WE MAY EXPERIENCE SHORTAGES OF RAW MATERIALS NECESSARY TO OUR
MANUFACTURING PROCESSES.
Our manufacturing processes use a variety of raw materials, principally
engineered plastic resins such as nylon, polypropylene (including
thermoplastics), polycarbonate, acrylonitrile-butadiene-styrene, fiberglass
reinforced polyester, polyethylene terephthalate ("PET") and thermoplastic
polyurethane; a variety of ingredients used in compounding materials used in the
compression molding process; paint related products; and steel for production
molds. Our customers usually specify materials and suppliers to be used for a
specific program, but we cannot assure you that the specified suppliers will
always be able to supply the specified materials or that alternative sources
will be available. We obtain most of our raw materials from 1 year supply
agreements in which we estimate our annual needs. We generally issue releases
against these agreements only when we receive corresponding orders from our
customers. Although we have not historically experienced raw material shortages,
we could face shortages in the future.
CONTROL; AFFILIATED TRANSACTIONS -- LARRY J. WINGET ("MR. WINGET") EXERTS
SIGNIFICANT CONTROL OVER US BECAUSE HE IS THE SOLE BENEFICIARY AND TRUSTEE OF
THE TRUST, AND THE TRUST IS THE SOLE MEMBER OF THE ISSUER, WHICH IS THE ISSUER
OF THE EXCHANGE NOTES AND DIRECTLY OR INDIRECTLY OWNS THE CAPITAL STOCK OF EACH
GUARANTOR. ALSO, WE RELY ON NON-ARMS'-LENGTH TRANSACTIONS ENTERED INTO WITH MR.
WINGET AND AFFILIATED ENTITIES HE CONTROLS.
The Issuer is the sole issuer of these Exchange Notes and owns the capital
stock of each guarantor. Mr. Winget is the sole beneficiary and trustee of the
Trust, which is the sole member of the Issuer. Therefore, Mr. Winget may elect
or remove the directors of the guarantor and non-guarantor corporate
subsidiaries and the management of the limited liability company subsidiaries
and exercise other control over their operations. The Issuer makes distributions
to the Trust, which then makes distributions to Mr. Winget, and compensates him
as an executive officer of the Company. Also, we have entered into many
agreements with Mr. Winget and the entities he owns or controls. We depend on
these entities to provide necessary facilities, machinery, equipment, technology
and services. Since we operate for the benefit of Mr. Winget, the terms of these
transactions are not necessarily the result of "arms'-length" bargaining, but we
believe that the transactions are on terms no less favorable to us than would be
obtained if such transactions or arrangements were arms'-length transactions
with non-affiliated persons. The indenture governing the 1997 Senior Notes and
the indentures governing these Exchange Notes require us to have a "Fairness
Committee" with at least one independent member to approve this type of
transaction. Also, such indentures restrict distributions to Mr. Winget and
contain an agreement with Mr. Winget which requires him to offer corporate
opportunities to us before he pursues such opportunities individually or through
other companies he owns or controls.
See "Description of Certain Indebtedness" and "Certain Transactions."
24
31
RISKS ASSOCIATED WITH ACQUISITIONS -- WE MAY NOT BE ABLE TO IMPLEMENT OUR
STRATEGY OF SUCCESSFULLY COMPLETING FUTURE ACQUISITIONS. COMPLETED ACQUISITIONS
MAY LEAD TO UNEXPECTED LIABILITIES.
Our business strategy allows for growth through selected acquisitions in
order to expand our markets and take advantage of the consolidating trend in the
automotive supplier industry. The full benefits of these acquisitions require
integration of administrative, finance, sales and marketing approaches, and
coordination of administration, marketing and sales organizations. Occasionally
a completed acquisition may adversely affect our financial condition and
reporting results, including our capital requirements and the accounting
treatment of these acquisitions. Completed acquisitions may also lead to
significant unexpected liabilities after the consummation of such acquisitions.
See "Risks Associated with the Acquisition; Ability to Achieve Anticipated
Cost Savings."
ENVIRONMENTAL -- THE COMPANY MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL CLAIMS
RESULTING FROM OUR METHODS OF OPERATIONS.
Our operations are subject to federal, state and local environmental, and
occupational safety and health laws and regulations in the United States and
other countries. The Company has been subject to claims for environmental
matters relating to the disposal of hazardous substances and wastes. In
addition, we anticipate capital expenditures at certain of our manufacturing
facilities to decrease the release of certain compounds into the air resulting
from our painting process. Also, fines may be levied against us for the release
of such compounds. Although we have taken steps to minimize the environmental
risks of our operations, we cannot assure you that our activities will not
result in further environmental claims. However, we believe that our current
environmental liabilities will not result in material adverse effects upon the
Company.
See "Business -- Environmental Matters" and "-- Legal Proceedings."
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURES.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding Exchange Notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of Exchange Notes or that
restrictions in the New Credit Agreement and other senior debt will not allow
such repurchases. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a "Change of Control" under the indentures.
See "Description of Exchange Notes -- Repurchase at the Option of Holders."
YEAR 2000 -- WE CANNOT ASSURE YOU THAT WE, OR OUR CUSTOMERS AND SUPPLIERS, WILL
BE YEAR 2000 COMPLIANT. PROBLEMS ASSOCIATED WITH THE YEAR 2000 MAY ADVERSELY
AFFECT OUR OPERATIONS.
We cannot assure you that our computer systems or software products or
those of our suppliers and customers will accept input of, store, manipulate and
output dates prior to the year 2000 or thereafter without error or interruption.
We are assessing the issues related to the year 2000 problem, and we have
implemented a readiness program to mitigate the problem of business interruption
or other risks. We are also requesting assurances from our significant suppliers
and customers that their systems are year 2000 compliant or that they are
identifying and addressing problems to ready themselves for the year 2000. We
cannot assure you that we will identify all year 2000 problems in advance of
their occurrence, or that we will be able to successfully remedy problems that
are discovered. The expense of our efforts to identify and address such
problems, or the expenses or
25
32
liabilities to which we may become subject to as a result of such problems,
could have a material adverse effect on the Company.
SUBSTANTIAL FOREIGN OPERATIONS -- OUR SIGNIFICANT INTERNATIONAL OPERATIONS MAKE
US SUSCEPTIBLE TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND SEVERAL OTHER
RISKS THAT ARE BEYOND OUR CONTROL.
Over two-thirds of our revenue and over one-half of our net assets are
derived from operations outside of the United States. We are therefore subject
to risks associated with operations in foreign countries, including fluctuations
in currency exchange rates, tariffs and other trade barriers, longer accounts
payable cycles and limits on conversion of foreign currencies into dollars. In
addition, certain countries place limits on the remittance of dividends by
companies organized in such countries to their shareholders. Such dividend
payment restrictions may limit the amount of cash available from our foreign
subsidiaries to service our debt. See "Company Structure; Not all Subsidiaries
are Guarantors." Our financial condition and results of operations, reported in
United States dollars, may be affected by fluctuations in the value of
currencies in which we transact business, particularly the euro, and for such
period of time as those currencies remain in existence, the German Mark, the
French Franc, the Spanish Peseta, the Czech Republic Koruna and the Brazilian
Real. Exchange rate fluctuations could have a material adverse effect on us. In
addition, we incur additional costs of compliance with local regulations by
operating in a number of countries. Changes in local economic or political
conditions could impact our manufacturing, assembly and distribution
capabilities. We intend to hedge currency exchange risks, but such hedges may
not eliminate the risk completely. The costs related to these international
operations could adversely affect the Company.
Under the European Union Treaty, the "euro" was introduced on January 1,
1999 which, subject to the fulfillment of certain conditions, will replace the
currencies of certain member states of the European Union. There can be no
assurance that the introduction of the euro will not increase the volatility of
exchange rates and intensify other risks associated with currency fluctuations.
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID THE EXCHANGE NOTES AND GUARANTEES AND REQUIRE
NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US.
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the Exchange Notes and guarantees could be voided, or claims in
respect of the Exchange Notes and guarantees could be subordinated to all of our
other debts if, among other things, the Issuer or any guarantor at the time it
incurred the indebtedness evidenced by the Outstanding Notes or guarantees:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such Outstanding Notes and guarantees; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the Issuer's or such
guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by the Issuer or a guarantor could be voided and
required to be returned to the Issuer or such guarantor, or to a fund for the
benefit of the creditors.
26
33
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, the Issuer or a
guarantor would be considered insolvent if:
- the sum of such entity's debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets, or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that at the time we incurred the debt constituting
the Outstanding Notes and guarantees, that we were not insolvent, did not have
unreasonably small capital for our business and had not incurred debts beyond
our ability to pay such debts as they mature. We cannot assure you, however, as
to what standard a court would apply in making such determinations or that a
court would agree with our conclusions in this regard.
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES -- IF HOLDERS OF THE
OUTSTANDING NOTES DO NOT EXCHANGE OTHER NOTES, THEY LOSE THEIR RIGHTS TO HAVE
SUCH NOTES REGISTERED.
We did not register the Outstanding Notes under the Securities Act or any
state securities laws, nor do we intend to after the Exchange Offer. As a
result, the Outstanding Notes may only be transferred in limited circumstances
under the securities laws. If the holders of the Outstanding Notes do not
exchange their notes in the Exchange Offer, they lose their right to have the
Outstanding Notes registered under the Securities Act, subject to certain
limitations. A holder of Outstanding Notes after the Exchange Offer may be
unable to sell the notes.
To exchange the Outstanding Notes for the Exchange Notes, the Exchange
Agent must receive (i) certificates for the Outstanding Notes or a book-entry
confirmation of the transfer of the Outstanding Notes into the Exchange Agent's
account at DTC, (ii) a completed and signed Letter of Transmittal with any
required signature guarantees, or an Exchange Agents' message in the case of a
book-entry transfer, and (iii) any other documents required by the Letter of
Transmittal. Holders of Outstanding Notes who want to exchange their notes
should allow enough time to guarantee timely delivery. We are under no duty to
give notice of defective exchanges.
LACK OF PUBLIC MARKET FOR EXCHANGE NOTES -- WE CANNOT MAKE ANY ASSURANCE
REGARDING THE LIQUIDITY OF THE MARKET FOR THE EXCHANGE NOTES.
While the Outstanding Notes are presently eligible for trading in the
PORTAL market of the NASD by qualified institutional buyers, there is no
existing market for the Exchange Notes. The initial purchasers of the
Outstanding Notes have advised us that they currently intend to make a market in
the Exchange Notes following the Exchange Offer, but they are not obligated to
do so, and any market-making may be stopped at any time without notice. We do
not intend to apply for a listing of the Exchange Notes on any securities
exchange. We do not know if an active public market for the Exchange Notes will
develop or, if developed, will continue. If an active public market does not
develop or is not maintained, the market price and liquidity of the Exchange
Notes may be adversely affected. We cannot make any assurances regarding the
liquidity of the market for the Exchange Notes, the ability of holders to sell
their Exchange Notes or the price at which holders may sell their Exchange
Notes.
27
34
PROCEDURES FOR TENDER OF OUTSTANDING NOTES -- IF YOU DO NOT PROPERLY TENDER YOUR
OUTSTANDING NOTES, THEY WILL CONTINUE TO BE SUBJECT TO THE EXISTING TRANSFER
RESTRICTIONS.
The Exchange Notes will be issued in exchange for the Outstanding Notes
only after timely receipt by the Exchange Agent of the Outstanding Notes, a
properly completed and executed Letter of Transmittal and all other required
documentation. If you want to tender your Outstanding Notes in exchange for
Exchange Notes, you should allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor the Company is under any duty to give you
notification of defects or irregularities with respect to tenders of Outstanding
Notes for exchange. Outstanding Notes that are not tendered or are tendered but
not accepted will, following the Exchange Offer, continue to be subject to the
existing transfer restrictions. In addition, if you tender the Outstanding Notes
in the Exchange Offer to participate in a distribution of the Exchange Notes,
you will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
For additional information, please refer to the sections entitled "The Exchange
Offer" and "Plan of Distribution" later in this Prospectus.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Simultaneously with the sale of the Outstanding Notes, we entered into a
Registration Rights Agreement with the initial purchasers of the Outstanding
Notes -- Banc One Capital Markets, Inc. and Goldman, Sachs & Co. Under the
Registration Rights Agreement, we agreed to file a registration statement
regarding the exchange of the Outstanding Notes for notes with terms
substantially identical in all material respects. We also agreed to use our best
efforts to cause that registration statement to become effective with the
Securities and Exchange Commission. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
We are conducting the Exchange Offer to satisfy our contractual obligations
under the Registration Rights Agreement. The form and terms of the Exchange
Notes are the same as the form and terms of the Outstanding Notes, except that
the Exchange Notes will be registered under the Securities Act, and holders of
the Exchange Notes will not be entitled to liquidated damages. The Outstanding
Notes provide that, if a registration statement relating to the Exchange Offer
has not been filed by August 25, 1999 and declared effective by October 24,
1999, we will pay liquidated damages on the Outstanding Notes. Upon the
completion of the Exchange Offer, holders of Outstanding Notes will not be
entitled to any liquidated damages on the Outstanding Notes or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors -- Consequences of a Failure to
Exchange Outstanding Notes" and "Description of Exchange Notes" for further
information regarding the rights of Outstanding Note holders after the Exchange
Offer. The Exchange Offer is not extended to Outstanding Note holders in any
jurisdiction where the Exchange Offer does not comply with the securities or
blue sky laws of that jurisdiction.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect the Exchange Offer, or if for any other reason the
Exchange Offer is not consummated within 180 days of May 27, 1999, we will use
our best efforts to cause to become effective a shelf registration statement
with respect to the resale of the Outstanding Notes. We also agreed to use our
best efforts to keep the shelf registration statement effective until the
earlier of May 27, 2001 and such time as all the Outstanding Notes have been
sold pursuant to such registration or are otherwise not restricted securities.
28
35
The term "holder" as used in this section of the Prospectus entitled "The
Exchange Offer" means (1) any person in whose name the Outstanding Notes are
registered on the books of the Company, or (2) any other person who has obtained
a properly completed bond power from the registered holder, or (3) any person
whose Outstanding Notes are held of record by DTC and who wants to deliver such
Outstanding Notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange up to $125.0 million total principal amount of
Senior Exchange Notes for a like total principal amount of Outstanding Senior
Notes. The Outstanding Senior Notes must be tendered properly on or before the
Expiration Date and not withdrawn. In exchange for Outstanding Senior Notes
properly tendered and accepted, the Company will issue a like total principal
amount of up to $125.0 million in Senior Exchange Notes. In addition, the
Company is offering to exchange up to $125.0 million total principal amount of
Senior Subordinated Exchange Notes for a like total principal amount of
Outstanding Senior Subordinated Notes. The Outstanding Senior Subordinated Notes
also must be tendered properly on or before the Expiration Date and not
withdrawn. In exchange for Outstanding Senior Subordinated Notes properly
tendered and accepted, the Company will issue a like total principal amount of
up to $125.0 million in Senior Subordinated Exchange Notes.
The Exchange Offer is not conditioned upon holders tendering a minimum
principal amount of Outstanding Notes. As of the date of this Prospectus, $125.0
million aggregate principal amount of Senior Notes are outstanding and $125.0
million aggregate principal amount of Senior Subordinated Notes are outstanding.
Holders of the Outstanding Notes do not have any appraisal or dissenters'
rights in the Exchange Offer. If holders do not tender Outstanding Notes or
tender Outstanding Notes that the Company does not accept, their Outstanding
Notes will remain outstanding. Any Outstanding Notes will be entitled to the
benefits of the Senior Note Indenture and Senior Subordinated Note Indenture, as
applicable, but will not be entitled to any further registration rights under
the Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Outstanding Notes" for more
information regarding notes outstanding after the Exchange Offer.
After the Expiration Date, we will return to the holder any tendered
Outstanding Notes that we did not accept for exchange.
Holders exchanging Outstanding Notes will not have to pay brokerage
commissions or fees or transfer taxes if they follow the instructions in the
Letter of Transmittal. The Company will pay the charges and expenses, other than
certain taxes described below, in the Exchange Offer. See "-- Fees and Expenses"
for further information regarding fees and expenses.
WE DO NOT MAKE ANY RECOMMENDATION AS TO THE TENDER OF OUTSTANDING NOTES IN
THE EXCHANGE OFFER. IN ADDITION, WE HAVE NOT AUTHORIZED ANYONE TO MAKE ANY
RECOMMENDATION. YOU MUST DECIDE WHETHER TO TENDER IN THE EXCHANGE OFFER AND, IF
SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO TENDER.
The Expiration Date is 5:00 p.m., New York City time, on ,
1999 unless we extend the Exchange Offer, in our sole discretion.
We have the right, in our sole discretion, in accordance with applicable
law, at any time:
- to delay the acceptance of the Outstanding Notes;
- to terminate the Exchange Offer if the Company determines that any of the
conditions to the Exchange Offer have not occurred or have not been
satisfied;
29
36
- to extend the Expiration Date of the Exchange Offer and keep all
Outstanding Notes tendered other than those notes properly withdrawn; and
- to waive any condition or amend the terms of the Exchange Offer.
If we materially change the Exchange Offer, we will promptly disclose such
amendment in a manner reasonably calculated to inform holders of the Outstanding
Notes of such amendment. We also will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
If we exercise any of the rights listed above, we will promptly give oral
notice, promptly confirmed in writing, to the Exchange Agent and will issue an
appropriate public announcement. In the case of an extension, we will notify the
Exchange Agent and make an appropriate announcement no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
We will issue Exchange Notes to the Exchange Agent for Outstanding Notes
tendered and accepted and not withdrawn promptly after the Expiration Date. The
Exchange Agent might not deliver the Exchange Notes to all tendering holders at
the same time. The timing of delivery depends upon when the Exchange Agent
receives and processes the required documents.
We will be deemed to have exchanged Outstanding Notes validly tendered and
not withdrawn when we give oral or written notice to the Exchange Agent of their
acceptance. The Exchange Agent is our agent for receiving tenders of Outstanding
Notes, Letters of Transmittal and related documents. The Exchange Agent is also
an agent for tendering holders for receiving Outstanding Notes, Letters of
Transmittal and related documents and transmitting Exchange Notes to validly
tendering holders. If, for any reason, we: (1) delay the acceptance or exchange
of any Outstanding Notes; (2) extend the Exchange Offer; or (3) are unable to
accept or exchange notes, then the Exchange Agent may, on behalf of the Company
and subject to Rule 14e-1(c) under the Exchange Act, retain tendered notes.
Notes retained by the Exchange Agent may not be withdrawn, except according to
the withdrawal procedures outlined in the section entitled "-- Withdrawal
Rights" below.
In tendering Outstanding Notes, you must warrant in the Letter of
Transmittal or in an Agent's Message (described below) that (1) you have full
power and authority to tender, exchange, sell, assign and transfer Outstanding
Notes, (2) the Company will acquire good, marketable and unencumbered title to
the tendered Outstanding Notes, free and clear of all liens, restrictions,
charges and other encumbrances, and (3) the Outstanding Notes tendered for
exchange are not subject to any adverse claims or proxies. You also must warrant
and agree that you will, upon request, execute and deliver any additional
documents requested by the Company or the Exchange Agent to complete the
exchange, sale, assignment, and transfer of the Outstanding Notes.
VALID TENDER
You may tender your Outstanding Notes by book-entry transfer or by other
means. For book-entry transfer, you must deliver to the Exchange Agent either
(1) a completed and signed Letter of Transmittal or (2) an Agent's Message,
meaning a message transmitted to the Exchange Agent by DTC stating that you
agree to be bound by the terms of the Letter of Transmittal. You must deliver
your Letter of Transmittal or the Agent's Message by mail, facsimile, hand
delivery or overnight courier to the Exchange Agent on or before the Expiration
Date. In addition, to complete a book-entry transfer, you must also either (1)
have DTC transfer the Outstanding Notes into the Exchange Agent's account at DTC
using the ATOP procedures for transfer, and obtain a confirmation of such a
30
37
transfer, or (2) follow the guaranteed delivery procedures described below under
"-- Guaranteed Delivery Procedures."
If you tender fewer than all of your Outstanding Notes, you should fill in
the amount of notes tendered in the appropriate box on the Letter of
Transmittal. If you do not indicate the amount tendered in the appropriate box,
the Company will assume you are tendering all Outstanding Notes that you hold.
For tendering your Outstanding Notes other than by book-entry transfer, you
must deliver a completed and signed Letter of Transmittal to the Exchange Agent.
Again, you must deliver the Letter of Transmittal by mail, facsimile, hand
delivery or overnight carrier to the Exchange Agent on or before the Expiration
Date. In addition, to complete a valid tender you must either (1) deliver your
Outstanding Notes to the Exchange Agent on or before the Expiration Date, or (2)
follow the guaranteed delivery procedures set forth below under "-- Guaranteed
Delivery Procedures."
Delivery of required documents by whatever method you choose is at your
sole risk. Delivery is complete when the Exchange Agent actually receives the
items to be delivered. Delivery of documents to DTC in accordance with DTC's
procedures does not constitute delivery to the Exchange Agent. If delivery is by
mail, registered mail, return receipt requested, properly insured, or an
overnight delivery service is recommended. In all cases, you should allow
sufficient time to ensure timely delivery.
SIGNATURE GUARANTEES
You do not need to endorse certificates for the Outstanding Notes or
provide signature guarantees on the Letter of Transmittal, unless (a) someone
other than the registered holder tenders the certificate or (b) you complete the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of (a) or (b) above, you must sign
your Outstanding Note or provide a properly executed bond power, with the
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution." Eligible Guarantor Institutions include: (1) a
bank; (2) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (3) a credit union; (4) a national securities
exchange, registered securities association or clearing agency; or (5) a savings
association that is a participant in a securities transfer association.
GUARANTEED DELIVERY
If a holder wants to tender Outstanding Notes in the Exchange Offer and (1)
the certificates for the Outstanding Notes are not immediately available or all
required documents are unlikely to reach the Exchange Agent on or before the
Expiration Date, or (2) a book-entry transfer cannot be completed in time, the
Outstanding Notes may be tendered if the holder complies with the following
guaranteed delivery procedures:
(a) the tender is made by or through an Eligible Institution;
(b) you deliver a properly completed and signed Notice of Guaranteed
Delivery, like the form provided with the Letter of Transmittal, to the
Exchange Agent on or before the Expiration Date; and
(c) you deliver the certificates or a confirmation of book-entry transfer
and a properly completed and signed Letter of Transmittal to the
Exchange Agent within three New York Stock Exchange trading days after
the Notice of Guaranteed Delivery is executed.
You may deliver the Notice of Guaranteed Delivery by hand, facsimile or
mail to the Exchange Agent and must include a guarantee by an Eligible
Institution in the form described in the notice.
31
38
Our acceptance of properly tendered Outstanding Notes is a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
We will resolve all questions regarding the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tendered Outstanding Notes. Our resolution of these questions as well as our
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal) is final and binding on all parties. A tender of
Outstanding Notes is invalid until all irregularities have been cured or waived.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person is under any obligation to give notice of any
irregularities in tenders nor will they be liable for failing to give any such
notice. We reserve the absolute right, in our sole and absolute discretion, to
reject any tenders determined to be in improper form or unlawful. We also
reserve the absolute right to waive any of the conditions of the Exchange Offer
or any condition or irregularity in the tender of Outstanding Notes by any
holder. We need not waive similar conditions or irregularities in the case of
other holders.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless waived
by us, the person must submit proper evidence satisfactory to us, in our sole
discretion, of his or her authority to so act.
A beneficial owner of Outstanding Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee or
custodian should contact that entity promptly if the holder wants to participate
in the Exchange Offer.
RESALES OF EXCHANGE NOTES
We are exchanging the Outstanding Notes for Exchange Notes based upon the
Staff of the Securities and Exchange Commission's position, set forth in
interpretive letters to third parties in other similar transactions. We will not
seek our own interpretive letter. As a result, we cannot assure you that the
Staff will take the same position on this Exchange Offer as it did in
interpretive letters to other parties. Based on the Staff's letters to other
parties, we believe that holders of Exchange Notes, other than broker-dealers,
can offer the notes for resale, resell and otherwise transfer the Exchange Notes
without delivering a prospectus to prospective purchasers. However, prospective
purchasers must acquire the Exchange Notes in the ordinary course of business
and have no intention of engaging in a distribution of the notes, as a
"distribution" is defined by the Securities Act.
Any holder of Outstanding Notes who is an "affiliate" of the Company or who
intends to distribute Exchange Notes, or any broker-dealer who purchased
Outstanding Notes from the Company to resell pursuant to any available exemption
under the Securities Act:
- cannot rely on the Staff's interpretations in the above mentioned
interpretive letters;
- cannot tender Outstanding Notes in the Exchange Offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the Outstanding Notes, unless the sale is
exempt.
In addition, if any broker-dealer acquired Outstanding Notes for its own
account as a result of market-making or other trading activities and exchanges
the Outstanding Notes for Exchange Notes, the broker-dealer must deliver a
prospectus with any resales of the Exchange Notes.
32
39
If you want to exchange your Outstanding Notes for Exchange Notes, you will
be required to affirm that:
- you are not an "affiliate" of the Company;
- you are acquiring the Exchange Notes in the ordinary course of your
business;
- you have no arrangement or understanding with any person to participate
in a distribution of the Exchange Notes (within the meaning of the
Securities Act); and
- you are not a broker-dealer, not engaged in, and do not intend to engage
in, a distribution of the Exchange Notes (within the meaning of the
Securities Act).
In addition, we may require you to provide information regarding the number
of "beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act)
of the Outstanding Notes. Each broker-dealer that receives Exchange Notes for
its own account must acknowledge that it acquired the Outstanding Notes for its
own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes. By making this acknowledgment and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" under the
Securities Act. Based on the Staff's position in certain interpretive letters,
we believe that broker-dealers who acquired Outstanding Notes for their own
accounts as a result of market-making activities or other trading activities may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes with a prospectus meeting the requirements of the Securities Act.
Accordingly, a broker-dealer may use this Prospectus to satisfy such
requirements. We have agreed that a broker-dealer may use this Prospectus for a
period ending 270 days after the Expiration Date or, if earlier, when a
broker-dealer has disposed of all Exchange Notes. See "Plan of Distribution" for
further information. A broker-dealer intending to use this Prospectus in the
resale of Exchange Notes must notify us, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. This notice may be given in the Letter
of Transmittal or may be delivered to the Exchange Agent. Any Participating
Broker-Dealer who is an "affiliate" of the Company may not rely on the Staff's
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act when reselling Exchange Notes.
Each Participating Broker-Dealer exchanging Outstanding Notes for Exchange
Notes agrees that, upon receipt of notice from the Company (a) of any statement
contained or incorporated by reference in this Prospectus that makes the
Prospectus untrue in any material respect or that this Prospectus omits to state
a material fact necessary to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made, not
misleading or (b) of the occurrence of certain other events specified in the
Registration Rights Agreement, the Participating Broker-Dealer will suspend the
sale of Exchange Notes. A Participating Broker-Dealer will not resell the
Exchange Notes until (1) the Company has amended or supplemented this Prospectus
to correct such misstatement or omission and the Company furnishes copies to the
Participating Broker-Dealer or (2) the Company gives notice that the sale of the
Exchange Notes may be resumed. If the Company gave notice suspending the sale of
Exchange Notes, it shall extend the 270-day period by the number of days between
the date Company gives notice of suspension and the date Participating
Broker-Dealers receive copies of the amended or supplemented prospectus or the
date the Company gives notice resuming the sale of Exchange Notes.
WITHDRAWAL RIGHTS
You can withdraw tenders of Outstanding Notes at any time prior to 5:00
p.m., New York City time on or before the Expiration Date.
33
40
For a withdrawal to be effective, you must deliver a written or facsimile
transmission of a Notice of Withdrawal to the Exchange Agent on or before the
Expiration Date. The Notice of Withdrawal must specify the name of the person
tendering the Outstanding Notes to be withdrawn, the total principal amount of
Outstanding Notes withdrawn, and the name of the registered holder of the
Outstanding Notes if different from the person tendering the Outstanding Notes.
If you delivered Outstanding Notes to the Exchange Agent, you must submit the
serial numbers of the Outstanding Notes to be withdrawn and the signature on the
Notice of Withdrawal must be guaranteed by an Eligible Institution, except in
the case of Outstanding Notes tendered for the account of an Eligible
Institution. If you tendered Outstanding Notes as a book-entry transfer, the
Notice of Withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Outstanding Notes and you must deliver the
Notice of Withdrawal to the Exchange Agent by written or facsimile transmission.
Outstanding Notes properly withdrawn may again be tendered at any time on or
before the Expiration Date.
We will determine all questions regarding the validity, form and
eligibility of withdrawal notices. Our determination will be final and binding
on all parties. Neither the Company, any affiliate or assign of the Company, the
Exchange Agent nor any other person is under any obligation to give notice of
any irregularities in any Notice of Withdrawal, nor will they be liable for
failing to give any such notice. Withdrawn Outstanding Notes will be returned to
the holder after withdrawal.
INTEREST ON EXCHANGE NOTES
The Senior Exchange Notes will bear interest at a rate of 11% per annum and
the Senior Subordinated Exchange Notes will bear interest at a rate of 12% per
annum, both payable semi-annually, on June 1 and December 1 of each year,
commencing December 1, 1999. Holders of Exchange Notes will receive interest on
December 1, 1999 from the date of initial issuance of the Exchange Notes, plus
an amount equal to the accrued interest on the Outstanding Notes. Interest on
the Outstanding Notes accepted for exchange will cease to accrue upon issuance
of the Exchange Notes.
CONDITIONS TO THE EXCHANGE OFFER
We need not exchange any Outstanding Notes, may terminate the Exchange
Offer or may waive any conditions to the Exchange Offer or amend the Exchange
Offer, if any of the following conditions have occurred:
(a) the Staff no longer allows the Exchange Notes to be offered for resale,
resold and otherwise transferred by certain holders without compliance
with the registration and prospectus delivery provisions of the
Securities Act; or
(b) a governmental body passes any law, statute, rule or regulation which,
in the Company's opinion, prohibits or prevents the Exchange Offer; or
(c) the Securities and Exchange Commission or any state securities
authority issues a stop order suspending the effectiveness of the
registration statement or initiates or threatens to initiate a
proceeding to suspend the effectiveness of the registration statement;
or
(d) We are unable to obtain any governmental approval that we believe is
necessary to complete the Exchange Offer.
If we reasonably believe that any of the above conditions has occurred, we
may (1) terminate the Exchange Offer, whether or not any Outstanding Notes have
been accepted for exchange, (2) waive any condition to the Exchange Offer or (3)
amend the terms of the Exchange Offer in any respect. If our waiver or amendment
materially changes the Exchange Offer, we will promptly disclose the waiver or
amendment in a manner reasonably calculated to inform the registered holders
34
41
of the Outstanding Notes. We will also extend the Exchange Offer to the extent
required by Rule 14e-1 of the Exchange Act.
EXCHANGE AGENT
We have appointed The Huntington National Bank as Exchange Agent for the
Exchange Offer. You should direct questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery to the Exchange Agent
addressed as follows:
By Registered or Certified Mail: Facsimile Transmissions:
The Huntington National Bank The Huntington National Bank
41 South High Street -- HC1112 Attention: Corporate Trust Department
Columbus, Ohio 43215 (614) 480-5223
Attention: Corporate Trust Department
By Hand or Overnight Delivery: New York Drop Agent:
The Huntington National Bank The Bank of New York
41 South High Street -- HC1112 101 Barclay Street
Columbus, Ohio 43215 New York, New York 10286
Attention: Corporate Trust Department
If you deliver Letters of Transmittal and any other required documents to
an address or facsimile number other than those listed above, your tender is
invalid.
FEES AND EXPENSES
We will pay all fees and expenses of soliciting tenders for the Outstanding
Notes. We will also pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses.
We will pay the transfer taxes for the exchange of the Outstanding Notes in
the Exchange Offer. If, however, Exchange Notes are delivered to or issued in
the name of a person other than the registered holder, or if a transfer tax is
imposed for any reason other than for the exchange of Outstanding Notes in the
Exchange Offer, then the tendering holder will pay the transfer taxes. If a
tendering holder does not submit satisfactory evidence of payment of taxes or
exemption from taxes with the Letter of Transmittal, the taxes will be billed
directly to the tendering holder.
We have not retained any dealer-manager in connection with the Exchange
Offer and will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the Exchange Offer.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes. Accordingly, we will not recognize any gain or loss for
accounting purposes. We intend to amortize the expenses of the Exchange Offer
and issuance of the Outstanding Notes over the respective terms of the Senior
Exchange Notes and Senior Subordinated Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Outstanding Notes for Exchange Notes pursuant
to the Exchange Offer, you will continue to be subject to the restrictions on
transfer of such Outstanding Notes, as set forth in the legend contained in such
notes as a consequence of the issuance of the Outstanding Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
35
42
requirements of the Securities Act and applicable state securities laws. In
general, you may not offer or sell the Outstanding Notes unless they are
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. We do not currently anticipate registering the Outstanding Notes under the
Securities Act. Based on interpretations by the staff of the Commission, you may
offer for resale, sell or otherwise transfer the Exchange Notes issued pursuant
to the Exchange Offer (unless you are 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 you acquired such Exchange Notes in the ordinary course of your business
and you have no arrangement or understanding with respect to the distribution of
the Exchange Notes to be acquired pursuant to the Exchange Offer. If you tender
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes, you (i) may 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, you may not offer or sell the Exchange
Notes unless the notes have been registered or the laws have been complied with.
We have agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the Exchange Notes
for offer or sale under the securities or blue sky laws of such jurisdictions as
are necessary to consummate the Exchange Offer.
THE ACQUISITION
Pursuant to the terms of the definitive agreements relating to the
Acquisition, Venture acquired all of the outstanding capital stock of Peguform
GmbH from its parent, Klockner Mercator Maschinenbau GmbH, a wholly-owned
subsidiary of Klockner-Werke AG, and another, nominal shareholder on May 28,
1999. The aggregate purchase price for the Acquisition was DEM 850 million
(approximately $455.0 million as of May 28, 1999), reduced by the amount of
certain indebtedness for borrowed money, including indebtedness to
Klockner-Werke AG, all of which was repaid at closing. The purchase price is
subject to adjustment based upon the amount by which working capital or net
equity of Peguform is less than, or exceeds, applicable targets. The purchase
price was paid in cash. See "Business -- The Acquisition."
USE OF PROCEEDS
The Exchange Offer will not generate cash proceeds for the Company. We used
the proceeds from the offering of the Outstanding Notes together with $380.3
million drawn under the New Credit Agreement, as follows: (1) approximately
$448.0 million was used to fund the cash consideration paid in the Acquisition
(excluding $7.0 million of acquired indebtedness included in the $455.0 million
aggregate purchase price); (2) approximately $82.8 million was used to redeem
the 1994 Notes, including prepayment premium; (3) approximately $75.0 million
was used to refinance Venture's senior credit facility (the "Prior Credit
Agreement"); and (4) approximately $24.5 million was used to pay certain fees
and expenses related to the Acquisition and the offering of the Outstanding
Notes. For a description of the Acquisition, see "Business -- The Acquisition."
On May 27, 1999, Venture entered into the New Credit Agreement. The New
Credit Agreement, as amended, provides for credit facilities in the principal
amount of $575.0 million, including a $175.0 million Revolving Credit Facility
and Term Loans aggregating $400.0 million.
36
43
The following table summarizes the sources and uses of funds from the New
Credit Agreement and the sale of the Outstanding Notes.
SOURCES OF FUNDS:
New Credit Agreement(1):
Revolving Credit Facility................................. $ 5,300
Term Loans................................................ 375,000
Senior Notes................................................ 125,000
Senior Subordinated Notes................................... 125,000
--------
Total Sources............................................. $630,300
========
USES OF FUNDS:
Acquisition(2).............................................. $448,000
Prior Credit Agreement...................................... 75,000
1994 Notes(3)............................................... 82,800
Fees and Expenses........................................... 24,500
--------
Total Uses................................................ $630,300
========
- -------------------------
(1) As of June 4, 1999 we entered into an amendment to the New Credit Agreement,
which increased the Term Loans from $375.0 million to $400.0 million and
reduced the Revolving Credit Facility from $200.0 million to $175.0 million.
See "Description of Certain Indebtedness -- New Credit Agreement."
(2) Excluding $7.0 million of acquired indebtedness included in the $455.0
million aggregate purchase price.
(3) Includes the redemption of the 1994 Notes in the aggregate principal amount
of $78.9 million, and a prepayment premium of approximately $3.9 million.
37
44
CAPITALIZATION
The following table sets forth (1) cash and cash equivalents and the actual
capitalization of Venture at March 31, 1999, and (2) pro forma as adjusted
capitalization of the Company to give effect to (a) the Acquisition; (b) the
refinancing of the Prior Credit Agreement and redemption of the 1994 Notes; (c)
the sale of the Outstanding Notes and the application of the net proceeds
therefrom and (d) borrowings under the New Credit Facility, as if such
transactions had occurred on March 31, 1999. See "The Acquisition;" "Use of
Proceeds;" and "Unaudited Pro Forma Financial Statements." This information
should be read in conjunction with the unaudited pro forma balance sheet, the
consolidated financial statements and the Notes thereto of Venture and Peguform
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
MARCH 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 3,153 $ 11,425
======== ========
Long-term debt (including current portion)
Prior Credit Agreement.................................... $ 75,000 $ --
New Credit Agreement(1):
Revolving Credit Facility.............................. -- 5,300
Term Loans............................................. -- 375,000
Capital leases............................................ 2,056 31,876
Installment Notes payable................................. 1,660 1,660
Other long-term debt(2)................................... -- 7,038
1997 Senior Notes......................................... 205,000 205,000
11% Senior Notes due 2007................................. -- 125,000
1994 Notes................................................ 78,940 --
12% Senior Subordinated Notes due 2009.................... -- 125,000
-------- --------
Total long-term debt................................... $362,656 $875,874
Trust principal(3).......................................... 85,219 78,096
-------- --------
Total capitalization................................... $447,875 $953,970
======== ========
- -------------------------
(1) On June 4, 1999 we entered into an amendment to the New Credit Agreement
which increased the Term Loans from $375,000 to $400,000 and reduced the
Revolving Credit Facility to allow for borrowings of up to $175,000, subject
to a borrowing base formula. In addition to secured debt, as of March 31,
1999, on a pro forma basis, there will be $2,975 of letters of credit
outstanding under the Revolving Credit Facility. See "Description of Certain
Indebtedness -- New Credit Agreement."
(2) Indebtedness associated with Peguform's 70% owned Mexican joint venture.
(3) Pro forma amount represents amount as adjusted downward for (a) the
elimination of Peguform's stockholders' equity, adjusted by $1,498 for
accumulated other comprehensive income relating to Peguform's minimum
pension liability, and (b) the repayment of the 1994 Notes of $78,940, the
pre-payment premium of $3,848 paid to retire the 1994 Notes early and the
write-off of $1,777 in unamortized financing costs associated with the
repayment of the 1994 Notes.
38
45
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The information set forth under the heading Pro Forma included in the
Unaudited Consolidated Pro Forma Balance Sheet as of March 31, 1999 (December
31, 1998 for Peguform) reflects: (1) the Acquisition; (2) the refinancing of the
Prior Credit Agreement and redemption of the 1994 Notes; (3) the offering of the
Outstanding Notes and borrowings under the New Credit Agreement, and the
application of the net proceeds therefrom to the Company as described under "Use
of Proceeds," as if such transactions had occurred on such date.
The Unaudited Consolidated Pro Forma Statement of Operations for the year
ended December 31, 1998 gives effect to: (1) the Acquisition; (2) the
refinancing of the Prior Credit Agreement and redemption of the 1994 Notes; and
(3) the offering of the Outstanding Notes and borrowings under the New Credit
Agreement, and the application of the net proceeds therefrom to the Company as
described in "Use of Proceeds," as if such transactions had occurred on January
1, 1998. The Unaudited Consolidated Pro Forma Statement of Operations for the
three months ended March 31, 1999 (three months ended December 31, 1998 for
Peguform) gives effect to: (1) the Acquisition; (2) the refinancing of the Prior
Credit Agreement and redemption of the 1994 Notes; and (3) the offering of the
Outstanding Notes and borrowings under the New Credit Agreement, and the
application of the net proceeds therefrom to the Company as described in "Use of
Proceeds," as if such transactions had occurred on January 1, 1999.
The Unaudited Pro Forma Consolidated Statement of Operations does not
include pro forma adjustments for certain non-recurring costs and charges,
consisting of (1) the prepayment charge of $3.9 million on the redemption of the
1994 Notes and (2) the $1.8 million write-off of deferred financing costs.
The Unaudited Pro Forma Financial Statements do not reflect any of the
anticipated cost savings which the Company expects to achieve through
integration of the operations of Peguform and Venture. See "Business -- The
Acquisition" and "-- Business Strategy."
Solely for the convenience of the readers, the historical financial
information for Peguform has been translated to United States dollars at the
rate of DEM 1.6767 per United States dollar, the Noon Buying Rate as of December
31, 1998. The translation should not be construed as a representation that the
amounts shown could be converted into United States dollars at such rate or any
other rate.
The unaudited pro forma financial data presented herein are based on the
assumptions and adjustments described in the accompanying notes. The Unaudited
Consolidated Pro Forma Statement of Operations does not purport to represent
what the Company's results of operations actually would have been if the events
described above had occurred as of the dates indicated or what such results will
be for any future periods. The Unaudited Pro Forma Financial Statements are
based upon assumptions and adjustments that we believe are reasonable. The
Unaudited Pro Forma Financial Statements and the accompanying notes should be
read in conjunction with the historical financial statements of Venture and of
Peguform, including the notes thereto, included elsewhere in this prospectus.
39
46
VENTURE HOLDINGS COMPANY LLC
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999 (DECEMBER 31, 1998 FOR PEGUFORM)
HISTORICAL
---------------------- PRO FORMA
VENTURE PEGUFORM(A) ADJUSTMENTS PRO FORMA
-------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 3,153 $ 8,272 $ $ 11,425
Accounts receivable................ 200,067 159,272 359,339
Inventories........................ 53,288 115,285 168,573
Prepaid expenses/Other............. 8,648 6,270 14,918
-------- -------- ---------- ----------
Total current assets............ 265,156 289,099 554,255
Property, Plant & Equipment -- Net... 196,226 312,021 508,247
Intangible Assets.................... 51,552 39,332 (38,640)(B) 176,176
123,932(C)
Other Assets......................... 26,547 8,169 21,900(D) 54,839
(1,777)(E)
Deferred Tax Assets.................. 11,035 3,014 14,049
-------- -------- ---------- ----------
Total assets.................... $550,516 $651,635 $ 105,415 $1,307,566
======== ======== ========== ==========
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable................... $ 62,506 $151,377 $ $ 213,883
Accrued payroll & taxes............ 10,331 32,860 43,191
Accrued interest................... 6,274 -- 6,274
Other accrued expenses............. 5,701 28,191 33,892
Current portion of long-term
debt............................ 1,588 216,077 (209,614)(F) 8,051
-------- -------- ---------- ----------
Total current liabilities....... 86,400 428,505 (209,614) 305,291
Other Liabilities.................... 5,948 30,487 36,435
Deferred Tax Liabilities............. 11,881 8,040 19,921
Long-Term Debt....................... 361,068 56,184 630,300(G) 867,823
(25,789)(F)
(78,940)(E)
(75,000)(H)
-------- -------- ---------- ----------
Total liabilities............... 465,297 523,216 240,957 1,229,470
Trust Principal/Stockholders
Equity............................. 85,219 128,419 (129,917)(I) 78,096
(5,625)(E)
-------- -------- ---------- ----------
Total Liabilities and Trust
Principal/ Stockholders'
Equity........................ $550,516 $651,635 $ 105,415 $1,307,566
======== ======== ========== ==========
See notes to Unaudited Consolidated Pro Forma Balance Sheet.
40
47
VENTURE HOLDINGS COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999 (DECEMBER 31, 1998 FOR PEGUFORM)
(DOLLARS IN THOUSANDS)
(A) For purposes of the Unaudited Consolidated Pro Forma Balance Sheet, certain
items included in Peguform's historical balance sheet have been
reclassified to conform to Venture's historical balance sheet presentation
as follows:
(1) "Prepaid expenses/Other" includes the sum of "Deferred tax assets" and
"Prepaid expenses" as classified in the unaudited Consolidated Balance
Sheet of Peguform as of December 31, 1998;
(2) "Other accrued expenses" includes the sum of "Other accrued expenses,"
"Income taxes payable," "Deferred tax liabilities (short term)" and
"Other current liabilities and deferred income" as classified in the
unaudited Consolidated Balance Sheet of Peguform as of December 31,
1998; and
(3) "Other Liabilities" includes the sum of "Accrued for pension
obligations," "Minority interest" and "Other non-current liabilities
and deferred income" as classified in the unaudited Consolidated
Balance Sheet of Peguform as of December 31, 1998.
(B) The pro forma adjustment represents the elimination of goodwill recorded on
Peguform's balance sheet at December 31, 1998.
(C) The pro forma adjustment represents the estimated goodwill resulting from
the Acquisition. We are in the process of obtaining certain evaluations,
estimations, appraisals and actuarial and other studies for purposes of
computing the final amount of goodwill and allocating the portion of
goodwill applicable to other balance sheet line items. We may revise our
original estimate of goodwill as additional information is available.
(D) The pro forma adjustment represents the financing costs of $21,900 related
to the additional debt to finance the Acquisition, repay certain
indebtedness and pay related fees and expenses.
(E) The pro forma adjustments represent the repayment of the 1994 Notes of
$78,940, the pre-payment premium of $3,848 paid to retire the 1994 Notes
early and the write-off of $1,777 in unamortized financing costs associated
with the 1994 Notes.
EXTRAORDINARY
ITEM
-------------
Prepayment premium on 1994 Notes............................ $3,848
Unamortized Financing Costs................................. 1,777
------
$5,625
======
(F) Represents the repayment of Peguform debt as follows:
Current portion of long-term debt........................... $209,614
Long-term Debt.............................................. 25,789
41
48
(G) The pro forma adjustment represents the additional debt necessary to finance
the Acquisition, repay certain indebtedness and pay related fees and
expenses.
Additional Debt (long term):
New Credit Agreement(1)
Revolving Credit Facility.............................. $ 5,300
Term Loans............................................. 375,000
11% Senior Notes due 2007................................. 125,000
12% Senior Subordinated Notes due 2009.................... 125,000
--------
$630,300
========
(1) As of June 4, 1999 the New Credit Agreement was amended to increase
the Term Loans from $375,000 to $400,000 and reduce the Revolving
Credit Facility from $200,000 to $175,000.
(H) The pro forma adjustment represents the repayment of the Company's senior
credit facility outstanding balance of $75,000.
(I) The pro forma adjustment represents the elimination of Peguform's
stockholders' equity, adjusted by $1,498 for accumulated other
comprehensive income relating to Peguform's minimum pension liability.
42
49
VENTURE HOLDINGS COMPANY LLC
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
HISTORICAL
---------------------- PRO FORMA
VENTURE PEGUFORM(A) ADJUSTMENTS PRO FORMA
-------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
Net sales.......................... $645,196 $1,288,256 $ $1,933,452
Cost of products sold.............. 532,809 1,145,740 1,678,549
-------- ---------- -------- ----------
Gross profit....................... 112,387 142,516 254,903
Selling, general and administrative
expense.......................... 59,689 125,038 4,268(C) 192,290
3,295(D)
Payments to beneficiary in lieu of
trust distributions.............. 535 -- 535
-------- ---------- -------- ----------
Income (loss) from operations...... 52,163 17,478 (7,563) 62,078
Interest expense (net)............. 36,641 14,022(B) 18,699(E) 69,362(B)
-------- ---------- -------- ----------
Net income (loss) before taxes..... 15,522 3,456 (26,262) (7,284)
Tax provision (benefit)............ 1,954 3,556 (14,444)(F) (8,934)
Minority interest.................. -- (574) (574)
-------- ---------- -------- ----------
Net income (loss).................. $ 13,568 $ 474 $(11,818) $ 2,224
======== ========== ======== ==========
See notes to the Unaudited Consolidated Pro Forma Statement of Operations
43
50
VENTURE HOLDINGS COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(A) The Peguform statement of operations represents the 12-months ended December
31, 1998. Amounts were derived from Peguform's audited financial statements
for the year ended September 30, 1998, and from unaudited financial
statements for the 3 months ended December 31, 1998, less the amounts from
unaudited financial statements for the 3 months ended December 31, 1997.
For purposes of the Unaudited Consolidated Pro Forma Statement of
Operations, certain items included in Peguform's historical financial data
have been reclassified to conform to Venture's historical statement of
operations presentations as follows:
(1) "Net sales" includes the sum of "net sales" and "other revenues" as
classified in and calculated from Peguform's Consolidated Statements of
Income; and
(2) "Selling, general and administrative expense" includes the sum of
"Selling, general and administrative expenses" and "Other expenses" as
classified in and calculated from Peguform's Consolidated Statements of
Income.
(B) The Peguform historical and pro forma amounts are net of interest income of
$3,364 at Peguform for the 12 months ended December 31, 1998.
(C) The pro forma adjustment represents the amortization of goodwill resulting
from the Acquisition over a 30 year period.
(D) The pro forma adjustment represents the amortization of financing costs
resulting from the financing of the Acquisition, including the New Credit
Agreement and the Outstanding Notes, over the respective maturities of the
additional debt. The maturities of the New Credit Agreement range from 18
months to 6 years, and maturities on the 11% Senior Notes due 2007 and 12%
Senior Subordinated Notes due 2009 are assumed to be 8 and 10 years,
respectively.
(E) The pro forma adjustment represents the incremental interest expense
necessary to reflect the total interest expense on the outstanding debt of
the combined Company for the period.
Elimination of historical interest expense.................. $(31,022)
Interest expense with respect to New Credit Agreement(1).... 32,215
Interest expenses with respect to Notes(2).................. 22,500
Reduction in interest expense with respect to 1997
Senior Notes(3)........................................... (4,994)
--------
Total incremental interest................................ $ 18,699
========
(1) Assumes that loans under the New Credit Agreement (which bear interest
at floating rates) bear interest at a weighted average interest rate of
8.05% per annum, including the impact of existing interest rate swap
agreements, and that the New Credit Agreement maintains an average
outstanding balance of $400,000.
(2) We entered into interest rate swaps with 5 year terms which effectively
convert our United States dollar fixed rate coupon on the Notes to a
euro fixed rate coupon. We entered into this arrangement to take
advantage of lower interest rates in Europe and to hedge our
44
51
exchange rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources Following the Acquisition." Interest expense on the Notes
reflects these interest rate swaps, with a weighted average interest
rate of 11.50% on the Senior Notes and Senior Subordinated Notes
converted into a weighted average euro interest rate of 9.00%. These
instruments may not qualify for hedge accounting, which may result in
non-cash charges to earnings related to the mark to market on the
swaps.
(3) We entered into interest rate swaps with 3-year terms which effectively
convert our United States dollar fixed rate coupon on the 1997 Senior
Notes to a euro fixed rate coupon. We entered into this arrangement to
take advantage of lower interest rates in Europe and to hedge our
exchange rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources Following the Acquisition." Interest expense on the 1997
Senior Notes reflects these interest rate swaps with an interest rate
of 9.50% converted into a euro interest rate of 7.09%. These
instruments may not qualify for hedge accounting, which may result in
non-cash charges to earnings related to the mark to market on the
swaps.
(4) Our actual interest expense could differ from the above amounts based
on increases in interest rates on floating rate debt. An increase of
0.25% in interest rates on anticipated borrowings under the New Credit
Agreement would have the effect of increasing interest expense by $0.9
million.
(F) The pro forma adjustment represents the tax impact at the applicable
statutory rates for Peguform of (55%).
45
52
VENTURE HOLDINGS COMPANY LLC
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(THREE MONTHS ENDED DECEMBER 31, 1998 FOR PEGUFORM)
HISTORICAL
---------------------- PRO FORMA
VENTURE PEGUFORM(A) ADJUSTMENTS PRO FORMA
-------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
Net sales................................ $165,992 $345,738 $ $511,730
Cost of products sold.................... 133,070 309,789 442,859
-------- -------- -------- --------
Gross profit............................. 32,922 35,949 68,871
Selling, general and administrative
expense................................ 14,270 31,611 1,033(C) 47,737
823(D)
Payments to beneficiary in lieu of trust
distributions.......................... -- --
-------- -------- -------- --------
Income (loss) from operations............ 18,652 4,338 (1,856) 21,134
Interest expense (net)................... 9,479 3,777(B) 4,553(E) 17,809
-------- -------- -------- --------
Net income (loss) before taxes........... 9,173 561 (6,409) 3,325
Tax provision (benefit).................. 1,067 476 (3,525)(F) (1,982)
Minority interest........................ -- (275) (275)
-------- -------- -------- --------
Net income (loss)........................ $ 8,106 $ 360 $ (2,884) $ 5,582
======== ======== ======== ========
See notes to the Unaudited Consolidated Pro Forma Statement of Operations
46
53
VENTURE HOLDINGS COMPANY LLC
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(THREE MONTHS ENDED DECEMBER 31, 1998 FOR PEGUFORM)
(DOLLARS IN THOUSANDS)
(A) The Peguform statement of operations represents the 3-months ended December
31, 1998. Amounts were derived from Peguform's unaudited financial
statements for the 3-months ended December 31, 1998.
For purposes of the Unaudited Consolidated Pro Forma Statement of
Operations, certain items included in Peguform's historical financial data
have been reclassified to conform to Venture's historical statement of
operations presentations as follows:
(1) "Net sales" includes the sum of "net sales" and "other revenues" as
classified in and calculated from Peguform's Consolidated Statements of
Income; and
(2) "Selling, general and administrative expense" includes the sum of
"Selling, general and administrative expenses" and "Other expenses" as
classified in and calculated from Peguform's Consolidated Statements of
Income.
(B) The Peguform historical and pro forma amounts are net of interest income of
$317 at Peguform for the 3-months ended December 31, 1998.
(C) The pro forma adjustment represents the amortization of goodwill resulting
from the Acquisition over a 30 year period.
(D) The pro forma adjustment represents the amortization of financing costs
resulting from the financing of the Acquisition, including the New Credit
Agreement and the Outstanding Notes, over the respective maturities of the
additional debt. The maturities of the New Credit Agreement range from 18
months to 6 years, and maturities on the 11% Senior Notes due 2007 and 12%
Senior Subordinated Notes due 2009 are assumed to be 8 and 10 years,
respectively.
(E) The pro forma adjustment represents the incremental interest expense
necessary to reflect the total interest expense on the outstanding debt of
the combined Company for the period.
Elimination of historical interest expense.................. $ (7,777)
Interest expense with respect to New Credit Agreement(1).... 8,102
Interest expenses with respect to Notes(2).................. 5,625
Reduction in interest expense with respect to 1997
Senior Notes(3)........................................... (1,397)
--------
Total incremental interest................................ $ 4,553
========
(1) Assumes that loans under the New Credit Agreement (which bear interest
at floating rates) bear interest at a weighted average interest rate of
8.10% per annum, including the impact of existing interest rate swap
agreements, and that the New Credit Agreement maintains an average
outstanding balance of $400,000.
(2) We entered into interest rate swaps with 5 year terms which effectively
convert our United States dollar fixed rate coupon on the Notes to a
euro fixed rate coupon. We entered into this arrangement to take
advantage of lower interest rates in Europe and to hedge our exchange
rate risk. See "Management's Discussion and Analysis of Financial
Condition and
47
54
Results of Operations -- Liquidity and Capital Resources Following the
Acquisition." Interest expense on the Notes reflects these interest
rate swaps, with a weighted average interest rate of 11.50% on the
Senior Notes and Senior Subordinated Notes converted into a weighted
average euro interest rate of 9.00%. These instruments may not qualify
for hedge accounting, which may result in non-cash charges to earnings
related to the mark to market on the swaps.
(3) We entered into interest rate swaps with 3 year terms which effectively
convert our United States dollar fixed rate coupon on the 1997 Senior
Notes to a euro fixed rate coupon. We entered into this arrangement to
take advantage of lower interest rates in Europe and to hedge our
exchange rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources Following the Acquisition." Interest expense on the 1997
Senior Notes reflects these interest rate swaps with an interest rate
of 9.50% converted into a euro interest rate of 7.09%. These
instruments may not qualify for hedge accounting, which may result in
non-cash charges to earnings related to the mark to market on the
swaps.
(4) Our actual interest expense could differ from the above amounts based
on increases in interest rates on floating rate debt. An increase of
0.25% in interest rates on anticipated borrowings under the New Credit
Agreement would have the effect of increasing interest expense by $0.2
million.
(F) The pro forma adjustment represents the tax impact at the applicable
statutory rates for Peguform of (55%).
48
55
SELECTED CONSOLIDATED FINANCIAL DATA OF VENTURE
The selected consolidated balance sheet data and income statement data
presented below as of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996, are derived from Venture's consolidated
financial statements, audited by Deloitte & Touche LLP, independent auditors,
and should be read in conjunction with Venture's audited consolidated financial
statements and notes thereto included elsewhere herein. The selected
consolidated income statement data and balance sheet data presented below as of
December 31, 1996, 1995 and 1994 and for the years ended December 31, 1995 and
1994, are derived from Venture's audited consolidated financial statements not
included herein. The selected consolidated income statement data and balance
sheet data as of March 31, 1998 and 1999 and for the three months then ended,
are derived from unaudited financial statements but, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the results for such periods and
as of such dates. The results for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full fiscal year.
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA(1)(2):
Net sales.............................. $244,112 $251,142 $351,777 $624,113 $645,196 $166,612 $165,992
Cost of products sold.................. 199,717 211,262 302,940 521,361 532,809 133,616 133,070
-------- -------- -------- -------- -------- -------- --------
Gross profit......................... 44,395 39,880 48,837 102,752 112,387 32,996 32,922
Selling, general and administrative
expense.............................. 19,200 20,129 26,588 57,217 59,689 14,855 14,270
Payments to beneficiary in lieu of
taxes................................ 3,405 577 666 472 535 -- --
-------- -------- -------- -------- -------- -------- --------
Income from operations................. 21,790 19,174 21,583 45,063 52,163 18,141 18,652
Interest expense....................... 14,345 15,032 19,248 30,182 36,641 7,145 9,479
-------- -------- -------- -------- -------- -------- --------
Net income before extraordinary items
and taxes............................ 7,445 4,142 2,335 14,881 15,522 10,996 9,173
Net extraordinary loss on early
retirement of debt................... -- -- 2,738 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) after extraordinary
items................................ 7,445 4,142 (403) 14,881 15,522 10,996 9,173
Tax provision(3)....................... -- -- 336 3,358 1,954 1,465 1,067
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 7,445 $ 4,142 $ (739) $ 11,523 $ 13,568 $ 9,531 $ 8,106
Ratio of earnings to fixed
charges(4)........................... 1.7x 1.3x 1.2x 1.5x 1.4x 1.9x 1.7x
OTHER FINANCIAL DATA:
EBITDA(5).............................. $ 41,021 $ 37,001 $ 46,123 $ 80,391 $ 94,216 $ 28,336 $ 30,205
Depreciation and amortization.......... 14,070 16,068 22,628 32,147 39,320 9,079 10,794
Capital expenditures................... 22,798 20,339 64,593 33,012 24,706 8,371 2,688
Net cash provided by (used in):
Operating activities................. (3,066) 10,950 35,003 (13,058) (5,393) (6,729) 7,995
Investing activities................. (22,798) (20,339) (121,547) (37,093) (24,706) (8,371) (2,688)
Financing activities................. 53,643 (655) 82,976 36,192 28,752 21,608 (2,284)
49
56
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................ $ 85,258 $ 74,354 $ 83,404 $125,101 $168,655 $156,076 $178,756
Property, plant and equipment -- net... 111,472 116,299 203,975 205,765 200,544 205,529 196,226
Total assets........................... 234,435 231,602 498,067 524,122 541,315 564,341 550,516
Total debt............................. 153,118 152,463 299,996 336,188 364,939 357,796 362,656
Trust principal........................ 49,356 53,498 52,759 64,282 77,113 73,813 85,219
- -------------------------
(1) The Issuer operates as a holding company and has no independent operations
of its own. Separate financial statements of the Issuer's subsidiaries have
not been presented because we do not believe that such information would be
material.
(2) The results for 1996 include the operations of Bailey from August 26, 1996,
and of AutoStyle from June 3, 1996.
(3) This provision relates solely to Venture Holdings Corporation (which
operates Bailey) and its subsidiaries (see Note 2 above). Other significant
subsidiaries and the Issuer have elected "S" corporation status under the
Code or are LLCs (taxed as partnerships) and, consequently, do not incur
liability for federal and certain state income taxes.
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of net income before extraordinary items and fixed charges. Fixed
charges consist of (1) interest, whether expensed or capitalized; (2)
amortization of debt discount and debt financing costs; and (3) the portion
of rental expense that management believes is representative of the interest
component of rental expense.
(5) EBITDA represents income from operations before deducting taxes (including
the Michigan single business tax), depreciation, amortization, interest and
payment to beneficiary in lieu of taxes. EBITDA is not presented as an
alternative to net income, as a measure of operating results or as an
indicator of Venture's performance, nor is it presented as an alternative to
cash flow or as a measure of liquidity, but rather to provide additional
information related to debt service capacity. EBITDA should not be
considered in isolation or 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. EBITDA, while commonly used, is not
calculated uniformly by all companies and should not be used as a
comparative measure without further analysis, nor does EBITDA necessarily
represent funds available for discretionary use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a discussion of liquidity and operating results.
50
57
SELECTED CONSOLIDATED FINANCIAL DATA OF PEGUFORM
The selected consolidated balance sheet data and income statement data
presented below as of September 30, 1997 and 1998 and for the years ended
September 30, 1997 and 1998, are derived from Peguform's audited financial
statements, audited by BDO International GmbH Wirtschaftsprufungsgesellschaft,
independent auditors, and should be read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere herein.
The selected condensed consolidated financial data as presented below as of and
for the three month periods ended December 31, 1997 and 1998 are derived from
unaudited financial statements but, in the opinion of management, reflect all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of the results for such periods and as of such dates. The results
for the three months ended December 31, 1998 are not necessarily indicative of
results to be expected for the full fiscal year.
Solely for the convenience of the readers, the following consolidated
financial statements have been translated to United States dollars at the rate
of DEM 1.6767 per United States dollar, the Noon Buying Rate as of December 31,
1998. The translation should not be construed as a representation that the
amounts shown could be converted into United States dollars at such rate or any
other rate.
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------
1997 1998 1997 1998
----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net Sales..................................... $ 992,953 $1,179,518 $263,518 $344,561
Other revenues................................ 10,567 27,272 754 1,177
---------- ---------- -------- --------
Total revenues................................ 1,003,520 1,206,790 264,272 345,738
Cost of products sold......................... 884,146 1,077,184 241,233 309,789
Gross profit.................................. 119,374 129,606 23,039 35,949
Selling, general and administrative
expenses.................................... 92,102 119,902 22,613 30,660
Other expenses................................ 4,487 1,436 5,298 951
Interest expense (net)........................ 13,877 14,309 4,064 3,777
---------- ---------- -------- --------
Income before income taxes.................. 8,908 (6,041) (8,936) 561
Taxes on income............................... 3,596 3,614 534 476
Minority interest............................. 369 (301) (2) (275)
---------- ---------- -------- --------
Net income (loss)............................. $ 4,943 $ (9,354) $ (9,468) $ 360
OTHER FINANCIAL DATA:
EBITDA(1)..................................... $ 77,278 $ 64,947 $ 9,735 $ 19,575
EBITDA, as adjusted(2)........................ 76,040
Depreciation and amortization................. 52,381 52,922 14,196 14,645
Capital Expenditures.......................... 60,842 85,616 22,101 14,156
51
58
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------
1997 1998 1997 1998
----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital(3)............................ $ 45,668 $ 43,061 $ 78,255 $ 25,443
Property, plant and equipment (net)........... 291,178 319,198 297,206 312,021
Total assets.................................. 625,446 663,224 676,969 651,635
Total debt.................................... 245,464 273,287 323,199 272,261
Total stockholders' equity.................... 130,239 128,011 119,930 128,419
- -------------------------
(1) EBITDA represents income from operations, net of minority interest, before
deducting taxes, depreciation, amortization, and interest. EBITDA is not
presented as an alternative to net income, as a measure of operating results
or as an indicator of Peguform's performance, nor is it presented as an
alternative to cash flow or as a measure of liquidity, but rather to provide
additional information related to debt service capacity. EBITDA should not
be considered in isolation or 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. EBITDA, while commonly used, is
not calculated uniformly by all companies and should not be used as a
comparative measure without further analysis, nor does EBITDA necessarily
represent funds available for discretionary use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a discussion of liquidity and operating results.
(2) EBITDA (as adjusted) represents EBITDA plus a non-recurring charge of
$11,093 related to start-up production costs on the Mercedes A-Class
hatchback program.
(3) Working capital does not include loans payable to Peguform's parent of
$158,031 at September 30, 1997, $183,957 at September 30, 1998, $209,922 at
December 31, 1997 and $164,850 at December 31, 1998. All outstanding
intercompany loans were be repaid as part of the purchase price for the
Acquisition.
52
59
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- VENTURE
The following table sets forth, for the periods indicated, Venture's
consolidated statements of income expressed as a percentage of net sales. This
table and the subsequent discussion should be read in conjunction with Venture's
consolidated financial statements and notes thereto included elsewhere herein.
AS A PERCENTAGE OF NET SALES
-------------------------------------
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold.............................. 86.1 83.5 82.6 80.2 80.2
----- ----- ----- ----- -----
Gross profit....................................... 13.9 16.5 17.4 19.8 19.8
Selling, general and administrative expenses....... 7.6 9.2 9.2 8.9 8.6
Payments to beneficiary in lieu of Trust
distributions.................................... 0.2 0.1 0.1 0.0 0.0
----- ----- ----- ----- -----
Income from operations............................. 6.1 7.2 8.1 10.9 11.2
Interest expense................................... 5.4 4.8 5.7 4.3 5.7
----- ----- ----- ----- -----
Income before extraordinary items and taxes........ 0.7 2.4 2.4 6.6 5.5
Extraordinary loss on retirement of debt........... 0.8 -- -- -- --
----- ----- ----- ----- -----
Income (loss) before taxes......................... (0.1) 2.4 2.4 6.6 5.5
Tax provision...................................... 0.1 0.5 0.3 0.9 0.6
----- ----- ----- ----- -----
Net income (loss).................................. (0.2)% 1.9% 2.1% 5.7% 4.9%
===== ===== ===== ===== =====
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net sales for the first quarter of 1999 decreased $0.6 million, or 0.4%,
from the first quarter of 1998. Net sales were relatively flat due primarily to
lower tooling sales in the first quarter of 1999 compared to the first quarter
of 1998, offset by increased component sales.
Gross profit for the first quarter of 1999 decreased $0.1 million to $32.9
million compared to $33.0 million for the first quarter of 1998. As a percentage
of net sales, gross profit remained constant at 19.8%. During the first quarter
of 1999, a $1.4 million reserve was reversed relating to the renegotiation of a
contract. Excluding the impact of the reserve reversal, the gross profit margin
during the first quarter of 1999 was 19.0%. As compared to the first quarter of
1998 gross profit margin, the first quarter 1999 gross profit margin was lower
as a result of a decrease in tooling sales, which generally account for higher
margins than sales of components.
Selling, general and administrative expense for the first quarter of 1999
decreased $0.6 million, or 4.0%, to $14.3 million compared to $14.9 million for
the first quarter of 1998. As a percentage of net sales, selling, general and
administrative expense decreased from 8.6% for the first quarter of 1999 as
compared to 8.9% for the first quarter of 1998. The decrease is primarily
attributable to cost cutting efforts at the corporate office.
53
60
As a result of the foregoing, income from operations for the first quarter
of 1999 increased $0.6 million, or 2.8%, to $18.7 million, compared to $18.1
million for the first quarter of 1998. As a percentage of net sales, income from
operations increased to 11.2% for the first quarter of 1999 from 10.9% for the
first quarter of 1998.
Interest expense for the first quarter of 1999 increased $2.4 million, to
$9.5 million, as compared to $7.1 million for the first quarter of 1998. The
increase is the result of additional borrowing under Venture's revolving credit
facility to fund increased working capital needs.
Due to the foregoing, net income for the first quarter of 1999 decreased
$1.4 million, or 15.0%, to $8.1 million compared to $9.5 million for the first
quarter of 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales increased $21.1 million for the year ended December 31, 1998, or
3.4%, to $645.2 million, compared to net sales of $624.1 million for the year
ended December 31, 1997. The increase in net sales in 1998 is primarily a result
of increased volumes in the comparable business offset by planned price
reductions mandated by customers under sole-source arrangements for product life
cycles. Venture's productivity improvements for these products partially offset
the planned price reductions. Net sales during the second and third quarters of
1998 were impacted negatively due to strikes at certain General Motors plants.
Venture believes that a portion of these lost sales were recouped in the fourth
quarter of 1998 as GM accelerated production to refill its distribution
channels.
Gross profit for the year ended December 31, 1998 increased $9.7 million,
or 9.4%, to $112.4 million compared to $102.7 million for the year ended
December 31, 1997. As a percentage of net sales, gross profit increased from
16.5% to 17.4% for the year ended December 31, 1998, which was in part due to
the increased volumes associated with product rationalizations among the
facilities and continued cost cutting efforts. During the fourth quarter of
1998, Venture resolved several commercial issues which resulted in the recovery
of gross profit lost during current and prior years. The resolution of these
issues resulted in an additional $7.4 million of gross profit. Gross profits
continue to be under pressure attributable to selling price reductions, as OEMs
continue to expect annual productivity improvements on the part of their
suppliers.
Selling, general and administrative expense for 1998 of $59.7 million, or
9.3% of net sales, is comparable with selling, general and administrative
expense of $57.2 million, or 9.2% of net sales, for 1997.
Payments to the beneficiary of the Trust, in amounts generally equal to
taxes incurred by the beneficiary as a result of the activities of the Trust's
subsidiaries which have elected "S" corporation status under the Code or are
LLCs (taxed as partnerships), totaled $0.5 million in 1998 and 1997. These
amounts were paid as compensation rather than as distributions of Trust
principal.
As a result of the foregoing, income from operations in the year ended
December 31, 1998 increased $7.1 million, or 15.8%, to $52.2 million, compared
to $45.1 million in fiscal 1997. As a percentage of net sales, income from
operations increased to 8.1% in fiscal 1998 from 7.2% in fiscal 1997.
Interest expense increased $6.4 million to $36.6 million in fiscal 1998
compared to $30.2 million in fiscal 1997. The increase is the result of
additional borrowing under the Prior Credit Agreement to fund increased working
capital needs.
Due to the foregoing, net income for the year ended December 31, 1998
increased $2.1 million, to $13.6 million compared to $11.5 million for the year
ended December 31, 1997.
54
61
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The period to period comparisons are substantially effected by the 1996
Acquisitions.
Net sales increased $272.3 million for the year ended December 31, 1997, or
77.4%, to $624.1 million, compared to net sales of $351.8 million for the year
ended December 31, 1996. The increase in net sales was primarily the result
having the benefit of a full year of the Bailey and AutoStyle operating sales.
The operating sales for 1996 represented only the activities subsequent to the
1996 Acquisitions (AutoStyle in June 1996, Bailey in August 1996). The following
table explains the changes (in millions).
NET SALES
YEAR ENDED
DECEMBER 31,
----------------
1997 1996 INCREASE
------ ------ --------
Bailey...................................................... $224.8 $ 72.6 $152.2
AutoStyle................................................... 96.5 38.9 57.6
Comparable.................................................. 302.8 240.3 62.5
------ ------ ------
Total.................................................. $624.1 $351.8 $272.3
====== ====== ======
Sales were less in the last half of the year than were expected for the
Chrysler LH due to a slow new model changeover.
Gross profit for the year ended December 31, 1997 increased $53.9 million,
or 110.4%, to $102.7 million compared to $48.8 million for the year ended
December 31, 1996. As a percentage of net sales, gross profit increased from
13.9% to 16.5% for the year ended December 31, 1997, which was in part due to
the increased volumes associated with product rationalizations among the
facilities and cost cutting efforts at Bailey. However, gross profit was
unfavorably impacted by new model introductions and launch costs in the third
and fourth quarter. Gross profits continued to be under pressure attributable to
selling price reductions, as OEMs continued to expect annual productivity
improvements on the part of their suppliers. In addition, Venture's sales were
shifting more to products produced using the injection molding process, which
traditionally have had higher margins. During the fourth quarter of 1997 certain
reserves were reevaluated and reduced by $2.8 million reflecting changes in
circumstances and estimates and were recorded as reductions in cost of products
sold.
Selling, general and administrative expenses increased $30.6 million, or
115.2%, for fiscal 1997 to $57.2 million, compared to $26.6 million in fiscal
1996. As a percentage of net sales, selling, general and administrative expenses
increased to 9.2% for the year ended December 31, 1997, compared to 7.6% in
1996. The increase was generally due to the acquisition of Bailey and the
attendant cost of its operations.
Payments to the beneficiary of the Trust, in the amounts generally equal to
taxes incurred by the beneficiary as a result of the activities of the Trust's
subsidiaries which have elected "S" corporation status under the Code or are
LLCs (taxed as partnerships), totaled $0.5 million and $0.7 million in fiscal
1997 and 1996, respectively. These amounts were paid as compensation rather than
as distributions of Trust principal.
As a result of the foregoing, income from operations in the year ended
December 31, 1997 increased $23.5 million, or 108.8%, to $45.1 million, compared
to $21.6 million in fiscal 1996. As a percentage of net sales, income from
operations increased to 7.2% in fiscal 1997 from 6.1% in fiscal 1996.
55
62
Interest expense increased $10.9 million to $30.2 million in fiscal 1997
compared to $19.2 million in fiscal 1996. The increase was the result of the
senior credit agreement entered into on August 26, 1996 to fund the Bailey
acquisition, subsequent refinancing and issuance of $205.0 million 1997 Senior
Notes in the third quarter of 1997 and increased working capital needs.
Due to the foregoing, net income for the year ended December 31, 1997
increased $12.2 million, to $11.5 million compared to $(0.7) million for the
year ended December 31, 1996.
RESULTS OF OPERATIONS -- PEGUFORM
The following table sets forth, for the periods indicated, Peguform's
consolidated statements of income expressed as a percentage of total revenues.
This table and the subsequent discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere herein.
AS A PERCENTAGE OF TOTAL REVENUE
--------------------------------
THREE MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------
1997 1998 1997 1998
----- ----- ----- -----
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
Net sales.............................................. 98.9% 97.7% 99.7% 99.7%
Other revenues......................................... 1.1 2.3 0.3 0.3
----- ----- ----- -----
Total Revenues......................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of products sold.................................. 88.1 89.3 91.3 89.6
----- ----- ----- -----
Gross profit........................................... 11.9 10.7 8.7 10.4
Selling, general and administrative expenses........... 9.2 9.9 8.6 8.8
Other expenses......................................... 0.4 0.1 2.0 0.3
Interest expense (net)................................. 1.4 1.2 1.5 1.1
----- ----- ----- -----
Income (loss) before taxes............................. 0.9 (0.5) (3.4) 0.2
Tax provision.......................................... 0.4 0.3 0.2 0.1
Minority interest...................................... (0.0) 0.0 0.0 0.0
----- ----- ----- -----
Net income (loss)...................................... 0.5% (0.8)% (3.6)% 0.1%
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
Net sales increased $81.1 million for the three months ended December 31,
1998, or 30.8%, to $344.6 million, compared to net sales of $263.5 million for
the three months ended December 31, 1997. The increase in net sales is primarily
a result of increased volume in Germany and the Czech Republic and a shift in
the sales mix. The increased volume is due primarily to the effect of sales
relating to new product launches in prior periods.
Other revenues increased $0.4 million for the three months ended December
31, 1998, or 50.0%, to $1.2 million compared to $0.8 million for the three
months ended December 31, 1997. The increase was primarily a result of reversal
of reserves established in previous periods.
Gross profit for the three months ended December 31, 1998 increased $12.9
million, or 56.1%, to $35.9 million compared to $23.0 million for the three
months ended December 31, 1997. As a
56
63
percentage of total revenues, gross profit increased from 8.7% to 10.4% for the
three months ended December 31, 1998 which was primarily due to the lack of
start-up costs associated with new product launch activities in the prior year's
quarter and the result of action plans to control operating costs. Gross profits
continue to be under pressure attributable to selling price reductions, as OEMs
continue to expect annual productivity improvements on the part of their
suppliers.
Selling, general and administrative expense for the three months ended
December 31, 1998 were $30.7 million, or 8.8% of total revenues, as compared to
$22.6 million, or 8.6% of total revenues, for the three months ended December
31, 1997 or an increase of $8.1 million. This increase was primarily a result of
support for the increased sales volume, the operations in Mexico and Brazil,
which are not expected to generate meaningful net sales until the fourth quarter
of the calendar year ending December 31, 1999, and increased data processing
costs related to the increased sales volume.
Interest expense (net) decreased $0.3 million to $3.8 million for the three
months ended December 31, 1998 compared to $4.1 million for the three months
ended December 31, 1997. The decrease is the result of a decrease in borrowing
due to lower working capital requirements.
Due to the foregoing, net income for the three months ended December 31,
1998 increased $9.9 million, to $0.4 million compared to a net loss of $9.5
million for the three months ended December 31, 1997.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Net sales increased $186.6 million for the year ended September 30, 1998,
or 18.8%, to $1,179.5 million, compared to net sales of $992.9 million for the
year ended September 30, 1997. The increase in net sales in 1998 is primarily a
result of increased volumes in Germany and the Czech Republic and a shift in the
sales mix, offset by planned reductions in the selling prices mandated by
customers. The increased volume is due primarily to increased volumes in the
European automotive market, as well as the effect of sales relating to new
product launches in prior periods.
Other revenues increased $16.7 million for the year ended September 30,
1998, or 157.5% to $27.3 million, compared to $10.6 million for the year ended
September 30, 1997. The increase was primarily due to sales of services to
Klockner-Werke AG performed by Peguform at cost and the sale of certain assets
in France and the Czech Republic.
Gross profit for the year ended September 30, 1998 increased $10.2 million,
or 8.5%, to $129.6 million, compared to $119.4 million for the year ended
September 30, 1997. As a percentage of total revenues, gross profit decreased
from 11.9% to 10.7% for the year ended September 30, 1998, which was in part due
to the start-up of new programs in France and Germany, production difficulties
related to the launch of the Mercedes A Class hatchback door program, and
selling price reductions. These reductions were offset by favorable action plans
to reduce costs and increased sales volumes. Peguform believes that the Mercedes
A-Class hatchback production issues have been resolved. Gross profits continue
to be under pressure attributable to selling price reductions, as OEMs continue
to expect annual productivity improvements on the part of their suppliers.
Selling, general and administrative expenses for September 30, 1998 were
$119.9 million, or 9.9% of total revenues, as compared to $92.1 million, or 9.2%
of total revenues, for September 30, 1997, or an increase of $27.8 million. This
increase was due in part to support the growth in net sales coupled with the
establishment of new operations in Mexico and Brazil that are not expected to
generate meaningful net sales until the fourth quarter of calendar year ending
December 31, 1999.
Interest expense (net) increased $0.4 million to $14.3 million in fiscal
1998 compared to $13.9 million in fiscal 1997. The increase is the result of
additional borrowing to fund increased working capital needs and capital
expenditures.
57
64
Due to the foregoing, net income for the year ended September 30, 1998
decreased $14.3 million, to a net loss for the year of $9.4 million compared to
net income of $4.9 million for the year ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Venture's consolidated working capital was $168.7 million at December 31,
1998, compared to $125.1 million at December 31, 1997, an increase of $43.6
million. Venture's working capital ratio increased to 3.1x at December 31, 1998
from 2.3x at December 31, 1997, as a result of increased receivables, primarily
from related parties, and a reduction in accounts payable. At March 31, 1999,
working capital was $178.8 million and Venture's working capital ratio was 3.1x.
Venture's principal sources of liquidity are internally generated funds,
cash equivalent investments and borrowings under its credit facility. Net cash
used in operating activities was $5.4 million for 1998, and $13.1 million for
1997. Net cash provided by operating activities was $35.0 million for 1996, and
$8.0 million for the 3 months ended March 31, 1999. The decrease in cash used in
operations from 1997 to 1998 is due primarily to higher net income, increases in
non-cash charges, such as depreciation and amortization, and reductions in the
net increase in current assets. Peguform's principal source of liquidity
historically has been cash from operations and funding from its parent.
Peguform's net cash flows provided by operating activities were $44.7 million
and $38.0 million for the years ended September 30, 1997 and 1998, respectively,
and $14.1 million for the three months ended December 31, 1998.
Net cash used in investing activities by Venture was $24.7 million, $37.1
million and $121.6 million in 1998, 1997 and 1996, respectively, and $2.7
million for the 3 months ended March 31, 1999. The 1996 amount is primarily for
the acquisition of Bailey. Venture's capital expenditures for the 3 months ended
March 31, 1999, and for years ended 1998 and 1997 were for the purchase of
machinery and equipment, leasehold improvements and the expansion of facilities
to accommodate increased volumes and for general refurbishment. Peguform's
capital expenditures for the year ending September 30, 1998 were approximately
$85.6 million, including $14.2 million and $9.4 million relating to the start-up
of Peguform's Brazilian facility and Mexican facility, respectively. Peguform's
capital expenditures for the three-month period ended December 31, 1998 were
approximately $14.2 million, including $2.0 million relating to the start-up of
Peguform's Brazilian facility. Venture believes that it has sufficient capacity
to meet current manufacturing production needs through the 2001 model year.
In the ordinary course of business, Venture seeks additional business with
existing and new customers. Venture continues to compete for the right to supply
new components which could be material to it and require substantial capital
investment in machinery, equipment, tooling and facilities. As of the date
hereof, however, Venture has no formal commitments with respect to any such
material business, other than business acquired as a consequence of the
Acquisition, and there is no assurance that Venture will be awarded any such
business.
Net cash from financing activities by Venture was $28.8 million in 1998 and
$36.2 million in 1997. In 1997, Venture issued the 1997 Senior Notes. The net
proceeds of $199.0 million from the sale of the 1997 Senior Notes was used to
repay term loans and amounts outstanding under the revolving credit portion of
the Prior Credit Agreement. As a result, less cash was provided by financing
activities during 1998 as compared with 1997. Net cash used in financing
activities for the 3 months ended March 31, 1999 was $2.3 million, relating to a
repayment on the revolving credit portion of the Prior Credit Agreement.
Venture's debt obligations contain various restrictive covenants that
require it to maintain stipulated financial ratios, including a minimum
consolidated net worth (adjusted yearly), fixed
58
65
charge coverage ratio, interest coverage ratio and total indebtedness ratio. As
of each of December 31, 1998 and March 31, 1999, Venture was in compliance with
all debt covenants.
The Prior Credit Agreement allowed Venture to borrow up to the lesser of a
borrowing base computed as a percentage of accounts receivable and inventory, or
$200.0 million less the amount of any letter of credit issued against the Prior
Credit Agreement. Venture had issued letters of credit of approximately $3.0
million at December 31, 1998 against this agreement, thereby reducing the
maximum availability to $197.0 million, and pursuant to the borrowing base
formula could have borrowed $120.4 million, of which $77.0 million was
outstanding thereunder. As of May 27, 1999, $93.5 million was outstanding under
the Prior Credit Agreement.
LIQUIDITY AND CAPITAL RESOURCES FOLLOWING THE ACQUISITION
The aggregate purchase price of the Acquisition was approximately DEM 850
million (approximately $455.0 million as of May 28, 1999), reduced by the amount
of certain indebtedness for borrowed money, and subject to post-closing
adjustments. In addition, Venture estimates an additional $24.5 million of fees,
expenses and post-closing adjustments associated with the Acquisition. Venture
completed the Acquisition on May 28, 1999. The Acquisition is accounted for as a
purchase.
In connection with the Acquisition, we entered into the New Credit
Agreement. The New Credit Agreement, as amended, provides for borrowings of (1)
up to $175.0 million under the Revolving Credit Facility, which, in addition to
those matters described below, will be used for working capital and general
corporate purposes; (2) $75.0 million under Term Loan A; (3) $200.0 million
under Term Loan B; and (4) $125.0 million under Interim Term Loan. The New
Credit Agreement requires that $125.0 million principal amount outstanding
thereunder be refinanced within 18 months from the closing date utilizing the
proceeds from the sale of securities that rank pari passu in right of payment
with, or are junior to, the 12% Senior Subordinated Notes due 2009. See "Risk
Factors -- Substantial Leverage." The Revolving Credit Facility will permit us
to borrow up to the lesser of a borrowing base computed as a percentage of
accounts receivable and inventory, or $175.0 million less the amount of any
letter of credit issued against the New Credit Agreement. Pursuant to the
borrowing base formula as of December 31, 1998 we could have utilized the full
amount available under the Revolving Credit Facility.
Interest rates under the New Credit Agreement are based on the London
Interbank Offer Rate ("LIBOR"), Alternate Base Rate ("ABR"), which is the larger
of the bank's corporate base rate of interest announced from time-to-time or the
federal funds rate plus 1/2% per annum, and, in the case of non-dollar
denominated loans, a euro currency reference rate. Interest rates will be
determined by reference to the relevant interest rate option, plus an Applicable
Margin (as defined) based on the Company's Consolidated Ratio of Total Debt to
EBITDA. Obligations under the New Credit Agreement will be jointly and severally
guaranteed by the Trust's domestic subsidiaries and will be secured by first
priority security interests in substantially all of the assets of the Trust and
its domestic subsidiaries. The New Credit Agreement will contain certain
restrictive covenants, which we expect will be similar in nature to those in the
Prior Credit Agreement. The New Credit Agreement will become effective
contemporaneously with the completion of the Acquisition. See "Description of
Certain Indebtedness -- New Credit Agreement."
Proceeds from the offering of the Outstanding Notes, together with
borrowings under the New Credit Agreement were used to (1) fund cash
consideration paid in the Acquisition; (2) redeem the 1994 Notes, including
prepayment premium; (3) refinance the Prior Credit Agreement; (4) pay certain
fees and expenses related to the Acquisition and the offering of the Outstanding
Notes; and (5) fund working capital and other general corporate purposes.
59
66
We expect our budget for capital expenditures during the remainder of 1999
to be approximately $70.0 million, which is expected to be financed either with
cash generated from operations or borrowings under the New Credit Agreement.
The Issuer must rely upon distributions from its subsidiaries and repayment
of principal and interest on intercompany loans made by the Issuer to its
subsidiaries to generate funds necessary to meet its obligations, including
payment of principal and interest on the Exchange Notes. The ability of the
Issuer's subsidiaries to pay dividends and make other payments or advances to
the Issuer may be limited. See "Risk Factors -- Company Structure; Not all
Subsidiaries are Guarantors."
In connection with the offering of the Outstanding Notes, we entered into
hedging obligations and interest rate swaps totalling approximately $455.0
million, $250.0 million of which have a maturity of 5 years and $205.0 million
of which have a maturity of 3 years. These hedging obligations and interest rate
swaps effectively convert our United States dollar fixed rate coupon on the
Outstanding Notes and the 1997 Senior Notes to a euro fixed rate coupon. These
instruments may not qualify for hedge accounting, which may result in non-cash
charges to earnings related to the mark to market on the swaps. We entered into
this arrangement to take advantage of lower interest rates in Europe and to
hedge our exchange rate risk. See Note E to "Notes to Unaudited Consolidated Pro
Forma Statement of Operations."
The Issuer's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Exchange Notes), finance its working capital
requirements and other operating needs or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations,
management believes that cash flow from operations and available cash, together
with available borrowings under the New Credit Agreement, will be adequate to
meet the Issuer's future liquidity needs for at least the next several years.
The Issuer may, however, need to refinance all or a portion of the principal of
the Exchange Notes on or prior to maturity. There can be no assurance that the
Issuer's business will generate sufficient cash flow from operations, or that
future borrowings will be available under the New Credit Agreement in an amount
sufficient to enable the Issuer to service its indebtedness, including the
Exchange Notes, or to fund its other liquidity needs. The New Credit Agreement
requires the Issuer to refinance $125.0 million principal amount outstanding
under the New Credit Agreement within 18 months from the closing date, utilizing
the proceeds from the sale of securities that are pari passu in right of payment
with, or junior to, the 12% Senior Subordinated Notes 2009. There can be no
assurance that the Issuer will be able to effect any such refinancing on
commercially reasonable terms or at all.
YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations, we
are in the process of addressing the year 2000 problem. The year 2000 issue is
the result of computer programs being written using two digits rather than four
digits to define the applicable year. Any of our systems, equipment, or hardware
that have date sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including among
other things, a temporary inability to properly manufacture products, process
transactions, send invoices or engage in similar normal business activities.
Based on our initial assessments, we determined that we needed to modify or
replace certain portions of our equipment, hardware, and software so that
affected systems will properly utilize dates beyond December 31, 1999. We
presently believe that, with modifications and some replacement of existing
equipment, hardware and software, the year 2000 issue will be mitigated.
60
67
Our plan to resolve the year 2000 issue is being implemented by each of our
facilities and involves six phases:
- inventory;
- risk assessment;
- prioritization and ownership assignment;
- compliance research;
- remediation; and
- testing.
The inventory, risk assessment, prioritization, and ownership assignment
phases were performed concurrently and are substantially complete. The
compliance research phase is substantially complete at all of our facilities.
The remediation and testing phases are expected to be substantially completed by
August 31, 1999 in North America and have already been substantially completed
at our foreign operations, other than France. In France the remediation and
testing phases are expected to be substantially completed by September 30, 1999.
In North America, our year 2000 plan is being completed on a facility by
facility basis. For our foreign operations, it is being completed on a country
by country basis. It is estimated that the compliance research phase is
approximately 99% complete in all of our locations, the remediation phase is
approximately 85% complete in North America and 99% complete elsewhere, and the
testing phase is approximately 80% complete in North America and 85% complete in
other countries.
Our year 2000 inventory of potentially affected items is segregated into
four categories:
- business application (developed software, customized extensions to
purchased software and systems interfaces);
- tools and platforms (purchased commercial products, both hardware and
software);
- intelligent devices (manufacturing, laboratory, office and facilities
equipment); and
- external business partners (suppliers, customers and other service
providers).
Business applications and tools and platforms are considered information
technology ("IT") systems, while intelligent devices and external business
partners are considered non-IT systems.
Concerning IT systems, several of our facilities that share existing
applications will upgrade those applications to year 2000 compliant versions.
All other facilities have already made their systems year 2000 compliant. Our
facilities in Germany and Spain have received "Status Green" in TUV year 2000
audits. TUV is the European equivalent of the Automotive Industry Action Group
in the United States.
With respect to non-IT systems, we have dedicated resources to assist in
identifying potentially affected intelligent devices. Determination of
compliance status, remediation, and testing of these devices may be more
difficult than IT systems, as some of the manufacturers of potentially affected
equipment may no longer be in business.
The external business partners category of potentially affected items
primarily includes the process of identifying and prioritizing critical
suppliers and customers, and communicating with them about their plans and
progress in addressing the year 2000 problem. We have developed a questionnaire
that we have used to obtain this information from key existing business
partners. To date we are not aware of any problems that would materially impact
results of operations, liquidity, or capital resources. However, we have no
means of ensuring that these parties will be year 2000 ready and the inability
of these parties to successfully complete their year 2000 compliance program
could impact us. For key business partners, the initial assessments are
evaluated and, as deemed necessary,
61
68
follow-up assessments are made. We expect this process to be ongoing throughout
1999. We are in the process of developing contingency plans to address potential
year 2000 exposure.
We have utilized both internal and external resources to repair or replace,
test, and implement software and operating equipment for year 2000
modifications. We are unable to estimate with any certainty the total cost of
the year 2000 project. We have not, however, seen a significant increase in our
IT cost nor in the normal overhead cost associated with our facilities.
Primarily all of the costs of the year 2000 project have been expensed and have
been funded through normal operating cash flow or bank borrowings.
The failure to remediate a material year 2000 problem could result in an
interruption in, or a failure of, certain of our normal business activities or
operations, including our ability to produce or deliver products to our
customers. Such failures could materially or adversely affect our results of
operations, liquidity, and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, we are unable to determine with certainty at
this time whether the consequences of year 2000 failure will have a material
impact on us. Our year 2000 plan is expected to significantly reduce our level
of uncertainty about the year 2000 problem. We believe that by executing our
year 2000 plan in a timely manner, the possibility of significant interruptions
to normal operations should be reduced. We believe that our most reasonably
likely worst case scenario is that certain suppliers will not be able to supply
the Company with key materials, thus disrupting the manufacture and sale of
products to our customers.
Our plans to complete the year 2000 project are based on our best
estimates, which were derived utilizing numerous assumptions of future events
including, but not limited to, the continued availability of certain resources
and other factors. Estimates of the status of completion and the expected
completion dates are based on tasks completed to date compared to all required
tasks. However, there can be no guarantee that expected completion dates will be
met, and actual results could differ materially for those forecasted. Specific
factors that might cause such material difference include, but are not limited
to, the availability and cost of personnel trained in certain areas, the ability
to locate and correct all relevant equipment, devices and computer codes, and
similar uncertainties.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) approved SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 establishes
accounting standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains and losses). Venture has adopted this
standard in the financial statements. SFAS No. 131 establishes accounting
standards for the way public enterprises report information about operating
segments in annual financial statements. This statement also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Venture has adopted this accounting standard; however,
there was no impact on its financial statement presentation and disclosures
because Venture operates in only one segment, automotive operations.
In February 1998, the FASB approved SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits," which standardizes the
disclosure requirements for pension and other Post-retirement benefits. In
particular, the Standard requires additional information on changes in the
benefit obligation and fair values of plan assets. Venture has adopted this
Standard in the presentation of its financial statements (Note 10).
In June 1998, the FASB approved SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
62
69
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Standard is effective for the first quarter of our fiscal
year beginning January 1, 2000. Venture has not yet determined the impact of
adopting this Standard on its financial position or results of operations. In
July 1999 the FASB approved SFAS No. 137, which delayed the implementation date
for SFAS No. 133 for one year.
In March 1998, the Accounting Standards Executive committee published
accounting Statement of Position (SOP) 98-1, which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The provisions of this SOP are applicable for our fiscal year beginning
January 1, 1999. Venture does not anticipate that adoption of this Standard will
have a material impact on its financial position or results of operations.
SOP 98-5, Reporting on the Costs of Start-Up Activities, was issued April
1998. SOP 98-5 establishes standards for the financial reporting of start-up
costs and organization costs and requires such costs to be expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
Venture has not yet determined the impact of adopting SOP 98-5 on its financial
condition or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Venture is exposed to market risk related to changes in interest rates and
commodity prices and selectively uses financial instruments to manage some of
these risks. Venture does not use financial instruments for speculation or
trading purposes. A discussion of Venture's accounting policy for derivative
financial instruments is included in the Organization and Summary of Accounting
Policies and the Financial Instruments footnotes to Venture's financial
statements. See Note 1 and Note 13 to "Venture Holdings Trust -- Notes to
Consolidated Financial Statements."
Venture has 3 interest rate exchange agreements with a financial
institution to limit exposure to interest rate volatility. Venture has currency
exposure primarily with respect to the Australian dollar and has chosen not to
hedge that risk at the present time. Venture's exposure to commodity price
changes relates to operations that utilize certain commodities as raw materials.
Venture manages its exposure to changes in these prices primarily through its
procurement and sales practices. Venture had no financial instruments
outstanding as hedges of commodity price risk at each of December 31, 1998 and
March 31, 1999.
These financial exposures are monitored and managed as a part of a risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect. Sensitivity analysis is one
technique used to evaluate the impact of such possible movements on the
valuation of these instruments. A hypothetical 10% change in the value of
foreign currency movements would not have a significant impact on Venture's
financial position, results of operations or future cash flows. In addition,
based upon a 1 percentage point decrease in interest rates at each of December
31, 1998 and March 31, 1999, Venture estimates that the fair market value of the
interest rate exchange agreement would have decreased by $1.1 million and $2.5
million, respectively. A hypothetical 1 percentage point increase in interest
rates related to floating rate debt at each of December 31, 1998 and March 31,
1999 would decrease future pretax earnings and cash flows by $0.2 million
annually.
63
70
BUSINESS
GENERAL
We are a leading worldwide full-service supplier of high quality molded and
painted plastic parts for OEMs, and other Tier I suppliers. We rank among the
largest designers and manufacturers of interior and exterior plastic components
and systems to the North American and European automotive markets. Exterior
products include such items as front and rear bumper fascias and systems, body
side moldings, hatchback doors, fenders, grille opening panels and
reinforcements, farings, wheel lips, spoilers, and large body panels such as
hoods, sunroofs, doors and convertible hardtops. Interior products include
instrument panel systems, door panels, airbag covers, side wall trim,
garnishment molding systems and consoles. Our principal customers include every
major North American OEM, eleven of the twelve major European OEMs, several
major Japanese OEMs, and leading Tier I suppliers. On a pro forma basis for the
twelve months ended December 31, 1998, our net sales totaled $1,933.5 million
and our Adjusted EBITDA totaled $195.1 million, and on a pro forma basis for the
three months ended March 31, 1999, our net sales totaled $511.7 million and our
EBITDA totaled $49.8 million.
We are a full-service supplier and an industry leader in manufacturing
plastic components, modules and systems and in applying new design and
engineering technology to develop innovative products, create new applications
and reduce product development time. We, and our affiliated companies, have the
capability to provide our customers state-of-the-art design and advanced
engineering services 24 hours a day around the world. We operate 57 facilities
in 9 countries, including the United States, Canada, Germany, Spain, France,
Hungary, the Czech Republic, Mexico and the Netherlands and expect to start
operations in Brazil in the third quarter of 1999. Our comprehensive
manufacturing capabilities include custom injection molding, automated painting
and assembly, and material and product testing. We also have extensive tool
making capabilities. Our engineering focuses on anticipating actual production
issues and integrating part design with tool design to create an efficient
manufacturing process. We refer to this emphasis as "design for manufacture."
We primarily emphasize the design and manufacture of components and
integrated systems, and manufacture those components and systems as a
sole-source supplier. We currently supply components or systems on over 150
models, including 4 out of 5 of the top selling models in both the United States
and Europe. We supply components for many popular models, such as the Volvo V40
and S40; Audi A4 and TT; BMW 3 Series and 5 Series; DaimlerChrysler A-Class,
"LH" cars (Chrysler LHS, Concorde, 300M and Dodge Intrepid), Dakota and Durango
trucks and "JA" cars (Cirrus, Stratus and Breeze); Ford F-series truck,
Explorer, Expedition, Mustang, Navigator and Windstar; Chevrolet Corvette,
General Motors "M" vans (Astro and Safari), Yukon, Tahoe, Suburban, Grand Am,
Grand Prix and GMC and Chevrolet full size vans (Express and Savana); Porsche
986 and 996; Peugeot 206; Citroen Xsara; Renault Twingo; Seat Ibiza and Cordoba;
Skoda Felicia and Octavia; and Volkswagen Golf, Passat and Bora. We believe that
the depth of our product mix, the diversity of models for which we are a
supplier and our geographic coverage reduce our risks associated with historical
downturns in the automotive industry.
INDUSTRY TRENDS
The automotive industry has been and continues to be significantly
influenced by several trends which we believe will enhance our strategic
position and growth prospects.
- INCREASED OUTSOURCING BY OEMS. In an effort to reduce costs, speed
product design and simplify manufacturing, OEMs have increasingly
outsourced the manufacture of many components and integrated systems
which were previously manufactured internally. Independent suppliers
generally are able to design, manufacture and deliver components and
systems
64
71
at a lower cost than the OEMs due to: (1) their lower direct labor,
fringe benefit and overhead costs; (2) the ability to spread R&D and
engineering costs over products provided to multiple OEMs; and (3) the
economies of scale inherent in product specialization. OEMs have
benefited because outsourcing has allowed them to reduce capital
expenditures, production costs and inventory levels and to focus on
overall vehicle design, product quality and consumer marketing. Although
outsourcing has not been as long standing a trend in Europe as it has in
North America, it has become increasingly prevalent. In certain of
Peguform's main product lines, for instance, internal production by
European OEMs has declined significantly.
Suppliers such as ourselves have benefited from this outsourcing trend as
the aggregate number and value of components and integrated systems which
we manufacture have increased dramatically. In addition, the outsourcing
trend has been coupled with an increasing complexity of components which
are manufactured by independent suppliers. These factors have favored low
cost, full-service suppliers such as ourselves who can develop integrated
systems that OEMs can easily install.
- CONSOLIDATION OF SUPPLIER BASE BY OEMS. Since the 1980s, OEMs have
substantially reduced the number of suppliers that may bid for awards and
have been outsourcing an increasing percentage of their production
requirements. As a result of these trends, the OEMs have increasingly
focused on the development of long-term, sole-source relationships with
suppliers who can provide complex components and integrated systems on a
just-in-time basis, while at the same time meeting strict quality
requirements. These requirements are accelerating the trend toward
consolidation of the OEMs' supplier base as those suppliers who lack the
capital or production expertise to meet the OEMs' needs either exit the
business or are consolidated with larger suppliers. Both OEMs and
suppliers benefit from the consolidation trend. Suppliers are able to
devote the resources necessary for proprietary product development with
the expectation that they will have the opportunity to profit on such
investment over the multi-year life of a contract. OEMs benefit from
shared manufacturing cost savings that suppliers realize as a result of
long, multi-year production runs at high capacity utilization levels.
- INCREASED EMPHASIS ON PROGRAM MANAGEMENT AND INTEGRATED SYSTEMS. In
conjunction with the aforementioned consolidation trend, OEMs are
transitioning from purchasing components to placing responsibility for
design, engineering and manufacturing of full component systems on Tier I
suppliers. These expanded requirements can best be addressed by
full-service suppliers such as ourselves with sufficient technological
and manufacturing resources to meet such demands. Strategic combinations
have been pursued by many suppliers in order to add capabilities to
manufacture complementary components and systems and achieve more
complete systems capabilities. We believe that this trend toward
multi-component system integrators will compel further consolidation,
leaving the industry with fewer and more broad-based Tier I suppliers.
- INCREASING UTILIZATION OF PLASTIC. Plastic provides OEMs with a number
of 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,
reducing painting costs, facilitating assembly, minimizing tooling costs
and consolidating the number of parts used in a vehicle. While plastics
historically have been used for many interior trim components, they are
now being used more extensively in exterior and structural/functional
components and integrated systems. According to industry data, the
average plastic content per passenger vehicle has increased from
approximately 222 pounds in 1987 to approximately 242 pounds in 1997, and
is projected to grow to approximately 266 pounds per vehicle by 2007.
65
72
We believe our early involvement as a full-service supplier to OEMs of
plastic components and integrated systems, as well as our extensive
plastics manufacturing technologies, position us to benefit from the
expanded utilization of plastic.
- GLOBALIZATION OF THE OEM SUPPLIER BASE. OEMs are increasingly seeking to
identify preferred suppliers that can meet their needs on a global scale,
and not just regionally. To facilitate global expansion by such preferred
suppliers, in certain instances OEMs are committing to sole-source
relationships to enhance the economic viability of new production
facilities. Such relationships also facilitate the efforts of OEMs to
develop certain models for the world automotive market. Our recent
establishment of facilities in Mexico and Brazil will further augment our
already significant capabilities to design and manufacture plastic
components and systems worldwide.
THE ACQUISITION
Venture has, for many years, been a key supplier to North American OEMs.
Venture's extensive design and manufacturing expertise, coupled with strategic
acquisitions, has enabled it to diversify its customer base and technological
capabilities, such that Venture has become a leading participant in the supply
of molded and painted interior and exterior plastic components and systems to
North American OEMs. For the five year period ended December 31, 1998, Venture's
net sales grew from $205.6 million to $645.2 million, a CAGR of 25.7%, and
EBITDA grew from $40.1 million to $94.2 million, a CAGR of 18.6%. In 1996,
Venture expanded its customer relationships and technological capabilities
through the 1996 Acquisitions.
A key element of Venture's business strategy has been to increase its
global presence to meet its OEM customers' global needs. Venture considers the
Acquisition an attractive opportunity to further this strategy. Peguform has
been a leading international designer and manufacturer of complete interior
modules, door panels and dashboards; and of exterior modules and other
structural plastic body parts, including bumper fascias and hatchback doors.
Peguform operates manufacturing facilities in Germany, Spain, France and the
Czech Republic. In addition, Peguform had recently followed certain of its key
OEM customers into Mexico and Brazil. Our manufacturing network is enhanced by 9
module centers across Europe, serving as final assembly units located directly
at, or very close to, selected customers' car assembly plants. Peguform's proven
ability to gain development orders for new and successor models is enhanced by
its product engineering efforts, including such innovations as thermoplastic
bumpers, a proprietary slush molding process, a thermoplastic hatchback door and
painting technologies such as electro-static painting and the use of water-based
paint. For the twelve-months ended December 31, 1998, Peguform had net sales of
$1,260.6 million.
We now have an established and significant presence in Europe as a result
of the Acquisition, which complements our strengths in North America, giving us
the ability to service existing OEM customers much more broadly than either
Venture or Peguform could individually. Additionally, we believe that the
Acquisition enhances the businesses of both Venture and Peguform in additional
ways, representing mutually beneficial synergies that go beyond the expansion of
geographic reach, including the following:
- EXPANDED ENGINEERING CAPABILITIES. Venture's component research, design
and engineering expertise has focused on a manufacturing approach by
emphasizing prototype production and tooling with a view to shortening
design and production cycles and reducing design and production costs.
Peguform's engineering staff has focused on new product development and
validation to a degree not practiced previously by Venture. An example of
this capability is the development of technology for a thermoplastic
hatchback door that Peguform then validated and had designed into a
customer's vehicle production. Peguform will likewise benefit from
Venture's "design for manufacture" emphasis which is expected to enhance
Peguform's ability to anticipate production issues, thereby reducing
costs associated with new product launches
66
73
and scrap rates. The combination of these disciplines is expected to
enhance our overall capabilities.
- COMPLEMENTARY TECHNOLOGY. Peguform brings design and manufacturing
process technology that enhances Venture's capabilities to provide
innovative solutions to its customers. For example, Peguform's slush
molding technology may provide opportunities for cost savings and quality
improvement over conventional molding technologies in certain specialized
applications. Moreover, Peguform's use of water-based paint technology
and robotized painting of components enhances Venture's already
sophisticated capabilities.
- STRENGTHENED AND EXPANDED CUSTOMER RELATIONSHIPS. The customer base of
each of Venture and Peguform are complementary, with little overlap,
presenting the combined company with significantly greater OEM
penetration. As a result, our opportunities to bid on new business is
enhanced, while dependence on any one customer or geographic segment is
reduced.
- OPERATIONAL EFFICIENCIES. The increased size of the combined operations
of Venture and Peguform is expected to reduce materials costs, as volumes
will be significantly increased. Moreover, the in-house tooling
manufacturing capability of Venture and its affiliates is expected to
reduce tooling expenses, due to their capacity to manufacture in-house a
portion of the tooling requirements which Peguform has traditionally
outsourced. These benefits, together with the advantages of increased
global presence, complementary engineering and technologies, and
expanding customer bases, discussed above, are expected to provide
opportunities to improve profitability of the combined company in a
manner that would not be possible if both companies had remained
independent.
COMPETITIVE STRENGTHS
We believe we have the following key competitive strengths, which enhance
our ability to compete successfully in our industry:
- LEADING MARKET POSITION. We are among the largest suppliers of interior
and exterior plastic components and systems to the North American and
European automotive markets. We currently supply components or systems on
over 150 models, including 4 out of 5 of the top selling models in both
the United States and Europe. We believe that OEMs increasingly favor
large, multi-national, integrated suppliers with whom they can establish
global strategic relationships. These strategic relationships require
suppliers to be able to offer their customers worldwide manufacturing,
and design and engineering resources.
- DIVERSIFIED GLOBAL CUSTOMER BASE. Our principal customers include every
major North American OEM, eleven of the twelve major European OEMs,
several major Japanese OEMs, and leading Tier I suppliers. As a result,
we are less dependent on revenues from any single geographic market than
competitors that are less diversified. We believe the geographic breadth
of our customer base and full-service capabilities position us to further
benefit from the current consolidation and globalization trends in the
automotive industry.
- WORLDWIDE FULL-SERVICE PROGRAM MANAGEMENT CAPABILITIES. As OEMs have
focused increasingly on shortening vehicle design and production cycles
and reducing design and production costs, suppliers who have the ability
to cost effectively take an idea or design from concept to mass
production ("art to part") are being involved at the initial stages of
the process. We are successful in meeting the increased demands by OEMs
for their suppliers to provide full-service program management because of
our expertise in design and engineering, tooling, and multiple
manufacturing processes. As a result, we have increasingly been selected
as a sole-source supplier for vehicle components and integrated systems.
We believe that the evolution of the OEM relationship into strategic
partnerships provides a significant advantage to us because of our
ability to meet a customer's art to part needs on a global basis.
67
74
- MULTIPLE EXTERIOR AND INTERIOR PLASTIC TECHNOLOGIES. We believe that we
are one of only a small number of automotive suppliers that can provide
its customers with both full-service program management capability and a
wide array of alternative plastic molding and painting technologies on a
global basis. We possess the latest technologies associated with
thermoplastic injection molding, compression molding, RIM, slush molding,
sheet molding compounds, composite technologies, and water-based paints.
By possessing a wide range of plastic design and manufacturing
technologies, we are able to distinguish ourselves from our competition
by offering the process that will best meet the customers' needs, while
often lowering design and production costs and shortening the product
development cycle.
- JUST-IN-TIME/SEQUENTIAL SHIPPING CAPABILITIES. As OEMs have moved to
just-in-time inventory management, the timeliness and reliability of
shipments by their suppliers have become increasingly important. To
service our customers more effectively, we utilize just-in-time
manufacturing and sourcing systems, which enable us to meet our
customers' requirements for on-time deliveries while minimizing the
carrying levels of inventory. Our international production facilities and
module centers are strategically located close to our OEM customers'
facilities. We also offer our customers sequential shipping, in which
components are sent to the OEMs in the specific order in which vehicles
are to be assembled, based on as little as two hours lead time. We
believe we have established a reputation as a highly reliable and timely
supplier able to meet our customers' demanding delivery requirements.
- EXPERIENCED MANAGEMENT TEAM. We believe our management's long history of
mutually successful relationships with a wide variety of OEM and Tier I
customers will provide a competitive advantage as the industry trends of
consolidation, outsourcing and globalization continue. Our management
team is highly experienced and has significant expertise in the North
American, European and other automotive markets. We have gained
additional experience in global operations through affiliate companies of
Venture, including operations in Australia, Asia and Africa, all of which
share the Venture name. As evidenced by the 1996 Acquisitions, our
management team has a proven track record of successfully assimilating
and integrating large, strategic acquisitions.
BUSINESS STRATEGY
Our business strategy is to use our competitive strengths to further our
position as a leading automotive supplier. The principal components of this
strategy are as follows:
- INVEST IN LEADING-EDGE DESIGN, ENGINEERING AND MANUFACTURING
TECHNOLOGIES. As OEMs worldwide continue to increasingly outsource
manufacturing of components and integrated systems, they have placed
greater reliance on the design and engineering capabilities of their
supplier base. We have made a substantial commitment to new product
technology and design, including establishing an Advanced Engineering
Center and offering the capability to provide 24-hour-a-day global design
and engineering services to our customers. The Advanced Engineering
Center integrates the use of CAD/CAM and utilizes the latest optical
design technology to rapidly and cost effectively replicate and modify
existing designs, as well as to design new prototypes, using REAP. We
also believe it is highly important to be able to offer a broad range of
manufacturing processes and technologies to our customers for the
production of a wide array of plastic components and systems. Both the
1996 Acquisitions and the Acquisition fit this strategy by enhancing our
ability to provide customers with multiple exterior and interior
technologies, specifically by adding expertise in sheet molding
compounds, slush molding and composite technologies, as well as
sophisticated painting processes. We intend to continue to invest
significantly in our design, engineering and manufacturing capabilities
in order to meet our customers' needs for innovation, quality,
reliability, lower
68
75
costs and reduced lead times. We believe our continued ability to design,
engineer, tool and manufacture highly engineered components, modules and
systems will provide additional opportunities to supply an increasing
number of products to existing customers and expand our customer base.
- CONTINUE TO DEVELOP AND MANUFACTURE HIGH QUALITY PRODUCTS. We believe we
maintain an excellent reputation with the OEMs for providing high quality
products and customer service at competitive prices. Our reputation is
exemplified by our receipt of several major quality awards from our OEM
customers in both North America and Europe. Quality levels are currently
being standardized across OEMs through the QS-9000 program which is
expected to lower the cost of maintaining separate quality programs. All
of our manufacturing, tooling and design facilities historically operated
by Venture, and nine manufacturing facilities previously operated by
Peguform are QS-9000 certified.
- EMPHASIZE CONTINUOUS IMPROVEMENT PROCESSES. Venture follows "lean
manufacturing" and "Kaizen," or continuous improvement, philosophies that
seek to identify and eliminate waste in our own operations and in those
of our customers and suppliers. These philosophies emphasize employee
involvement in all phases of our operations by (1) empowering employees
at all levels with responsibility for their work, which leads to a
quicker identification of production issues; (2) forming cross-functional
teams to investigate opportunities for process improvements; and (3)
rewarding employee participation and involvement through financial
incentives. We have successfully implemented these philosophies in the
1996 Acquisitions, and are implementing these philosophies throughout
Peguform.
- MAXIMIZE OPERATING EFFICIENCIES AND LOWER COST STRUCTURE AT ACQUIRED
COMPANIES. We believe there are a number of areas in which we can
achieve annual cost savings related to the Acquisition. We have
successfully effected significant cost savings in past acquisitions. With
respect to the 1996 Acquisitions, we have been able to employ our lean
manufacturing process, which enables us to grow our business with
existing management assets and less capital expenditure. These
operational efficiencies, combined with our tooling and design
capabilities, have helped us to achieve substantial cost savings. We
expect the principal components of cost savings related to the recent
Acquisition will be in the areas of material and tooling costs, as
further described below:
Materials Cost Savings. We believe there are many opportunities to
reduce materials costs in areas such as raw materials, paint and other
materials, due to the similarities in plastic components manufactured by
Venture and Peguform. In many cases, these materials are currently
purchased from the same suppliers. Additionally, we expect to gain
increased purchasing leverage due to the Acquisition, resulting in more
favorable materials costs throughout our entire operation. As a result of
our analysis of the same or comparable materials, and their respective
costs and volumes at Venture and Peguform, we believe we can achieve
approximately $15.0 million in materials cost savings in our first full
year of operations following the Acquisition.
Tooling Cost Savings. Peguform has historically outsourced all of its
tooling requirements. Venture has consistently invested in maintaining a
sophisticated, in-house tooling capability. We believe Venture's tooling
capabilities not only provide a competitive advantage, but also typically
result in lower tooling costs than would otherwise be the case if tooling
were outsourced to other tooling manufacturers. We and our affiliated
companies currently have capacity to manufacture in-house a significant
portion of the tooling requirements which Peguform has traditionally
outsourced.
Other Operating Efficiencies. In addition to material and tooling cost
savings, we believe there are other opportunities to improve Peguform's
cost structure. Some of these
69
76
opportunities include elimination of redundant administrative expense
items, shared design, engineering and program management resources,
manufacturing efficiencies and production of certain components in-house
that are currently outsourced by Peguform.
- STRATEGIC EXPANSION. We are committed to continue our strategic,
geographic expansion in order to serve our customer base globally. In
addition, we expect to make selective acquisitions and investments, or
enter into strategic alliances, to broaden our service offerings and
further enhance our systems integration capability. We believe that the
consolidation of the automotive supplier base and geographic expansion of
our customers will present additional opportunities for growth.
PRINCIPAL PRODUCTS
We produce thermoplastic injection molded, compression molded, injection
compression molded, RIM and slush molded plastic parts primarily for OEMs and
other Tier I suppliers. We also emphasize complex products, such as instrument
and door panel assemblies, which require the integration of multiple components
into complete sub-assemblies.
Our primary exterior and interior products are detailed and illustrated
below:
The following sets forth information about our automotive products and
vehicle models on which they are used or for which we have been awarded
business.
AWARDED
BUSINESS ON
FUTURE
COMPONENT OEM/CUSTOMER CURRENT PRODUCTION(A) PRODUCTION(B)
- --------- ------------ --------------------- -------------
Interior Trim Audi A3, TT, A8 A3, A4
DaimlerChrysler A Class, Vito, B Van, Breeze, Cirrus, B Van, Breeze,
Concorde, Eagle, Grand Cherokee, LHS, 300M, Cherokee,
Intrepid, Neon, Stratus, Wrangler, Viper Cirrus, Neon,
Stratus, PT
DEPCO Bonneville
Finley Industries Beauville
Ford Continental, Escort, Mountaineer, Taurus
General Motors Achieva, Blazer, Cadillac S5S, Camaro, Bravada,
Cavalier, Century, Express/Savana Van, Blazer,
Lumina, Park Avenue, Regal, STS Skylark, Century, Jimmy,
Sunfire, Suburban, TransAm, Tahoe Regal, Envoy,
GMT 370, GMT
560
Lear Chrysler Ram 150/350 Pickup, Windstar
Nissan HM
Opel Corsa
Porsche Boxster, 911
Renault Espace
Seat Ibiza, Inca, Cordoba, Toledo
Skoda Felicia, Octavia
Volkswagen Polo, Passat, T4 Van Polo, VW 611
70
77
AWARDED
BUSINESS ON
FUTURE
COMPONENT OEM/CUSTOMER CURRENT PRODUCTION(A) PRODUCTION(B)
- --------- ------------ --------------------- -------------
Instrument and
Door Panels/
Assemblies Audi A3, A4, A8, TT A2, A4, A8
DaimlerChrysler A Class, B Van, Vito, V Class
General Motors Corvette
Nissan Terrano, Serena
Opel Corsa, Tigra
Porsche Boxster, 911 911
Renault Twingo, Express
Seat Ibiza, Inca, Cordoba
Skoda Felicia
Volkswagen Passat, T4 Van VW 611, Passat
Airbag Covers Autoliv Accord, Alero Cobra, Caravan, Grand Am,
Grand Cherokee, Mazda 626, Mustang,
Mercedes, Navigator, S5S, Sable, Subaru,
Taurus, Town & Country, Volkswagen Voyager
Breed Suzuki Tracker, Wrangler Chrysler RS
DaimlerChrysler A Class
TRW Breeze, Cirrus, Mustang, Neon, Stratus,
PN96, Town Car, Ranger
Cladding/
Exterior Audi A6
BMW 3 Series, 5 Series, 7 Series 7 Series
DaimlerChrysler B Van, Dakota, Durango, Eclipse, Minivan, Dakota, M Class
Viper, Vito, V Class
Ford Econoline Van, Escort, Explorer, Navigator
Expedition, Explorer, F-Series Pickups,
Mustang, Navigator, Nissan, Quest, Ranger,
Villager, Windstar
Freightliner Truck
General Motors Achieva, Achieva GT, Astro Van, Blazer, Malibu
Bonneville, Cavalier, Century, Corvette,
Denali, DeVille, Eldorado, Escalade,
Express/Savana Van, Grand Am, Grand Am GT,
Grand Prix, Intrigue, Lumina, Monte Carlo,
Opel, Regal, Safari, Saturn, Silhouette,
Skylark, Sunfire, Transport, Yukon, Venture
Nissan Terrano, Serena HS
Opel Corsa
PSA Peugeot Xantia, Xsara, Saxo 806(V)
Renault Megane, Clio Megane
Seat Ibiza
Skoda Felicia
Volkswagen Polo, Beetle, Jetta Polo
71
78
AWARDED
BUSINESS ON
FUTURE
COMPONENT OEM/CUSTOMER CURRENT PRODUCTION(A) PRODUCTION(B)
- --------- ------------ --------------------- -------------
Volvo V/S40
Fascias Audi A4, TT A3, A4
BMW 3 Series, 5 Series 3 Series, 5
Series
DaimlerChrysler Vito V Class Vito
Ford Expedition, F-Series Pick-up, Explorer,
Ranger
General Motors Astro, DeVille, Denali, Escalade, Eldorado,
LeSabre, Seville, Safari, Transport, Tahoe,
Opel, STS, Venture, Yukon
Isuzu Honda, Rodeo Rodeo
Karmann Golf Cabrio
Mitsubishi Carisma, Spacestar
Opel Omega, Catera
PSA Peugeot 106, 206, 306, Xsara, Berlingo, Saxo, 806,
Jumpy
Porsche Boxster, 911 Boxster, 911
Renault Twingo, Clio, Megane, Master, Express,
Kangoo, Laguna
Skoda Felicia, Octavia Felicia,
Octavia
Seat Ibiza, Inca, Cordoba, Toledo
Volvo V/S 40 V/S 40
Volkswagen Passat, Golf, Polo, Jetta, Vento, Caddy, Lupo GTI,
Bora, Lupo, LT2 Utility Passat, Polo,
Golf
Functional
Components DaimlerChrysler A Class, Vito
Ford Contour, Escort, F-Series Pickup, Jaguar, Econoline Van,
Lincoln LS, Mustang, Mystique, Navigator, Thunderbird
Ka
General Motors Blazer, Delphi-AC Spark Plug, G Van,
Express/ Savana Van, Seville, Skylark
Nissan Terrano, Serena
Opel Astra, Corsa
PSA Peugeot Belingo 306, Xantia,
806(V)
Renault Megane 4x4
Volvo V/S 40
Miscellaneous
Non-
Automotive Club Car Golf Cart bodies
Whirlpool Consumer white goods
- -------------------------
(a) Represents models for which we will produce and supply products in 1999 and,
in most cases, future years beyond 1999.
72
79
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. See "Risk Factors -- Reliance on Major
Customers; the OEM Supplier Industry." There can be no assurance that any of
these vehicles will be produced or that we will generate certain revenues
under these awards even if the models are produced.
CUSTOMERS AND MARKETING
We rank among the largest suppliers of interior and exterior plastic
components and systems to the North American and European automotive markets.
Our principal customers include every major North American OEM, eleven of the
twelve major European OEMs, several major Japanese OEMs, and leading Tier I
suppliers, as detailed below:
OEMS TIER I SUPPLIERS
---- ----------------
AB Volvo Ford Motor Company PSA Peugeot Citroen Autoliv, S.A.
Adam Opel AG General Motors Renault SA TRW Inc.
Corporation
Audi AG Isuzu Motors Limited Seat, S.A.
Bayerische Motoren Mitsubishi Motors Skoda Automobilova
Werke AG (BMW) Corporation
DaimlerChrysler AG Nissan Motor Co., Ltd Volkswagen AG
PORSCHE AG
We primarily emphasize the design and manufacture of components and
integrated systems, and manufacture those components and systems as a
sole-source supplier. We currently supply components or systems on over 150
models, including 4 out of 5 of the top selling models in both the United States
and Europe. We supply components for many popular models, such as the Volvo V40
and S40; Audi A4 and TT; BMW 3 Series and 5 Series; DaimlerChrysler A-Class,
"LH" cars (Chrysler LHS, Concorde, 300M and Dodge Intrepid), Dakota and Durango
trucks and "JA" cars (Cirrus, Stratus and Breeze); Ford F-series truck,
Explorer, Expedition, Mustang, Navigator and Windstar; Chevrolet Corvette,
General Motors "M" vans (Astro and Safari), Yukon, Tahoe, Suburban, Grand Am,
Grand Prix and redesigned GMC and Chevrolet full size vans (Express and Savana);
Porsche 986 and 996; Peugeot 206; Citroen Xsara; Renault Twingo; Seat Ibiza and
Cordoba; Skoda Felicia and Octavia; and Volkswagen Golf, Passat and Bora. We
believe that the depth of our product mix, the diversity of models for which we
are a supplier and our geographic coverage reduces our risks associated with
historical downturns in the automotive industry.
73
80
The approximate percentage of net sales to our principal customers and
customer categories, on a pro forma basis for the year ended December 31, 1998,
broken down geographically, is shown below. Also shown below is the approximate
percentage of net sales to principal customers (1) by Venture for the year ended
December 31, 1998, and (2) by Peguform for the 12-month period ended December
31, 1998.
COMPANY
PRO FORMA VENTURE PEGUFORM
CUSTOMER 1998(1) 1998 1998(1)
- -------- --------- ------- --------
NORTH AMERICA:
General Motors Corporation............................... 12.6% 38.1% --%
Ford Motor Company....................................... 8.2 24.8 --
Tier I Suppliers to OEMs................................. 5.0 15.1 --
DaimlerChrysler AG....................................... 4.5 13.6 --
Other Automotive......................................... 1.0 2.9 --
Non-Automotive........................................... 1.2 3.5 --
EUROPE:
Volkswagen AG............................................ 12.2% --% 18.2%
Audi AG.................................................. 9.7 -- 14.6
DaimlerChrysler AG....................................... 6.0 -- 8.9
PSA Peugeot Citroen...................................... 5.8 -- 8.7
Skoda Automobilova....................................... 5.0 -- 7.5
Renault SA............................................... 3.7 -- 5.6
Bayerische Motoren Werke AG (BMW)........................ 3.3 -- 5.0
Seat, S.A................................................ 3.2 -- 4.8
Porsche AG............................................... 2.6 -- 3.9
Adam Opel AG............................................. 1.6 -- 2.3
Other Automotive......................................... 12.5 -- 18.8
Non-Automotive........................................... 1.2 -- 1.7
OTHER:
Isuzu Motors Limited..................................... 0.7% 2.0% --%
----- ----- -----
TOTAL.................................................... 100.0% 100.0% 100.0%
- -------------------------
(1) Includes net sales to customers, including sales by Celulosa Fabril S.A., a
50% owned joint venture, the sales of which are not included as net sales in
Peguform's financial statements.
Venture's sales are made directly to the OEMs with marketing and customer
support assistance provided by an affiliated company, wholly owned by Mr.
Winget, and by other unaffiliated entities. See "Certain Transactions."
DESIGN AND ENGINEERING
Our engineering focuses on anticipating actual production issues and
integrating part design with tool design to create an efficient manufacturing
process. We refer to this emphasis as "design for manufacture." We strive to
maintain a technological advantage through investment in product development and
advanced engineering capabilities. As OEMs have increasingly focused on
shortening their design cycles and reducing their design and production costs,
we have been
74
81
increasingly required to utilize advanced engineering resources early in the
planning process. As a result of the Acquisition and through our affiliated
companies, we now have the capability to be a full-service supplier to our
global OEM customers 24 hours a day.
Our engineering and technical staff works closely with our OEM customers to
help design and develop new products and line extensions, ensure high quality,
and coordinate development with the manufacture of new vehicles. In addition, we
maintain laboratories dedicated to product development, tryout, certification
and research which are certified for use by several or our OEM customers.
Given the increased demand for early involvement in the design and
engineering aspects of product development, we have made a substantial
commitment in technical centers. Through our Advanced Engineering Center and
pre-product engineering site in Botzingen, Germany, with additional regional
engineering centers in Pouance, France and Polinya, Spain, we continue to
enhance our comprehensive and customer-focused design and engineering
capabilities. Our design and engineering technologies include integrated
CAD/CAM; computer-aided optical scanning; REAP; and gas-aided injection molding
technology ("GAIN"). With the aid of our integrated computer design systems and
the introduction of optical scanning prototyping equipment, we have
significantly reduced the amount of time required to create a prototype part and
ultimately a production component. This process not only reduces development
time but also improves the accuracy of product and mold tolerances. Further, our
advanced systems allow hundreds of design solutions to be visualized and
ergonomically tested quickly and easily, facilitating product design and
manufacturing.
Our advanced development capabilities have resulted in several innovations
that we believe have provided significant benefits to our customers. Peguform,
for instance, has a long history of developing innovative new designs both to
improve the quality and to lower the cost of its designs. Major innovations
include the first thermoplastic bumper developed in the late 1970s; a
proprietary slush molding process; the first thermoplastic hatchback door; and
the development of painting technologies. We believe that our design and
advanced engineering expertise is an important differentiating factor in
maintaining our relationships with and obtaining new business from our OEM
customers.
PRODUCTION CONTROL, MANUFACTURING AND QUALITY
Due to the evolving purchasing and manufacturing policies of the OEMs,
production control has emerged as the critical factor for coordinating and
integrating the customers' requirements with our scheduling and manufacturing
processes.
Responding to these changes, we have developed and incorporated the
principles of "lean manufacturing" and "Kaizen" into our manufacturing
operations. These programs establish a work environment which encourages
employee involvement in identifying and eliminating waste. Our operations are
structured flexibly to respond to the demands of different product runs and
changing product delivery requirements while increasing production efficiency.
Additionally, we rely on the quality and training of our work force and, when
appropriate, automation, to reduce costs.
We attempt to minimize our investment in inventory by coordinating our
purchasing and production activities with anticipated customer demands. Based
upon their production forecasts, the OEMs generally provide us with weekly
releases, four to thirteen weeks prior to actual delivery. To service our
customers more effectively, we have implemented "pull systems" at each of our
North American manufacturing locations, to help meet our customers' requirements
for on-time deliveries while reducing the carrying levels of inventory. Pursuant
to the "pull system," production is based primarily upon demand rather than on
forecasted need. Our European production facilities and module centers are all
located close to major OEM plants to accommodate just-in-time supply. With a
highly developed software and logistics capability, we process orders at these
facilities with finished products and deliver to customers' premises within a
matter of hours.
75
82
We believe we maintain an excellent reputation with the OEMs for providing
world class quality and customer service at competitive prices. Our reputation
as a high-quality, full-service supplier is exemplified by our receipt of
several major quality awards from our OEM customers in both North America and
Europe. Quality levels are currently being standardized across OEMs through the
QS-9000 program which is expected to lower the cost of maintaining separate
quality programs. All of our manufacturing, tooling and design facilities
historically operated by Venture, and nine manufacturing facilities previously
operated by Peguform are QS-9000 certified.
The production of many of our components requires sophisticated technology
and considerable manufacturing expertise. We utilize two-component paint
technology, including soft-touch paints for interior applications (principally
air bag covers and interior consoles), as well as base coat and clear coat
paints applied to exterior components including fascias, fenders, lift gates,
wheel lips, spoilers and side moldings. Our side wall hard trim components,
scuff plates and seat back trims are molded in color. We also utilize
water-based paint and composite technologies, and produce slush molded
instrument panels and thermoplastic hatchback doors. Vinyl and cloth wrapping
techniques are used to manufacture our instrument panels, side wall hard trim
components and door panels.
Our plastic components have sophisticated tooling requirements, the costs
of which are generally billed to the customer at pre-authorized levels, although
there is a trend in the United States toward customers requiring such tooling to
be purchased by us and amortized over the life of the program. Development of
the tooling typically begins approximately two to three years before production,
after being selected by the customer to develop a particular component or
assembly. At that time, we commence our tooling design and development work.
Venture accumulates in inventory the costs incurred for this work. The
production tooling is ordered generally one year prior to production.
Venture supplies substantially all of its tooling requirements from its own
tooling operations. Peguform currently purchases substantially all of its
tooling requirements from outside suppliers. We believe that we will be able to
utilize our own in-house tooling capabilities to supply a portion of the tooling
requirements traditionally outsourced by Peguform, resulting in reduced costs to
the Company.
RAW MATERIALS
Our manufacturing processes use a variety of raw materials, principally
engineered plastic resins such as nylon, polypropylene (including
thermoplastics), polycarbonate, acrylonitrile-butadiene-styrene, fiberglass
reinforced polyester, PET and thermoplastic polyurethane; a variety of
ingredients used in compounding materials used in the compression molding
process; paint related products; and steel for production molds. Our customers
usually specify materials and suppliers to be used for a specific program, but
we cannot assure you that the specified suppliers will always be able to supply
the specified materials or that alternative sources will be available. We obtain
most of our raw materials from one-year supply agreements in which we estimate
our annual needs. We generally issue releases against these agreements only when
we receive corresponding orders from our customers. Although we have not
historically experienced raw material shortages, we could face shortages in the
future.
COMPETITION
Our business is highly competitive, and competition generally occurs on the
basis of product groups. A large number of actual or potential competitors
exist, including the internal component operations of the OEMs as well as
independent suppliers, many of which are larger than us. The competitive
environment has been affected in recent years by supplier consolidations
resulting from OEM supplier optimization policies and the spin-off by OEMs of
formerly in-house plastics manufacturing facilities. We believe these
consolidations and divestitures could benefit our future product pricing, as
formerly marginal competitors are removed and spun-off in-house manufacturing
facilities are forced to compete independently.
76
83
We compete primarily on the basis of quality, cost, timely delivery and
customer service and, increasingly, on the basis of design and engineering
capability, painting capability, new product innovation, product testing
capability and our ability to reduce the time from concept to mass production
("art to part"). Some of the OEMs have adopted supplier management policies,
which designate preferred future suppliers and, in some cases, encourage new
suppliers to supply selected product groups. We believe that as OEMs continue to
strive to reduce new model development cost and timing, innovation, and design
and engineering capabilities will become more important as a basis for
distinguishing competitors. We believe that we have an outstanding reputation
among OEMs in these two areas which is enhanced as a result of the Acquisition.
We believe that in both North America and Europe, our two largest markets,
we maintain a competitive advantage due to our position as a full-service OEM
supplier. Our major North American competitors include Magna International,
Cambridge Industries, Inc., Buckeye Plastics, a division of Worthington
Industries, Textron Automotive division of Textron Corporation, Lear
Corporation, The Budd Company plastic division, and the Prince division of
Johnson Controls, Inc., plus a large number of smaller competitors.
The European market is best described in terms of interior and exterior
products. Our market position is enhanced as a result of the considerable
synergies between interior and exterior modules and by our technological
leadership in injection molding. In interior products, we focus on dashboard and
door panel modules. In both of these fragmented product markets we rank behind
market leader Sommer-Allibert, in a group which includes Plastic Omnium,
Faurecia, JCI/Becker, Magna, Lear, Commer, Irausa, Simoldes, Petri, Maione and
Textron. In exterior products, we focus on bumper systems, and have a favorable
market position relative to Plastic Omnium, Dynamit Nobel, Magna,
Sommer-Allibert and Rehau. In addition, we have extensive experience in
hatchback door design and production, specifically among new niche car models.
EMPLOYEES
We believe that our future success will continue to be enhanced by
rewarding and empowering employees. At May 31, 1999, we employed approximately
11,614 persons. We have 624 hourly persons at the Seabrook, New Hampshire and
Lancaster, Ohio facilities who are covered by collective bargaining agreements
with the United Auto Workers. Employees at our Conneaut, Ohio facility have
recently voted to be represented by the Teamsters union. The contract with our
Seabrook employees was recently renegotiated and expires in June 2002, and the
Lancaster contract expires in June 2001. Negotiations regarding a new collective
bargaining agreement at the Conneaut facility has not yet begun. We have not
experienced any work stoppages in North America and consider our relations with
our North American employees to be good.
For reasons of flexibility, part of our European workforce is employed on
short-term contracts. In addition, leased personnel are utilized in Europe on a
short-term basis to cover peak requirements. The European workforce is covered
by collective bargaining agreements with the following workers unions:
Germany: IG Bergbau, Chemie und Erden and IG Holz und Kunststoff
France: CFTC, CGC, CGT, CGT-FO and Syndicat National Autonome des
Plastiques
Spain: Comisiones Obreras, Union General Trabajadores and Central
Intersindical Galega
Czech Republic: KOVO
Although Peguform has experienced several minor work stoppages in France in
the past, we believe that our relationships with the European workers councils
and unions is good.
77
84
PATENTS
We have the right to use various patents which aid in maintaining our
competitive position. Patents licensed to Venture begin to expire in the next 15
years. The expiration of such patents is not expected to have a material adverse
effect on our operations. See "Certain Transactions."
PROPERTIES
Our executive offices are located in Fraser, Michigan. Our North American
molding operations are conducted at fourteen facilities in Michigan, Ohio,
Kentucky, Indiana and New Hampshire. As a result of the Acquisition, we operate
nineteen plants in Europe, Mexico and Brazil. In addition, we have nine module
centers located in five European countries in order to meet our OEM's
requirements for just-in-time deliveries. The utilization and capacity of our
facilities may fluctuate based upon the mix of components we produce and the
vehicle models for which we are producing the components. We believe that
substantially all of our property and equipment is in good condition and that we
have sufficient capacity to meet our current and projected manufacturing and
distribution needs through the 2001 model year.
The following table sets forth certain information concerning our principal
facilities:
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
- -------- ------- -------- ------------------
MICHIGAN
Masonic Facility 178,000 Leased(1) Molding, Mold Fabrication and
Repair
Malyn Complex 23,000 Leased(1) Molding
22,000 Leased(1) Molding
18,000 Owned Warehouse
Technical Center 56,000 Owned Headquarters, Laboratory,
Tryout, Mold Fabrication
Commerce Facility 24,000 Leased(1) Mold Fabrication and Repair
Doreka Center 6,000 Leased Design and Engineering
Service Center 6,000 Leased Administration
Grand Blanc Facility 365,000 Owned Molding, Painting, Assembly
Grand Rapids Complex 440,000 Leased Molding, Painting, Assembly
125,000 Leased Assembly Warehouse
85,000 Leased Warehouse, Shipping
Harper Facility 180,000 Leased(1) Molding, Painting, Assembly
Groesbeck Facility 128,000 Owned Molding
Design Center 20,000 Leased Design and Engineering
Almont Facility 10,000 Leased(1) Mold Fabrication and Repair
Almont Facility II 10,000 Leased(1) Mold Fabrication and Repair
Troy Center 10,000 Leased Mold Fabrication
Hillsdale Facility 119,000 Owned Molding, Painting, Assembly
25,000 Leased Warehouse
Redford Facility 22,000 Leased(1) Mold Fabrication
Allen Park Center 26,000 Leased Sales, Design, Engineering
78
85
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
- -------- ------- -------- ------------------
KENTUCKY
Hopkinsville Complex 104,000 Owned Molding, Painting, Assembly
80,000 Leased Warehouse
NEW HAMPSHIRE
Seabrook Facility 390,000 Owned Molding, Painting, Assembly
WALLACEBURG, ONTARIO, CANADA
Venture Canada Facility 35,000 Owned Painting and Assembly
OHIO
Conneaut Facility 183,000 Leased Molding, Painting, Assembly
Lancaster Facility 156,000 Owned Molding, Painting, Assembly
INDIANA
Madison Facility 71,000 Owned Painting and Assembly (inactive)
Hartford City Facility 116,000 Owned Molding and Assembly
Portland Facility 120,000 Owned Molding and Painting (inactive)
GERMANY
Botzingen 167,000 Owned Molding, Painting and R&D Center
415,000 Leased Molding, Painting and R&D Center
Gottingen 274,000 Owned(2) Molding and Painting
Mosel 67,000 Leased Module Center
Munchen 52,000 Leased Module Center
Neckarsulm 25,000 Leased Module Center
Neustadt 506,000 Owned Molding and Painting
Oldenburg 312,000 Owned Molding and Painting
Rastatt 65,000 Leased Module Center
Regensburg 75,000 Leased Module Center
FRANCE
Burnhaupt 127,000 Leased Molding and Painting
Noeux-les Mines 312,000 Leased Molding and Painting
Pouance 248,000 Leased Molding and Painting
54,000 Owned Molding and Painting
Rueil 2,300 Leased Module Center
Vernon 194,000 Leased Molding and Painting
HUNGARY
Gyor 26,000 Leased Module Center
SPAIN
Palencia 244,000 Owned Molding and Painting
Polinya 269,000 Owned Molding and Painting
Sant Esteve Sesrovires 107,000 Leased Molding
Vigo 133,000 Owned Molding and Painting
Zaragoza 267,000 Owned(3) Molding
79
86
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
- -------- ------- -------- ------------------
THE CZECH REPUBLIC
Liban 118,000 Owned Molding
Liberec 543,000 Owned Molding and Painting
Mlada Boleslav 16,000 Leased Module Center
BRAZIL
Curtiba 215,000 Leased(4) Molding and Painting
MEXICO
Puebla 66,000 Leased(5) Molding
NETHERLANDS
Sittard 95,000 Leased Module Center
- -------------------------
(1) Leased from an affiliate of the Company. See "Certain Transactions."
(2) A portion of this facility is used on the basis of hereditary building
rights which expire in 2012.
(3) Operated by a joint venture in which we hold a 50% interest.
(4) Production expected to begin in the third quarter of 1999.
(5) Operated by a joint venture in which we hold a 70% interest.
In addition to the above facilities, we rely upon certain affiliated
companies, which are owned or controlled by Mr. Winget, to provide facilities,
machinery and equipment, technology and services that are necessary for us to be
a full-service supplier. Deluxe Pattern Company ("Deluxe"), a company wholly
owned by Mr. Winget's living trust, makes available to us a 30,000 square foot
advanced design and model building facility under a usage agreement. In
addition, Venture Automotive Corp. ("VAC"), a company wholly owned by Mr.
Winget's living trust, operates a 208,000 square foot facility in Flint,
Michigan at which it performed services for Venture which included sequencing
and value-added assembly of parts. Some of the services previously performed by
VAC have now been contracted to MAST Services, LLC, in which N. Matthew Winget,
Mr. Winget's son, formerly owned a minority interest. In addition, we have
subcontracted certain work to Nova Corporation ("Nova"), a business in which Mr.
Winget has a significant equity interest. See "Certain Transactions."
ENVIRONMENTAL MATTERS
Our operations are subject to numerous federal, state and local laws and
regulations in the United States and other countries pertaining to the
generation, storage, treatment and discharge of materials into the environment.
We have taken steps related to such matters in order to reduce the risks of
potentially harmful aspects of our operations on the environment. However, from
time to time we have been subject to claims asserted against us by regulatory
agencies for environmental matters relating to the generation, treatment,
storage and disposal of hazardous substances and wastes, as well as compliance
with environmental laws. Some of these claims relate to properties or business
lines we acquired after a release had occurred. In each known instance, however,
we believe that the claims asserted against us, or obligations incurred by us,
will not result in a material adverse effect upon our financial position or
results of operations. Nonetheless, there can be no assurance that activities at
these facilities or facilities acquired in the future, or changes in
environmental laws and regulations, will not result in additional environmental
claims being asserted against us or additional investigations, remedial actions,
compliance expenditures, fines or penalties being required.
80
87
We are currently involved in legal proceedings with the Michigan Department
of Environmental Quality ("MDEQ") concerning the emissions from our Grand Blanc
paint facility. See "Business -- Legal Proceedings."
In 1998 and 1999, the MDEQ issued 3 letters of violation to our Grand
Rapids, Michigan facility, alleging violations of certain emission limitations
and coating solvent content requirements of the facility's state air use permit.
We are presently reviewing and discussing the alleged violations with the MDEQ,
and it is possible that some may be the result of computation and reporting
discrepancies. We are evaluating alternative coatings that may address any
unresolved violations. It is possible that the MDEQ may seek administrative
penalties in connection with the resolution of these matters. We do not believe
that the amount of those penalties, if any, will have a material adverse effect
on our operations, or that the resolution of these matters will require material
capital expenditures, although there can be no assurance that such will not be
the case.
The New Hampshire Department of Environmental Services ("NHDES") is
currently undertaking an evaluation of certain modifications made in the early
1990's to the paint lines at our Seabrook, New Hampshire facility to determine
whether those changes made that facility subject to new source review. The
outcome of that evaluation cannot reasonably be predicted or estimated at this
time. If the NHDES concludes that the facility is subject to new source review,
it would likely require the installation of emission control equipment and
potentially other capital and operational expenditures, and could possibly give
rise to enforcement proceedings against the facility. While we do not believe
that any of the foregoing would have a material adverse effect on our
operations, there can be no assurance that such will not be the case.
In connection with the Acquisition, Venture conducted an environmental due
diligence assessment of the 16 primary Peguform manufacturing facilities in
Europe, Mexico and South America. That assessment identified various potential
environmental compliance and contamination issues that may require expenditures
to satisfy and ensure compliance with applicable regulatory standards and
requirements (defined as "Known Conditions" under the definitive agreement with
Klockner Mercator Maschinenbau GmbH). Under the terms of the definitive
agreement with Klockner Mercator Maschinenbau GmbH, they are obligated to
indemnify us, on a sliding, diminishing scale over a 7 year period, for certain
costs we incur in connection with the Known Conditions in excess of DEM 7.5
million, and in excess of DEM 6.0 million with respect to environmental
conditions other than the Known Conditions. We do not believe that any
expenditures we may be required to make in connection with the Known Conditions
or other environmental issues arising out of the Acquisition will have a
material adverse effect on our operations, although there can be no assurance
that such will not be the case.
We have been notified of our status as a potentially responsible party
("PRP") at the ReSolve Superfund site in North Dartmouth, Massachusetts, the
Solvents Recovery Services site in Southington, Connecticut, the Old Southington
Landfill Superfund site in Southington, Connecticut, the Spectron, Inc. site in
Elkton, Maryland, and the Hazardous Waste Disposal Inc. site in Farmingdale, New
York. At all 5 sites, the Company and all other PRPs are jointly and severally
liable for all remediation costs under applicable hazardous waste laws.
Therefore, our proportionate share is subject to increase upon the insolvency of
other PRPs.
With respect to the ReSolve site, we have been named, along with Bailey's
immediate predecessor, USM Corporation's Bailey division (in the name of Emhart
Corporation), as a PRP for wastes sent to the site during the 1970s. Recent
estimates provided by the PRP group responsible for the site's remediation
indicate that our potential liability for clean-up efforts at the site is
approximately $0.4 million for which we are fully reserved and have posted a
letter of credit in favor of the PRP group. The discovery of the presence of
contaminants in a form not currently susceptible of short-term remediation,
however, has created uncertainty about the future scope and cost of clean-up
efforts at this site, and a possibility that the ultimate cost of remediation
may be higher than
81
88
previously estimated. We are unable to predict what, if any, effect this recent
discovery may have on us.
On June 18, 1992, we received notice from the EPA that we were a PRP under
the federal Superfund law with respect to the Solvents Recovery Services of New
England Site in Southington, Connecticut (the "SRSNE Site"). Based upon a
volumetric ranking dated July 7, 1993, the waste allocated to us represented
0.11593% of the total identified waste at the SRSNE Site. Under the terms of a
settlement with Emhart, we agreed to assume liability for wastes sent to the
SRSNE Site by the Seabrook, New Hampshire facility and Emhart agreed to assume
liability for wastes sent by USM's Amesbury, Massachusetts facility. The
identified PRPs have organized a group to negotiate with the EPA, and we have
joined that group. The group has successfully negotiated with the EPA to reduce
the total estimated cost of the initial removal action at the SRSNE Site from an
original estimate of $14 million down to a current estimate of approximately
$4.0 million. The total estimated cost of long-term remediation at the SRSNE
Site is not yet known.
In January 1994, we received a Notice of Potential Liability for the Old
Southington Landfill Superfund Site (the "OSL Site") located in Southington,
Connecticut. We received notice, along with USM/Emhart, of liability for the
share of OSL Site costs allocated to USM Corporation (Amesbury, Massachusetts).
We entered into a settlement agreement with Emhart under which Emhart will
assume sole responsibility for all cleanup costs, imposed by the EPA, arising
out of the alleged liabilities of USM Corporation's Bailey division (Amesbury,
Massachusetts) for the OSL Site.
In June 1989, the EPA notified us that we were a PRP under the federal
Superfund law for the Spectron, Inc. site located in Elkton, Maryland. A group
of PRPs entered into agreements with the EPA to fund and conduct a $2.8 million
emergency response action to remove stored wastes at the site and pay the
government's past costs associated with the site, approximately $635,000. There
are several thousand PRPs at this site, with most being small generators with
low dollar exposure. In December 1989, nearly 800 entities, including the
Company, that sent small quantities of waste to the site participated on a
cash-out basis in the settlement for past costs and the removal action, and our
allocated share was approximately $8,100. Participation in the cash-out
settlement gives us protection against contribution claims from third parties
for the first phase of the site cleanup ("Phase 1").
In August 1990, a separate PRP group ("Phase II PRP Group") was formed and
negotiated an agreement with the EPA to remediate contaminated seeps on the site
and perform a limited privately-funded remedial investigation/feasibility study
for the site (the so-called Phase II activities). We were not asked to join the
Phase II PRP Group because that group determined that the companies that paid
for Phase I of the cleanup would not be asked to make any financial
contributions toward Phase II until the other customers have paid out an amount
per gallon equal to that paid by the Phase I parties. An additional
investigation was conducted as part of the Phase II activities to determine the
nature and extent of a new form of contamination discovered on the site;
additional design work will be commenced soon.
In October 1995, we received a notice from the EPA that we were PRP that
has liability for conducting a Remedial Investigation/Feasibility Study
("RI/FS") at the Spectron site. In connection with this, we may have an
opportunity to enter into a de minimis party cash out settlement with the EPA
and the other PRPs, the terms of which currently are being negotiated. No
estimate can be made at this time as to the amount of the Company's liability at
the Spectron site.
In 1995, the New York Department of Environmental Conservation notified us,
as well as a number of other parties, that we were named a responsible party
under the Environmental Conservation Law of the State of New York with respect
to the Hazardous Waste Disposal, Inc. site located in Farmingdale, New York.
Based on available information, our involvement at the site appears to be
related to the shipment of 2 drums of waste materials to the site, and
consequently
82
89
minimal. Additional investigations have been undertaken to determine: (1)
whether there are any other entities that shipped wastes to the site; and (2)
whether any of the named parties actually shipped more than was originally
attributed to them. The results to date do not suggest that our ranking at the
site will change significantly. We have demanded that Emhart Corporation assume
the defense of this claim. Emhart Corporation has taken our demand for a defense
and indemnification under advisement. In doing so, Emhart Corporation has taken
the position that it did not receive "prompt written notice" of the claim.
We also face the possibility of liability if we are deemed a successor to
TransPlastics with respect to wastes generated and disposed of by TransPlastics
when it owned the Conneaut property. TransPlastics has been identified as a PRP
at the Millcreek site in Millcreek Township, Pennsylvania, and at the New Lyme
Site located in Dodgeville, Ashtabula County, Ohio, and at the Huth Oil Site in
Cleveland, Ohio, 3 sites currently undergoing remediation. We also received
notices from third parties regarding potential claims in connection with the
Huth Oil Site and the Millcreek site. We did not agree to assume any
environmental liabilities of TransPlastics and, as a result, submitted claims
for indemnification for these matters to TransPlastics, which liabilities
TransPlastics has accepted. Under the terms of the Conneaut Acquisition
agreement, TransPlastics and its parent companies must indemnify us for any
liability arising out of any such claim. Nevertheless, there can be no assurance
that TransPlastics and its parent companies will have sufficient assets to
satisfy our potential liability for the remediation and any associated damage or
cost caused by the contamination.
We also face potential liability at our Hillsdale, Michigan facility in
connection with an acquisition made by Bailey prior to our acquisition of Bailey
(the "Boler Acquisition"). An environmental site assessment completed by The
Boler Company ("Boler") determined that the ground water at the Hillsdale
facility was contaminated with chlorinated solvents as a result of Boler's past
site activities. The ground water contamination plume has migrated onto adjacent
properties. In addition, the company from which Boler acquired the Hillsdale
site is listed as a PRP for a number of off-site disposal locations. The Boler
Acquisition Purchase and Sale Agreement requires Boler to indemnify us for any
environmental liabilities which arise in connection with use of the property
prior to closing. In addition, Boler has executed a remediation agreement in
which it agreed to remediate, at its own expense, the identified ground water
contamination at the Hillsdale facility. Boler is currently conducting the
remediation at that facility. If Boler has insufficient resources to complete
remediation of any contamination for which it has indemnified us or otherwise
becomes insolvent, we could incur successor liability for the costs of
remediation and any damages to third parties.
We also have potential liability in connection with contamination at
certain property in Cuba, Missouri, which had been leased by Bailey prior to our
acquisition of Bailey. The landlord has undertaken to remediate this property at
its own expense. We have negotiated the termination of all of our obligations
with respect to the lease.
As a result of the environmental investigation conducted as part of its due
diligence during the acquisition of the three Premix/E.M.S. Inc. facilities
prior to our acquisition of Bailey, Bailey identified a number of environmental
concerns. Premix/E.M.S. Inc., as part of the acquisition agreement, agreed to
pursue and address these concerns, most of which it has completed. Pursuant to
the acquisition agreement, we performed certain post-acquisition investigations
which appeared to confirm the presence of subsurface contamination, of which we
have informed Premix/E.M.S. Inc. Under the acquisition agreement, Premix/E.M.S.
Inc. is obligated to undertake necessary remediation of this problem, if in fact
any is required. Premix/E.M.S. Inc. is currently conducting the remediation at
the Portland, Indiana facility. Premix/E.M.S. Inc. has entered into an
Environmental Indemnification Agreement for our benefit. There is a pending
dispute with Premix/E.M.S., Inc. as to whether there is a $3.0 million or $6.0
million limit on indemnification under this agreement. The shareholders of
Premix/E.M.S. Inc. have also severally undertaken to reimburse us in certain
limited
83
90
circumstances, to the extent of distributions received by them from
Premix/E.M.S. Inc., and to the extent that Premix/E.M.S. Inc. does not directly
satisfy its indemnification obligations.
Estimates of the future cost of such environmental matters are necessarily
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the development and application of new technologies, the
identification of new sites for which we may have remediation responsibility and
the apportionment and collectibility of remediation costs among responsible
parties. We establish reserves for these environmental matters when the loss is
probable and reasonably estimable. At December 31, 1998 and 1997, Venture had a
reserve of approximately $1.3 million and $1.3 million, respectively, to address
the issues discussed above and for compliance monitoring activities that may be
incurred. We periodically evaluate and revise estimates for environmental
reserves based upon expenditures against established reserves and the
availability of additional information. It is possible that final resolution of
some of these matters may require us to make expenditures in excess of
established reserves, over an extended period of time and in a range of amounts
that cannot be reasonably estimated. Although the ultimate cost of resolving
these matters could not be precisely determined at December 31, 1998, we
believe, based on currently known facts and circumstances, that the disposition
of these matters will not have a material adverse effect on our consolidated
financial position and results of operations.
LEGAL PROCEEDINGS
On February 23, 1998, the Attorney General of the State of Michigan and the
MDEQ instituted legal proceedings in state court alleging that we had violated
current permits regarding the level of emissions and odors discharged from our
Grand Blanc paint facility. These proceedings seek and may result in the
imposition of civil penalties of up to $10,000 per day; the total amount is not
reasonably estimable given the current status of the proceedings. Emission
levels are being evaluated as part of the proceedings, and it is possible that
we may be required to make capital expenditures of $2.0 million to $5.0 million
to the current systems to come into compliance. During the first quarter of
1999, the U.S. Environmental Protection Agency issued a notice of violation and
has taken an active role in monitoring these legal proceedings and may take
action separate and distinct from the legal proceedings begun by the State of
Michigan and the MDEQ.
In addition to the environmental matters described above and under
"Business -- Environmental Matters," we are a party to several legal proceedings
incidental to the conduct of our business. We do not believe that any of these
actions, individually or in the aggregate, will have a material adverse effect
on our financial condition or results of operations.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and
in accordance therewith file periodic reports and other information with the
SEC. Reports and other information filed by us with the SEC can be inspected and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Information on the operation of the Public Reference Room is
available from the SEC at 1-800-SEC-0330. In addition, the SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of such Web site is: http://www.sec.gov.
In the event we cease to be subject to the informational requirements of
the Exchange Act, we will be required under the indentures governing the Notes
to continue to file with the SEC the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. We will also furnish such other reports as may
be required by law. In addition, for so long as any of the Outstanding Notes are
restricted securities within the meaning of Rule 144(a)(3) under the Securities
Act, we have agreed to make available to any
84
91
prospective purchaser of the Outstanding Notes or beneficial owner of the
Outstanding Notes, in connection with any sale thereof, the information required
by Rule 144A(d)(4) under the Securities Act.
We are not required to send annual reports to security holders under the
SEC's proxy rules or regulations. We will provide the Trustee with reports,
including reports on Forms 10-K (including audited financial statements), 10-Q
and 8-K, pursuant to the terms of the indentures governing the Notes.
85
92
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are our Directors and Executive Officers, having
the operational titles set forth opposite their names. The Issuer does not have
directors. Mr. Winget, as Special Advisor to the Issuer, generally acts in that
capacity. Messrs. Winget, Schutz and Torakis serve as the directors of each
guarantor of the Notes. Mr. Winget and Stephen M. Cheifetz serve as the
directors of Venture Canada. Mr. Butler is a director of Venture Holdings
Corporation only.
NAME AGE POSITION
- ---- --- --------
Larry J. Winget...................... 56 Chairman of the Board and Chief Executive Officer
Larry J. Winget, Jr.................. 38 Chairman of Peguform GmbH and Executive Vice
President -- Manufacturing of Venture Holdings
Company LLC
A. James Schutz...................... 53 Vice Chairman
Michael G. Torakis................... 42 President of Venture Holdings Company LLC and
Peguform GmbH
Robert Wedge......................... 61 President of Mold & Engineering Operations
James E. Butler, Jr.................. 46 Chief Financial Officer, Executive Vice President
and Secretary
Charles Hunter....................... 46 Executive Vice President -- Engineering
Michael Juras........................ 57 Executive Vice President -- Advanced Engineering
and Marketing
Patricia A. Stephens................. 52 Executive Vice President -- Purchasing
Joseph R. Tignanelli................. 37 Executive Vice President -- Interior Operations
David Voita.......................... 58 Executive Vice President -- Manufacturing
Warren Brown......................... 55 Vice President -- Exterior Operations
Gary Woodall......................... 56 Vice President -- Interior Operations and General
Motors Customer Executive
Werner Deggim........................ 48 Senior Vice President -- Peguform GmbH
Gerhard Ruf.......................... 44 Vice President -- Operations, Logistics and Process
Engineering -- Peguform GmbH
Dieter Belle......................... 43 Vice President -- Finance, Controlling, Purchasing
and Human Resources -- Peguform GmbH
Larry J. Winget was one of the five original founders and shareholders of
Venture Industries Corporation and is the only one still involved with us. Since
1987 he has owned 100% of the Company and is currently the sole beneficiary of
the Trust, which is the sole member of the Issuer.
Larry J. Winget, Jr., Larry J. Winget's son, has been employed by us in
various positions since 1976, including Molding Plant Manager of Vemco, Inc.
from 1988 until 1990, Assistant Manager of Vemco, Inc. from 1990 until 1993, and
Vice President and General Manager of Vemco, Inc. until being named to the
position of Vice President -- Manufacturing in April of 1995. In December of
1997 he assumed the additional role of leading all manufacturing operations and
on May 28, 1999 became Chairman of Peguform.
A. James Schutz assumed the position of Vice Chairman in October 1997 and
had been Executive Vice President since 1987. He has been in the injection
molding business for 25 years.
86
93
Michael G. Torakis joined us in 1985 and has been President since 1995. He
previously served as Treasurer and Chief Financial Officer and in various other
capacities with the Company, including Executive Vice President. On May 28,
1999, Mr. Torakis became President of Peguform.
Robert Wedge joined us in November 1984 as Plant Manager, became Vice
President and General Manager of Venture Mold & Engineering in December 1993 and
assumed his present position in April of 1995. Mr. Wedge has 35 years of mold
building experience.
James E. Butler became Chief Financial Officer of the Company in 1999. He
joined us in 1994 and assumed the position of Executive Vice
President -- Finance and Secretary in April of 1995. From 1981 until joining the
Company, Mr. Butler was employed by Coopers & Lybrand L.L.P., a certified public
accounting firm.
Charles Hunter has been with us since 1989 and has held a number of
different positions with us involving mold building, design engineering and
prototype operations. He currently oversees worldwide design and advanced
engineering operations.
Michael Juras joined us in his current position in January 1997. Prior to
joining us, Mr. Juras had spent 30 years in various product and manufacturing
positions with General Motors, with his last position as Director of Engineering
Mid-Size Cars.
Patricia A. Stephens joined us in 1993 and has held positions involving
program management, contract administration and purchasing. She previously had
been employed for 23 years by General Motors, her last position being purchasing
agent.
Joseph R. Tignanelli, Larry J. Winget's son-in-law, has been employed by us
in several positions since 1980, including Molding Manager for Venture
Industries Corporation -- Groesbeck plant from 1985 until 1990, Assistant
Manager of Venture Industries Corporation from 1990 until 1993, Vice President
of Venture Industries until October of 1995, and Executive Vice
President -- Customer Services until December 1997, when he assumed his current
position.
David Voita has been employed by us in various manufacturing positions
since 1995, after a 33-year career with Ford Motor Company. Mr. Voita's last
position at Ford was that of Plant Manager for the Plastic and Trim Division,
where he managed a 1.2 million square foot, 1,300 employee facility.
Warren Brown joined us in 1993 as Vice President -- Mergers and
Acquisitions and assumed his current position in 1999. Prior to joining us, Mr.
Brown was employed for eight years as Chief Operating Officer of Autodie
Corporation. He has over 30 years experience in the automotive supplier
industry.
Gary Woodall joined us on April 1, 1999 as Vice President of Interior
Operations and General Motors Customer Executive. Mr. Woodall had previously
been employed by General Motors Corporation for over 35 years. Mr. Woodall's
last position with General Motors was as General Director of Products,
Manufacturing and Process Engineering. Prior to holding that position, Mr.
Woodall served as General Director of Operations, and was responsible for
General Motors' North American interior automotive component manufacturing.
Werner Deggim became a member of the Management Board of Peguform GmbH in
1994, in charge of Sales, Development and Research, until being named to his
present position in 1998. For 5 years prior to joining Peguform Mr. Deggim was
President of Kautex North America, located in Windsor, Ontario Canada.
Gerhard Ruf served as plant manager of Peguform GmbH's plant in Neustadt,
Germany from 1994 to 1997. In 1997, Mr. Ruf assumed the position of Vice
President for Operations of Peguform GmbH. Mr. Ruf has been in his present
position since January 1998. Prior to joining Peguform,
87
94
Mr. Ruf was employed for 8 years by Sommer Allibert as production and plant
manager at their Sontra, Germany facility.
Dieter Belle joined Peguform GmbH as Vice President-Finance, Controlling
and Purchasing in 1995. In April 1998 he assumed responsibility for human
resources. Prior to joining Peguform, Mr. Belle served as Director of
Controlling for Felten & Guilleaume from 1990 to 1995.
Stephen M. Cheifetz, 43, is a partner of Corrent and Macri and has served
as partner of this firm for less than 1 year. Prior to joining his current firm,
he was a partner with Wilson, Walker, Hochberg, Slopen, a Windsor, Ontario law
firm, and served as a partner of that firm for over five years.
EXECUTIVE COMPENSATION
The following Summary Compensation Tables sets forth compensation paid for
the years ended December 31, 1998, 1997 and 1996, respectively, to those persons
who were, at such date, the chief executive officer of the Company and four
other executive officers who received more than $100,000 in compensation during
such year (collectively, the "Named Officers") for services in all capacities to
us.
SUMMARY COMPENSATION TABLE(1)
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) COMPENSATION(3) COMPENSATION(4)
- ------------------ ---- ------------ -------- --------------- ---------------
Larry J. Winget........................ 1998 $526,503 -- $542,872 $366,063
Chairman of the Board and 1997 527,657 -- 478,945 277,347
Chief Executive Officer 1996 513,820 -- 675,799 250,807
A. James Schutz........................ 1998 $238,856 $41,760 -- $ 5,100
Vice Chairman 1997 237,150 41,760 -- 4,800
1996 231,491 41,760 -- 4,800
Michael G. Torakis..................... 1998 $268,834 -- -- $ 5,100
President 1997 263,819 -- -- 4,800
1996 257,615 250,000 -- 4,800
Larry J. Winget, Jr.................... 1998 $219,224 -- -- $ 5,100
Executive Vice President 1997 220,938 -- -- 4,275
1996 216,034 -- -- 3,950
Joseph R. Tignanelli................... 1998 $198,039 -- -- $ 4,850
Executive Vice President 1997 192,428 -- -- 4,800
1996 189,084 -- -- 4,800
- -------------------------
(1) The compensation described in this table does not include benefits under
group plans which do not discriminate in scope, terms or operation in favor
of the Named Officers and that are generally available to all salaried
employees, and certain perquisites and personal benefits received by the
Named Officers, where such perquisites do not exceed the lesser of $50,000
or 10% of such officer's salary and bonus.
(2) Includes salary reductions made under Venture's 401(k) Plan and Venture's
Cafeteria Benefit Plan.
(3) The amount indicated for Mr. Winget represents compensation in lieu of a
distribution of Trust principal equal to taxes incurred by the beneficiary
as a result of activities of the Trust's subsidiaries which have elected "S"
corporation status under the Code or are LLCs (taxed as partnerships). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
88
95
(4) "All Other Compensation" is comprised of: (1) a contribution made by Venture
to the accounts of each of the Named Officers under Venture's 401(k) Plan;
(2) the incremental cost to Venture of additional premiums for term life
insurance benefits for the Named Officers which are not generally available
to the other salaried employees of Venture, and (3) with respect to Mr.
Winget, the portion of the premium paid by Venture under a life insurance
policy (the "Reverse Split Dollar Policy") attributable to the build-up of
the cash surrender value of the policy, which aggregated $1,672,705,
$1,311,742 and $1,039,195 at December 31, 1998, 1997 and 1996, respectively,
and is owned by Mr. Winget. The beneficiary of the term insurance portion of
the Reverse Split Dollar Policy is Venture, which pays all premiums due
under the policy and is entitled to receive a $20.0 million benefit in the
event of Mr. Winget's death. Mr. Winget has the right to designate the
distribution of the cash surrender value and may, prior to his death,
surrender the policy in cancellation thereof and receive the benefit of the
cash surrender value.
See the table below for complete details concerning all other compensation.
REVERSE
TERM LIFE SPLIT DOLLAR
NAME AND YEAR 401(K) INSURANCE POLICY TOTAL
- ------------- ------ --------- ------------ --------
Winget
1998 $4,800 $300 $360,963 $366,063
1997 4,500 300 272,547 277,347
1996 4,500 300 246,007 250,807
Schutz
1998 $4,800 $300 -- $ 5,100
1997 4,500 300 -- 4,800
1996 4,500 300 -- 4,800
Torakis
1998 $4,800 $300 -- $ 5,100
1997 4,500 300 -- 4,800
1996 4,500 300 -- 4,800
Winget, Jr.
1998 $4,800 $300 -- $ 5,100
1997 3,975 300 -- 4,275
1996 3,650 300 -- 3,950
Tignanelli
1998 $4,550 $300 -- $ 4,850
1997 4,500 300 -- 4,800
1996 4,500 300 -- 4,800
COMPENSATION OF DIRECTORS
Mr. Winget serves as the Special Advisor to the Issuer, Messrs. Winget,
Schutz and Torakis serve as the directors of each guarantor of the Notes, and
Mr. Butler serves as director of Venture Holdings Corporation. None receive any
additional compensation or fees for their service to us in such capacities. Mr.
Cheifetz does not receive compensation for acting as a director of Venture
Canada; however, the law firm of which he is a partner acts as counsel to
Venture Canada.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of the Named Officers' compensation for the year ended December 31,
1998 was paid by Experience Management LLC. Messrs. Winget and Torakis, in their
capacities as directors,
89
96
participated in the deliberations concerning executive compensation. In
addition, some of the Named Officers have engaged in certain transactions with
Venture. See "Certain Transactions."
OPTIONS
None of the Named Officers hold any options to acquire any interest in the
Issuer or to acquire stock of the subsidiaries of the Issuer or were granted any
such options in the 1998 fiscal year.
STOCK OWNERSHIP
The Issuer owns, directly or indirectly, all of the outstanding capital
stock of, or equity interests in, its subsidiaries, except for its Mexican (70%
owned) and Spanish (50% owned) joint ventures. The Trust is the sole member of
the Issuer, and Mr. Winget is the sole beneficiary of the Trust. Mr. Winget's
address is c/o Venture Holdings Company LLC, 33662 James J. Pompo Drive, Fraser,
Michigan 48026.
CERTAIN TRANSACTIONS
In addition to making distributions to Mr. Winget, either directly as sole
beneficiary of the Trust before the Trust Contribution, or indirectly through
distributions to the Trust as the sole member of the Issuer after the Trust
Contribution, and also compensating him in his capacity as an Executive Manager
of the Company, Venture has maintained business relationships and engaged in
certain transactions with Mr. Winget and certain companies owned or controlled
by him (each an "affiliate" and collectively, the "affiliates") as described
below. Since we operate for the benefit of Mr. Winget, the terms of these
transactions are not the result of arms'-length bargaining; however, we believe
that such transactions are on terms no less favorable to us than would be
obtained if such transactions or arrangements were arms'-length transactions
with non-affiliated persons.
Pursuant to the indentures governing the Notes and the indenture governing
the 1997 Senior Notes, the Issuer, each issuer of the 1997 Senior Notes and each
guarantor of each of the 1997 Senior Notes and the Exchange Notes is required to
maintain a Fairness Committee, at least one of whose members is independent,
which approves the terms and conditions of certain transactions between the
Company and our affiliates and participates in decisions concerning whether
certain corporate opportunities will be pursued by us. Venture has complied with
such requirement since the date of the issuance of the 1994 Notes for
transactions initiated after such date. The indentures also contain restrictions
on distributions to Mr. Winget and other restrictions on transactions with
affiliates, including the Corporate Opportunity Agreement. The Corporate
Opportunity Agreements, entered into in connection with the issuance of the 1994
Notes and the Outstanding Notes, require Mr. Winget to offer to us certain
corporate opportunities which relate to our business before he may pursue such
opportunities outside the Company. See "Description of Exchange Notes."
FACILITIES AND EQUIPMENT
We lease, or have arranged for the usage of, certain facilities, machinery
and equipment that are owned by affiliates, as set forth below. We believe that
the lease and usage agreements are based on the fair market value of the
facilities, machinery and equipment at the inception of the agreements. Venture
has made significant capital improvements to these properties. Venture has
accounted for such improvements as leasehold improvements. At the conclusion of
the applicable lease or usage agreement, the benefits of such improvements inure
to the benefit of the lessor.
Venture Real Estate, Inc., a corporation wholly owned by Mr. Winget's
living trust since 1988, leases two separate injection molding buildings to us
in our Malyn Complex, and our Commerce Mold Shop. Starting in 1996, the Redford
facility, and in 1998 the Almont II facility, were also
90
97
leased to us by Venture Real Estate, Inc. Amounts paid to Venture Real Estate,
Inc. and a predecessor affiliate were approximately $0.8 million, $1.0 million
and $0.8 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
Deluxe Pattern Corporation ("Deluxe"), a corporation wholly owned by Mr.
Winget's living trust since 1989, provides an advanced design, model and
tool-building facility, and is engaged in the business of providing design and
model and tool-building services to us and to customers unaffiliated with us.
Since July, 1992, Venture has occupied and staffed the Deluxe facility pursuant
to a usage agreement. Venture paid Deluxe usage fees of $0.4 million for each of
the years ended December 31, 1996, 1997 and 1998. Such fees are based upon the
amount of time the facility and advanced equipment housed there are made
available to us. In addition to the usage fees, Venture paid Deluxe $4.3
million, $9.2 million and $6.6 million for the years ended December 31, 1996,
1997 and 1998, respectively, for the purchase of goods and services and
equipment at net book value. Deluxe does not directly employ its own workforce,
but rather, our employees are made available to Deluxe on an as needed basis,
for which Deluxe pays us a fee. During the years ended December 31, 1996, 1997
and 1998, Venture made sales to Deluxe of $1.1 million each year, and Deluxe
paid Venture $9.6 million, $4.6 million and $17.3 million, respectively, for
time spent by Venture's employees on Deluxe business.
Harper Properties of Clinton Township Limited Partnership ("Harper
Properties") leases its Harper facility to us pursuant to an operating lease
which terminates on June 7, 1999 (the "Harper Lease"). Realven Corporation
("Realven") leases the machinery and equipment located at the Harper facility to
us pursuant to an operating lease which also terminates on June 7, 1999 (the
"Realven Lease"). Both leases are expected to be renewed prior to the
termination date. Harper Properties is a limited partnership in which the living
trusts of Mr. Winget and his wife, Alicia, and an affiliated company are the
general partners and Mr. Winget, members of his family, A. James Schutz, an
Executive Manager of the Company, and Michael G. Torakis, an Executive Manager
of the Company, are the limited partners. Realven is a corporation wholly owned
by Mr. Winget and his wife, Alicia. The Harper Lease provides for semi-annual
lease payments. Harper Properties and Realven have the right to require us to
enter into negotiations regarding an increase in the lease payments under the
Harper Lease and the Realven Lease, so that lease payments under these leases
will reflect all expenses to Harper Properties, Realven and their owners.
Venture has made several improvements to the Harper facility and the machinery
and equipment leased from Realven, and has accounted for them as leasehold
improvements. At the termination of the Harper and Realven Leases, Harper
Properties and Realven, respectively, will retain the value, if any, of the
leasehold improvements. Venture paid Harper Properties $1.7 million in each of
the years ended December 31, 1996, 1997 and 1998, respectively, under the Harper
Lease. Venture paid Realven $0.4 million in each of the years ended December 31,
1996, 1997 and 1998, respectively, under the Realven Lease.
Mr. Winget has since 1991 allowed Venture to use approximately 12 molding
machines pursuant to the terms of usage agreements. In January of 1994, Mr.
Winget leased 28 additional injection molding machines to Venture as part of the
expansions of the Harper and Groesbeck facilities. Mr. Winget also leases
certain injection molding equipment to us. In February of 1995, Mr. Winget
contributed and assigned his interests in the leases to the various injection
molding machines and equipment to a new entity, Venture Heavy Machinery Limited
Liability Company. Venture paid Venture Heavy Machinery Limited Liability
Company $1.8 million in each of the years ended December 31, 1996, 1997 and
1998, respectively, under the usage agreements.
Venture Real Estate Acquisition Company and Venture Equipment Acquisition
Company, each wholly owned by Mr. Winget's living trust, acquired a 176,000
square foot injection molding facility and the machinery and equipment located
therein (including 35 molding machines), on February 4, 1994. Venture entered
into usage agreements for such facility (the Masonic facility), machinery and
equipment, the terms of which were reviewed and approved by the Fairness
Committee. During 1996,
91
98
1997 and 1998 Venture paid $1.3 million, $1.3 million and $1.3 million,
respectively, to Venture Real Estate Acquisition Company and Venture Equipment
Acquisition Company pursuant to these agreements.
BUSINESS RELATIONSHIPS
We maintain ongoing business relationships with affiliates, as set forth
below:
Nova Corporation ("Nova") is a corporation in which Windall Industries, a
corporation in which Mr. Winget owns a 49% equity interest and a former
Executive Manager of Venture owns the controlling 51% interest. Nova is a
successor to Windall Industries' business. Nova supplies us with certain small
parts or components of large assemblies that are sold to our customers. Venture
paid Nova $2.3 million, $1.0 million and $1.5 million for the years ended
December 31, 1996, 1997 and 1998, respectively. In connection with this
relationship, Venture has provided Nova with various raw materials at cost and
received commission income, for which Nova paid Venture $0.8 million, $0.3
million and $0.4 million in the years ended December 31, 1996, 1997 and 1998,
respectively. Nova sells products to other customers besides us, and has and
will compete with us for certain contracts. Nova paid Venture $0.2 million each
year pursuant to machinery and equipment operating leases for each of the years
ended December 31, 1996, 1997 and 1998. Venture paid Windall Industries usage
fees of $80,000 in each of the years ended December 31, 1996, 1997 and 1998.
Venture Sales and Engineering ("VS&E") and Venture Foreign Sales
Corporation ("VFS"), corporations wholly owned by Mr. Winget, serve as our
outside sales agencies for sales of products manufactured at our Vemco, Inc.,
Venture Industries and Venture Grand Rapids facilities. Currently, we pay VS&E
and VFS, in the aggregate, a sales commission of 3% on all production sales.
Venture paid VS&E, $6.4 million, $7.3 million and $10.4 million in the years
ended December 31, 1996, 1997 and 1998, respectively. Venture made no payments
to VFS in the years ended December 31, 1996, 1997 and 1998. VS&E has conducted
sales and marketing activities around the world for us and has been advanced
certain funds in order to carry on that work on our behalf.
VAC has, since 1991, performed sequencing and value-added assembly of parts
manufactured at our Grand Blanc facility. Venture paid VAC $3.3 million in the
year ended December 31, 1996 under this arrangement. During the years ended
December 31, 1996 Venture made sales to VAC of $69,000. Beginning October 1,
1996 the manufacturing services previously provided by VAC have been contracted
to MAST Services LLC, a company in which N. Matthew Winget, Mr. Winget's son,
owned a minority interest until the fourth quarter of 1998. Services for the
period ending December 31, 1996 were $0.3 million, and for the years ended
December 31, 1997 and 1998 were $2.7 million and $2.3 million, respectively.
MANAGEMENT SERVICES
Venture Service Company ("Venture Service") provides administrative
services and insurance to Deluxe, Windall Industries, VS&E and VAC. Deluxe,
Windall Industries, VS&E and VAC paid us $1.8 million and $0.2 million in the
years ended December 31, 1996 and 1997, respectively. No amounts were paid in
1998.
Venture provided Venture Asia Pacific Pty. Ltd. and its subsidiaries
("VAP") with management and sales services, for which they paid Venture $5.1
million, $4.0 million and $4.5 million for 1996, 1997 and 1998, respectively. In
addition, VAP also reimbursed Venture for certain other expenditures made on its
behalf and assigned certain tooling contracts to Venture.
Pompo Insurance & Indemnity Company Ltd. ("Pompo"), a Barbados corporation
indirectly wholly owned by Mr. Winget, was incorporated in 1992 under the
Barbados Exempt Insurance Act. We purchase insurance from Pompo to cover certain
medical claims by our employees and certain workers compensation claims. Venture
has accounted for this arrangement using the deposit method
92
99
wherein the full amount of the estimated liability for such claims is recorded
in other liabilities and the premiums paid to Pompo are recorded in other assets
until such time that the claims are settled. We remain primarily liable for any
amounts in excess of insurance coverage or any amounts not paid by Pompo under
these coverages. If a liability is settled for less than the amount of the
premium paid to Pompo, a portion of the excess is available as a premium credit
on future insurance. No amounts were paid in 1996 or 1997. In 1998 Venture paid
Pompo $0.6 million in premiums. Venture received and utilized premium credits of
$0.2 million and $0.7 million, respectively for 1996 and 1998. No premium
credits were utilized in 1997.
OTHER
From time to time, we pay certain expenses on behalf of Mr. Winget which he
is obligated to repay to us. Such amounts payable by Mr. Winget do not bear
interest and are payable on demand. Mr. Winget was not indebted to Venture for
such expenses at December 31, 1996 or 1997. At December 31, 1998, Mr. Winget's
indebtedness to Venture for such expenses was $867,000. The highest amount of
such indebtedness outstanding at any one time during such periods was $867,000.
Such indebtedness was repaid in its entirety in the first quarter of 1999.
Mr. Winget and his wife, Alicia, own the Acropolis Resort, which consists
of several separate units and a lodge near Gaylord, Michigan, a resort community
north of Detroit. We lease this facility from Mr. Winget primarily for use by
our employees, who are permitted to use the facility on an availability basis.
Cumulative leasehold improvements to this facility through December 31, 1998
aggregate $0.3 million. Our lease obligation to Mr. Winget is based upon the
actual use of the facility by our employees, provided that we are required to
pay for the use of 500 room nights per calendar year (approximately $25,000)
whether or not such rooms are rented. Venture paid Mr. Winget $80,000, $50,000
and $90,000 in the years ended December 31, 1996, 1997 and 1998, respectively,
under this arrangement.
Farm and Country Real Estate Company ("Farm and Country"), a corporation
wholly owned by Mr. Winget, leases to us approximately 84 acres of undeveloped
land adjacent to our Grand Blanc facility on a month-to-month basis. This lease
provides for monthly rental payments of $16,100. Rent paid in 1996, 1997 and
1998 was $0.2 million in each year.
Mr. Winget and Patent Holdings, Inc., a corporation wholly owned by Mr.
Winget, have granted to us non-exclusive, royalty free licenses to certain
patents which have been issued under applications filed by Mr. Winget, as
assignee. Mr. Winget and the affiliated companies also generally permit us to
utilize proprietary technologies or processes, such as REAP, which are developed
by Deluxe and the affiliated companies. The licenses are perpetual, but provide
that the licensor may negotiate a reasonable royalty in the event that Mr.
Winget or an Excluded Person (as defined in the indenture relating to the 1997
Senior Notes) no longer owns at least 80% of the beneficial interest of the
Trust.
On July 1, 1996, Venture Industries Corporation and its affiliated
companies (not including the Trust or Venture Canada) (the "Venture
Guarantors"), along with VIC Management, L.L.C. ("VIC"), a limited liability
company wholly owned, directly or indirectly, by Mr. Winget, entered into an
agreement guaranteeing up to $3.5 million of the obligations of Atlantic
Automotive Components, L.L.C. ("Atlantic") to RIC Management Corp. ("RIC"). This
guarantee is one of a series of transactions whereby VIC acquired RIC's minority
interest in Atlantic. Deluxe agreed to fully indemnify the Venture Guarantors
for all amounts paid under the guarantee.
We recently agreed to a number of corporate and non-resident golf
memberships for certain of our employees in a golf club owned by companies Mr.
Winget controls. The aggregate initial fee for such memberships is approximately
$1.5 million, and the annual dues will be approximately $0.3 million. The
initial fees are refundable upon termination, over various periods. We will no
longer pay dues for such employees in other clubs to which they may belong.
93
100
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of certain of our debt agreements does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
such agreements, including the definitions therein of terms not defined herein.
NEW CREDIT AGREEMENT
On May 27, 1999, we entered into the New Credit Agreement and, as of June
4, 1999, we entered into the First Amendment to the New Credit Agreement. The
Issuer, as successor to Venture Holdings Trust, assumed the obligations of
Venture Holdings Trust under the New Credit Agreement and Venture Holdings Trust
was released from such obligations. Set forth below is a summary of the
principal terms of the New Credit Agreement. The following summary is not
complete and is qualified by reference to all of the documents governing the New
Credit Agreement.
Pursuant to the New Credit Agreement, as amended, The First National Bank
of Chicago and certain other lenders provided, subject to certain terms and
conditions, credit facilities aggregating $575.0 million, including (1) a 5 year
$175.0 million Revolving Credit Facility; (2) a 5 year $75.0 million Term Loan
A; (3) a 6 year $200.0 million Term Loan B; and (4) an 18 month $125.0 million
Interim Term Loan. The New Credit Agreement requires that $125.0 million
principal amount outstanding thereunder be refinanced within 18 months from the
closing date, utilizing the proceeds from the sale of securities that rank pari
passu in right of payment with, or are junior to, the 12% Senior Subordinated
Notes due 2009. See "Risk Factors -- Substantial Leverage."
The Revolving Credit Facility permits us to borrow up to the lesser of a
borrowing base computed as a percentage of accounts receivable and inventory, or
$175.0 million less the amount of any letter of credit issued against the New
Credit Agreement. Pursuant to the borrowing base formula, as of December 31,
1998 we could have utilized the full amount available under the Revolving Credit
Facility.
The New Credit Agreement provides for a multicurrency funding capability to
be made available to the Issuer. At present, loans may be made in U.S. dollars,
euros or, under certain circumstances, other available and freely tradeable
foreign currencies.
Neither the Revolving Credit Facility nor the Interim Term Loan requires
scheduled amortization payments or scheduled commitment reductions prior to
maturity. Each of Term Loan A and Term Loan B requires quarterly amortization
payments through maturity. The documents governing the New Credit Agreement,
under certain circumstances, require mandatory prepayments and commitment
reductions. Such circumstances include asset sales, issuances of equity and the
generation of cash flow in excess of certain amounts, and a change of control.
In addition, the borrowers have the right to make optional prepayments and
commitment reductions.
All indebtedness under the New Credit Agreement is senior secured
indebtedness. Obligations under the New Credit Agreement are jointly and
severally guaranteed by the Issuer's domestic subsidiaries and, under certain
circumstances, the agent bank may request guarantees of foreign subsidiaries,
however, no such guarantees are contemplated at this time. Obligations under the
New Credit Agreement are secured by first priority security interests in
substantially all of the assets of the Issuer and its domestic subsidiaries. As
a result, payments may need to be made under the New Credit Agreement even
though payments are then due with respect to the Exchange Notes. See
"Description of Exchange Notes."
Interest on the Revolving Credit Facility, Term Loan A and the Interim Term
Loan accrues at an annual rate of interest equal to, at our option, either (a)
the Alternate Base Rate, as announced by The First National Bank of Chicago
("ABR"), plus an applicable margin (which applicable margin will initially be
1.25% and thereafter may range from 0% to 1.25%) (the "ABR rate") or
94
101
(b) at the London Interbank Offered Rate (adjusted) for a specified interest
period ("LIBOR"), for the applicable currency, plus an applicable margin (which
applicable margin will initially be 2.75% and thereafter may range from 1.50% to
2.75%).
Interest on Term Loan B accrues at an annual rate of interest equal to
either (a) the ABR, plus an applicable margin (which applicable margin will
initially be 1.75% and thereafter may range from 1.25% to 1.75%) (together with
the ABR rate the "floating rate") or (b) at LIBOR plus an applicable margin
(which applicable margin will initially be 3.25% and thereafter may range from
2.75% to 3.50%).
Interest on all borrowings under the New Credit Agreement bearing interest
at a floating rate is payable quarterly and interest on all borrowings under the
New Credit Agreement bearing interest based on LIBOR is payable at the end of
the interest period pertaining thereto unless the interest period is 6 months,
in which case it will also be payable 3 months after the interest period
commences.
We also pay an unused commitment fee on the Revolving Credit Facility which
commitment fee was initially 0.50% of the unused amount of the Revolving Credit
Facility and thereafter may range from 0.375% to 0.50%.
The documents governing the New Credit Agreement contain a number of
covenants that, among other things, restrict our ability to dispose of assets,
incur additional indebtedness, incur guarantee obligations, pay dividends,
create liens, make investments, make acquisitions, engage in mergers or
consolidations, engage in certain transactions with affiliates and otherwise
restrict corporate activities. Such covenants are more restrictive than those
related to the Exchange Notes. In addition, the documents governing the New
Credit Agreement require compliance with financial tests and ratios.
THE 1997 SENIOR NOTES
The Issuer, as successor to Venture Holdings Trust, and certain of the
guarantors of the Outstanding Notes are jointly and severally liable as issuers
under an indenture relating to the 1997 Senior Notes. The 1997 Senior Notes bear
interest at a rate per annum of 9 1/2% and mature on July 1, 2005. As of
December 31, 1998, $205.0 million was outstanding under the 1997 Senior Notes.
Interest on the 1997 Senior Notes is payable semi-annually on January 1 and July
1 of each year. The 1997 Senior Notes are redeemable, in whole or in part, at
the option of the issuers of such notes at any time on or after July 1, 2001 at
104.750%, after July 1, 2002 at 102.375%, and after July 1, 2003 at 100%.
The indenture for the 1997 Senior Notes contains covenants that are
generally more restrictive than those related to the Exchange Notes. The
covenants contained in the indenture for the 1997 Senior Notes relate to the
following matters: (1) limitations on additional indebtedness; (2) limitations
on restricted payments; (3) limitations on transactions with affiliates; (4)
corporate opportunities; (5) the application of proceeds of certain assets
sales; (6) limitations on liens; (7) limitations on issuance of guarantees and
pledges for indebtedness; (8) limitation on equity interests of subsidiaries;
(9) limitations on dividends and other payment restrictions; (10) limitations on
other senior indebtedness; (11) limitations on new lines of business; and (12)
restrictions on mergers, consolidations and transfers of all or substantially
all of the assets of the Issuer.
Each of the Issuer's domestic subsidiaries that are not issuers of the 1997
Senior Notes are guarantors of the 1997 Senior Notes.
95
102
DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Trust" refers only to Venture Holdings Company LLC, as successor to Venture
Holdings Trust following the Trust Contribution on May 27, 1999, and not to any
of its subsidiaries. Certain defined terms used in this description but not
defined below under "-- Certain Definitions" have the meanings assigned to them
in the Indentures.
The Outstanding Senior Notes were, and the Senior Exchange Notes will be,
issued under a an Indenture (the "New Senior Indenture"), dated May 27, 1999,
among the Trust, the Guarantors and The Huntington National Bank, as trustee
(the "Trustee"). The Outstanding Senior Subordinated Notes were, and the Senior
Subordinated Exchange Notes will be, issued under an Indenture (the "New Senior
Subordinated Indenture" and, together with the New Senior Indenture, the
"Indentures"), dated May 27, 1999 among the Trust, the Guarantors and the
Trustee. The terms of the Exchange Notes are the same as the terms of the
Outstanding Notes, except that (1) the Trust registered the Exchange Notes under
the Securities Act of 1933, as amended, and their transfer is not restricted
like the Outstanding Notes and (2) holders of the Exchange Notes are not
entitled to certain rights under the Registration Rights Agreement.
Because this section of the Prospectus merely summarizes the terms of the
Exchange Notes, the Indentures and the Registration Rights Agreement, you should
read the Indentures, the Registration Rights Agreement and the relevant portions
of the Trust Indenture Act of 1939 for more complete information regarding the
terms of the Outstanding Notes and the Exchange Notes. Copies of the Indentures
and Registration Rights Agreement can be obtained by following the instructions
contained in this Prospectus under the headings "Where You Can Find More
Information." For the purposes of the remainder of this section entitled
"Description of Exchange Notes," the term the "Notes," refers to the Exchange
Notes, the term the "New Senior Notes" refers to the Senior Exchange Notes, and
the term the "New Senior Subordinated Notes" refers to the Senior Subordinated
Exchange Notes.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NEW SENIOR SUBORDINATED NOTES
The New Senior Subordinated Notes:
- are general unsecured obligations of the Trust;
- are subordinated in right of payment to all existing and future Senior
Debt of the Trust, including the 1997 Senior Notes and the New Senior
Notes;
- are pari passu in right of payment with any future senior subordinated
Indebtedness of the Trust; and
- are unconditionally guaranteed by the Guarantors.
THE NEW SENIOR NOTES
The New Senior Notes:
- are general unsecured obligations of the Trust;
- are pari passu in right of payment with all existing and future unsecured
unsubordinated Indebtedness of the Trust, including the 1997 Senior
Notes;
- are effectively subordinated to all secured debt of the Trust, including
that incurred under the Credit Agreement;
96
103
- are senior in right of payment to any current and future subordinated
Indebtedness of the Trust, including the New Senior Subordinated Notes;
and
- are unconditionally guaranteed by the Guarantors.
RESTRICTED SUBSIDIARIES
As of the Issue Date, all of our Subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Our Subsidiaries which are designated as
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants in the Indentures and will not guarantee the Notes.
THE SUBSIDIARY GUARANTEES
The Notes are guaranteed by the Guarantors.
Each Subsidiary Guarantee of the New Senior Subordinated Notes:
- is a general unsecured obligation of the Guarantor;
- is subordinated in right of payment to all existing and future Senior
Debt of the Guarantors, including the Guarantors' Guarantee of the 1997
Senior Notes and the New Senior Notes; and
- is pari passu in right of payment with any future senior subordinated
Indebtedness of the Guarantor.
Each Subsidiary Guarantee of the New Senior Notes:
- is a general unsecured obligation of the Guarantor;
- is senior in right of payment to all existing and future subordinated
Indebtedness of the Guarantors, including the Guarantors' Guarantees of
the New Senior Subordinated Notes;
- is pari passu in right of payment with any current and future unsecured
unsubordinated Indebtedness of the Guarantors, including the 1997 Senior
Notes; and
- is effectively subordinated to all secured debt of the Guarantors,
including that incurred under the Credit Agreement.
Our foreign subsidiaries did not guarantee the Notes on the Issue Date. In
the event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debts and their trade creditors before they will be able to
distribute any of their assets to us. The guarantor subsidiaries generated 33.1%
of our consolidated revenues in the twelve-month period ended December 31, 1998
and 32.1% of our consolidated revenues in the three-month period ended March 31,
1999, each on a pro forma basis. The guarantor subsidiaries held 43.0% of our
consolidated assets as of December 31, 1998 and 43.5% of our consolidated assets
as of March 3, 1999, each on a pro forma basis after giving effect to the
Acquisition. See "Risk Factors -- Company Structure; Not all Subsidiaries are
Guarantors."
PRINCIPAL, MATURITY AND INTEREST
NEW SENIOR SUBORDINATED NOTES
The New Senior Subordinated Indenture provides for the issuance by the
Trust of New Senior Subordinated Notes with a maximum aggregate principal amount
of $250 million, of which $125 million of the Outstanding Senior Subordinated
Notes were issued on May 27, 1999. The Trust may issue additional senior
subordinated notes (the "Additional New Senior Subordinated Notes") from
97
104
time to time. Any offering of Additional New Senior Subordinated Notes is
subject to the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." The
New Senior Subordinated Notes and any Additional New Senior Subordinated Notes
subsequently issued under the New Senior Subordinated Indenture would be treated
as a single class for all purposes under the New Senior Subordinated Indenture,
including, without limitation, waivers, amendments, redemptions and offers to
purchase. The Trust will issue New Senior Subordinated Notes in denominations of
$1,000 and integral multiples of $1,000. The New Senior Subordinated Notes will
mature on June 1, 2009.
Interest on the New Senior Subordinated Notes will accrue at the rate of
12% per annum and will be payable semi-annually in arrears on June 1 and
December 1, commencing on December 1, 1999. The Company will make each interest
payment to the Holders of record of New Senior Subordinated Notes on the
immediately preceding May 15 and November 15.
Interest on the New Senior Subordinated Notes will accrue from the date of
original issuance or, if interest has already been paid, from the date it was
most recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
NEW SENIOR NOTES
The New Senior Indenture provides for the issuance by the Trust of Notes
with a maximum aggregate principal amount of $175 million, of which $125 million
of the Outstanding Senior Notes were issued on May 27, 1999. The Trust may issue
additional senior notes (the "Additional New Senior Notes") from time to time.
Any offering of Additional New Senior Notes is subject to the covenant described
below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock." The New Senior Notes and any Additional New Senior
Notes subsequently issued under the New Senior Indenture would be treated as a
single class for all purposes under the New Senior Indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. The Trust
will issue New Senior Notes in denominations of $1,000 and integral multiples of
$1,000. The New Senior Notes will mature on June 1, 2007.
Interest on the New Senior Notes will accrue at the rate of 11% per annum
and will be payable semi-annually in arrears on June 1 and December 1,
commencing on December 1, 1999. The Trust will make each interest payment to the
Holders of record of New Senior Notes on the immediately preceding May 15 and
November 15.
Interest on the New Senior Notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder of $1,000,000 in aggregate principal amount of Notes or more
has given wire transfer instructions to the Company, the Company will pay all
principal, interest and premium and Liquidated Damages, if any, on that Holder's
Notes in accordance with those instructions. All other payments on Notes will be
made at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Trust elects to make interest payments by check
mailed to the Holders at their addresses set forth in the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Trust may
change the Paying Agent or Registrar without prior notice to the Holders, and
the Trust or any of its Subsidiaries may act as Paying Agent or Registrar.
98
105
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the applicable
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the Trust
may require a Holder to pay any taxes and fees required by law or permitted by
the applicable Indenture. The Trust is not required to transfer or exchange any
Note selected for redemption. Also, the Trust is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes (including the determination of who is entitled to payments).
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee the Trust's obligations
under the Notes. Each Subsidiary Guarantee of the New Senior Subordinated Notes
will be subordinated to the payment in full of all unsubordinated Indebtedness
of that Guarantor. Each Subsidiary Guarantee of the New Senior Notes will be
pari passu to all unsecured unsubordinated Indebtedness of that Guarantor and
senior to all subordinated Indebtedness of that Guarantor. The obligations of
each Guarantor under its Subsidiary Guarantee will be limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors -- Fraudulent Conveyance Matters."
SUBORDINATION OF THE NEW SENIOR SUBORDINATED NOTES
The payment of principal, interest, premium and Liquidated Damages, if any,
on the New Senior Subordinated Notes will be subordinated to the prior payment
in full of all Senior Debt of the Trust and Guarantors, including Senior Debt
incurred after the Issue Date.
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due in respect of Senior Debt
(including interest after the commencement of any bankruptcy proceeding at the
rate specified in the applicable Senior Debt) before the Holders of New Senior
Subordinated Notes will be entitled to receive any payment with respect to the
New Senior Subordinated Notes, including, without limitation, any redemption,
defeasance or other acquisition of the New Senior Subordinated Notes. Until all
Obligations with respect to Senior Debt are paid in full in cash or Cash
Equivalents, any payment or distribution to which the Holders of New Senior
Subordinated Notes would be entitled shall be made to the holders of Senior Debt
(except that Holders of New Senior Subordinated Notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"-- Legal Defeasance and Covenant Defeasance") in the event of any distribution
to creditors of the Trust or the Guarantors:
(1) in a liquidation or dissolution;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Trust or Guarantors or their property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Trust's or the Guarantors' assets and
liabilities.
The Trust and Guarantors of the New Senior Subordinated Notes also may not
make any payment in respect of the New Senior Subordinated Notes (except in
Permitted Junior Securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if:
(1) a default in the payment of the principal of, premium, if any, or
interest on Designated Senior Debt occurs and is continuing beyond any
applicable grace period (a "Payment Default"); or
99
106
(2) any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Trust or the holders of
any Designated Senior Debt.
Payments on the New Senior Subordinated Notes may and shall be resumed:
(1) in the case of a Payment Default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated or a Payment
Default has occurred.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest, premium and
Liquidated Damages, if any, on the New Senior Subordinated Notes that have
come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the New Senior Subordinated Notes receives
a payment in respect of the Notes (except in Permitted Junior Securities or from
the trust described under "-- Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by the subordination provisions of the
New Senior Subordinated Indenture; and
(2) the Trustee or the Holder has actual knowledge that the payment is
prohibited;
the Trustee or the Holder, as the case may be, shall hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the Trustee or the Holder of New Senior
Subordinated Notes, as the case may be, shall deliver the amounts held in trust
to the holders of Senior Debt or their proper representative.
The Trust must promptly notify holders of Senior Debt if payment of the New
Senior Subordinated Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Trust, Holders of New
Senior Subordinated Notes may recover less ratably than creditors of the Trust
or Guarantors who are holders of Senior Debt. After giving pro forma effect to
the Acquisition and the financing thereof, the New Senior Subordinated Notes
would have been junior to $725.5 million of Senior Debt, including the New
Senior Notes and 1997 Senior Notes. See "Risk Factors -- Subordination of Senior
Subordinated Exchange Notes."
OPTIONAL REDEMPTION
At any time prior to June 1, 2002, the Trust may redeem up to 35% of the
aggregate principal amount of each of the New Senior Notes and the New Senior
Subordinated Notes issued under the Indentures at a redemption price of 111% of
the principal amount of New Senior Notes redeemed and 112% of the New Senior
Subordinated Notes redeemed, in each case plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net cash proceeds
of a Public Equity Offering; provided that:
(1) at least 65% of the aggregate principal amount of each of the New
Senior Notes and the New Senior Subordinated Notes issued under each
Indenture remains outstanding
100
107
immediately after the occurrence of such redemption (excluding Notes held
by the Trust and its Subsidiaries); and
(2) any such redemption must occur within 120 days of the date of the
closing of such Equity Offering.
Except pursuant to the preceding paragraph, the New Senior Notes will not
be redeemable at the Trust's option prior to June 1, 2003 and the New Senior
Subordinated Notes will not be redeemable at the Trust's option prior to June 1,
2004.
After June 1, 2004, the Trust may redeem all or a part of the New Senior
Subordinated Notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on June 1 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2004................................................. 106.00%
2005................................................. 104.00%
2006................................................. 102.00%
2007 and thereafter.................................. 100.00%
After June 1, 2003, the Trust may redeem all or a part of the New Senior
Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on June 1 of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003................................................. 105.50%
2004................................................. 103.67%
2005................................................. 101.83%
2006 and thereafter.................................. 100.00%
MANDATORY REDEMPTION
The Trust is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require the Trust to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's Notes pursuant to a Change of Control Offer
on the terms set forth in the Indentures. In the Change of Control Offer, the
Trust will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of Notes repurchased plus accrued and unpaid interest
and Liquidated Damages, if any, thereon, to the date of purchase. Within 20 days
following any Change of Control, the Trust will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes on the Change of Control Payment Date specified
in such notice, which date shall be no earlier than 20 Business Days and no
later than 55 Business Days from the date such notice is mailed, pursuant to the
procedures required by the Indentures and described in such notice. The Trust
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 the Notes as a
result of a
101
108
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control provisions of the Indentures,
the Trust will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Change of Control
provisions of the Indentures by virtue of such conflict.
On the Change of Control Payment Date, the Trust will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the Trust.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
With respect to the New Senior Subordinated Notes, prior to complying with
any of the provisions of this "Change of Control" covenant, but in any event
within 90 days following a Change of Control, the Trust will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of the New
Senior Subordinated Notes required by this covenant. The failure to repay such
Senior Debt or obtain such consents within such time period shall constitute an
Event of Default under the New Senior Subordinated Indenture. The Trust will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the Trust to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Indentures are applicable. Except as
described above with respect to a Change of Control, the Indentures do not
contain provisions that permit the Holders of the Notes to require that the
Trust repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Trust will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes a Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indentures applicable to a Change of Control Offer made by the Trust, and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of the Trust and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Trust to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Trust and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
102
109
ASSET SALES
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Trust (or the 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 or Equity Interests issued or sold or
otherwise disposed of;
(2) with respect to any single transaction or series of related
transactions that involves assets having a fair market value of more than
$10.0 million, such fair market value is determined by the Trust's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) at least 85% of the consideration therefor received by the Trust
or such Restricted Subsidiary is in the form of cash or Cash Equivalents,
provided, however, that more than 15% of the total consideration may
consist of consideration other than cash or Cash Equivalents if (A) the
portion of such consideration that does not consist of cash or Cash
Equivalents consists of assets of a type ordinarily used in the operation
of a Permitted Business to be used by the Trust or a Restricted Subsidiary
in the conduct of a Permitted Business or Capital Stock of a Restricted
Subsidiary engaged in a Permitted Business (or a Person which becomes such
a Restricted Subsidiary as a result of the receipt of such consideration),
(B) the terms of such Asset Sale have been approved by a majority of the
members of the Board of Directors of the Trust and (C) if the value of the
assets being disposed of by the Trust or such Restricted Subsidiary in such
transaction (as determined in good faith by such members of the Board of
Directors) is at least $10.0 million, the Board of Directors of the Trust
has received a written opinion of a nationally recognized investment
banking firm (or other nationally recognized valuation expert) to the
effect that such Asset Sale is fair, from a financial point of view, to the
Trust and the Trust has delivered a copy of such opinion to the Trustee.
For purposes of this provision (3), each of the following shall be deemed
to be cash:
(a) any liabilities (as shown on the Trust's or such Restricted
Subsidiary's most recent balance sheet), of the Trust or any Restricted
Subsidiary (other than contingent liabilities (except to the extent that
a reserve or other liability in respect thereof is reflected in
accordance with GAAP on the most recent balance sheet of the Trust or
such Restricted Subsidiary) and liabilities that are by their terms
subordinated to the Notes or any Subsidiary Guarantee) that are assumed
by the transferee of any such assets pursuant to a customary novation
agreement that releases the Trust or such Restricted Subsidiary from
further liability; and
(b) any securities, notes or other obligations received by the
Trust or any such Restricted Subsidiary from such transferee that within
60 days of such Asset Sale are converted by the Trust or such Restricted
Subsidiary into cash or Cash Equivalents (to the extent of the cash or
Cash Equivalents received in that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Trust or Restricted Subsidiary may apply such Net Proceeds at its option:
(1) (a) with respect to the New Senior Subordinated Indenture, to
repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto or
(b) with respect to the New Senior Indenture, to repay Indebtedness under
Credit Facilities that are not expressly subordinated by their terms to any
other Indebtedness of the Trust or such Guarantors and, if the Indebtedness
repaid is revolving credit Indebtedness, to correspondingly reduce
commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure;
103
110
(4) to acquire other long-term assets that are used or useful in a
Permitted Business; or
(5) to make and consummate an Asset Sale Offer (as described below).
Pending the final application of any such Net Proceeds, the Trust or such
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indentures.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraphs will constitute "Excess Proceeds." Each
Indenture will provide that when (i) the aggregate amount of Excess Proceeds
exceeds $10.0 million or (ii) the Trust or any Restricted Subsidiary is required
to make an offer to purchase or redeem any Indebtedness which is pari passu with
the applicable Notes and which contains provisions similar to those set forth in
such Indenture with respect to offers to purchase or redeem with asset sale
proceeds, then in each such case, the Trust will make an Asset Sale Offer to all
Holders of Notes issued thereunder and all holders of other Indebtedness that is
pari passu with such Notes containing provisions similar to those set forth in
the applicable Indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets to purchase the maximum principal amount of such
Notes and such other pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Trust or any
Restricted Subsidiary may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indentures. If the aggregate principal amount of applicable
Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
such other pari passu Indebtedness to be purchased on a pro rata basis based on
the principal amount of Notes and such other pari passu Indebtedness tendered.
Upon completion of each Asset Sale Offer pursuant to an Indenture, the amount of
Excess Proceeds shall be reset at zero for purposes of such Indenture. The Trust
shall commence an Asset Sale Offer within ten (10) Business Days after the
amount of Excess Proceeds exceeds $10 million, such Asset Sale Offer shall
remain open for at least twenty (20) Business Days and the Trust shall complete
such Asset Sale Offer within thirty (30) Business Days after it is commenced.
All cash or Cash Equivalents received by the Trust or a Restricted
Subsidiary from an Event of Loss shall be used, invested, used for prepayment of
Indebtedness, or used to repurchase Notes, all of the foregoing within the
periods and as otherwise provided in the prior three paragraphs.
The Trust 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 each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the Indentures, the Trust will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the Indentures by virtue of such
compliance.
OTHER AGREEMENTS
With respect to the New Senior Notes, the agreements governing the Trust's
other Indebtedness contain requirements regarding repurchases of Notes or the
repayment of Indebtedness upon the occurrence of certain events, including
events that would constitute a Change of Control or an Asset Sale. In addition,
the exercise by the Holders of New Senior Notes of their right to require the
Trust to repurchase the New Senior Notes upon a Change of Control or an Asset
Sale could cause a default under these other agreements, even if the Change of
Control or Asset Sale itself does not, due to the financial effect of such
repurchases on the Trust. The Trust's ability to pay cash to the Holders of New
Senior Notes upon such a repurchase may be limited by the Trust's then existing
financial resources.
104
111
With respect to the New Senior Subordinated Notes, the agreements governing
the Trust's outstanding Senior Debt, including the New Senior Notes, the 1997
Senior Notes and the Credit Agreement, currently prohibit the Trust from
purchasing any New Senior Subordinated Notes, and also provide that certain
change of control or asset sale events with respect to the Trust would
constitute a default under these agreements. Any future credit agreements or
other agreements relating to Senior Debt to which the Trust becomes a party may
contain similar restrictions and provisions. In the event a Change of Control or
Asset Sale occurs at a time when the Trust is prohibited from purchasing New
Senior Subordinated Notes, the Trust could seek the consent of its senior
lenders to the purchase of New Senior Subordinated Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Trust does not
obtain such a consent or repay such borrowings, the Trust will remain prohibited
from purchasing New Senior Subordinated Notes. In such case, the Trust's failure
to purchase tendered New Senior Subordinated Notes would constitute an Event of
Default under the New Senior Subordinated Indenture which would, in turn,
constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the New Senior Subordinated Indenture would likely
restrict payments to the Holders of New Senior Subordinated Notes. The Trust's
ability to pay cash to the Holders of New Senior Subordinated Notes upon a
repurchase may be limited by the Trust's then existing financial resources.
See "Risk Factors -- Financing Change of Control Offer."
SELECTION AND NOTICE
If less than all of the Notes issued under an Indenture are to be redeemed
at any time, the Trustee will select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of
the principal national securities exchange on which the Notes are listed;
or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices 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. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Trust's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Trust or any
of its Restricted Subsidiaries), or to the direct or indirect holders of
the Trust's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Trust or to the
Trust or a Restricted Subsidiary of the Trust);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Trust) any Equity Interests of the Trust or any
direct or indirect parent of the Trust;
105
112
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments");
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) the Trust would, at the time of such Restricted Payment and after
giving Pro Forma Effect thereto as if such Restricted Payment had been made
at the beginning of the applicable Reference Period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Trust and its Restricted Subsidiaries
after the Issue Date, excluding Restricted Payments permitted by clauses
(2), (3), (4), (5) and (6) of the next succeeding paragraph, is less than
the sum, without duplication, of:
(a) $20 million; plus
(b) 50% of the Consolidated Net Income of the Trust for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the Issue Date to the end of the Trust's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit); plus
(c) 100% of the aggregate net cash proceeds received by the Trust
since the Issue Date as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Trust (other than
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Trust that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of the Trust); plus
(d) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(ii) the initial amount of such Restricted Investment; plus
(e) in the event that any Unrestricted Subsidiary is designated as
a Restricted Subsidiary in accordance with the provisions of the
applicable Indenture, the lesser of (i) the aggregate fair market value
of all outstanding Investments owned by the Trust and its Restricted
Subsidiaries in such Subsidiary at the time of such designation or (ii)
the aggregate amount of Restricted Investments made in such Unrestricted
Subsidiary since the Issue Date.
So long as no Default has occurred and is continuing or would be caused thereby,
the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indentures;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Trust or any Guarantor
or of any Equity Interests of the Trust
106
113
in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Trust) of, Equity
Interests of the Trust (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (3) (c) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness of the Trust or any Guarantor with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend or other distribution by a Subsidiary
of the Trust to the holders of its Equity Interests on a pro rata basis;
(5) (a) so long as the Trust is treated for federal, state or local
tax purposes as an entity described in Section 1361(c)(2), 1361(d) or
1361(e) of the Code, an S Corporation, a partnership or an entity that is
disregarded as an entity separate from its owner(s) (each a "Pass-Through
Entity"), the Trust shall be permitted to distribute to the
Beneficiary(ies) of the Trust (or pay compensation to the Beneficiary(ies)
of the Trust in lieu of such distributions) all amounts distributed to the
Trust by Subsidiaries or other Persons in which the Trust has a direct
investment (collectively, "Investee Companies") in cash as described below,
calculated before giving effect to such payments (such payments to be
referred to hereinafter as "Trust Tax Distributions"):
(1) on (or within 15 days prior to) each April 15, June 15,
September 15 and January 15 an amount not to exceed the minimum federal
and state estimated quarterly income and intangible tax payments
required to be made on such date by each Beneficiary of the Trust in
order to prevent underpayment of each such Beneficiary's estimated
income tax pursuant to the rules set forth in Section 6654(b) and
6654(d)(1) of the Code, or their successors or supplements, and any
similar provision of applicable state income and intangible tax law for
any state with respect to which the Investee Companies qualify as
Pass-Through Entities for state law purposes, such amount to be
calculated as though each such Beneficiary's only income and loss in
each such quarter relating to a required estimated payment was an amount
equal to the sum of the taxable income and loss of the Investee
Companies which are Pass-Through Entities. The foregoing amounts may be
paid so long as (I) each such Investee Company is and was a Pass-Through
Entity for such quarter, as provided in the Code or the Treasury
Regulations promulgated thereunder, (II) no Default or Event of Default
exists and is continuing or would thereby occur, (III) special tax
counsel to the Trust delivers to the Trustee, prior to the payment in
respect of such quarter, an opinion substantially in the form attached
to the Indentures regarding the classification of the Trust and each
such Investee Company as a Pass-Through Entity for federal income tax
purposes (or, if Larry J. Winget is disabled or unavailable as described
in the Venture Trust Instrument, such special tax counsel delivers to
the Trustee, prior to the payment in respect of such quarter, an opinion
substantially in the form attached to the Indentures), (IV) the Trust
has not received a private ruling or a National Office Technical Advice
Memorandum from the Internal Revenue Service or, in respect of
distributions made for state income tax purposes, a similar ruling from
any applicable state or local taxing authority, that the Trust is not a
Pass-Through Entity, or there has been a final "determination" (as used
in Section 1313 of the Code) or similar state determination to the same
effect, and (V) the Trust and its Investee Companies have complied with
the terms of clauses (b), (c) and (d) below. The amount that is
distributable pursuant to this clause (5)(a) by each Investee Company
which is a Pass-Through Entity in respect of each of the quarters
described above shall be that proportion of the amount of the Trust Tax
Distribution for each such quarter which such Investee Company's Tax
Income for such quarter bears to the aggregate Tax Income of all the
Investee Companies which are Pass-Through Entities in such quarter. For
107
114
purposes of the foregoing, "Tax Income" shall mean one-quarter of an
Investee Company's actual taxable income for the year prior to that with
respect to which the calculations described above are being made. For
purposes hereof, any references herein to the taxable income or loss of
a Pass-Through Entity that is disregarded as an entity separate from its
owner for tax purposes shall mean the taxable income or loss of such
Pass-Through Entity as if it was a pass-through corporation which was
not disregarded as a separate entity for tax purposes; and
(2) no later than September 15 of each year, the Trust shall cause
its tax advisors, which shall be a nationally recognized accounting
firm, to determine the actual amount of federal and state income tax
liability of each Beneficiary of the Trust for the previous calendar
year computed as if the only income and loss of each such Beneficiary in
such year was an amount equal to the sum of the taxable income and loss
of the Investee Companies which are Pass-Through Entities (the "Actual
Tax Amount"). If (A) the Actual Tax Amount, as determined by such tax
advisor, is less than the aggregate estimated amounts paid pursuant to
clause (1) above in respect of such year (the "Distributed Amounts")
and/or (B) if the Actual Tax Amount is at any time finally determined by
the Internal Revenue Service or a court of competent jurisdiction to be
less than that determined by such tax advisors, the Trust shall cause
the Beneficiary(ies) of the Trust, within 75 days after such difference
is determined, to reimburse to the Trust, with no obligation on the part
of the Trust to each such Beneficiary with respect to such
reimbursement, the excess of the Distributed Amounts over the Actual Tax
Amount, as finally determined by the tax advisors, the Internal Revenue
Service or court of competent jurisdiction, as the case may be, or the
excess of the Actual Tax Amount, as determined by the tax advisors, over
the Actual Tax Amount as determined by the Internal Revenue Service or
court, as the case may be (in either case, which excess amount may be
offset by any amounts then or subsequently owed to each such Beneficiary
by reason of clause (1) above). If the excess of the Distributed Amounts
over the Actual Tax Amount, as finally determined by the tax advisors,
is reimbursed to the Trust after June 14 of such year, such excess shall
bear interest from June 15 to the date preceding the date it is paid to
the Trust at an interest rate equal to the overpayment rate established
under Section 6621(a)(1) of the Code or its successor and supplements.
If the Actual Tax Amount, as determined by the tax advisors, the
Internal Revenue Service or court, as the case may be, is greater than
the Distributed Amounts, each of the Investee Companies which are
Pass-Through Entities shall distribute to the Trust (and the Trust shall
then distribute to its Beneficiary(ies)) its share of the excess of the
Actual Amount over the Distributed Amounts, within 75 days after such
difference is determined. If any payment is made (i) in contravention of
clause (1) above and paid to the Beneficiary(ies) of the Trust pursuant
to this clause(5)(a) or (ii) in contravention of the limitations
contained in the immediately preceding sentence and paid to the
Beneficiary(ies) of the Trust pursuant to the immediately preceding
sentence, the Trust shall cause the Beneficiary(ies) of the Trust to
reimburse to each of the Investee Companies making such prohibited
payment the amount of such prohibited payment;
(b) in the event of the death, disability or unavailability of Larry
J. Winget as provided in the Venture Trust Instrument (such date, a
"Commencement Date"), the Trust shall notify the Trustee of the occurrence
of such Commencement Date no later than 10 days following such date and
shall apply for a private ruling from the Internal Revenue Service to the
effect that (1) each of the Investee Companies which was a Pass-Through
Entity immediately prior to such death, disability or unavailability, as
the case may be, qualifies, despite such death, disability or
unavailability, as a Pass-Through Entity and (2) the Trust qualifies as a
Pass-Through Entity;
(c) if at any time the Trust or an Investee Company receives
notification from the Internal Revenue Service that any Investee Company
does not qualify as a Pass-Through Entity (x) no further distributions
shall be made pursuant to clause (a)(1) above by such Investee Company,
108
115
and (y) the Trust shall cause the Beneficiary(ies) of the Trust either (A)
to reimburse the Trust all amounts paid by that Investee Company pursuant
to clause (a)(1) and clause (a)(2) above with respect to all periods as to
which that Investee Company did not qualify as a Pass-Through Entity, with
no obligation on the part of the Trust to any such Beneficiary with respect
to such reimbursement, and the Trust shall then pay such reimbursement to
that Investee Company, or (B) to reimburse such Investee Company such
payments directly, within 75 days after such requirement for reimbursement
is determined; provided that no such reimbursement shall be required to the
extent to which such distribution would otherwise have been permitted,
after taking into account interest, penalties and additions to tax imposed
on such Investee Company as a result of its failure to qualify as a
Pass-Through Entity. If the Trust or any Investee Company at any time
receives notification from the Internal Revenue Service that the Trust is
not a Pass-Through Entity or if the Trust or the Investee Companies fail to
receive a favorable response to a ruling request described in clause (b)
within 360 days after the Commencement Date with respect to the status of
the Trust or any Investee Company as a Pass-Through Entity (in either the
case of a notification or a response to a ruling request, the
"Entity-in-Issue") the Trust shall, and shall cause its Beneficiaries to,
take the actions described in clauses (x) and (y) of the preceding sentence
with respect to the Entity-in-Issue (unless such Internal Revenue Service
response indicates that the Internal Revenue Service is not ruling as to
those issues and the Trust has obtained a favorable opinion of independent
tax counsel that the Entity-in-Issue is a Pass-Through Entity); and
(d) no Trust Tax Distribution may be made to the extent such
distribution would cause the aggregate cumulative amount of Trust Tax
Distributions to exceed the aggregate cumulative Tax Distribution Amounts
for periods completed after the Issue Date; and
(6) In the case of the New Senior Note Indenture, repurchases of
subordinated Indebtedness with the proceeds of Asset Sales to the extent
that (a) such proceeds have been offered to Holders of the New Senior Notes
pursuant to an Asset Sale Offer, (b) such Holders declined to participate
in such Asset Sale Offer and (c) the Trust is required to offer to
repurchase or redeem such subordinated Indebtedness with such Asset Sale
proceeds.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Trust or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the relevant Fairness Committee whose resolution
with respect thereto shall be delivered to the Trustee. The Fairness Committee's
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, the Trust shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the Indentures.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the
Trust will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of Preferred Stock; provided,
however, that the Trust may incur Indebtedness (including Acquired Debt) and
issue Disqualified Stock, and the Trust and the Guarantors may incur
Indebtedness and issue Preferred Stock and any other Restricted Subsidiary may
incur Acquired Debt, if the Fixed Charge Coverage Ratio for the Trust's most
recently ended four full fiscal quarters
109
116
for which financial statements are publicly available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock or Preferred Stock is issued would have been at least 2.0 to 1, determined
on a Pro Forma Basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the Preferred
Stock or Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Trust and/or one or more Restricted
Subsidiaries of additional Indebtedness and letters of credit under Credit
Facilities in an aggregate principal amount at any one time outstanding
under this clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Trust and
the Restricted Subsidiaries, without duplication, thereunder) not to exceed
$625.0 million less (x) the aggregate principal amount of Receivables Debt
outstanding under clause (2) below and (y) the aggregate amount of all Net
Proceeds of Asset Sales applied by the Trust or any of its Restricted
Subsidiaries to repay any Indebtedness under a Credit Facility or
Receivables Debt under Receivables Facilities and effect a corresponding
commitment reduction thereunder pursuant to the covenant described under
the caption "-- Repurchase at the Option of Holders -- Asset Sales;"
provided, that Restricted Subsidiaries that are not Guarantors shall not
directly or indirectly incur Indebtedness and letters of credit in an
aggregate principal amount outstanding under this clause (1) in excess of
$50.0 million; provided, further, that the aggregate principal amount of
Indebtedness, letters of credit and Receivables Debt under Receivables
Facilities which may be incurred under this clause (1) and clause (2) below
shall not be reduced below $100.0 million in the aggregate at any one time
outstanding by reason of subclause (y) above and subclause (y) of clause
(2) below;
(2) the incurrence by Receivables Subsidiaries of Receivables Debt
under Receivables Facilities in an aggregate principal amount at any time
outstanding pursuant to this clause (2) not to exceed $625 million less (x)
the aggregate principal amount of Indebtedness and letters of credit
(determined as described in clause (1) above) outstanding under clause (1)
above and (y) the aggregate amount of all Net Proceeds of Asset Sales
applied to reduce commitments with respect to Receivables Debt or
Indebtedness under a Credit Facility pursuant to the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales;" provided, that the aggregate principal amount of Indebtedness,
letters of credit and Receivable Debt under Receivables Facilities which
may be incurred pursuant to this clause (2) and clause (1) above shall not
be reduced below $100.0 million in the aggregate at any one time
outstanding by reason of subclause (y) above and subclause (y) of clause
(1) above;
(3) the incurrence by the Trust and its Restricted Subsidiaries of the
Existing Indebtedness;
(4) the incurrence by the Trust and the Guarantors of Indebtedness
represented by the Notes to be issued on the Issue Date and the related
Subsidiary Guarantees and the New Notes (as defined in the Registration
Rights Agreement) to be issued pursuant to the Registration Rights
Agreement and the related Subsidiary Guarantees;
(5) the incurrence by the Trust or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Trust or such Subsidiary, in an aggregate principal amount,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (5),
not to exceed $50.0 million at any time outstanding;
110
117
(6) (a) the incurrence by the Trust or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the applicable
Indenture to be incurred under the first paragraph of this covenant or
clauses (3), (4), (5), (6), or (14) of this paragraph and (b) the
incurrence by the Trust or any of its Restricted Subsidiaries of Permitted
Preferred Stock in exchange for, or the net proceeds of which are used to
refund, refinance or replace Preferred Stock (other than intercompany
Preferred Stock) that was permitted by the applicable Indenture to be
incurred under the first paragraph of this covenant;
(7) the incurrence by the Trust or any of its Restricted Subsidiaries
of intercompany Indebtedness or Preferred Stock between or among the Trust
and any of its Restricted Subsidiaries; provided, however, that:
(a) if the Trust or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
Notes, in the case of the Trust, or the Subsidiary Guarantee, in the
case of a Guarantor; and
(b)(i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness or Preferred Stock being held by a
Person other than the Trust or a Restricted Subsidiary thereof and (ii)
any sale or other transfer of any such Indebtedness or Preferred Stock
to a Person that is not either the Trust or a Restricted Subsidiary
thereof; shall be deemed, in each case, to constitute an incurrence of
such Indebtedness or Preferred Stock by the Trust or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(7);
(8) the incurrence by the Trust or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred solely for the purpose of (a)
fixing or hedging interest rate risk with respect to any Indebtedness that
is permitted by the terms of this Indenture to be outstanding or (b)
hedging currency or commodity risks of the Trust and its Restricted
Subsidiaries incurred by the Trust or such Restricted Subsidiaries in the
ordinary course of their business;
(9) the guarantee by the Trust or any of the Guarantors of
Indebtedness of the Trust or a Guarantor that was permitted to be incurred
by another provision of this covenant;
(10) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included
in Fixed Charges of the Trust as accrued;
(11) Indebtedness of the Trust or any Restricted Subsidiary
represented by performance bonds and letters of credit for the account of
the Trust or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims and payment obligations
in connection with self-insurance, in each case, that are incurred in the
ordinary course of business in accordance with customary industry practice
in amounts, and for the purposes, customary in the Trust's industry;
(12) Indebtedness of the Trust or any Restricted Subsidiary arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred in connection with the
disposition of any business, assets or Subsidiary, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided that the maximum aggregate liability in respect of
all such Indebtedness shall at no time exceed the gross
111
118
proceeds actually received or to be received by the Trust and the
Restricted Subsidiary in connection with such dispositions;
(13) Indebtedness of the Trust or any Restricted Subsidiary solely in
respect of bankers acceptances, and appeal bonds (to the extent that any
such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the
ordinary course of business in accordance with customary industry
practices, in amounts and for the purposes customary in the Trust's
industry; provided that the aggregate principal amount outstanding of such
Indebtedness (including any Indebtedness issued to refinance, refund or
replace such Indebtedness) shall at no time exceed $5.0 million;
(14) the incurrence by any Restricted Subsidiary that is not a
Guarantor of Indebtedness in accordance with the provisions described below
under the caption "-- Limitation on Foreign Indebtedness;"
(15) the guarantee by any Restricted Subsidiary that is not a
Guarantor of Indebtedness of a Restricted Subsidiary that is not a
Guarantor that was permitted to be incurred under the Indenture; and
(16) the incurrence by the Trust or any of the Guarantors of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (16), not to exceed $35.0
million.
With respect to the New Senior Notes, the Trust will not, and will not
permit any of its Restricted Subsidiaries to, incur any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of payment to any
other Indebtedness of the Trust or such Restricted Subsidiaries unless such
Indebtedness is also contractually subordinated in right of payment to the New
Senior Notes on substantially identical terms; provided, however, that no
Indebtedness of the Trust or its Restricted Subsidiaries shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of the
Trust or its Restricted Subsidiaries solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (16) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Trust will be permitted to classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant. Indebtedness under
Credit Facilities outstanding on the date on which Notes are first issued and
authenticated under the Indentures shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (1) of the definition of
Permitted Debt.
LIMITATION ON FOREIGN INDEBTEDNESS
The Trust will not permit any Restricted Subsidiary of the Trust that is
not a Guarantor to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness) other than Permitted Debt unless:
(1) after giving effect to the incurrence of such Indebtedness and the
receipt of the application of the proceeds thereof:
(a) if, as a result of the incurrence of such Indebtedness such
Restricted Subsidiary will become subject to any restriction or
limitation on the payment of dividends or the making of other
distributions,
(i) the Fixed Charge Coverage Ratio of Restricted Subsidiaries
that are not Guarantors (determined on a Pro Forma Basis for the last
four fiscal quarters for which financial statements are available at
the date of determination) is greater than 2.75 to 1; and
112
119
(ii) the Trust's Fixed Charge Coverage Ratio (determined on a
pro forma basis for the last four fiscal quarters of the Trust for
which financial statements are available at the date of
determination) is greater than 2.0 to 1; or
(b) in any other case, the Trust's Fixed Charge Coverage Ratio
(determined on a Pro Forma Basis for the last four fiscal quarters of
the Trust for which financial statements are available at the date of
determination) is greater than 2.0 to 1; and
(2) no Default or Event of Default shall have occurred and be
continuing a the time or as a consequence of the incurrence of such
Indebtedness.
In the event that any Indebtedness incurred pursuant to clause (1)(b) of
the foregoing paragraph is proposed to be amended, modified or otherwise
supplemented such that the payment of dividends or the making of other
distributions becomes subject in any manner to any restriction or limitation,
the Trust will not permit the Restricted Subsidiary to so amend, modify or
supplement such Indebtedness unless such Indebtedness could be incurred pursuant
to the terms of clause (1)(a) of the foregoing paragraph.
In calculating the Fixed Charge Coverage Ratio of the Restricted
Subsidiaries that are not Guarantors, Fixed Charges with respect to Indebtedness
that is solely owed to and held by the Trust or a Restricted Subsidiary shall be
excluded.
All calculations required under the prior two paragraphs hereof shall be
made in a manner consistent with the calculations required under the covenant
described under "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
LIENS
New Senior Subordinated Notes
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, except Permitted Liens, unless the Trust or the Guarantors
provide, and cause their Restricted Subsidiaries to provide, concurrently
therewith, that the New Senior Subordinated Notes are equally and ratably
secured.
New Senior Notes
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, except Permitted Liens, unless the Trust or the Guarantors
provide, and cause their Restricted Subsidiaries to provide, concurrently
therewith, that the New Senior Notes are equally and ratably secured.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Trust or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to the Trust or any of its Restricted Subsidiaries;
(2) make loans or advances to the Trust or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Trust or any of
its Restricted Subsidiaries.
113
120
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as
a whole, with respect to such dividend and other payment restrictions than
those contained in such Existing Indebtedness, as in effect on the Issue
Date;
(2) Credit Facilities, provided that such Credit Facilities are no
more restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in the Credit Agreement as in
effect on the Issue Date;
(3) the Indentures, the Notes and the Subsidiary Guarantees;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Trust or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the
Indentures to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, assets sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(13) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided
that such restrictions apply only to such Receivables Subsidiary; and
(14) Indebtedness incurred by a Restricted Subsidiary that is not a
Guarantor in compliance with the provisions set forth under the caption
"-- Limitation on Foreign Indebtedness."
114
121
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Trust
The Trust may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not the Trust is the surviving entity); or (2)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Trust (computed on a consolidated basis), in
one or more related transactions, to another Person; unless:
(1) either: (a) the Trust is the continuing entity; or (b) the Person
formed by or surviving any such consolidation or merger (if other than the
Trust) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is organized or existing under the laws of
the United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Trust) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Trust under the Notes, the Indentures and the
Registration Rights Agreements pursuant to agreements reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) the Trust or the Person formed by or surviving any such
consolidation or merger (if other than the Trust), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made:
(a) will have a Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Trust immediately preceding the transaction; and
(b) will, on the date of such transaction after giving Pro Forma
Effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable Reference Period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock."
The foregoing clause (4) will not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among the Trust and any of
the Guarantors.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Trust's interest in which constitutes all or
substantially all of the properties and assets of the Trust shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Trust.
Notwithstanding anything contained in the Indentures to the contrary, the
Trust is permitted to contribute or otherwise transfer all of the Equity
Interests of the Subsidiaries then held by the Trust (other than the Equity
Interests of the Subsidiary which is to receive such contribution from the
Trust) to Venture Holdings Corporation or other successor to the Trust (a "Trust
Contribution"), provided that (A) any successor or surviving entity is organized
and existing under the laws of the United States, any state thereof or the
District of Columbia, (B) such contribution or reorganization is not materially
adverse to Holders of the Notes; it being understood, however, that such
contribution or reorganization shall not be considered materially adverse to
Holders of the Notes solely because the successor or surviving entity is subject
to income taxation as a corporate entity, (C) immediately after giving effect to
such transaction, no Default or Event of Default exists, (D) the actions
comprising such contribution or reorganization (e.g., the contribution of
Capital Stock of the Subsidiaries, or the issuance of Capital Stock of the
entity in exchange for assets of or Equity Interests in the Trust or in exchange
for stock of an entity holding such Equity Interests, or the merger or
consolidation of such entities) will not themselves directly result in material
income tax liability to the successor or surviving entity, (E) the successor or
surviving entity has assumed all
115
122
obligations of the Trust, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Notes and the Indentures and
(F) Holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such contribution or reorganization and will
be subject to federal income tax with respect to the Notes on the same amounts,
in the same manner, and at the same time as would have been the case if such
contribution or reorganization had not occurred. If the successor or surviving
entity after a Trust Contribution is not a Pass-Through Entity, the Trust's
ability to make Trust Tax Distributions must terminate prior to such
contribution or reorganization (except with respect to Trust Tax Distributions
in respect of taxable periods ending on or prior to the date such contribution
or reorganization is effective for relevant tax purposes), other than Trust Tax
Distributions in respect of Beneficiaries' income tax liability that results
from the actions comprising such contribution or reorganization. The Trust shall
deliver to the Trustee prior to such contribution or reorganization an Officers'
Certificate covering clauses (A) through (F) and the preceding sentence of this
paragraph, stating that such contribution or reorganization and such
supplemental indenture comply with the Indentures, and an opinion of counsel
covering clauses (A), (D), (E) and (F) above and the preceding sentence of this
paragraph.
Guarantors
A Guarantor may not consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person), another Person, other than the Trust or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either: (a) the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that Guarantor under
the Indentures, its Subsidiary Guarantee and the Registration Rights
Agreement, pursuant to a supplemental indenture satisfactory to the Trustee
or (b) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Asset Sale" provisions of the applicable Indenture.
The Subsidiary Guarantee of a Guarantor will be released from its
obligations under the Subsidiary Guarantee:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) a Subsidiary of the Trust, if the
Guarantor applies the Net Proceeds of that sale or other disposition are
applied in accordance with the "Asset Sale" provisions of the Indentures;
or
(2) in connection with any sale of all of the Capital Stock of that
Guarantor to a Person that is not (either before or after giving effect to
such transaction) a Subsidiary of the Trust, if the Guarantor applies the
Net Proceeds of that sale in accordance with the "Asset Sale" provisions of
the Indentures; or
(3) if the Trust properly designates that Guarantor as an Unrestricted
Subsidiary;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Guarantor under all of its guarantees of, and under all
of its pledges of assets or other security interests which secure, any
Indebtedness of the Trust, the Guarantors or any other Restricted Subsidiary
shall also terminate upon such sale, disposition or designation.
See "-- Repurchase at the Option of Holders -- Asset Sales."
TRANSACTIONS WITH AFFILIATES
The Trust will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement,
116
123
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Trust or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Trust or such
Restricted Subsidiary with an unrelated Person; and
(2) the Trust delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors of the Trust or
such Restricted Subsidiary, as the case may be (or a resolution of the
Board of Directors of the Trust in the case of Venture Canada) and a
resolution of the Independent members of the Fairness Committee of the
Trust or Restricted Subsidiary (or a resolution of the Independent
members of the Fairness Committee of the Trust in the case of Venture
Canada), set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with this covenant; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$15.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal, investment banking firm or other qualified
independent financial advisor of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any transaction with officers or directors of the Trust or any
Restricted Subsidiary in the ordinary course of business and consistent
with the past practice of the Trust or such Restricted Subsidiary;
(2) transactions between or among the Trust and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Trust;
(4) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of the Trust;
(5) Restricted Payments that are permitted by the provisions of the
Indentures described above under the caption "-- Restricted Payments";
(6) performance of all agreements in existence on the Issue Date and
any modification thereto or any transaction contemplated thereby (including
pursuant to any modification thereto) in any replacement agreement therefor
so long as such modification or replacement is not more disadvantageous to
the Holders in any material respect than the original agreement as in
effect on the Issue Date; and
(7) transactions between a Receivables Subsidiary and any Person in
which the Receivables Subsidiary has an Investment.
The Trust and each of its Restricted Subsidiaries (other than Venture
Canada) shall have or will establish and maintain a Fairness Committee, at least
one of whose members shall be Independent.
ADDITIONAL GUARANTORS
All future domestic Restricted Subsidiaries (other than Receivables
Subsidiaries) shall become Guarantors of the Notes. In addition, the Trust will
not permit any of its Restricted Subsidiaries, directly or indirectly, to
Guarantee or pledge any assets to secure the payment of any other Indebtedness
of the Trust or any Guarantor unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture providing for the Guarantee of
the payment of the Notes by such Restricted Subsidiary, which Guarantee shall be
senior to or pari passu with such Restricted Subsidiary's Guarantee of or pledge
to secure such other Indebtedness unless, with respect
117
124
only to the New Senior Subordinated Notes, such other Indebtedness is Senior
Debt, in which case the Guarantee of the New Senior Subordinated Notes may be
subordinated to the Guarantee of such Senior Debt to the same extent as the New
Senior Subordinated Notes are subordinated to such Senior Debt.
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of the
Notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the caption "-- Merger, Consolidation or Sale of Assets -- Guarantors."
Forms of the Subsidiary Guarantees will be attached as exhibits to the
Indentures.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Trust may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if that designation would not cause a Default.
If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments (without duplication)
owned by the Trust and its Restricted Subsidiaries in the Subsidiary so
designated will be deemed to be an Investment made as of the time of such
designation and will either reduce the amount available for Restricted Payments
under the first paragraph of the covenant described above under the caption
"-- Restricted Payments" or reduce the amount available for future Investments
under one or more clauses of the definition of Permitted Investments, as the
Trust shall determine. That designation will only be permitted if such
Investment would be permitted at that time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default.
BUSINESS ACTIVITIES
The Trust will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Trust and its Restricted Subsidiaries taken as a
whole.
PAYMENTS FOR CONSENT
The Trust will not, and will not permit any of their Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indentures or the Notes
unless such consideration is offered to be paid and is paid to all Holders of
the Notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
LIMITATION ON AMENDMENTS TO AGREEMENTS
So long as the Trust is Venture Holdings Trust and is an obligor under the
Indentures, (i) the Trust shall not engage in any business activity except for
agreements related to its outstanding indebtedness; (ii) the Trust shall not own
any property other than (A) the stock or membership interest of its
subsidiaries, (B) insurance on the life of the Beneficiary, or (C) amounts
allowed to be distributed by it under the terms of its outstanding indebtedness
or required to be used by the Trust to service such outstanding indebtedness and
its other obligations incurred in the ordinary course in accordance with past
practice; and (iii) the Venture Trust Instrument shall not be amended, modified
or changed in any manner except that the Trust may make amendments,
modifications or changes which individually or in the aggregate are not adverse
to the interests of the Holders of the Notes. Without limiting the foregoing,
amendments to the Venture Trust Instrument reasonably necessary to conform to
the requirements of Section 1361(c)(2), 1361(d) or 1361(e) of the Code, or their
successors or supplements, shall not be deemed adverse to the interests of the
Holders of the Notes.
118
125
The Trust will not amend, modify or in any way alter the Corporate Opportunity
Agreement in any manner adverse to the Trust or any of its Restricted
Subsidiaries.
ANTI-LAYERING
With respect only to the New Senior Subordinated Notes, the Trust and the
Guarantors will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the New Senior
Subordinated Notes, and no Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any Senior Debt and senior in any respect in right
of payment to its Subsidiary Guarantee of the New Senior Subordinated Notes;
provided, however, that no Indebtedness of the Trust or its Restricted
Subsidiaries shall be deemed to be subordinated or junior in right of payment to
any other Indebtedness of the Trust or its Restricted Subsidiaries solely by
virtue of being unsecured.
CORPORATE OPPORTUNITIES
Larry J. Winget will agree pursuant to the Corporate Opportunity Agreement
for the benefit of the Holders of the Notes that if any corporate opportunity,
business opportunity, proposed transaction, acquisition, disposition,
participation, interest, or other opportunity to acquire an interest in any
business or prospect in the same business or in any business reasonably related
to the business of the Trust or any of its Subsidiaries or in any machinery or
equipment useful in the business of the Trust or any of its Subsidiaries (a
"Business Opportunity") comes to his attention or shall be made available to him
or any of his Affiliates, a complete and accurate description of such Business
Opportunity, including all of the terms and conditions thereof and the identity
of all other Persons involved in the Business Opportunity, shall be promptly
presented in writing to the Board of Directors of each of the Trust and each
Guarantor and the Fairness Committee of the Trust and each Guarantor and the
Trust and each Guarantor shall be entitled to pursue and take advantage of such
Business Opportunity, either directly or through a wholly owned Restricted
Subsidiary, and Larry J. Winget shall not, nor shall any of his Affiliates
(other than the Trust or any wholly owned Restricted Subsidiary of the Trust),
pursue or take advantage of a Business Opportunity unless majorities of the
Board of Directors of the Trust and each Guarantor and the Fairness Committee of
the Trust and each Guarantor (including majorities of the Trust's and each
Guarantor's disinterested directors, if any, and Independent members of the
Fairness Committee) have determined that it is not in the interests of the Trust
or such Guarantor to pursue or take advantage of such Business Opportunity.
Notwithstanding the foregoing, Business Opportunities (1) relating to the
purchase of machinery and equipment or real estate and not constituting a
business within the meaning of Section 11.01 (d) of Regulation S-X of the
Commission or (2) relating to the sale of goods and services by an Affiliate in
the ordinary course of business as conducted as of the Issue Date shall not be
subject to the Corporate Opportunity Agreement.
REPORTS
Whether or not required by the Commission, so long as any Notes are
outstanding, the Trust will furnish to the Holders of Notes, within 15 days
after the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Trust were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by the Trust's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Trust were required to file such reports.
119
126
In addition, whether or not required by the Commission, the Trust will file
a copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Trust and the
Subsidiary Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
If the Trust has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Trust
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Trust.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default under an Indenture:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes issued under such Indenture,
and with respect to the New Senior Subordinated Notes, whether or not such
payment was prohibited by the subordination provisions of the Indenture
governing the New Senior Subordinated Notes;
(2) default in payment when due of the principal of, or premium, if
any, on the Notes issued under such Indenture, when the same becomes due
and payable at maturity, redemption, by acceleration or otherwise, and with
respect to the New Senior Subordinated Notes, whether or not such payment
was prohibited by the subordination provisions of the Indenture governing
the New Senior Subordinated Notes;
(3) failure by the Trust or any of its Restricted Subsidiaries to
comply with the provisions described under the captions "-- Repurchase at
the Option of Holders -- Change of Control" or "-- Repurchase at the Option
of Holders -- Asset Sales;"
(4) failure by the Trust or any of its Restricted Subsidiaries for 60
days after notice from the Trustee or Holders of 25% in aggregate principal
amount of the Notes issued under the applicable Indenture to comply with
any of the other agreements in the Indenture or by Larry J. Winget to
observe and perform any covenant or agreement contained in the Corporate
Opportunity Agreement;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness in an aggregate principal amount in excess of $15.0 million
for money borrowed by the Trust or any of its Restricted Subsidiaries (or
the payment of which is guaranteed by the Trust or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness prior to the expiration of the
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 $15.0 million or
more;
120
127
(6) failure by the Trust or any of its Restricted Subsidiaries to pay
final judgments not covered by insurance aggregating in excess of $10.0
million, which judgments are not paid, bonded, discharged or stayed for a
period of 60 days; and
(7) except as permitted by the applicable Indenture, any Subsidiary
Guarantee issued thereunder shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
Trust, Guarantors or any of their Significant Subsidiaries.
In the case of an Event of Default under an Indenture arising from certain
events of bankruptcy or insolvency with respect to the Trust, any Subsidiary
that is a Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes
issued thereunder will become due and payable immediately without further action
or notice. If any other Event of Default under an Indenture occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes issued thereunder may declare all the Notes to be due
and payable immediately.
Holders of the Notes may not enforce the applicable Indenture or the Notes
except as provided in the applicable Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding New Senior
Subordinated Notes or New Senior Notes may direct the applicable Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the New
Senior Subordinated Notes or New Senior Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest or Liquidated Damages) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the New Senior
Subordinated Notes or New Senior Notes then outstanding by notice to the
applicable Trustee may on behalf of the Holders of all of such Notes waive any
existing Default or Event of Default and its consequences under the applicable
Indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, such Notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Trust with the
intention of avoiding payment of the premium that the Trust would have had to
pay if the Trust then had elected to redeem the New Senior Subordinated Notes or
New Senior Notes pursuant to the optional redemption provisions of the
applicable Indenture, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law upon the acceleration of the
Notes. If an Event of Default occurs prior to June 1, 2004 with respect to the
New Senior Subordinated Notes or prior to June 1, 2003 with respect to the New
Senior Notes, by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Trust with the intention of avoiding the prohibition on
redemption of the New Senior Subordinated Notes or New Senior Notes prior to
such respective dates, then the premium specified in the applicable Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of such Notes.
The Trust is required to deliver to the Trustee annually a statement
regarding compliance with the Indentures. Upon becoming aware of any Default or
Event of Default, the Trust is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder, manager, member,
partner, trustee, beneficiary or special advisor or member of the successor
special advisor group of the Trust or any Guarantor, as such, shall have any
liability for any obligations of the Trust or the Guarantors under the Notes,
the Indentures, the Subsidiary Guarantees or for any claim based on, in respect
of, or by
121
128
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. The waiver may not be effective
to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Trust may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Liquidated Damages,
if any, on such Notes when such payments are due from the trust referred to
below;
(2) the Trust'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 payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Trust's and the Guarantor's obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the Indentures.
In addition, the Trust may, at its option and at any time, elect to have
the obligations of the Trust and the Guarantors released with respect to certain
covenants that are described in the Indentures ("Covenant Defeasance") and
thereafter any omission to comply with those covenants 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, rehabilitation 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 under
an Indenture:
(1) the Trust must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the applicable Notes, cash in U.S. dollars,
non-callable Government Securities, 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, or
interest and premium and Liquidated Damages, if any, on the outstanding
Notes issued under such Indenture on the stated maturity or on the
applicable redemption date, as the case may be, and the Trust must specify
whether such Notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, the Trust shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Trust has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Issue
Date, 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 of the outstanding Notes issued under such
Indenture 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;
(3) in the case of Covenant Defeasance, the Trust shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
to the effect that the Holders of the outstanding Notes issued under such
Indenture 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;
122
129
(4) no Default or Event of Default shall have occurred and be
continuing under such Indenture either: (a) on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit); or (b) 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;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the relevant Indenture) to which the
Trust or any of its Subsidiaries is a party or by which the Trust or any of
its Subsidiaries is bound;
(6) the Trust must have delivered to the Trustee an Opinion of Counsel
(subject to customary exceptions) to the effect that, assuming no
intervening bankruptcy of the Trust or any Guarantor between the date of
deposit and the 91st day following the deposit and assuming that no Holder
is an "insider" of the Trust or a Guarantor under applicable bankruptcy
law, after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) the Trust must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Trust with the intent of
preferring the Holders of Notes over the other creditors of the Trust and
the Guarantors with the intent of defeating, hindering, delaying or
defrauding creditors of the Trust or Guarantors or others; and
(8) the Trust must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel (with respect to legal conclusions only), each
stating that all conditions precedent relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, an Indenture or
the Notes issued thereunder may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of such Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, such Notes), and any
existing default or compliance with any provision of an Indenture or the Notes
issued thereunder may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued thereunder (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any Note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or premium, or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the
Notes;
(6) make any change in the provisions of the relevant Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of, or interest or premium or Liquidated
Damages, if any, on the Notes;
123
130
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) release any domestic Guarantor from any of its obligations under
its Subsidiary Guarantee or the applicable Indenture, except in accordance
with the terms of the Indentures; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
Indentures relating to subordination that adversely affects the rights of the
Holders of the Notes will require the consent of the Holders of at least 75% in
aggregate principal amount of Senior Subordinated Notes then outstanding. The
release of any foreign Guarantor from any of its obligations under its
Subsidiary Guarantee with respect to an issue of Notes or the applicable
Indenture will require the consent of Holders of at least two-thirds of such
issue of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes,
the Trust, the Guarantors and the Trustee may amend or supplement the Indentures
or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of the Trust's obligations to
Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Trust's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the relevant Indenture of any such Holder;
(5) to add additional Guarantors; or
(6) to comply with requirements of the Commission in order to effect
or maintain the qualification of the relevant Indenture under the Trust
Indenture Act.
SATISFACTION AND DISCHARGE
Each Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated thereunder (except lost,
stolen or destroyed Notes that have been replaced or paid) have been
delivered to the Trustee for cancellation; or
(b) all Notes authenticated under the relevant Indenture that have
not been delivered to the Trustee for cancellation have become due and
payable by reason of the making of a notice of redemption or otherwise
or will become due and payable within one year and the Trust or any
Guarantor has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust solely for the benefit of the Holders,
cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on such Notes not delivered to the Trustee for
cancellation for principal, premium and Liquidated Damages, if any, and
accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Trust or any
Guarantor is a party or by which the Trust or any Guarantor is bound;
124
131
(3) the Trust or the Guarantors have paid or caused to be paid all
sums payable by them under the relevant Indenture; and
(4) the Trust has delivered irrevocable instructions to the Trustee
under the relevant Indenture to apply the deposited money toward the
payment of such Notes at maturity or the redemption date or upon delivery
for cancellation, as the case may be.
In addition, the Trust must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Trust or any Guarantor, the
Indentures limit its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, or apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing and, subject to such direction, the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indentures at the request of any Holder of Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indentures and
Registration Rights Agreements without charge by writing to Venture Holdings
Trust, 33662 James J. Pompo Drive, P.O. Box 278, Fraser, Michigan 48026,
Attention: James E. Butler.
BOOK-ENTRY, DELIVERY AND FORM
The Outstanding Notes are and the Exchange Notes will be issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof (the "Global Notes").
The Global Notes will be deposited on the date of the acceptance for
exchange of the Outstanding Notes and the issuance of the Exchange Notes with
the Trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Notes in certificated
form.
DEPOSITORY PROCEDURES
We are providing the following description of the operations and procedures
of DTC, the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") solely as a
matter of convenience. These operations and procedures are solely within the
control of the respective settlement systems and are
125
132
subject to changes by them. We take no responsibility for these operations and
procedures and urge you to contact the system or their participants directly to
discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised us that, pursuant to procedures established by DTC:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants represented by the Global Notes with portions of the principal
amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC, with respect to the Participants, or by the
Participants and the Indirect Participants, with respect to other owners of
beneficial interest in the Global Notes.
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. All interests in a Global Note, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems. The laws of some states require that certain
Persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such Persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants, the
ability of a Person having beneficial interests in a Global Note to pledge such
interests to Persons that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURES FOR ANY PURPOSE.
We will make payments in respect of the principal of, and interest and
premium and Liquidated Damages, if any, on a Global Note registered in the name
of DTC or its nominee to DTC in its capacity as the registered Holder under the
Indentures. Under the terms of the Indentures, we, along with the Trustee, will
treat the Persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving payments and for
all other purposes. Consequently, neither we, the Trustee nor any agent of the
Issuer or Guarantors or the Trustee has or will have any responsibility or
liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
126
133
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the Notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Issuer or Guarantors. Neither
the Issuer, Guarantors nor the Trustee will be liable for any delay by DTC or
any of its Participants in identifying the beneficial owners of the Notes. We
and the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Cedel will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described herein, cross-market transfers between the Participants in DTC,
on the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such cross-
market transactions will require delivery of instructions to Euroclear or Cedel,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised us that it will take any action permitted to be taken by a
Holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform such procedures, and may discontinue such procedures at any time.
Neither the Issuer, Guarantors nor the Trustee nor any of their respective
agents will have any responsibility for the performance by DTC, Euroclear or
Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the Global Notes and we fail to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act;
127
134
(2) we, at our option, notify the Trustee in writing that we elect to
cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indentures. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary, in accordance with
its customary procedures.
SAME DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the Notes represented by the Global
Notes (including principal, premium, if any, interest and Liquidated Damages, if
any) by wire transfer of immediately available funds to the accounts specified
by the Global Note Holder. We will make all payments of principal, interest and
premium and Liquidated Damages, if any, with respect to Certificated Notes held
by Holders of at least $1,000,000 in aggregate principal amount of Notes, by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Notes will, therefore, be required by DTC to be settled in
immediately available funds. We expect that secondary trading in any
Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Trust that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
Registration Rights Agreement. It does not restate that agreement in its
entirety. We urge you to read the Registration Rights Agreement in its entirety
because it, and not this description, defines your registration rights as
Holders of the Outstanding Notes. See "-- Additional Information."
The Trust, Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on May 27, 1999 pursuant to which the Trust and
Guarantors agreed, for the benefit of the Holders of the Outstanding Notes, that
they would, at their cost, (1) within 90 days after May 27, 1999 file a
registration statement under the Securities Act, of which this Prospectus forms
a part, (an "Exchange Offer Registration Statement") with the Commission with
respect to a registered offer to exchange the Outstanding Notes for the Exchange
Notes with terms substantially identical in all material respects to the
Outstanding Notes (except that such Exchange Notes will not contain terms with
respect to transfer restrictions) and (2) use their best efforts to cause such
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after May 27, 1999. Upon such Exchange Offer
Registration Statement being declared effective, the Trust will offer Exchange
Notes in exchange for properly tendered Outstanding Notes. The Trust will keep
the Exchange Offer open for not less than 20 Business Days (or longer if
required by applicable law) after the date notice of such Exchange Offer is
mailed to the Holders of the Outstanding Notes. For
128
135
each Outstanding Note surrendered pursuant to such Exchange Offer, the Holder of
such Outstanding Note will receive the applicable Exchange Notes having a
principal amount equal to that of the surrendered Outstanding Note. Under
existing Commission interpretations, the Exchange 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 a prospectus
meeting the requirements of the Securities Act must be delivered as required.
The Company has agreed for a period of at least 270 days after consummation of
the Exchange Offer to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Exchange Notes so acquired. A broker-dealer that 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, without
limitation, certain indemnification and contribution rights and obligations).
Each Holder of the Outstanding Notes who wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (1) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (2) it has no arrangement with any Person to participate in the
distribution of the Exchange Notes and (3) it is not an "affiliate," as defined
in Rule 405 of the Securities Act, of the Company or any of the Guarantors, or
if it is an affiliate of any of them, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
In addition, 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 Exchange Notes. If the Holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for the Outstanding 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 Exchange Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Trust to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of May 27, 1999,
the Trust will, at its own expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Outstanding Notes (a "Shelf
Registration Statement"), (b) use their best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after the filing of such Shelf Registration Statement
and (c) use their best efforts to keep effective such Shelf Registration
Statement until the earlier of 24 months following May 27, 1999 and such time as
all of the Outstanding Notes have been sold thereunder, or otherwise cease to be
a Transfer Restricted Security (as defined in the Registration Rights
Agreement). The Trust will, in the event a Shelf Registration Statement is
required to be filed, provide to each Holder of the Outstanding Notes copies of
the prospectus which is a part of such Shelf Registration Statement, notify each
such Holder when such Shelf Registration Statement for the Outstanding Notes has
become effective and take certain other actions that are required to permit
unrestricted resales of the Outstanding Notes. A Holder of the Outstanding Notes
who sells such notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a Holder (including certain
indemnification and contribution rights and obligations).
If (a) neither of the registration statements described above is filed on
or before the 90th day following May 27, 1999, (b) neither of such registration
statements is declared effective by the Commission on or prior to the 150th day
after May 27, 1999 (the "Effectiveness Target Date"), (c) an Exchange Offer
Registration Statement becomes effective, and the Trust fails to consummate the
Exchange Offer within 45 days of the earlier of the effectiveness of such
registration statement or the Effectiveness Target Date, or (d) the Shelf
Registration Statement is declared effective but
129
136
thereafter ceases to be effective or usable in connection with resales of
Outstanding Notes during the period specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Trust will pay to each Holder of the
Outstanding Notes, accruing from the date of the first such Registration Default
(or if such Registration Default has been cured, from the date of the next
Registration Default), liquidated damages ("Liquidated Damages") in an amount
equal to one-half of one percent (0.5%) per annum of the principal amount of the
Outstanding Notes held by such Holder during the first 90-day period immediately
following the occurrence of such Registration Default, increasing by an
additional one-half of one percent (0.5%) per annum of the principal amount of
such Outstanding Notes during each subsequent 90-day period, up to a maximum
amount of Liquidated Damages equal to two percent (2.0%) per annum of the
principal amount of such Outstanding Notes, which provision for Liquidated
Damages will continue until such Registration Default has been cured. Liquidated
Damages accrued as of any interest payment date will be payable on such date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"1997 Senior Notes" means the 9 1/2% Senior Notes due 2005 issued under
that certain Indenture dated as of July 1, 1997 among the Trust and certain of
the Guarantors and the Huntington National Bank, as Trustee, as the same may be
amended from time-to-time.
"Acquisition" means the purchase or other acquisition of any Person or
substantially all the assets of any Person or line of business of such Person by
any other Person, whether by purchase, merger, consolidation, or other transfer,
and whether or not for consideration.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness or Disqualified Stock of any other Person existing at
the time such other Person is merged with or into or became a Restricted
Subsidiary of such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other Person
merging with or into, or becoming a Restricted Subsidiary of, such
specified Person; provided, however, that Indebtedness of such Person that
is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transaction by which such Person
becomes or merges with or into the Trust or a Subsidiary of the Trust shall
not be Acquired Debt; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person, provided, however, that any such Indebtedness that
is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transaction by which such asset is
acquired shall not be Acquired Debt.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings. No Person in whom a Receivables
Subsidiary makes an Investment in connection with a Qualified Receivables
Transaction will be deemed to be an Affiliate of the Trust or any of its
Subsidiaries solely by reason of such Investment.
130
137
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with either past practices or accepted business practices in the
industry; provided that the sale, conveyance or other disposition of all or
substantially all of the assets of the Trust and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indentures described above under the caption "-- Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above
under the caption "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of the Trust's Restricted
Subsidiaries or the sale of Equity Interests in any of their Restricted
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among the Trust and its Restricted
Subsidiaries;
(3) an issuance or transfer of Equity Interests by a Restricted
Subsidiary to the Trust or to another Restricted Subsidiary;
(4) the sale, lease, conveyance or other disposition of equipment,
inventory, accounts receivable or other assets (including, without
limitation, the sale, lease, conveyance or other disposition of damaged,
worn-out or other obsolete property if such property is no longer necessary
for the proper conduct of the business of the Trust or such Restricted
Subsidiary) in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments;"
(7) sales of Receivables to a Receivables Subsidiary for the fair
market value thereof, including cash in an amount at least equal to 80% of
the book value thereof as determined in accordance with GAAP, it being
understood that, for the purposes of this clause (7), notes received in
exchange for the transfer of Receivables will be deemed cash if the
Receivables Subsidiary or other payor is required to repay said notes as
soon as practicable from available cash collections less amounts required
to be established as reserves pursuant to contractual agreements with
entities that are not Affiliates of the Trust or any of the Guarantors
entered into as part of a Qualified Receivables Transaction; and
(8) transfers of Receivables (or a fractional undivided interest
therein) by a Receivables Subsidiary in connection with a Qualified
Receivables Transaction.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Beneficiary" means (i) any beneficiary of the Trust while it is a trust or
(ii) any holders of the Equity Interests of a successor entity to the Trust;
provided, that for any tax calculation or tax distribution herein, a Beneficiary
shall be any Person ultimately liable for the payment of taxes with respect to
the Trust's income.
131
138
"Board of Directors" means:
(1) either the board of directors, general partners or managers of the
Trust's Subsidiaries, or any duly authorized committee thereof; or
(2) in the case of the Trust, the Special Advisor of the Trust;
provided that (a) in the event the Special Advisor's rights, duties and
powers are assumed by the Successor Special Advisor Group, "Board of
Directors" means the Successor Special Advisor Group of the Trust and (b)
in the case of a successor entity to Venture Holdings Trust, "Board of
Directors" means the board of directors, general partners or managers of
the successor entity.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation (other than non-voting
non-convertible Indebtedness) that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of, the
issuing Person, including, without limitation, the beneficial interests of
a trust.
"Cash Equivalents" means:
(1) cash;
(2) securities issued or directly and fully guaranteed or insured by
the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof);
(3) time deposits and certificates of deposit and commercial paper
issued by the parent corporation of any domestic commercial bank of
recognized standing having capital and surplus in excess of $250 million;
(4) commercial paper issued by others rated at least A-1 or the
equivalent thereof by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc.;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (3)
above;
(6) any money market deposit accounts including those of the Trustee
issued or offered by a domestic commercial bank having capital and surplus
in excess of $250 million;
(7) investments in money market funds which invest substantially all
their assets in securities of the type described in clauses (1), (2), (3)
and (4) above and in the case of (1), (2) and (3) maturing within one year
after the date of acquisition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of the Trust and its Restricted Subsidiaries, taken as
a whole, to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act) other than a Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of the Trust;
132
139
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the Beneficial Owner, directly or indirectly, of more than
40% of the Capital Stock of the Trust or the total voting power in the
aggregate normally entitled to vote in the election of directors, managers,
or trustees, as applicable, of the transferee(s) or surviving entity or
entities, measured by voting power rather than number of shares, but only
if the Principals and their Related Parties are the Beneficial Owners,
directly or indirectly, of less than a majority of the total voting power
in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the Trust or the transferee(s) or
surviving entity or entities, measured by voting power rather than number
of shares; or
(4) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Trust (together with any new directors whose
election by such Board or whose nomination for election by the equity
holders of the Trust, (A) with respect to Venture Holdings Trust was made
pursuant to the terms of the Venture Trust Instrument, and (B) with respect
to Venture Holdings Corporation or another successor to the Trust, or their
respective successors, after the occurrence of a Trust Contribution, (x)
was approved by the Beneficiary(ies) of Venture Holdings Trust on or before
the date of the Trust Contribution, or (y) was approved by a majority of
the directors of the Trust whose appointment, election or nomination to the
Board of Directors was approved in accordance with the preceding clause (x)
or by this clause (y)) cease for any reason to constitute a majority of the
Board of Directors of the Trust then in office.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred solely as a result of a
transaction pursuant to which the Trust is reorganized or reconstituted as a
corporation or a Trust Contribution occurs in accordance with the provisions
described under "Merger, Consolidation or Sale of Assets" and no event which is
otherwise a "Change of Control" shall have occurred.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus,
without duplication:
(1) Michigan single business tax expense, to the extent deducted in
determining Consolidated Net Income; plus
(2) Trust Tax Distributions; plus
(3) provision for taxes based on income or profits of such Person and
their Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(4) consolidated interest expense of such Person and their Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net
Income; plus
(5) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period (calculated in accordance with GAAP)) and other
non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period (calculated in accordance
133
140
with GAAP)) of such Person and their Restricted Subsidiaries for such
period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other
non-cash charges of, a Restricted Subsidiary of the Trust (collectively,
the "Add-Backs") shall be added (without duplication) to Consolidated Net
Income to compute Consolidated Cash Flow only (1) in the same proportion as
the Net Income of such Restricted Subsidiary was included in calculating
the Consolidated Net Income of the Trust and (2) only to the extent that
such proportional amount of such Add-Backs would be permitted at the date
of determination to be dividended, distributed or otherwise paid, directly
or indirectly to the Trust by such Restricted Subsidiary without prior
approval (that has not been obtained) and not in violation of the terms of
its charter or any other agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders and such dividend, distribution
or other payment is not subject to the right of any Person to the right of
repayment, avoidance, set off or similar right; provided that, if such
dividend, distribution or other payment does not meet such requirements at
such date, such Add-Backs shall be added to Consolidated Net Income to
compute Consolidated Cash Flow but only if such dividend, distribution or
other payment was actually made during the applicable period without the
required prior approval of any Person or governmental authority and was not
made in violation of such Restricted Subsidiary's charter or any other
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders and such dividend, distribution or other payment is not
subject to the right of any Person to the right of repayment, avoidance,
set-off or similar right.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and their Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders; provided, that if such
declaration or payment is not permitted at such date, such Net Income shall
nevertheless be included if such declaration and payment were made during
the applicable period without the prior required approval of any Person or
governmental authority and were not made in violation of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental resolution applicable to that Restricted Subsidiary or its
stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) Trust Tax Distributions to the extent not already deducted shall
be excluded; and
(5) the cumulative effect of a change in accounting principles shall
be excluded.
In addition, solely for purposes of the covenant described under
"-- Certain Covenants -- Restricted Payments," Consolidated Net Income shall
include, without duplication of amounts included above, (A) the amount of
dividends or other distributions paid in cash to the specified Person or a
Restricted Subsidiary thereof by an Unrestricted Subsidiary but only to the
extent of the Consolidated Net Income of such Unrestricted Subsidiary for the
period beginning on the first day of
134
141
the fiscal quarter commencing immediately after such Unrestricted Subsidiary
became an Unrestricted Subsidiary and ending on the last day of the fiscal
quarter for which financial statements are available immediately preceding the
date of such dividend or other distribution and (B) Net Income of a Restricted
Subsidiary earned by such Restricted Subsidiary during the period beginning on
the first day of the first fiscal quarter commencing after the Issue Date and
ending on the last day of the Trust's fiscal quarter for which financial
statements are available immediately preceding the date of determination to the
extent that (x) such Net Income was previously excluded from Consolidated Net
Income by reason of clause (2) of this definition and (y) as of such date of
determination, such Restricted Subsidiary may declare and pay dividends or
similar distributions without any prior governmental approval (that has not been
obtained) and not in violation of its charter or any other agreement, covenant,
instrument, decree, order, statute, rule or governmental regulating applicable
to that Restricted Subsidiary or its stockholders.
"Consolidated Net Worth" means, with respect to any specified Person as of
any date, the sum of:
(1) the consolidated equity of the holders of Capital Stock or the
trust principal of such Person and its consolidated Restricted Subsidiaries
as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of Preferred Stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
Preferred Stock.
"Credit Agreement" means that certain Credit Agreement, dated as of May 27,
1999, by and among the Trust, the lenders referred to therein and The First
National Bank of Chicago, as agent, providing for up to $575 million of
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith from time to time,
and in each case as amended, modified, renewed, refunded, replaced or refinanced
from time to time, including, without limitation, any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder in a manner not in
violation of the Indenture) or adding Restricted Subsidiaries as additional
borrowers or guarantors thereunder.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement), commercial paper facilities or other issues
of debt securities, in each case with, or issued to, banks or other
institutional lenders (including qualified institutional buyers or accredited
investors) providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables), letters of credit or other evidences of indebtedness, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) any Senior Debt outstanding under the Credit Agreement and the
1997 Senior Notes; and
(2) after payment in full of all Obligations under the Credit
Agreement and the 1997 Senior Notes, any other Senior Debt permitted under
the New Senior Subordinated Indenture the principal amount of which is
$25.0 million or more and that has been designated by the Trust as
"Designated Senior Debt."
"Disqualified Stock" means, under either Indenture, any Capital Stock that,
by its terms (or by the terms of any security into which it is convertible, or
for which it is exchangeable, in each case at the option of the holder thereof),
or upon the happening of any event, matures or is mandatorily
135
142
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes issued under such Indenture
mature.
Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Trust to repurchase such Capital Stock upon the occurrence of a
change of control or an asset sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Trust may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of Capital Stock of the Trust for cash.
"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset which exceeds $15 million or
(ii) any condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such property or asset, or confiscation or requisition
of use of such property or asset, which impairs the value of such property or
asset in an amount exceeding $15 million as determined in good faith by the
Fairness Committee of the Trust.
"Existing Indebtedness" means Indebtedness of the Trust and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the Issue Date, until such amounts are repaid.
"Fairness Committee" means a committee duly established pursuant to the
Venture Trust Instrument and the bylaws of each other Guarantor, Restricted
Subsidiary and any successor to Venture Holdings Trust without whose approval
(and without the approval of a majority of its Independent members) the Trust, a
Guarantor or a Restricted Subsidiary shall not be authorized to enter into any
transaction or take any action which pursuant to the terms of the Indentures
requires approval of the Fairness Committee.
"Fixed Charges" means, with respect to any specified Person and their
Restricted Subsidiaries, for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and their
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and their Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of their Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of their Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of Preferred Stock of such Person or
any of their Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Trust (other than
Disqualified Stock) or to the Trust or a Restricted Subsidiary of the
Trust, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person and its Restricted
136
143
Subsidiaries, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
and its Restricted Subsidiaries for any period, the ratio of the Consolidated
Cash Flow of such Person for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period, calculated on a Pro Forma Basis. In
the event that the specified Person or any of their Restricted Subsidiaries
incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness
(other than ordinary working capital borrowings) or issues, repurchases or
redeems Preferred Stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated and on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving Pro Forma Effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such issuance,
repurchase or redemption of Preferred Stock, and the use of the proceeds
therefrom as if the same had occurred at the beginning of the applicable
Reference Period.
"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 have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) Vemco, Inc., Vemco Leasing, Inc., Venture Industries Corporation,
Venture Holdings Corporation, Venture Leasing Company, Venture Mold &
Engineering Corporation, Venture Service Company, Venture Europe, Inc.,
Venture EU Corporation, Venture Holdings Company LLC and Experience
Management, LLC; and
(2) any other subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indentures; and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements,
interest rate collar agreements, interest rate exchange agreements and
currency exchange agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency or commodity values,
including, without limitation, any arrangement whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a fixed or floating rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or floating rate of interest on the
same notional amount.
"Indebtedness" means, without duplication, with respect to any specified
Person, any indebtedness of such Person, whether or not contingent, in respect
of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
137
144
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Independent" means, with respect to the Trust or any of its Restricted
Subsidiaries, a Person who would qualify as an "independent director" within the
meaning of the rules of the New York Stock Exchange and who (i) shall not
receive any payment or other fees for services to the Trust or any of its
Affiliates (other than for serving as a member of the Fairness Committee of the
Trust or of a Subsidiary of the Trust) and (ii) shall not be an Affiliate,
officer, member or employee of any firm, company or other entity that has
performed services for the Trust or any of its Affiliates during the proceeding
three fiscal years or that the Trust or any of its Affiliates proposes to have
perform services if the amount of compensation for such services during any
fiscal year exceeded or would exceed 5% of such firm's gross revenues during any
of its three preceding fiscal years.
"Investments" means, without duplication, with respect to any Person, all
direct or indirect investments by such Person in other Persons (including
Affiliates) in the forms of loans (including Guarantees or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers, employees, independent contractors or other third parties
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Trust or any Restricted Subsidiary of
the Trust sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Trust such that, after giving effect to
any such sale or disposition, such Person is no longer a Restricted Subsidiary
of the Trust, the Trust 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 Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments."
"Issue Date" means the date of the first issuance of the Notes under the
Indentures.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in (except in connection with any Qualified Receivables Transaction)
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction (except in
connection with any Qualified Receivables Transaction).
138
145
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of Preferred Stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with: (a) any Asset Sale; or (b)
the disposition of any securities by such Person or any of their Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of their Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related
provision for taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash or Cash Equivalent proceeds
received by the Trust or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable
(including, without limitation, Trust Tax Distributions in respect thereof) as a
result thereof, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, and amounts required to
be applied to the repayment of Indebtedness, other than (1) in the case of the
New Senior Subordinated Indenture, Senior Debt and (2) in the case of the New
Senior Indenture, Indebtedness under a Credit Facility that is not expressly
subordinated by its terms to any other Indebtedness of the Trust or such
Restricted Subsidiary, secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Trust nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender, other than, in each case, pursuant to an Investment
in an Unrestricted Subsidiary not in violation of the Indenture;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness of the Trust or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Trust or any of
its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness, in all cases whether now
outstanding or hereafter created, assumed or incurred in connection therewith
and including without limitation, interest accruing subsequent to the filing of
the petition in bankruptcy at the rate provided in the relevant document,
whether or not an allowed claim.
"Operating Expense or Cost Reduction" means, with respect to the
calculation of a Fixed Charge Coverage ratio on a Pro Forma Basis, an operating
expense or cost reduction with respect to an Acquisition, which, in the good
faith estimate of management, will be realized as a result of such Acquisition,
provided that the forgoing eliminations of operating expenses and realizations
of cost reductions shall be of the types permitted to be given effect to in
accordance with Article 11 of regulation S-X under the Exchange Act as in effect
on the Issue Date and such reduction is subject to negative comfort by the
Trust's independent public accountants.
139
146
"Permitted Business" means the business conducted (or proposed to be
conducted) by the Trust and its Restricted Subsidiaries as of the Issue Date and
any and all businesses that in the good faith judgment of the Board of Directors
of the Trust are reasonably related businesses.
"Permitted Investments" means:
(1) any Investment in the Trust or in a Restricted Subsidiary of the
Trust;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Trust or any Restricted Subsidiary of the
Trust in a Person (other than a Receivables Subsidiary), if as a result of
such Investment:
(a) such Person becomes a Restricted Subsidiary of the Trust; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Trust or a Restricted Subsidiary of the Trust;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Trust;
(6) Hedging Obligations;
(7) loans or advances to employees, officers, independent contractors
and other third parties of the Trust and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes;
(8) Investments in securities of trade creditors or customers received
pursuant to any plan or reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(9) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (9) not to exceed $25
million; and
(10) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other
Person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction; and any other Investment by the Trust or a
Subsidiary of the Trust in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other Person, in connection with a Qualified
Receivables Transaction, provided that each such other Investment is in the
form of a note or other instrument that the Receivables Subsidiary or other
Person is required to repay as soon as practicable from available cash
collections less amounts required to be established as reserves pursuant to
contractual agreements with entities that are not Affiliates of the Trust
entered into as part of a Qualified Receivables Transaction.
"Permitted Junior Securities" means:
(1) Equity Interests in the Trust or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the New Senior Subordinated
Notes and the Subsidiary Guarantees thereof are subordinated to Senior Debt
under the New Senior Subordinated Indenture.
140
147
"Permitted Liens" means:
(1) with respect to the New Senior Subordinated Notes, Liens of the
Trust and any Guarantor securing Indebtedness and other Obligations
securing Senior Debt that was permitted by the terms of the New Senior
Subordinated Indenture to be incurred;
(2) with respect to the New Senior Notes, Liens of the Trust and any
Guarantor securing Indebtedness and other Obligations under Credit
Facilities that are not expressly subordinated by their terms to any other
Indebtedness of the Trust or such Guarantor that was permitted by the terms
of the New Senior Indenture to be incurred;
(3) Liens in favor of the Trust or the Guarantors;
(4) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Trust or any Restricted
Subsidiary of the Trust; provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Trust or the Restricted Subsidiary;
(5) Liens on property existing at the time of acquisition thereof by
the Trust or any Restricted Subsidiary of the Trust, provided that such
Liens were not incurred in contemplation of such acquisition;
(6) Liens to secure the performance of bids, trade contracts (other
than advanced money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(7) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (5) of the second paragraph of the covenant entitled
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(8) Liens existing on the Issue Date;
(9) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(10) statutory liens of carriers, warehousemen, mechanics,
materialmen, landlords, repairmen or other like Liens arising by operation
of law in the ordinary course of business, provided that (i) the underlying
obligations are not overdue for a period of more than 60 days, or (ii) such
Liens are being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto are maintained on the books of the
Trust in accordance with GAAP;
(11) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do
not in any case materially detract from the value of the property subject
thereto (as such property is used by the Trust or any of its Restricted
Subsidiaries) or interfere with the ordinary conduct of the business of the
Trust or any of its Restricted Subsidiaries;
(12) Liens arising by operation of law in connection with court orders
and judgments, only to the extent, for an amount and for a period not
resulting in an Event of Default with respect thereto;
(13) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(14) the New Senior Indenture will permit Liens securing the New
Senior Notes and the New Senior Subordinated Indenture will permit Liens
securing the New Senior Subordinated Notes;
141
148
(15) leases or subleases granted to other Persons in the ordinary
course of business not materially interfering with the conduct of the
business of the Trust or any of its Restricted Subsidiaries or materially
detracting from the value of the relative assets of the Trust or any
Restricted Subsidiary;
(16) Liens arising from precautionary Uniform Commercial Code
financing statement filings regarding operating leases entered into by the
Trust or any of its Subsidiaries in the ordinary course of business;
(17) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to
the Holders of the Notes than the terms of the Liens securing such
refinanced Indebtedness, provided that the Indebtedness secured is not
increased and the lien is not extended to any additional assets or property
unless the Notes are equally and ratably secured by such additional assets
or the additional assets were acquired after the Issue Date;
(18) additional Liens incurred in the ordinary course of business of
the Trust or any Subsidiary of the Trust with respect to obligations that
do not exceed $5.0 million at any one time outstanding;
(19) Liens on assets of a Restricted Subsidiary that is not a
Guarantor securing Indebtedness of such Restricted Subsidiary that was
permitted to be incurred under clause (14) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock;" and
(20) Liens on assets of a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction.
"Permitted Preferred Stock" means any Preferred Stock of the Trust or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, amend, restate, refinance, renew, replace or refund
other Preferred Stock of the Trust or any of its Restricted Subsidiaries (other
than intercompany Preferred Stock); provided that:
(1) the liquidation preference of such Permitted Preferred Stock does
not exceed the liquidation preference of the Preferred Stock so extended,
refinanced, renewed, replaced or refunded (plus all accrued dividends
thereon and the amount of all expenses and premiums incurred in connection
therewith);
(2) such Permitted Preferred Stock has a final maturity date (or
redemption date, as applicable) later than the final maturity date (or
redemption date, as applicable) of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Preferred Stock being extended, refinanced, renewed, replaced, or
refunded;
(3) if the Preferred Stock being extended, refinanced, renewed,
replaced, defeased or refunded is Disqualified Stock, such Permitted
Preferred Stock has a redemption, maturity, repurchase or other required
payment (other than dividend payments) no earlier than the earliest
redemption, maturity, repurchase or other required payment (other than
dividend payments) of the Preferred Stock being extended, refinanced,
renewed, replaced, defeased or refunded;
(4) such Preferred Stock is issued either by the Trust or by the
Subsidiary who is the issuer on the Preferred Stock being extended,
refinanced, renewed, replaced, or refunded; and
(5) Permitted Preferred Stock constituting Disqualified Stock may only
be issued if the Preferred Stock being extended, refinanced, renewed,
replaced or refunded constitutes Disqualified Stock.
"Permitted Refinancing Indebtedness" means any Indebtedness or Preferred
Stock (other than Disqualified Stock) of the Trust or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, amend, restate, refinance, renew, replace, defease or refund
142
149
other Indebtedness of the Trust or any of its Restricted Subsidiaries (other
than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value or liquidation preference,
if applicable) of such Permitted Refinancing Indebtedness does not exceed
the principal amount (or accreted value, if applicable) of the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus all
accrued interest thereon and the amount of all expenses and premiums
incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the applicable
Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of
payment to, the applicable Notes on terms at least as favorable to the
Holders of the applicable Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and
(4) such Indebtedness is incurred or such Preferred Stock is issued
either by the Trust or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds or any other payments of such Person over
the holders of other Capital Stock issued by such Person.
"Principals" means Larry J. Winget.
"Pro Forma Basis" or "Pro Forma Effect" means, for purposes of calculating
the Fixed Charge Coverage Ratio, giving pro forma effect to certain transactions
such that:
(1) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Calculation Date
shall be assumed to have occurred on the first day of the Reference Period
and any Operating Expense or Cost Reduction with respect to such
Acquisition shall be deducted from such calculation;
(2) transactions giving rise to the need to calculate the Fixed Charge
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period;
(3) the incurrence of any Indebtedness or issuance of any Disqualified
Stock during the Reference Period or subsequent to the Reference Period and
on or prior to the Calculation Date (and the application of the proceeds
therefrom, including to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of such Reference Period (except
that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based on the average daily
balance during the Reference Period);
(4) the Fixed Charges of such Person attributable to interest on any
Indebtedness or dividends on any Disqualified Stock bearing a floating
interest (or dividend) rate shall be computed on a Pro Forma Basis as if
the average rate in effect from the beginning of the Reference Period to
the Calculation Date had been the applicable rate for the entire period,
unless such Person or any of its Restricted Subsidiaries is a party to a
Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Calculation
143
150
Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be
used;
(5) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
and
(6) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by the Trust or any of its Subsidiaries pursuant to
which the Trust or any of its Subsidiaries sells, conveys or otherwise transfers
to (i) a Receivables Subsidiary (in the case of a transfer by the Trust or any
of its Subsidiaries) and (ii) any other Person (in the case of a transfer by a
Receivables Subsidiary), or grants a security interest in, any Receivables,
whether now existing or arising in the future, of the Trust or any of its
Subsidiaries.
"Receivables Debt" means Indebtedness (i) as to which neither the Trust nor
any of its Subsidiaries (other than the Receivables Subsidiary) (a) provides any
credit support that would constitute Indebtedness or (b) is directly or
indirectly liable (as a guarantor or otherwise); and (ii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of any of the Trust or any of its Subsidiaries (other than
the Receivables Subsidiary); provided that, notwithstanding the foregoing, the
Trust and any of its Subsidiaries that sell Receivables to the Receivables
Subsidiary shall be allowed to provide such representations, warranties,
covenants and indemnities as are customarily required in such transactions so
long as no such representations, warranties, covenants or indemnities constitute
a Guarantee of payment or recourse against credit losses.
"Receivables" means accounts receivable and all other assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and all other
assets that are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Trust or any of its
Subsidiaries sells its accounts receivable to a Receivables Subsidiary.
"Receivables Subsidiary" means a Subsidiary of the Trust, created primarily
to purchase or finance the receivables of the Trust and/or its Subsidiaries
pursuant to a Receivables Facility, so long as it: (a) has no Indebtedness other
than Receivables Debt; (b) is not party to any agreement, contract, arrangement
or understanding with any of the Trust or any other Subsidiary of the Trust
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Trust or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of any of the Trust or
a Guarantor; (c) is a Person with respect to which neither the Trust nor any of
its Subsidiaries has any direct obligation to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not Guaranteed or otherwise directly provided
credit support for any Indebtedness of any of the Trust or any of its
Subsidiaries. Notwithstanding the foregoing, the Trust and the Guarantors may
make capital contributions in the form of Receivables transferred to the
Receivables Subsidiary for non-cash consideration to the extent necessary or
desirable to prevent a disruption of purchases of Receivables or to avoid a
default under the Receivables Facility. If, at any time, such Receivables
Subsidiary would fail to meet the foregoing requirements as a Receivables
Subsidiary, it shall thereafter cease to be a Receivables Subsidiary for
purposes of the Indentures and any Indebtedness
144
151
of such Receivables Subsidiary shall be deemed to be incurred by a Subsidiary of
the Trust as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock," the Trust shall be in default of such covenant).
"Reference Period" with regard to any Person means the four full fiscal
quarters ended immediately preceding any date upon which any determination is to
be made pursuant to the terms of the Notes or the Indentures.
"Related Party" means Larry J. Winget's estate or legal representative,
members of his immediate family and all lineal descendants of Larry J. Winget
and all spouses of such lineal descendants (or any trust(s) or entity(ies) whose
sole beneficiaries or holders of Equity Interests, or the holders of a majority
of the outstanding Voting Stock are any one or more of the foregoing).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means, with respect to the New Senior Subordinated Notes:
(1) all Indebtedness of the Trust or any Guarantor outstanding under
Credit Facilities that is not expressly subordinated by its terms to any
other Indebtedness of the Trust or such Guarantor, the New Senior Notes and
the 1997 Senior Notes and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of the Trust or any Guarantor permitted to
be incurred under the terms of the New Senior Subordinated Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the New Senior Subordinated Notes or any Subsidiary Guarantee thereof; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Trust and the Guarantors;
(2) any Indebtedness of the Trust or Guarantors to any of their
Subsidiaries or other Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of
the New Senior Subordinated Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
145
152
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means (1) with respect to the New Senior
Subordinated Notes, a Guarantee by a Subsidiary on a senior subordinated basis
of the Trust's payment obligations under the New Senior Subordinated Notes and
the New Senior Subordinated Indenture in the form attached as an exhibit to the
New Senior Subordinated Indenture and (2) with respect to the New Senior Notes,
a Guarantee by a Subsidiary on a senior basis of the Trust's payment obligations
under the New Senior Notes and the New Senior Indenture in the form attached as
an exhibit to the New Senior Indenture.
"Tax Distribution Amount" means, in respect of any period after the Issue
Date during which the Trust is a Pass-Through Entity for federal income tax
purposes, an amount, determined in good faith by the Trust's independent public
accountants, which shall be a nationally recognized accounting firm, equal to
the sum of (x) the amount of intangibles tax actually imposed on each
Beneficiary of the Trust in respect of Trust Tax Distributions for such period
and (y) (a) the sum of the highest marginal federal income tax rate and highest
state and local income tax rate applicable to a Beneficiary of the Trust on
income of the Investee Companies which are Pass-Through Entities for federal,
state or local income tax purposes for such period, expressed as a percentage,
multiplied by (b) such Investee Companies' taxable income for such period
computed taking into account, without limitation, the deduction for single
business and franchise tax actually imposed on such Investee Companies; provided
that (i) the foregoing shall be determined by giving effect to the deduction of
relevant state and local income and intangibles taxes for purposes of
determining federal income taxes, such deduction to be computed based on the
state and local income tax rates applicable in clause (y) (a) hereof and the
amount of intangibles tax determined under clause (x) hereof, and (ii) the
foregoing shall be appropriately reduced by the amount of cumulative tax losses
of such Investee Companies from any previous period (to the extent not
previously utilized in computing the Tax Distribution Amounts) since the Issue
Date and any investment tax credits and other tax credits of such Investee
Companies since the Issue Date.
"Trust" means (1) Venture Holdings Trust, a trust organized under the laws
of the State of Michigan, (2) Venture Holdings Corporation (after the occurrence
of a Trust Contribution) or (3) any successor Person to Venture Holdings Trust
or Venture Holdings Corporation (after the occurrence of a Trust Contribution)
in accordance with the provisions under "Merger, Consolidation or Sale of
Assets."
"Unrestricted Subsidiary" means any Subsidiary of the Trust that is
designated by the Board of Directors of the Trust as an Unrestricted Subsidiary
pursuant to a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Trust or any Restricted Subsidiary of the Trust
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Trust or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Trust;
(3) is a Person with respect to which neither the Trust nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results other than an Investment made in such
Subsidiary not in violation of the Indenture; and
(4) is not guaranteeing or otherwise directly or indirectly providing
credit support for any Indebtedness of the Trust or any of its Restricted
Subsidiaries.
146
153
Any designation of a Subsidiary of the Trust as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indentures and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Trust as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," the Trust shall be in default of
such covenant. The Board of Directors of the Trust may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Trust of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a Pro Forma Basis as if such designation had occurred at the
beginning of the Reference Period; and (2) no Default or Event of Default would
be in existence following such designation.
"Venture Trust Instrument" means the Agreement, dated December 28, 1987, as
amended and restated on February 16, 1994, as amended, among Larry J. Winget, as
Trustee, and Larry J. Winget, as Settlor, Beneficiary and Special Advisor, as
such agreement may be amended in accordance with the terms of the Indentures.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Preferred Stock at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, or liquidation preference, as applicable,
including payment at final maturity, in respect thereof, by (b) the number
of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by
(2) the then outstanding principal amount, or liquidation preference,
as applicable, of such Indebtedness or Preferred Stock, as the case may be,
of such Indebtedness.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This summary is of a general nature and is included herein solely for
informational purposes. It is not intended to be, nor should it be construed as
being, legal or tax advice. No representation with respect to the consequences
to any particular holder is made. You should consult your own tax advisors with
respect to your particular circumstances.
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the Outstanding Notes
for the Exchange Notes pursuant to the Exchange Offer and the ownership and
disposition of the Exchange Notes. This summary applies only to an initial
beneficial owner of an Exchange Note who acquired an Outstanding Note at the
initial offering for the original offering price thereof and who acquires the
Exchange Note pursuant to the Exchange Offer. This discussion is based on
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect. This discussion does
not address the tax consequences to subsequent purchasers of the Exchange Notes
and is limited to investors who hold the Exchange Notes as capital assets.
147
154
Furthermore, this discussion does not address all aspects of United States
federal income taxation that may be applicable to investors in light of their
particular circumstances, or to investors subject to special treatment under
United States federal income tax law (including, without limitation, certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities, persons owning the Exchange Notes through partnerships or other
pass-through entities, former citizens or residents of the United States, or
persons who have acquired the Exchange Notes as part of a straddle, hedge,
conversion transaction or other integrated investment). This summary also does
not discuss the Federal alternative minimum tax consequences to the holder, not
does it discuss consequences to a holder under state, local or foreign tax laws,
which may differ from corresponding Federal income tax laws. Prospective
investors are advised to consult their own tax adviser regarding the particular
tax consideration pertaining to them with respect to ownership and disposition
of the Exchange Notes, including the effects of applicable federal, state, local
foreign or other tax laws to which they may be subject, as well as possible
changes in the tax laws.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL
ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
UNITED STATES TAXATION OF UNITED STATES HOLDERS
As used herein, (A) the term "United States Holder" means a beneficial
owner of an Note that is, for United States federal income tax purposes, (i) a
citizen or resident (as determined for U.S. federal income tax purposes) of the
United States, (ii) a corporation or partnership created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source and (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States persons have the authority to control all substantial
decisions of such trust and (B) the term "Non-U.S. Holder" means a beneficial
owner of an Note that is not a United States Holder.
EXCHANGE OFFER
The exchange of an Outstanding Note for an Exchange Note pursuant to the
Exchange Offer should not constitute a "significant modification" of the
Outstanding Note for United States federal income tax purposes and, accordingly,
the Exchange Note received should be treated as a continuation of the
Outstanding Note in the hand of such holder. As a result, there should be no
United States federal income tax consequences to a United States Holder who
exchanges an Outstanding Note for an Exchange Note pursuant to the Exchange
Offer, and any such holder should have the same adjusted tax basis and holding
period in the Exchange Note as it had in the Outstanding Note immediately before
the exchange.
PAYMENTS OF INTEREST
Stated interest payable on an Exchange Note generally will be included in
the gross income of a United States Holder as ordinary interest income at the
time accrued or received, in accordance with such United States Holder's method
of accounting for United States federal income tax purposes.
DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement at maturity or other taxable
disposition (collectively, a "disposition") of an Exchange Note, a United States
Holder generally will recognize capital gain or loss equal to the difference
between the amount realized on the disposition by such holder (except to the
extent such amount is attributable to accrued interest, which will be treated as
ordinary interest income) and such holder's adjusted tax basis in the Exchange
Note. Such capital gain or loss will be
148
155
long-term capital gain or loss if such United States Holder's holding period for
the Exchange Note exceeds one year at the time of the disposition. Recently
enacted United States tax legislation reduced the maximum federal income tax
rate applicable to long-term capital gains in certain instances. Prospective
investors should consult their tax advisors regarding the possible effect on
such investors of such legislation.
UNITED STATES TAXATION OF NON-U.S. HOLDERS
PAYMENTS OF INTEREST
In general, payments of interest received by a Non-U.S. Holder will not be
subject to United States federal withholding tax, provided that (i)(a) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the Non-U.S. Holder is not a controlled foreign corporation that is related
to the Company actually or constructively through stock ownership, (c) the
Non-U.S. Holder is not a bank that has purchased its Exchange Notes pursuant to
an extension of credit made in the ordinary course of its trade or business, and
(d) the beneficial owner of the Exchange Note, under penalties or perjury,
provides the Company or its agent with the beneficial owner's name and address
and certifies that it is not a United States Holder in compliance with
applicable requirements, (ii) the interest received on the Exchange Note is not
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and the Non-U.S. Holder complies with certain
reporting requirements or (iii) the Non-U.S. Holder is entitled to the benefits
of an income tax treaty under which the interest is exempt from United States
withholding tax and the Non-U.S. Holder complies with certain reporting
requirements. Payments of interest not exempt from the United States federal
withholding tax as described above will be subject to such withholding tax at
the rate of 30% (subject to reduction under an applicable income tax treaty).
DISPOSITION OF THE EXCHANGE NOTES
A Non-U.S. Holder generally will not be subject to United States federal
income tax (and generally no tax will be withheld) with respect to gain realized
on the disposition of an Exchange Note, unless (i) the gain is effectively
connected with a United States trade or business conducted by the Non-U.S.
Holder, (ii) the Non-U.S. Holder is an individual who is present in the United
States for 183 or more days during the taxable year of the disposition and
certain other requirements are satisfied, or (iii) the Non-U.S. Holder is
subject to certain provisions of United States federal income tax law applicable
to certain expatriates. In addition, an exchange of an Outstanding Note for an
Exchange Note pursuant to the Exchange Offer will not constitute a taxable
exchange of the Outstanding Note for Non-U.S. Holders. See "United States
Taxation of United States Holders -- Exchange Offer."
EFFECTIVELY CONNECTED INCOME
If interest and other payments received by a Non-U.S. Holder with respect
to the Exchange Notes (including proceeds from the disposition of the Exchange
Notes) are effectively connected with the conduct by the Non-U.S. Holder of a
trade or business within the United States (or the Non-U.S. Holders is otherwise
subject to United States federal income taxation on a net basis with respect to
such Holder's ownership of the Exchange Notes), such Non-U.S. Holder will
generally be subject to the other rules described above under "United States
Taxation of United States Holders" (subject to any modification provided under
an applicable income tax treaty). Such Non-U.S. Holder may also be subject to
the "branch profits tax" if such Holder is a corporation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal and interest on, and the
proceeds of the disposition of the Exchange
149
156
Notes. In general, backup withholding will be imposed only if the United States
Holder (i) fails to furnish its taxpayer identification number ("TIN"), which,
for an individual, would be his or her Social Security number, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to report
payments of interest or dividends or (iv) under certain circumstances, fails to
certify, under penalty of perjury, that it has furnished a correct TIN and has
been notified by the IRS that it is subject to backup withholding tax for
failure to report interest or dividend payments. In addition, such payments of
principal and interest to United States Holders will generally be subject to
information reporting. United States Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable.
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception. Copies
of these information returns may also be made available under the provisions of
a specific treaty or agreement to the tax authorities of the country in which
the Non-U.S. Holder resides.
Backup withholding and information reporting on IRS Form 1099 generally
will not apply to interest payments made to a Non-U.S. Holder of an Exchange
Note who provides the certification described under "United States Taxation of
Non-U.S. Holders -- Payments of Interest" or otherwise establishes an exemption
from backup withholding. Payments of the proceeds of a disposition of the
Exchange Notes by or through a United States office of a broker generally will
be subject to backup withholding at a rate of 31% and information reporting
unless the Non-U.S. Holder certifies it is a Non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption. Payments of the proceeds of a
disposition of the Exchange Notes by or through a foreign office of a United
States broker, a controlled foreign corporation for United States federal income
tax purposes or a foreign broker with certain relationships to the United States
generally will be subject to information reporting, but not backup withholding.
The amount of any backup withholding imposed on a payment to a Holder of an
Exchange Note will be allowed as a credit against such Holder's United States
federal income tax liability and may entitle such Holder to a refund, provided
that the required information is furnished to the IRS.
RECENTLY ISSUED TREASURY REGULATIONS
The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders.
The new Treasury regulations are generally effective for payments made after
December 31, 1999. In addition, the new Treasury regulations would alter the
procedures for claiming the benefits of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of an Exchange Note. Prospective investors
should consult their tax advisors concerning the effect, if any, of such new
Treasury regulations on an investment in the Exchange Notes.
150
157
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued
to third parties in similar transactions, we believe that the Exchange Notes
issued in the Exchange Offer in exchange for the Outstanding Notes may be
offered for resale, resold and otherwise transferred by holders without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the Exchange Notes are acquired in the ordinary
course of such holders' business and the 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 Exchange Notes. This position does not apply
to any holder that is (1) an "affiliate" of ours within the meaning of Rule 405
under the Securities Act, (2) a broker-dealer who acquired Notes directly from
us or (3) broker-dealers who acquired Notes as a result of market-making or
other trading activities. Any broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Exchange Offer are subject to a prospectus
delivery requirement with respect to resales of the Exchange Notes. To date, the
SEC 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 Outstanding
Notes to the initial purchasers) with this Prospectus.
Each broker-dealer receiving Exchange Notes for its own account in the
Exchange Offer must acknowledge that it will deliver a Prospectus in any resale
of the Exchange Notes. Participating Broker-Dealers may use this Prospectus in
reselling Exchange Notes, if the Outstanding Notes were acquired for their own
accounts as a result of market-making activities or other trading activities. We
have agreed that a Participating Broker-Dealer may use this Prospectus in
reselling Exchange Notes for a period ending 270 days after the Expiration Date
or, if earlier, when a Participating Broker-Dealer has disposed of all Exchange
Notes. A Participating Broker-Dealer intending to use this Prospectus in the
resale of Exchange Notes must notify us on or before the Expiration Date, that
it is a Participating Broker-Dealer. This notice may be given in the space
provided for in the Letter of Transmittal or may be delivered to the Exchange
Agent. We have agreed that, for a period of 270 days after the Expiration Date,
we will make this Prospectus, and any amendment or supplement to this
Prospectus, available to any broker-dealer that requests these documents in the
Letter of Transmittal. See "The Exchange Offer -- Resales of Exchange Notes" for
more information.
We will not receive any cash proceeds from the Exchange Notes.
Broker-dealers acquiring Exchange Notes for their own accounts may sell the
notes in one or more transactions in the over-the-counter market, in negotiated
transactions, through writing options on the Exchange Notes or a combination of
such methods. Any 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 broker-dealer and/or the purchasers of Exchange Notes.
Any broker-dealer reselling Exchange Notes that it received in the Exchange
Offer and any broker or dealer that participates in a distribution of Exchange
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act. Any profit on any resale of Exchange Notes and any commissions or
concessions received by any 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 admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for us by Dykema Gossett PLLC, Detroit, Michigan.
151
158
EXPERTS
The consolidated financial statements of Venture Holdings Company LLC as of
December 31, 1998 and 1997 and for each of the years ended December 31, 1998,
1997 and 1996 included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given their authority as
experts in accounting and auditing.
The consolidated financial statements of Peguform GmbH as of September 30,
1998 and 1997, and for the years ended September 30, 1998 and 1997 included in
this prospectus have been audited by BDO International GmbH
Wirtschaftsprufungsgesellschaft, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given their authority as experts in accounting and auditing.
152
159
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
VENTURE HOLDINGS COMPANY LLC
AS SUCCESSOR TO VENTURE HOLDINGS TRUST
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income and Comprehensive
Income.................................................... F-4
Consolidated Statements of Changes in Trust Principal....... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
PEGUFORM GMBH
Report of Independent Auditors.............................. F-26
Consolidated Balance Sheets................................. F-27
Consolidated Statements of Income........................... F-29
Consolidated Statements of Stockholders' Equity............. F-30
Consolidated Statements of Cash Flows....................... F-31
Notes to the Consolidated Financial Statements.............. F-33
F-1
160
INDEPENDENT AUDITORS' REPORT
Trustee of Venture Holdings Trust
Fraser, Michigan
We have audited the accompanying consolidated balance sheets of Venture
Holdings Trust as of December 31, 1998 and 1997, and the related consolidated
statements of income, comprehensive income, trust principal and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule 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, such financial statements present fairly, in all material
respects, the consolidated financial position of Venture Holdings Trust as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
March 30, 1999
Detroit, Michigan
F-2
161
VENTURE HOLDINGS TRUST
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------- MARCH 31,
1998 1997 1999
-------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 130 $ 1,477 $ 3,153
Accounts receivable, net, includes related party
receivables of $56,648, $32,260 and $59,878 (unaudited)
at December 31, 1998 and 1997, and March 31, 1999
respectively (Notes 2, 6 & 7).......................... 190,135 161,157 200,067
Inventories (Notes 3, 6 & 7).............................. 51,139 52,616 53,288
Prepaid expenses and other (Note 11)...................... 8,870 8,994 8,648
-------- -------- --------
Total current assets................................... 250,274 224,244 265,156
Property, Plant and Equipment, Net (Notes 4 & 7).......... 200,544 205,765 196,226
Intangible Assets (Note 5)................................ 52,022 53,900 51,552
Other Assets (Notes 1 & 7)................................ 26,636 25,771 26,547
Deferred Tax Assets (Note 11)............................. 11,839 14,442 11,035
-------- -------- --------
Total Assets........................................... $541,315 $524,122 $550,516
======== ======== ========
LIABILITIES AND TRUST PRINCIPAL
Current Liabilities:
Accounts payable (Note 7)................................. $ 52,351 $ 70,047 $ 62,506
Accrued payroll & taxes................................... 9,017 7,341 10,331
Accrued interest.......................................... 13,387 12,148 6,274
Other accrued expenses.................................... 5,299 6,485 5,701
Current portion of long-term debt (Note 6)................ 1,565 3,122 1,588
-------- -------- --------
Total current liabilities.............................. 81,619 99,143 86,400
Other Liabilities (Note 10)............................... 7,254 14,281 5,948
Deferred Tax Liabilities (Note 11)........................ 11,955 13,350 11,881
Long-Term Debt (Note 6)................................... 363,374 333,066 361,068
-------- -------- --------
Total liabilities...................................... 464,202 459,840 465,297
Commitments and Contingencies (Note 8)...................... -- -- --
Trust Principal:
Accumulated other comprehensive income -- minimum pension
liability in excess of unrecognized prior service cost,
net of tax (Note 10)................................... (737) (737)
Trust principal........................................... 77,850 64,282 85,956
-------- -------- --------
Total trust principal.................................. 77,113 64,282 85,219
-------- -------- --------
Total Liabilities and Trust Principal............. $541,315 $524,122 $550,516
======== ======== ========
See notes to consolidated financial statements.
F-3
162
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1998 1997 1996 1999 1998
-------- -------- -------- -------- --------
(UNAUDITED)
Net Sales (Notes 7 & 9)................. $645,196 $624,113 $351,777 $165,992 $166,612
Cost of Products Sold (Note 7).......... 532,809 521,361 302,940 133,070 133,616
-------- -------- -------- -------- --------
Gross Profit............................ 112,387 102,752 48,837 32,922 32,996
Selling, General and Administrative
Expense (Note 7)...................... 59,689 57,217 26,588 14,270 14,855
Payments to Beneficiary in Lieu of Taxes
(Note 7).............................. 535 472 666 0 0
-------- -------- -------- -------- --------
Income from Operations.................. 52,163 45,063 21,583 18,652 18,141
Interest Expense........................ 36,641 30,182 19,248 9,479 7,145
-------- -------- -------- -------- --------
Net Income Before Extraordinary Items
and Taxes............................. 15,522 14,881 2,335 9,173 10,996
Tax Provision (Note 11)................. 1,954 3,358 336 1,067 1,465
-------- -------- -------- -------- --------
Net Income Before Extraordinary Items... 13,568 11,523 1,999 8,106 9,531
Net Extraordinary Loss on Early
Retirement of Debt (Note 12).......... 0 0 2,738 0 0
-------- -------- -------- -------- --------
Net Income (Loss)....................... 13,568 11,523 (739) 8,106 9,531
Other Comprehensive Income--minimum
pension liability in excess of
unrecognized prior service cost, net
of tax (Note 10)...................... (737) 0 0 0 0
-------- -------- -------- -------- --------
Comprehensive Income (Loss)............. $ 12,831 $ 11,523 $ (739) $ 8,106 $ 9,531
======== ======== ======== ======== ========
See notes to consolidated financial statements.
F-4
163
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN TRUST PRINCIPAL
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31,
-----------------
1998 1997 1996 1999 1998
------ ------ ------ ------- -------
(UNAUDITED)
Trust Principal, Beginning of Period............ 64,282 52,759 53,498 $77,113 $64,282
Comprehensive Income (Loss) Net Income (Loss)... 13,568 11,523 (739) 8,106 9,531
Other Comprehensive Income-- minimum pension
liability in excess of unrecognized prior
service cost, net of tax (Note 10)......... (737)
------ ------ ------ ------- -------
Comprehensive Income (Loss)..................... 12,831 11,523 (739) 8,106 9,531
------ ------ ------ ------- -------
Trust Principal, End of Period.................. 77,113 64,282 52,759 $85,219 $73,813
====== ====== ====== ======= =======
See notes to consolidated financial statements.
F-5
164
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- --------------------
1998 1997 1996 1999 1998
-------- --------- --------- -------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 13,568 $ 11,523 $ (739) $ 8,106 $ 9,531
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities, net of
acquisitions:
Depreciation and amortization........ 39,320 32,147 22,628 10,794 9,079
Change in accounts receivable........ (29,795) (31,489) (35,789) (10,056) (34,815)
Change in inventories................ 1,477 (1,517) (4,298) (2,149) (1,738)
Change in prepaid expenses........... 2,147 2,329 (4,116) (100) 343
Change in other assets............... (7,045) (7,178) (6,445) (3,105) 379
Change in accounts payable........... (17,696) (14,774) 32,400 10,155 16,554
Change in accrued expenses........... (21) (5,588) 21,221 (5,397) (4,099)
Change in other liabilities.......... (7,028) (1,630) 8,725 (1,305) (3,428)
Change in deferred taxes............. (320) 3,119 (1,322) 1,052 1,465
Net extraordinary loss on early
extinguishment of debt............ 0 0 2,738 0 0
-------- --------- --------- -------- --------
Net cash (used in) provided by
operating activities............ (5,393) (13,058) 35,003 7,995 (6,729)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. (24,706) (33,012) (64,593) (2,688) (8,371)
Purchase of subsidiaries, net of cash
acquired.......................... 0 (4,081) (56,954) 0 0
-------- --------- --------- -------- --------
Net cash used in investing
activities...................... (24,706) (37,093) (121,547) (2,688) (8,371)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under
revolving credit agreement........ 32,000 (46,000) 91,000 (2,000) 23,000
Net proceeds from issuance of debt... 0 205,000 69,249 0 0
Principal payments on debt........... (3,248) (122,808) (14,535) (284) (1,392)
Payment for early extinguishment of
debt................................. 0 0 (62,738) 0 0
-------- --------- --------- -------- --------
Net cash (used in) provided by
financing activities................. 28,752 36,192 82,976 (2,284) 21,608
-------- --------- --------- -------- --------
Net Increase (Decrease) in Cash........ (1,347) (13,959) (3,568) 3,023 6,508
Cash and Cash Equivalents at Beginning
of Period............................ 1,477 15,436 19,004 130 1,477
-------- --------- --------- -------- --------
Cash and Cash Equivalents at End of
Period............................... $ 130 $ 1,477 $ 15,436 $ 3,153 $ 7,985
======== ========= ========= ======== ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest.......................... $ 35,402 $ 22,628 $ 18,187 $ 16,592 $ 15,311
======== ========= ========= ======== ========
Income taxes paid (refunded)......... $ 285 $ 140 $ (2,179) $ 20 $ 120
======== ========= ========= ======== ========
See notes to consolidated financial statements.
F-6
165
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Organization -- In 1987, the sole shareholder of the Venture Group of
companies contributed all of the common stock of the companies to Venture
Holdings Trust (the Trust). Simultaneously, certain property, plant, and
equipment was contributed by the sole shareholder to certain companies owned by
the Trust. In exchange, the shareholder was named the sole beneficiary of the
Trust.
The companies included in the Trust are Venture Industries Corporation,
Venture Mold and Engineering Corporation, Venture Industries Canada, Ltd.,
Vemco, Inc., Venture Leasing Company, Vemco Leasing, Inc., Venture Holdings
Corporation, Venture Service Company, Experience Management L.L.C. and any
predecessors to such organizations. Experience Management L.L.C. was formed late
in 1997 to assume the human resource obligations of the Trust. The companies
included in the Trust are involved in the design and manufacturing of molded
parts and systems integration for North American automotive original equipment
manufacturers. During 1996 the Trust acquired Bailey Corporation and its
subsidiaries ("Bailey") which were merged into Venture Holdings Corporation in
July of 1997. During 1996, the trust acquired the assets of AutoStyle Plastics,
Inc. ("AutoStyle") which was merged into Vemco, Inc. in July of 1997.
The Trust has been established as a grantor trust. The Trust received a
private letter ruling from the Internal Revenue Service confirming that the
Trust meets the requirements of a grantor trust under Section 1361(c)(2)(A)(i)
of the Internal Revenue Code.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Venture Holdings Trust and its wholly owned subsidiaries
(collectively the "Company"). All intercompany accounts and transactions have
been eliminated.
The consolidated financial statements include only those assets and
liabilities which relate to the business of Venture Holdings Trust. These
statements do not include any assets or liabilities attributable to the
beneficiary's individual activities. However, the Company does enter into
various transactions with companies in which the sole beneficiary has an
interest. These transactions are summarized in Note 7 -- Related Party
Transactions.
Estimates -- The preparation of the Company's 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 disclosures 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.
Cash and Cash Equivalents -- Highly liquid investments with an initial
maturity of three months or less are classified as cash equivalents.
Inventories -- Manufactured parts inventories are stated at the lower of
cost or market using the first-in, first-out method. Inventory also includes
costs associated with building molds under contract. Molds owned by the Company
and used in the Company's manufacturing operations are transferred to tooling,
in property, plant and equipment, when the molds are operational.
Property and Depreciation -- Property, plant, and equipment are recorded at
cost. Depreciation is computed by the straight-line method over the estimated
useful lives of the various classes of assets.
F-7
166
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tooling is amortized on a piece price or straight line basis over the related
production contract, generally 3 to 7 years. The principal estimated useful
lives are as follows:
YEARS
-----
Building and improvements................................... 10-40
Machinery and equipment, and automobiles.................... 3-20
Leasehold improvements are amortized over the useful life or the term of
the lease, whichever is shorter. Expenditures for maintenance and repairs are
charged to expense as incurred.
Intangible Assets -- The purchase price of companies in excess of the fair
value of net identifiable assets acquired ("goodwill") is amortized over 30
years using the straight-line method. The amount reported at March 31, 1999
(unaudited), December 31, 1998 and 1997 was $51.6 million, $52.0 million and
$53.9 million, respectively, which is net of accumulated amortization.
Long-Lived Assets and Long-Lived Assets to be Disposed of -- Effective
January 1, 1996, Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" was adopted. This Statement establishes accounting standards for
the impairment of long-lived assets, and certain identifiable intangibles, and
goodwill related to those assets to be held and used and long-lived and certain
identifiable intangibles to be disposed of. The statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
addition, the Statement requires that certain long-lived assets and identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. The Company periodically evaluates the carrying
value for impairment, such evaluations are based principally on the undiscounted
cash flows of the operations to which the asset is related.
Revenue Recognition -- Revenue from the sale of manufactured parts is
recognized when the parts are shipped. Revenue from mold sales is recognized
using the completed contract method due to the reasonably short build cycle.
Accounts receivable includes unbilled receivables for mold contracts that are
substantially complete. The amounts are billed when final approval has been
received from the customer or in accordance with contract terms. Provision for
estimated losses on uncompleted contracts, if any, is made in the period such
losses are identified.
Other Assets -- Deferred financing costs are included in other assets and
are amortized over the life of the related financing arrangement.
Program Costs -- Certain costs incurred for the design of components to be
built for customers are recorded as deferred program costs which are included in
other assets. These costs are recovered based on units produced in each year
over the term of production contracts.
Income Taxes -- Amounts in the financial statements relating to income
taxes relate to the subsidiaries that have not elected S corporation status and
are calculated using the Statement of Financial Accounting Standards Board No.
109, "Accounting for Income Taxes" (SFAS 109).
Other significant subsidiaries have elected to be taxed as S corporations
under the Internal Revenue Code. The beneficiary is required to report all
income, gains, losses, deductions, and credits of the S corporations included in
the Trust on his individual tax returns.
F-8
167
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Separate Financial Statements -- Separate financial statements for the
Trust and each Subsidiary are not included in this report because each entity
(other than Venture Canada and Experience Management L.L.C.) is jointly and
severally liable for the Company's senior credit facility and senior notes, and
each entity (including Venture Canada but excluding Experience Management
L.L.C.) is jointly and severally liable for the Company's senior subordinated
notes either as a co-issuer or as a guarantor. In addition, the aggregate total
assets, net earnings and net equity of the Subsidiaries of the Trust (with or
without Venture Canada and Experience Management L.L.C.) are substantially
equivalent to the total assets, net earnings and net equity of the Company on a
consolidated basis. Venture Canada and Experience Management L.L.C. represent
less than 1% of total assets, net earnings, net trust principal and operating
cash flow.
Derivative Financial Instruments -- Interest rate swaps are utilized to
reduce the sensitivity of earnings to various market risk and manage funding
costs. The primary market risk includes fluctuations in interest rates and
variability in spread relationships (i.e. Prime vs. LIBOR spreads). Interest
rate swaps are used to change the characteristics of its variable rate
exposures. Interest rate differentials resulting from interest rate swap
agreements used to change the interest rate characteristics are recorded on an
accrual basis as an adjustment to interest expense as part of operating
activities. In the event of early termination of an interest rate swap agreement
designated as a hedge, the gain or loss is deferred, and recognized as an
adjustment to interest expense over the remaining term of the underlying debt.
Reclassifications -- Certain reclassifications have been made to the 1997
financial statements in order to conform to the 1998 presentation.
Recent Accounting Pronouncements -- In June 1997, the Financial Accounting
Standards Board (FASB) approved SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes accounting standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses). The Company has adopted this Standard in the financial statements
(Note 10). SFAS No. 131 establishes accounting standards for the way public
enterprises report information about operating segments in annual financial
statements. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
has adopted this accounting standard; however, there was no impact on the
Company's financial statement presentation and disclosures because it operates
in only one segment, automotive operations.
In February 1998, the FASB approved SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pension and other postretirement benefits. In
particular, the Standard requires additional information on changes in the
benefit obligation and fair values of plan assets. The Company has adopted this
Standard in the presentation of its financial statements (Note 10).
In June 1998, the FASB approved SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Standard is effective for the first quarter of the Company's fiscal year
beginning January 1, 2000. The Company has not yet determined the impact of
adopting this Standard on its financial position or results of operations.
F-9
168
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1998, the Accounting Standards Executive committee published
accounting Statement of Position (SOP) 98-1, which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The provisions of this SOP are applicable for the Company's fiscal year
beginning January 1, 1999. The Company does not anticipate that adoption of this
Standard will have a material impact on its financial position or results of
operations.
SOP 98-5, Reporting on the Costs of Start-Up Activities, was issued in
April 1998. SOP 98-5 establishes standards for the financial reporting of
start-up costs and organization costs and requires such costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998. The Company has not yet determined the impact of adopting SOP 98-5 on its
financial condition or results of operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
DECEMBER 31
-------------------- MARCH 31,
1998 1997 1999
-------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
Accounts receivable (including related parties)........ $172,759 $140,003 $182,889
Unbilled mold contract receivables..................... 21,894 24,726 22,353
-------- -------- --------
194,653 164,729 205,242
Allowance for doubtful accounts........................ (4,518) (3,572) (5,175)
-------- -------- --------
Net accounts receivable................................ $190,135 $161,157 $200,067
======== ======== ========
Excluding receivables from related parties, substantially all of the
receivables are from companies operating in the automobile industry.
3. INVENTORIES
Inventories consisted of the following:
DECEMBER 31
------------------ MARCH 31,
1998 1997 1999
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
Raw material............................................. $25,169 $26,036 $22,900
Work-in-process -- manufactured parts.................... 2,965 2,863 2,952
Work-in-process -- molds................................. 11,436 10,922 15,002
Finished goods........................................... 11,569 12,795 12,434
------- ------- -------
Total.......................................... $51,139 $52,616 $53,288
======= ======= =======
F-10
169
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consisted of the following:
DECEMBER 31
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Land...................................................... $ 2,418 $ 2,427
Building and improvements................................. 64,459 62,538
Leasehold Improvements.................................... 13,970 12,090
Machinery and equipment................................... 225,687 219,767
Tooling/Molds............................................. 12,026 8,659
Office and transportation equipment....................... 5,963 6,373
Construction in progress.................................. 4,009 7,421
-------- --------
328,532 319,275
Less accumulated depreciation and amortization............ 127,988 113,510
-------- --------
Total..................................................... $200,544 $205,765
======== ========
Included in property, plant and equipment is equipment and buildings held
under capitalized leases. These assets had a cost basis of $9.4 million and
accumulated depreciation relating to these assets of $2.6 million at December
31, 1998. As of December 31, 1997, these assets had a cost basis of $12.7
million and accumulated depreciation of $4.0 million.
5. BUSINESS ACQUISITIONS
Effective August 26, 1996, the Trust acquired Bailey, a manufacturer of
high quality molded plastic exterior components for sale to automobile
manufacturers for an aggregate purchase price of $57 million. This acquisition
price was the cost to acquire all of the outstanding shares of the company at
$8.75 per share including all of the outstanding options and warrants. The
acquisition was accounted for as a purchase with the purchase price allocated
over the estimated fair value of the assets and liabilities assumed, resulting
in goodwill of approximately $53.8 million. The goodwill is being amortized over
30 years using the straight-line method. Bailey was merged into Venture Holdings
Corporation in July of 1997.
Effective June 3, 1996, the Company acquired certain assets from AutoStyle
for a purchase price of $6.7 million and entered into a capital lease for all
property, plant and equipment. The acquisition was accounted for as a purchase
with the purchase price allocated over the estimated fair value of the assets
and liabilities assumed, resulting in goodwill of $2.6 million. The goodwill is
being amortized over 30 years using the straight-line method.
The consolidated earnings includes the operations of Bailey from August 26,
1996 and the operations for AutoStyle from June 3, 1996.
F-11
170
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma results of operations represent the consolidation of
historical results for the twelve months ended December 31, 1996, assuming the
acquisition of Bailey had occurred at January 1, are as follows (in thousands):
Net sales................................................... $471,118
Net (loss) before extraordinary item........................ (887)
Net (loss).................................................. (3,402)
The Bailey transaction had the following non-cash impact on the Company's
balance sheet at August 26, 1996 (in millions):
Current assets.............................................. $ 62
Non-current assets.......................................... 143
Current liabilities......................................... 159
Non-current liabilities..................................... 46
6. DEBT
Debt consisted of the following:
DECEMBER 31
-------------------- MARCH 31,
1998 1997 1999
-------- -------- ------------
(UNAUDITED)
(IN THOUSANDS)
Revolving credit agreement........................... $ 77,000 $ 45,000 $ 75,000
Registered senior notes payable with interest at
9.5%............................................... 205,000 205,000 205,000
Registered senior subordinated notes payable with
interest at 9.75%.................................. 78,940 78,940 78,940
Capital leases with interest at 8.25% to 11.5%....... 2,196 5,023 2,056
Installment notes payable with interest at 5.85% to
11.75%............................................. 1,803 2,225 1,660
-------- -------- --------
Total........................................... 364,939 336,188 362,656
Less current portion of debt....................... 1,565 3,122 1,588
-------- -------- --------
Total........................................... $363,374 $333,066 $361,068
======== ======== ========
In the third quarter of 1997, the Trust, and each of its wholly owned
subsidiaries, other than Venture Industries Canada, Ltd. and Experience
Management L.L.C., which was not in existence at the time, (collectively, the
"Issuers") issued $205 million of Senior Notes. The net proceeds of $199 million
were used to repay Term loans and the amount outstanding under the revolving
credit portion of the Senior Credit Agreement. In connection with the issuance
of the Senior Notes, certain subsidiaries were merged and or liquidated into
other subsidiaries. On August 27, 1997, the Issuers filed a registration
statement on Form S-4 registering the Issuers' Series B 9 1/2% Senior Notes due
2005 (the "Registration Statement"), to be offered in exchange for the Senior
Notes. The Registration Statement was declared effective by the Securities and
Exchange Commission on October 29, 1997.
F-12
171
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Simultaneously with the issuance of the Senior Notes, the Senior Credit
Agreement was amended and now provides for borrowings of up to the lesser of a
borrowing base or $200 million under a revolving credit facility. The annual
interest rate for borrowings under this agreement is a floating rate based upon
LIBOR or the banks prime rate which averaged 7.8% at December 31, 1998. The
Company must pay a fee of up to .5% of the unused portion of the commitment. The
Company has issued letters of credit of approximately $3.0 million at December
31, 1998 against this agreement, thereby reducing the maximum availability to
$197.0 million, and pursuant to the borrowing base formula could have borrowed
$120.4 million, of which $77.0 million was outstanding thereunder.
The Trust has agreed to guarantee up to $3.5 million of obligations of a
related party. In a separate transaction, a different related party agreed to
fully indemnify the Trust for all amounts paid under the guarantee.
The senior credit agreement, senior notes and the senior subordinated notes
contain certain restrictive covenants relating to cash flow, fixed charges,
debt, trust principal, trust distributions, leases, and liens on assets. The
Company's debt obligations contain various restrictive covenants that require
the Company to maintain stipulated financial ratios, including a minimum
consolidated net worth (adjusted yearly), fixed charge coverage ratio, interest
coverage ratio and total indebtedness ratio. As of December 31, 1998, the
Company was in compliance with all debt covenants.
See also Note 12 -- Extraordinary Items for information related to the
early retirement of debt.
Scheduled maturities of debt at December 31, 1998 were as follows (in
thousands):
1999........................................................ $ 1,565
2000........................................................ 976
2001........................................................ 887
2002........................................................ 558
2003........................................................ 77,013
Remaining years............................................. 283,940
--------
Total....................................................... $364,939
========
To mitigate risk associated with changing interest rates on certain debt,
the Company entered into interest rate swap agreements. The notional amounts are
used to measure the volume of these agreements and do not represent exposure to
credit loss. The impact of interest rate swap agreements resulted in $0.6
million of additional interest expense in each of 1997 and 1998.
F-13
172
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTIONAL NOTIONAL
AMOUNTS AMOUNTS
OUTSTANDING OUTSTANDING
AND WEIGHTED AND WEIGHTED
VARIABLE AVERAGE RATES AVERAGE RATES
RATE MATURING DECEMBER 31, DECEMBER 31,
UNDERLYING FINANCIAL INSTRUMENT INDEX THROUGH 1998 1997
- ------------------------------- -------- -------- ------------- -------------
Pay Fixed Interest Rate Swaps Term Loans..... LIBOR 2001 $55,000,000 $55,000,000
Weighted average pay rate.................... FIXED 2001 6.75% 6.75%
Weighted average receive rate................ LIBOR 2001 5.31% 5.70%
7. RELATED PARTY TRANSACTIONS
The Company has entered into various transactions with entities that the
sole beneficiary owns or controls. These transactions include leases of real
estate, usage of machinery, equipment, and facilities, purchases and sales of
inventory, performance of manufacturing related services, administrative
services, insurance activities and the receipt and payment of sales commissions.
In addition, employees of the Company are made available to certain of these
entities for services such as design, model and tool-building. Since the Company
operates for the benefit of the sole beneficiary, the terms of these
transactions 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.
The Company provides or arranges for others to provide certain related
parties with various administrative and professional services, including
employee group insurance and benefit coverage, property and other insurance,
financial and cash management and administrative services such as data
processing. The related parties are charged fees and premiums for these
services. Administrative services were allocated to the entity for which they
were incurred and certain entities were charged a management fee.
In connection with the above mentioned cash management services, the
Company pays the administrative and operating expenses on behalf of certain
related parties and charges them for the amounts paid which results in
receivables from these related parties.
The Company purchased from Pompo Insurance & Indemnity Company Ltd.
("Pompo"), a corporation indirectly owned by the sole beneficiary, insurance to
cover certain medical claims by the Company's covered employees and certain
workers compensation claims. The Company remains an obligor for any amounts in
excess of insurance coverage or any amounts not paid by Pompo under these
coverages. If a liability is settled for less than the amount of the premium a
portion of the excess is available as a premium credit on future insurance. The
Company has accounted for this arrangement using the deposit method wherein the
full amount of the estimated liability for such claims is recorded in other
liabilities and the premiums paid to Pompo are recorded in other assets until
such time that the claims are settled. The Company made an additional payment of
$613 thousand to Pompo in 1998, and no payments in 1997. At December 31, 1998
and 1997, the Company had approximately $3.4 million and $2.8 million,
respectively, on deposit with Pompo. A portion of this amount was invested on a
short term basis with a related party.
F-14
173
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deluxe Pattern Corporation (Deluxe) provided design, model and prototyping
services to the Company of $6.6, $9.2, and $4.3 million in 1998, 1997 and 1996,
respectively. The Company charged approximately $1.1 million each year from
Deluxe in 1998, 1997 and 1996 for equipment rentals and services. Employees of
the Company made available to Deluxe on an as-needed basis, for which the
Company charged Deluxe $9.6, $4.6, and $17.3 million in 1996, 1997 and 1998,
respectively. These charges and the cash management services provided to Deluxe
by the Company result in a net receivable from Deluxe.
The Company leases buildings and machinery and equipment that have a book
value of approximately $460 thousand to an entity in which the sole beneficiary
owns a significant equity interest. During 1998, 1997 and 1996, the Company
received $162 thousand per year, in connection with this agreement.
Venture Sales and Engineering (VS&E) and Venture Foreign Sales Corporation,
corporations wholly owned by the sole beneficiary, serve as the Company's sales
representatives. The Company pays Venture Sales and Engineering and Venture
Foreign Sales Corporation, in the aggregate, a sales commission of 3% on all
production sales. VS&E has conducted sales and marketing activities around the
world for the Company and has been advanced certain funds in order to carry on
that work on behalf of the Company. These activities result in a net receivable
from VS&E.
The Company provided management services to Venture Asia Pacific Pty. Ltd.
(VAP) and its subsidiaries and corporations wholly owned by the sole
beneficiary. The Company billed management fees and commissions totaling $4.5,
$4.0 and $5.1 million to VAP in 1998, 1997 and 1996, respectively. In addition,
VAP is also liable to the Company for expenditures made on its behalf including
tooling costs associated with a long-term program to be launched in 1999. The
Company expects to receive payment on these receivables once final approval is
received from the end OEM customer.
F-15
174
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of transactions with all related parties at
December 31, 1998, 1997 and 1996:
DECEMBER 31
1998 1997 1996
------- ----------- -------
(IN THOUSANDS)
Revenue for:
Materials sold, tooling sales, sales commission and
rent charged...................................... $18,974 $17,349 $ 2,123
Providing administrative services.................... 0 0 149
Insurance and benefit Premiums....................... 0 166 420
Management Fees...................................... 4,533 4,028 5,098
Subcontracted services................................. 2,324 2,686 9,632
Manufacturing related services and inventory
purchased............................................ 8,084 10,213 11,683
Rent expense paid...................................... 2,180 3,195 2,950
Machine and facility usage fees paid................... 4,158 3,748 3,397
Commission expense paid................................ 10,391 7,269 6,391
Litigation, workers compensation and medical insurance
premiums............................................. 613 0 0
Property, Plant and Equipment purchased................ 40 0 49
The result of these related party transactions is a net receivable, which
is included in accounts receivable as follows:
DECEMBER 31 MARCH 31,
1998 1997 1999
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
Amounts Receivable...................................... $65,755 $36,690 $70,386
Amounts Payable......................................... 9,107 4,430 10,508
------- ------- -------
Net Amounts Receivable.................................. $56,648 $32,260 $59,878
======= ======= =======
In accordance with the Company's debt agreements, payments are permitted to
be made to the Company's sole beneficiary for income tax payments and may be
made as a bonus payment or distribution of Trust Principal. The payments for the
years ended December 31, 1998, 1997 and 1996 were recorded as expense.
F-16
175
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Trust leases certain machinery and equipment under
operating leases which have initial or remaining terms of one year or more at
December 31, 1998. Future minimum lease commitments, including related party
leases, are as follows (in thousands):
RELATED
PARTY OTHER
OPERATING OPERATING
LEASES LEASES
--------- ---------
Years:
1999....................................................... 2,180 494
2000....................................................... 0 186
2001....................................................... 0 25
------ ----
Total................................................. $2,180 $705
====== ====
Rent expense for operating leases and other agreements with a term of
greater than one month, including amounts paid to related parties, was $5.5
million, $6.3 and $5.0 million for the years ended December 31, 1998, 1997, and
1996, respectively. Usage fees paid based on monthly usage of certain machinery
and equipment and facilities, all of which were paid to related parties, were
$4.0 million, $3.6, and $3.4 million for the years ended December 31, 1998, 1997
and 1996, respectively.
Litigation -- In December of 1997, the Company settled litigation with the
contractor that built the paint line at Vemco, Inc. for $2.0 million. Of this
amount, $0.8 million was recorded as a reduction to the carrying value of the
paint line and $1.2 million was recorded as miscellaneous income.
Resolution of Commercial Issues -- During the fourth quarter of 1998, the
Company resolved several commercial issues which resulted in the recovery of
gross profit lost during current and prior years. The resolution of these issues
resulted in an addition $7.4 million of gross profit.
Environmental Costs -- The Company is subject to potential liability under
government regulations and various claims and legal actions which are pending or
may be asserted against the Company concerning environmental matters. Estimates
of future costs of such environmental matters are necessarily imprecise due to
numerous uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which the Company may have remediation responsibility and the apportionment
and collectibility of remediation costs among responsible parties. The Company
establishes reserves for these environmental matters when a loss is probable and
reasonably estimable. The Company's reserves for these environmental matters
totaled $1.3 million at December 31, 1998 and $1.3 million at December 31, 1997.
On February 23, 1998, the Attorney General of the State of Michigan and the
Michigan Department of Environmental Quality (MDEQ) instituted legal proceedings
in state court alleging violations by the Company of current permits regarding
the level of emissions and odors discharged from its Grand Blanc paint facility.
These proceedings seek and may result in the imposition of civil penalties of up
to $10,000 per day; the total amount is not reasonably estimable given the
current status of the proceedings. Emission levels are being evaluated as part
of the proceedings, and it is
F-17
176
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
possible the Company may be required to make capital expenditures of $2 to $5
million to the current systems to come into compliance. During the first quarter
of 1999, the U.S. Environmental Protection Agency has issued a notice of
violation and taken an active role in monitoring the legal proceeding and may
take action separate and distinct from the legal proceedings begun by the State
of Michigan and MDEQ.
The Company is party to various contractual, legal and environmental
proceedings, some which assert claims for large amounts. Although the ultimate
cost of resolving these matters could not be precisely determined at December
31, 1998, management believes, based on currently known facts and circumstances,
that the disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position and results of operations. These
matters are subject to many uncertainties, and the outcome of individual matters
is not predictable with assurance. It is more than remote but less than likely
that the final resolution of these matters may require the Company to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The Company's
reserves have been set based upon a review of costs that may be incurred after
considering the creditworthiness of guarantors and/or indemnification from third
parties which the Company has received. The Company is not covered by insurance
for any unfavorable environmental outcomes, but relies on the established
reserves, guarantees and indemnifications it has received.
9. CONCENTRATIONS
The Company's sales to General Motors Corporation ("GM"), Ford Motor
Company ("Ford") and DaimlerChrysler Corporation ("DaimlerChrysler"), expressed
as a percentage of sales, were 41%, 16% and 12%, respectively, in 1996. For
1997, the percentages were 40% and 27% for GM and Ford, respectively, and less
than 10% for DaimlerChrysler. For 1998, the percentages were 38%, 23% and 15%
for GM, Ford and DaimlerChrysler, respectively. Many of the Company's automotive
industry customers are unionized and work stoppages, slow-downs experienced by
them, and their employee relations policies could have an adverse effect on the
Company's results of operations. Net sales during the second and third quarters
of 1998 were impacted negatively due to strikes at certain General Motors
plants. The Company believes that a portion of these lost sales were recouped in
the fourth quarter of 1998 as GM accelerated production to refill its
distribution channels. Approximately 11% of the Company's workforce is covered
by a collective bargaining agreement which will expire within one year.
10. PENSIONS, PROFIT-SHARING AND SALARY REDUCTION PLAN
The Company sponsors profit-sharing and salary reduction 401(k) plans which
cover substantially all employees. The plans provide for the Company to
contribute a discretionary amount each year. Contributions were $2.3, $2.2 and
$1.3 million for the years ended December 31, 1998, 1997 and 1996, respectively.
Bailey has various retirement plans covering substantially all employees,
including five defined benefit pension plans covering full-time hourly and
salaried employees. The benefits payable under the plans are generally
determined based on the employees' length of service and earnings. For all these
plans the funding policy is to make at least the minimum annual contributions
required by Federal law and regulation.
F-18
177
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in benefit obligation for the years ended December 31, 1998 and
1997 was as follows (in thousands):
1998 1997
------- -------
Benefit obligation at beginning of year..................... $15,980 $14,861
Service cost................................................ 543 321
Interest cost............................................... 1,120 1,069
Curtailment gain............................................ (648)
Amendments.................................................. 599
Actuarial loss (gain)....................................... 1,771 (365)
Benefits paid............................................... (536) (505)
------- -------
Benefit obligation at end of year........................... $18,230 $15,980
======= =======
The change in the market value of plan assets for the years ended December
31, 1998 and 1997 was as follows (in thousands):
1998 1997
------- -------
Market value of plan assets at beginning of year............ $14,026 $11,528
Actual return on plan assets................................ 105 2,531
Employer contribution....................................... 660 472
Benefits paid............................................... (536) (505)
------- -------
Market value of plan assets at end of year.................. $14,255 $14,026
======= =======
F-19
178
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the defined benefit plans at December 31, 1998 was as
follows (in thousands):
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
----------- -----------
Actuarial present value of benefit obligations:
Vested Benefits...................................... $ 3,017 $15,078
Nonvested benefits................................... 33 102
Accumulated benefit obligation......................... $ 3,050 $15,180
======= =======
Projected benefit obligation........................... $ 3,050 $15,180
Market value of plan assets............................ 3,891 10,364
------- -------
Excess (deficiency) of assets over projected benefit
obligation........................................... 841 (4,816)
Unrecognized net (gain) loss........................... (928) 1,232
Unrecognized prior service cost........................ 519
Additional minimum liability........................... (1,751)
------- -------
Accrued pension cost................................... $ (87) $(4,816)
======= =======
The funded status of the defined benefit plans at December 31, 1997 was as
follows (in thousands):
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
----------- -----------
Actuarial present value of benefit obligations:
Vested Benefits...................................... $ 5,151 $10,003
Nonvested benefits................................... 42 70
------- -------
Accumulated benefit obligation......................... $ 5,193 $10,073
======= =======
Projected benefit obligation........................... $ 5,907 $10,073
Market value of plan assets............................ 6,996 7,030
------- -------
Excess (deficiency) of assets over projected benefit
obligation........................................... 1,089 (3,043)
Unrecognized net loss.................................. (1,736) (892)
Unrecognized prior service cost........................ 0 559
------- -------
Accrued pension cost................................... $ (647) $(3,376)
======= =======
F-20
179
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension (benefit) expense for the years ended December 31,
1998 and 1997 included the following components (in thousands):
1998 1997
------- ------
Service cost benefit during the year........................ $ 543 $ 321
Interest cost on projected benefit obligation............... 1,120 1,069
Expected return on plan assets.............................. (1,174) (961)
Net amortization and deferral............................... (52) (22)
Curtailment gain............................................ (648)
------- ------
Net periodic pension (benefit) expense...................... $ (211) $ 407
======= ======
The date used to measure plan assets and liabilities is as of September 30
each year.
The weighted-average assumed discount rate was 6.5% and 7.25% for 1998 and
1997, respectively. The assumed rate of return on plan assets was 8.5% for 1998
and 1997. For salary based plans, the expected rate of increase in compensation
levels was 5.5% for 1998 and 1997.
At December 31, 1998, the Company recorded an intangible pension asset of
$519 thousand as an offset to recording the additional minimum pension
liability. An additional amount of $737 thousand was recorded (net of tax)
against equity at December 31, 1998, which represented the minimum pension
liability in excess of unrecognized prior service cost.
Plan assets consist principally of cash and cash equivalents, listed common
stocks, debentures, and fixed income securities.
A salaried pension plan has been frozen since 1992, and no further service
liability will accrue under the plan. During 1998, an additional salaried
pension plan and an hourly pension plan were frozen, and no further service
liability will accrue under these plans. The freezing of the salaried pension
plan resulted in a curtailment gain of approximately $648,000 and has been
included in the calculation of the net periodic pension benefit for the year
ended December 31, 1998. The freezing of the hourly plan did not result in a
curtailment gain or loss since the accumulated and projected benefit obligation
for this plan are equal.
Effective January 1, 1999, the three frozen plans were merged into one
plan. The merged plan will eventually be terminated.
11. INCOME TAXES
Amounts in the financial statements related to income taxes are for the
operations of Bailey. The other significant Subsidiaries have elected S
corporation status under the Internal Revenue Code. The beneficiary is required
to report all income, gains, losses, deductions, and credits of the S
corporations included in the Trust on his individual tax returns.
F-21
180
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income tax expense for the period ended (in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
Currently Payable
United States................................ $ 80 $ 0 $ 0
State and Local.............................. 0 239 0
Foreign...................................... 16 0 0
------ ------ ----
Total..................................... $ 96 $ 239 $ 0
====== ====== ====
Deferred
United States................................ $1,618 $2,716 $293
State and Local.............................. 240 403 43
------ ------ ----
Total..................................... $1,858 $3,119 $336
====== ====== ====
The Company does not provide for U.S. income taxes or foreign withholding
taxes on cumulative undistributed earnings of foreign subsidiaries as these
earnings are all taxed currently to the beneficiary of the Trust.
The effective tax rate on pretax income was 70.4% for the year ended
December 31, 1998, of which 29.9% relates to permanent differences not
deductible for income taxes (primarily goodwill amortization)and 5.2% for state
and local income taxes, net of the federal tax benefit. The effective tax rate
on pretax income was 58.3% for the year ended December 31, 1997, of which 18.1%
relates to permanent differences not deductible for income taxes and 5.2% for
state and local income taxes, net of the federal tax benefit. The effective tax
rate on pretax income was 232.7% for the year ended December 31, 1996, of which
192.5% relates to permanent differences not deductible for income taxes and 5.2%
for state and local income taxes, net of the federal tax benefit.
F-22
181
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax-effected temporary differences and carryforwards which comprised
deferred assets and liabilities were as follows (in thousands):
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
Deferred tax assets:
Accrued expenses and reserves...................... $ 7,372 $ 8,920
Net Operating Loss carryforward.................... 9,750 11,497
Minimum tax credit carryforward.................... 844 764
Other.............................................. 750 293
------- -------
Total deferred tax assets....................... $18,716 $21,474
------- -------
Deferred tax liabilities:
Depreciation....................................... 11,931 12,505
Other.............................................. 24 845
------- -------
Total deferred tax liabilities.................. 11,955 13,350
------- -------
Net deferred tax asset.......................... $ 6,761 $ 8,124
======= =======
The current portion of deferred tax assets, $6.9 and $7.0 million is
included in prepaid expense and other at December 31, 1998 and 1997,
respectively. Bailey's U.S. net operating loss carryforwards, which totaled
$26.4 and $29.9 million at December 31, 1998 and 1997, begin to expire in the
year 2011. Alternative minimum tax credit carryforwards totaled $0.8 million at
December 31, 1998 and have no expiration date. Management believes the net
operating loss carryforwards at December 31, 1998 are realizable based on
forecasted earnings and available tax planning strategies.
12. EXTRAORDINARY ITEMS
The senior secured notes payable to financial institutions required
semiannual interest payments at 9.89% and annual principal payments of $10
million each year commencing March 15, 1996. The outstanding balance of $40
million was refinanced on August 26, 1996 which resulted in an extraordinary
loss of $3.4 million ($2.5 million prepayment penalty plus unamortized deferred
financing costs of $0.9 million) in the quarter ended September 30, 1996.
On September 23, 1996 the Company redeemed approximately $21 million of the
senior subordinated bonds at 95% of par in conjunction with the refinancing
under the new credit agreement for acquisition of Bailey Corporation as required
by the First Supplement Indenture. The early extinguishment resulted in an
extraordinary gain of $688 thousand (net of unamortized deferred financing costs
of $365 thousand).
13. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's debt instruments have been
determined using available market information. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein may not be indicative of the amounts
that the Company could realize in a current market exchange. The use of
F-23
182
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
different assumptions or valuation methodologies may have a material effect on
the estimated fair value amounts. The fair value of long-term debt was estimated
using quoted market prices (in thousands).
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Debt............................................. $283,940 $282,126 $283,940 $287,626
The fair values of interest rate swaps were estimated by discounting
expected cash flows using quoted market interest rates. Interest rate swaps are
also discussed in Note 1.
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
NOTIONAL UNREALIZED NOTIONAL UNREALIZED
AMOUNT GAIN/(LOSSES) AMOUNT GAIN/(LOSSES)
-------- ------------- -------- -------------
Interest Rate Swaps.................... $55,000 $(2,020) $55,000 $(1,367)
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and the Senior Credit Facility approximate fair market value
due to the short-term maturities of these instruments.
14. ACQUISITION (UNAUDITED)
On March 8, 1999, the Company entered into an agreement to acquire Peguform
GmbH ("Peguform"), a leading European supplier of high performance interior and
exterior plastic modules, systems and components to European OEMs (the "Peguform
Acquisition"). Consummation of the Peguform Acquisition is subject to only
limited conditions, including approval of the shareholders of Klockner-Werke AG,
the parent of Peguform, and receipt of regulatory approvals. The purchase
agreement does not permit the Company to terminate the transaction, even if
there has been a material adverse change in the business of Peguform from the
date of signing the purchase agreement to closing, which is currently expected
to occur no later than May 31, 1999.
The Company has executed commitment letters with subsidiaries of Bank One
Corporation and Goldman Sachs Credit Partners, L.P., pursuant to which such
entities have committed, subject to certain conditions, to provide financing for
the Peguform Acquisition.
The aggregate purchase price of the Peguform Acquisition is approximately
DEM 850 million (approximately $459.1 million as of April 30, 1999), reduced by
the amount of certain indebtedness for borrowed money, and subject to
post-closing adjustments. In addition, the Company estimates an additional $28.2
million of fees, expenses and post-closing adjustments associated with the
Peguform Acquisition. The Company expects to complete the Peguform Acquisition
on or about May 31, 1999. The Peguform Acquisition will be accounted for as a
purchase.
In connection with the Peguform Acquisition, the Company expects to enter
into an amended and restated credit agreement (the "New Credit Agreement"). The
New Credit Agreement will provide for borrowings of (1) up to $200.0 million
under a Revolving Credit Facility, which, in addition to those matters described
below, will be used for working capital and general corporate purposes; (2)
$100.0 million under a five-year Term Loan A; and (3) $150.0 million under a
six-year Term Loan B. The Revolving Credit Facility will permit the Company to
borrow up to the lesser of a
F-24
183
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
borrowing base computed as a percentage of accounts receivable and inventory, or
$200.0 million less the amount of any letter of credit issued against the New
Credit Agreement. Pursuant to the borrowing base formula, as of December 31,
1998 the Company could have borrowed up to the maximum availability under the
Revolving Credit Facility.
Interest rates under the New Credit Agreement are based on the London
Interbank Offer Rate ("LIBOR"), Alternate Base Rate ("ABR"), which is the larger
of the bank's corporate base rate of interest announced from time-to-time or the
federal funds rate plus 1/2% per annum, and, in the case of non-dollar
denominated loans, a euro currency reference rate. Interest rates will be
determined by reference to the relevant interest rate option, plus an Applicable
Margin (as defined) based on the Company's Consolidated Ratio of Total Debt to
EBITDA. Obligations under the New Credit Agreement will be jointly and severally
guaranteed by the Trust's domestic subsidiaries and will be secured by first
priority security interests in substantially all of the assets of the Trust and
its domestic subsidiaries. The New Credit Agreement will contain certain
restrictive covenants, which we expect will be similar in nature to those in the
Company's current senior credit facility (the "Existing Credit Agreement"). The
New Credit Agreement will become effective contemporaneously with the completion
of the Peguform Acquisition.
In addition, the Company expects to offer an aggregate amount of up to
$375.0 million of unsecured senior subordinated notes and unsecured senior
notes. Proceeds from the offering of the notes, together with borrowings under
the New Credit Agreement will be used to (1) fund cash consideration paid in the
Acquisition; (2) redeem the Company's 9 3/4% Senior Subordinated Notes due 2004
at the redemption price of 104.875%, plus accrued interest; (3) refinance
amounts outstanding under the Existing Credit Agreement; (4) pay certain fees
and expenses related to the Peguform Acquisition and the offering of the notes;
and (5) fund working capital and other general corporate purposes.
After completing the Peguform Acquisition, the Company expects its budget
for capital expenditures during the remainder of 1999 to be approximately $70.0
million, which is expected to be financed either with cash generated from
operations or borrowings under the New Credit Agreement.
The Company expects, on or before the closing of the sale of the notes, to
enter into hedging obligations and interest rate swaps totalling approximately
$375.0 million which will have a maturity of 5 years. These hedging obligations
and interest rate swaps will effectively convert the Company's United States
dollar fixed rate coupon on the notes to a euro fixed rate coupon. These
instruments may not qualify for hedge accounting, which may result in non-cash
charges to earnings related to the mark to market on the swaps. The Company is
entering into this arrangement to take advantage of lower interest rates in
Europe and to hedge its exchange rate risk, however, no commitment is currently
in effect with respect to any such arrangements and no assurance can be given
that the Company will enter into such arrangements on the terms described or at
all.
F-25
184
REPORT OF INDEPENDENT AUDITORS
To the Board of Management and
Shareholders of PEGUFORM GmbH
We have audited the accompanying consolidated balance sheets of PEGUFORM
GmbH and subsidiaries as of September 30, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements, based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Germany, which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PEGUFORM GmbH and subsidiaries as of September 30, 1997 and 1998 and the
consolidated results of their operations, changes in stockholders' equity and
cash flows for the years then ended in conformity with generally accepted
accounting principles in the United States.
Our audit also included the translation of Deutsche Mark amounts into U.S.
dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in note 2. Such U.S. dollar amounts are presented solely
for the convenience of the readers.
Dusseldorf,
December 18, 1998, except for the adjustments according to U.S.
GAAP (see note 2), as to which the date is April 26, 1999
BDO International GmbH
Wirtschaftsprufungsgesellschaft
F-26
185
PEGUFORM GMBH, BOTZINGEN
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND 1998 AND DECEMBER 31, 1998
(DEM IN THOUSANDS)
THOUSANDS OF THOUSANDS OF
U.S. DOLLARS U.S. DOLLARS
(CONVENIENCE (CONVENIENCE
SEPTEMBER 30, TRANSLATION) TRANSLATION)
--------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1998 1998
--------- --------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents............... 3,486 4,964 2,961 13,869 8,272
Accounts receivable (note 4)............ 276,685 277,891 165,737 267,052 159,272
Inventories (note 5).................... 180,996 201,439 120,140 193,298 115,285
Deferred tax assets (note 13)........... 6,479 5,235 3,122 3,518 2,098
Prepaid expenses........................ 3,558 3,122 1,862 6,996 4,172
--------- --------- -------- --------- --------
Total current assets............... 471,204 492,651 293,822 484,733 289,099
Investment in associated company........ 6,431 7,665 4,571 8,245 4,918
Property, plant and equipment (note
6).................................... 488,218 535,199 319,198 523,166 312,021
Intangible assets....................... 74,894 65,206 38,889 65,949 39,332
Other assets............................ 3,866 5,244 3,128 5,449 3,251
Deferred tax assets (note 13)........... 4,073 6,063 3,616 5,054 3,014
--------- --------- -------- --------- --------
Total assets....................... 1,048,686 1,112,028 663,224 1,092,596 651,635
========= ========= ======== ========= ========
F-27
186
THOUSANDS OF THOUSANDS OF
U.S. DOLLARS U.S. DOLLARS
(CONVENIENCE (CONVENIENCE
SEPTEMBER 30, TRANSLATION) TRANSLATION)
--------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1998 1998
--------- --------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of debt (note 9)........ 309,677 360,365 214,925 362,297 216,077
Accounts payable (note 8)............... 226,453 260,163 155,164 253,814 151,377
Accrued payroll......................... 56,781 63,500 37,872 55,096 32,860
Other accrued expenses.................. 37,267 25,105 14,973 22,114 13,189
Income taxes payable.................... 5,583 3,162 1,886 10,341 6,167
Deferred tax liabilities (note 13)...... 3,564 3,618 2,158 2,587 1,543
Other current liabilities and deferred
income................................ 20,278 12,979 7,741 12,227 7,292
--------- --------- -------- --------- --------
Total current liabilities.......... 659,603 728,892 434,719 718,476 428,505
Long term debt (note 9)................. 101,893 97,855 58,362 94,203 56,184
Accrual for pension obligations (note
12)................................... 39,458 44,913 26,786 46,277 27,600
Deferred tax liabilities (note 13)...... 20,847 20,432 12,186 13,480 8,040
Minority interest....................... 6,248 1,450 865 952 568
Other non current liabilities and
deferred income....................... 2,266 3,850 2,295 3,887 2,319
--------- --------- -------- --------- --------
Total liabilities.................. 830,315 897,392 535,213 877,275 523,216
--------- --------- -------- --------- --------
STOCKHOLDERS' EQUITY
Capital stock........................... 70,000 70,000 41,749 70,000 41,749
Additional paid in capital.............. 358,397 373,234 222,600 373,234 222,600
Deficit................................. (194,311) (209,995) (125,243) (209,392) (124,883)
Cumulative currency translation
adjustment............................ (14,628) (16,376) (9,767) (16,010) (9,549)
Accumulated other comprehensive income
(note 12)............................. (1,087) (2,227) (1,328) (2,511) (1,498)
--------- --------- -------- --------- --------
Total stockholders' equity......... 218,371 214,636 128,011 215,321 128,419
--------- --------- -------- --------- --------
Total liabilities and stockholders'
equity........................... 1,048,686 1,112,028 663,224 1,092,596 651,635
========= ========= ======== ========= ========
F-28
187
PEGUFORM GMBH, BOTZINGEN
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1997 AND 1998
AND THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998
(DEM IN THOUSANDS)
THOUSANDS OF
THOUSANDS OF U.S. DOLLARS
U.S. DOLLARS (CONVENIENCE
(CONVENIENCE TRANSLATION)
YEAR ENDED TRANSLATION) THREE MONTHS ENDED THREE MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
----------------------- SEPTEMBER 30, ------------------------- DECEMBER 31,
1997 1998 1998 1997 1998 1998
---------- ---------- ------------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues
Net sales................... 1,664,884 1,977,698 1,179,518 441,841 577,725 344,561
Other revenues.............. 17,717 45,728 27,272 1,265 1,974 1,177
Total revenues........... 1,682,601 2,023,426 1,206,790 443,106 579,699 345,738
Cost of products sold......... (1,482,448) (1,806,115) (1,077,184) (404,477) (519,424) (309,789)
---------- ---------- ---------- -------- -------- --------
Gross profit............. 200,153 217,311 129,606 38,629 60,275 35,949
Selling, general and
administrative expenses..... (154,427) (201,040) (119,902) (37,915) (51,407) (30,660)
Other expenses................ (7,524) (2,408) (1,436) (8,883) (1,595) (951)
Interest expense (net)........ (23,267) (23,992) (14,309) (6,815) (6,333) (3,777)
---------- ---------- ---------- -------- -------- --------
Income (loss) before income
taxes.................... 14,935 (10,129) (6,041) (14,984) 940 561
Taxes on income............... (6,029) (6,060) (3,614) (895) (798) (476)
Minority interest............. (618) 505 301 4 461 275
========== ========== ========== ======== ======== ========
Consolidated net income
(loss)................... 8,288 (15,684) (9,354) (15,875) 603 360
========== ========== ========== ======== ======== ========
Foreign currency translation
adjustments................. (1,508) (1,748) (1,042) (1,135) 366 218
Other comprehensive income.... (1,087) (1,140) (680) (275) (284) (169)
---------- ---------- ---------- -------- -------- --------
Total other comprehensive
income................. (2,595) (2,888) (1,722) (1,410) 82 49
---------- ---------- ---------- -------- -------- --------
Comprehensive income..... 5,693 (18,572) (11,076) (17,285) 685 409
========== ========== ========== ======== ======== ========
See notes to the consolidated financial statements.
F-29
188
PEGUFORM GMBH, BOTZINGEN
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997 AND 1998
AND THREE MONTHS ENDED DECEMBER 31,
1997 AND 1998
(DEM IN THOUSANDS EXCEPT FOR SHARE DATA)
CUMULATIVE ACCUMULATED
COMMON STOCK ADDITIONAL CURRENCY OTHER
---------------- PAID IN TRANSLATION COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT INCOME TOTAL
------ ------- ---------- -------- ----------- ------------- -------
BALANCE AT OCTOBER 1, 1996....... 18 70,000 358,397 (198,050) (13,120) 217,227
Net income....................... 8,288 8,288
Dividend paid.................... (4,549) (4,549)
Currency translation............. (1,508) (1,508)
Additional minimum pension
liability...................... (1,087) (1,087)
-- ------- ------- -------- ------- ------ -------
BALANCE AT SEPTEMBER 30, 1997.... 18 70,000 358,397 (194,311) (14,628) (1,087) 218,371
Net loss......................... (15,684) (15,684)
Capital contribution............. 14,837 14,837
Currency translation............. (1,748) (1,748)
Additional minimum pension
liability...................... (1,140) (1,140)
-- ------- ------- -------- ------- ------ -------
BALANCE AT SEPTEMBER 30, 1998.... 18 70,000 373,234 (209,995) (16,376) (2,227) 214,636
== ======= ======= ======== ======= ====== =======
Thousands of U.S. Dollars
(Convenience translation)
September 30, 1998............. 41,749 222,600 (125,243) (9,767) (1,328) 128,011
======= ======= ======== ======= ====== =======
BALANCE AT SEPTEMBER 30, 1997.... 18 70,000 358,397 (194,311) (14,628) (1,087) 218,371
Net (loss)....................... (15,875) (15,875)
Dividend paid.................... 0
Currency translation............. (1,135) (1,135)
Additional minimum pension
liability...................... (275) (275)
-- ------- ------- -------- ------- ------ -------
BALANCE AT DECEMBER 31, 1997
(Unaudited).................... 18 70,000 358,397 (210,186) (15,763) (1,362) 201,086
== ======= ======= ======== ======= ====== =======
BALANCE AT SEPTEMBER 30, 1998.... 18 70,000 373,234 (209,995) (16,376) (2,227) 214,636
Net loss......................... 603 603
Capital contribution............. 0
Currency translation............. 366 366
Additional minimum pension
liability...................... (284) (284)
-- ------- ------- -------- ------- ------ -------
BALANCE AT DECEMBER 31, 1998
(Unaudited).................... 18 70,000 373,234 (209,392) (16,010) (2,511) 215,321
== ======= ======= ======== ======= ====== =======
Thousands of U.S. Dollars
(Convenience translation)
December 31, 1998.............. 41,749 222,600 (124,883) (9,549) (1,498) 128,419
======= ======= ======== ======= ====== =======
See notes to the consolidated financial statements.
F-30
189
PEGUFORM GMBH, BOTZINGEN
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1998 AND THREE MONTHS ENDED
DECEMBER 31, 1997 AND 1998
(DEM IN THOUSANDS)
THOUSANDS OF U.S. DOLLARS
U.S. DOLLARS (CONVENIENCE
(CONVENIENCE TRANSLATION)
YEAR ENDED TRANSLATION) THREE MONTHS ENDED THREE MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------- SEPTEMBER 30, ------------------------- DECEMBER 31,
1997 1998 1998 1997 1998 1998
-------- -------- ------------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash Flows From Operating Activities
Net income (loss)......................... 8,288 (15,684) (9,354) (15,875) 603 360
Adjustments to reconcile net income to net
cash provided by operating activities...
Depreciation and amortization........... 87,828 88,734 52,922 23,802 24,555 14,645
(Gain) loss from the disposal of fixed
assets -- net......................... (1,621) (4,237) (2,527)
Change in accounts receivable........... (42,777) (1,206) (719) (9,608) 10,839 6,464
Change in inventories................... (30,614) (20,443) (12,192) (11,407) 8,141 4,855
Change in prepaid expenses.............. 1,877 436 260 (4,393) (3,874) (2,311)
Change in investment in associated
company............................... (1,373) (1,234) (736) (336) (580) (346)
Change in other assets.................. 582 (1,378) (822) 526 (205) (122)
Change in accounts payable.............. 37,879 31,289 18,661 (23,822) 830 495
Change in accrued expenses.............. 12,661 (2,378) (1,418) (14,943) (10,620) (6,334)
Change in other liabilities............. 5,760 (10,513) (6,270) 16,090 (1,213) (723)
Change in deferred taxes................ (3,483) 264 157 (21) (4,903) (2,924)
-------- -------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities............... 75,007 63,650 37,962 (39,987) 23,573 14,059
-------- -------- ------- ------- ------- -------
Cash Flows From Investing Activities
Proceeds from sale of fixed assets........ 10,524 19,381 11,559 2,213 11,078 6,607
Capital expenditures...................... (102,014) (143,552) (85,616) (37,057) (23,736) (14,156)
-------- -------- ------- ------- ------- -------
Net cash used for investing
activities............................ (91,490) (124,171) (74,057) (34,844) (12,658) (7,549)
-------- -------- ------- ------- ------- -------
Cash Flows From Financing Activities
Capital contribution...................... 0 14,837 8,849 0 0 0
Dividends paid............................ (4,549) 0 0 0 0 0
Net borrowings............................ 38,734 60,141 35,869 185,306 67,351 40,169
Principal payments on debt................ (17,356) (12,967) (7,734) (54,163) (69,084) (41,203)
-------- -------- ------- ------- ------- -------
Net cash provided by (used for)
financing activities.................. 16,829 62,011 36,984 131,143 (1,733) (1,034)
-------- -------- ------- ------- ------- -------
Effect of foreign exchange rate changes..... 838 (12) (7) (115) (277) (165)
-------- -------- ------- ------- ------- -------
Net Decrease in Cash........................ 1,184 1,478 882 56,197 8,905 5,311
Cash and Cash Equivalents at Beginning of
Period.................................... 2,302 3,486 2,079 3,486 4,964 2,961
-------- -------- ------- ------- ------- -------
Cash and Cash Equivalents at End of
Period.................................... 3,486 4,964 2,961 59,683 13,869 8,272
======== ======== ======= ======= ======= =======
F-31
190
THOUSANDS OF U.S. DOLLARS
U.S. DOLLARS (CONVENIENCE
(CONVENIENCE TRANSLATION)
YEAR ENDED TRANSLATION) THREE MONTHS ENDED THREE MONTHS
SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED
------------------- SEPTEMBER 30, ------------------------- DECEMBER 31,
1997 1998 1998 1997 1998 1998
-------- -------- ------------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Supplemental Cash Flow Information
Cash paid during the period for interest.... 26,758 30,136 17,973
Income taxes paid (refunded)................ 3,026 7,372 4,391
Non-cash changes relating to additional
minimum liability
Change in minimum liability............... 3,301 2,390 1,425 598 589 351
Change in intangible asset................ (819) 121 72 30 49 29
Change in deferred asset.................. (1,395) (1,371) (817) (353) (354) (211)
Other comprehensive income................ (1,087) (1,140) (680) (275) (284) (170)
See notes to consolidated financial statements.
F-32
191
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DEM IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS
The Company is a supplier to the automotive industry and mainly provides
plastic system components.
(2) BASIS OF PRESENTATION
Solely for the convenience of the readers, the consolidated financial
statements as of September 30, 1998 and for the year then ended and as of
December 31, 1998 and for the three months then ended have been translated to
U.S. dollars at the rate of DEM 1,6767 per U.S. dollar, the noon buying rate in
New York City for cable transfers in DEM as certified for customs purposes
published by the Federal Reserve Bank of New York as of December 31, 1998. The
translation should not be construed as a representation that the amounts shown
could be converted into U.S. dollars at such rate or any other rate.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
company maintains its financial records in accordance with the German Commercial
Code, which represents generally accepted accounting principles in Germany
("German GAAP"). Generally, accepted accounting principles in Germany vary in
certain respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements are in accordance with U.S.
GAAP.
(3) SUMMARY OF ACCOUNTING POLICIES
Fiscal year -- The Company's fiscal year runs from October 1 to September
30.
Principles of consolidation -- The consolidated financial statements
include the accounts of PEGUFORM GmbH and its wholly or majority owned
subsidiaries (collectively the "Group").
The Group accounts include the following companies:
PERCENTAGE HOLDING
NAME AND LOCATION OF SUBSIDIARY %
- ------------------------------- ------------------
PEGUFORM GmbH, Botzingen............................... 100
PEGUFORM France S.A., Vernon/France.................... 100
PEGUFORM Iberica S.A., Polinya/Spain................... 100
PEGUFORM Bohemia a.s., Liberec/Czech
Republic............................................. 100
PEGUFORM Hella Mexico, S.A. de C.V., Puebla/Mexico..... 70
INERGA Components S.A., Rubi/Spain..................... 100
INERGA Logistics S.L., Polinya/Spain................... 100
INERGA Argentina S.A., Buenos Aires/Argentina.......... 100
INERGA do Brasil Ltda., Guaranema/Brasil............... 100
PEGUFORM Slovakia s.r.o. Poprad/Slowacian Republic..... 100
F-33
192
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All intercompany accounts and transactions have been eliminated.
The group holds a 50% interest in Celulosa Fabril (Cefa) S.A.,
Zaragoza/Spain. This investment is stated at equity.
Application of a new basis of accounting after a change in control of the
Company ("push-down accounting") -- In 1990 there was a change in the control of
the Company. 99% of the shares of Eurotec Systemteile GmbH, the then parent
company of PEGUFORM GmbH (which was merged downstream into PEGUFORM GmbH with
economic effect as of October 1, 1996), were acquired by Klockner Mercator
Maschinenbau GmbH, a subsidiary of Klockner-Werke AG. The paid purchase price
for the shares transferred was retroactively allocated to the net identifiable
assets. The remaining goodwill is amortized over 15 years using the
straight-line method.
Foreign Currencies -- Currency translation is based upon the Statement of
Financial Accounting Standards (SFAS) 52 "Foreign Currency Translation," whereby
the assets and liabilities of foreign subsidiaries where the functional currency
is the local currency are generally translated using period end exchange rates
while the income statements are translated using average exchange rates during
the period. Differences arising from the translation of assets and liabilities
in comparison with the translation of the previous periods are included as a
separate component of stockholders' equity.
Estimates -- The preparation of the Company's 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 disclosures 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.
Cash and Cash Equivalents -- Highly liquid investments with an initial
maturity of three months or less are classified as cash equivalents.
Inventories -- Manufactured parts inventories are stated at the lower of
cost or market using the average cost method. Inventory also includes costs
associated with building molds under contract.
There are generally no molds used in the Company's manufacturing operations
which are owned by the Company.
Property and Depreciation -- Property, plant, and equipment are recorded at
cost. Depreciation is computed by the straight-line method over the estimated
useful lives of the various classes of assets. Tooling is amortized on a piece
price or straight line basis over the related production contract, generally 3
to 7 years. The principal estimated useful lives are as follows:
YEARS
-----
Building and improvements................................... 10-50
Machinery and equipment..................................... 3-20
Other equipment, office and transportation equipment........ 3-10
Leasehold improvements are amortized over the useful life or the term of
the lease. Expenditures for maintenance and repairs are charged to expense as
incurred.
Leases -- The group leases property, plant and equipment as a lessee. All
leases that meet certain specified criteria intended to represent situations
where the substantive risks and rewards of
F-34
193
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ownership have been transferred to the lessee are accounted for as capital
lease. All other leases are accounted for as operating lease.
Intangible Assets -- Purchased intangible assets are recorded at
acquisition cost. Amortization is computed by the straight-line method over the
estimated useful lives, generally 3 to 10 years.
The purchase price of companies in excess of the fair value of net
identifiable assets acquired ("goodwill") is capitalized and generally amortized
over 15 years using the straight-line method. The same applies to goodwill
resulting from push-down accounting for the change in control in the Company in
1990. In the case of Inerga Components S.A., which was acquired as of October 1,
1995, goodwill is amortized over 5 years.
Intangible assets include an amount relating to an additional minimum
pension liability. This amount is determined by the unrecognized transitional
amount considered to calculate accrued pension cost (see note 12).
Long-lived assets and long-lived assets to be disposed of -- Effective
October 1, 1996, the Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-lived Assets and for Long-Lived
Assets to be Disposed of" was adopted. This Statement establishes accounting
standards for the impairment of long-lived assets, and certain identifiable
intangibles, and goodwill related to those assets to be held and used and
long-lived and certain identifiable intangibles to be disposed of. The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, the Statement requires that certain long-lived assets
and identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Company periodically
evaluates the carrying value for impairment.
Revenue recognition -- Revenue from the sale of manufactured parts is
recognized when the parts are shipped. Revenue from mold sales is recognized
using the completed contract method due to the reasonably short build cycle. The
revenues are recognized when final approval has been received from the customer
or in accordance with contract terms. Provision for estimated losses on
uncompleted contracts, if any, is made in the period such losses are identified.
Related party transactions -- The Company is a 99% owned subsidiary of
Klockner Mercator Maschinenbau GmbH, a subsidiary of Klockner-Werke AG,
Duisburg, Germany. Besides immaterial transactions with sister companies the
Company has entered into various transactions with its parent company. These
transactions do not include operational activities but mostly administrative and
financing services. Since the Company operates for the sole benefit of the
parent company, the terms of these transactions are not the result of
arms'-length bargaining.
Since 1990 exist a so called "control and profit distribution agreement"
between Klockner Mercator Maschinenbau GmbH and PEGUFORM GmbH and its former
parent Eurotec Systemteile GmbH respectively. Under this agreement the company
has to distribute all its net income to the parent. On the other side the parent
company has to absorb any net losses incurred at the company. In these financial
statements the payments of the parent to absorb the losses are stated as
additional paid in capital. Any profit distributions are treated as dividends.
The control and profit distribution agreement also has an effect for tax
purposes. PEGUFORM GmbH is no longer a separate taxable individual, with the
effect that all corporation taxes, if any, are
F-35
194
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded and paid by the parent company. In years with profit the parent company
however charges PEGUFORM GmbH for income taxes. These tax charges are deemed to
be based on actual corporate and trade income tax rates. On the other hand no
tax credits are given for net losses.
Income taxes -- Deferred income taxes are provided using the liability
method in accordance with SFAS No. 109. "Accounting for income taxes".
Deferred taxes for German income taxes are recorded as if PEGUFORM GmbH
were a "stand alone" taxable unit for corporate and trade income taxes. Being
currently integrated for income tax purposes as a subsidiary of a German parent
company PEGUFORM GmbH may be charged for tax liabilities or credited for tax
receivables for future net profits or losses if there were no change in
ownership. With the sale of all the shares in the Company to a foreign company
there will be no future integration for tax purposes anymore thus resulting in
an income tax consideration of all temporary differences.
(4) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
AT SEPTEMBER 30,
------------------ AT DECEMBER 31,
1997 1998 1998
------- ------- ---------------
(UNAUDITED)
Accounts receivable trade........................... 243,151 247,248 250,006
Other accounts receivable........................... 38,024 34,924 24,703
------- ------- -------
281,175 282,172 274,709
Allowance for doubtful accounts..................... (4,490) (4,281) (7,657)
------- ------- -------
Net accounts receivable............................. 276,685 277,891 267,052
======= ======= =======
Substantially all of the receivables are from companies operating in the
automobile industry.
(5) INVENTORIES
Inventories consist of the following:
AT SEPTEMBER 30,
------------------ AT DECEMBER 31,
1997 1998 1998
------- ------- ---------------
(UNAUDITED)
Raw material........................................ 48,437 57,376 69,247
Work-in-process..................................... 116,488 102,411 91,468
Finished goods...................................... 20,892 22,544 21,705
Payments on account................................. 33,230 51,960 41,600
Advance payments.................................... (38,051) (32,852) (30,722)
------- ------- -------
Total............................................... 180,996 201,439 193,298
======= ======= =======
F-36
195
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payments on account and advance payments (received) mostly relate to molds.
The Company has no mold production, the manufacturing of the molds is
subcontracted to specialized suppliers usually receiving payments in advance.
There are usually also advance payments by the customer, not necessarily
identical to the ones to be paid to the subcontractor.
In case of probable losses on the purchase and sale of the molds provisions
for threatening losses are recorded.
(6) PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consist of the following:
AT SEPTEMBER 30,
---------------------- AT DECEMBER 31,
1997 1998 1998
--------- --------- ---------------
(UNAUDITED)
Land and buildings............................... 365,126 377,659 380,931
Machinery and equipment.......................... 689,912 751,878 755,224
Office and transportation equipment.............. 99,747 101,152 88,849
Construction in progress......................... 42,406 64,500 63,074
--------- --------- ---------
1,197,191 1,295,189 1,288,078
Less accumulated depreciation and amortization... (708,973) (759,990) (764,912)
--------- --------- ---------
Total............................................ 488,218 535,199 523,166
========= ========= =========
Included in property, plant and equipment is equipment and buildings held
under capitalized leases. These assets have a cost basis of DEM 94,494 and DEM
94,636 and accumulated depreciation relating to these assets of DEM 32,740 and
DEM 38,769 at September 30, 1997 and 1998 respectively.
(7) BUSINESS ACQUISITIONS
Effective July 1, 1990 shares in Eurotec Systemteile GmbH, the then parent
company of PEGUFORM GmbH, were acquired by Klockner Mercator Maschinenbau GmbH,
a subsidiary of Klockner-Werke AG. This transaction was accounted for as a
purchase and the purchase price was allocated applying "push-down" accounting to
the estimated fair value of assets and liabilities assumed, resulting in a
goodwill of approximately DEM 127.5 million.
Effective January 2, 1992 the Company acquired 51% of the shares of
PEGUFORM Bohemia a.s. This acquisition was accounted for as a purchase resulting
in a goodwill of approximately DEM 2.7 million. The goodwill is amortized over
15 years. At October 8, 1993 additional 25% of the shares in this company were
acquired increasing the goodwill already by DEM 1.0 million.
Effective January 26/February 12, 1998 the Company acquired the remaining
24% of outstanding shares in PEGUFORM Bohemia for a purchase price of DEM 4.67
million. This acquisition was accounted for as a purchase with the purchase
price allocated to the relating minority interest in equity. The net amount paid
included an adjustment for costs absorbed by the majority
F-37
196
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shareholder. As a result of this adjustment, DEM 1.9 million was recorded in
revenue in the year ending September 30, 1998.
With a contract signed on October 2/October 14, 1998 the Company and Grupo
Hermez, S.A. de C.V., Mexico City/Mexico, established PEGUFORM Hella Mexico,
S.A. de C.V., Puebla/ Mexico, as a joint company. The Company holds 70% of the
shares, Grupo Hermez 30%.
The consolidated earnings include the operations of PEGUFORM Hella Mexico
from October 14, 1997, the operations of PEGUFORM Bohemia were already fully
consolidated in the prior two years.
Had the acquisition of the minority interest in PEGUFORM Bohemia occurred
before October 1, 1996 the pro forma effect on prior year financial statements
would have been the following increase of net profits resulting from a decrease
of minority interests:
YEAR ENDED
SEPTEMBER 30,
--------------
1997 1998
----- -----
Minority interests portion of the results of PEGUFORM
Bohemia................................................... 618 338
=== ===
(8) ACCOUNTS PAYABLE
Accounts payable consist of the following:
AT SEPTEMBER 30,
------------------ AT DECEMBER 31,
1997 1998 1998
------- ------- ---------------
(UNAUDITED)
Accounts payable trade.............................. 225,395 259,672 253,814
Liabilities to affiliated companies................. 1,058 491 0
------- ------- -------
Total............................................... 226,453 260,163 253,814
======= ======= =======
F-38
197
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) DEBT
Debt consist of the following:
AT SEPTEMBER 30,
INTEREST RATES ----------------- AT DECEMBER 31,
% MATURITIES 1997 1998 1998
-------------- ---------- ------- ------- ---------------
(UNAUDITED)
Liabilities to financial institutions.......... 3.25 - 15.5 1999 36,415 44,490 75,728
Liabilities to affiliated companies............ variable 1999 264,972 308,440 278,128
Liabilities from capital leases................ 4.16 - 11.76 1999 8,290 7,435 8,441
------- ------- -------
Short-term financial liabilities............... 309,677 360,365 362,297
------- ------- -------
Liabilities to financial institutions.......... 3.25 - 8.24 2000-2003 49,848 53,165 52,645
Liabilities from capital leases................ 4.16 - 11.76 2000-2011 52,045 44,690 41,558
------- ------- -------
Long-term financial liabilities................ 101,893 97,855 94,203
------- ------- -------
Total debt................................. 411,570 458,220 456,500
======= ======= =======
The liabilities to financial institutions include various loans received
from banks in different countries. In 1997/98 PEGUFORM GmbH has received two new
loans by Sudwest LB, Stuttgart, Germany, in the aggregate amount of DEM
21,535,000. These loans are to be repaid in four installments on December 30,
starting December 30, 1998. In a separate agreement with Klockner Mercator
Maschinenbau GmbH PEGUFORM receives the difference between the average monthly
internal group interest rate and the loan interest rate.
The Group has entered into various capital lease agreements for property,
plant and equipment. The leases require monthly, quarterly and half-yearly
payments of principal and interest. The Group usually intends to exercise the
options to buy the respective assets.
Bonds and liabilities to financial institutions are partially secured by a
comfort letter from Klockner-Werke AG as the ultimate parent of PEGUFORM GmbH.
Klockner-Werke AG has given to the banks the commitment not to cancel the
"profit distribution agreement" (see note 3: "related party transactions")
before the loans given to PEGUFORM GmbH have been repaid.
The Company had available unused unsecured short-term lines of credit of
DEM 59,715 at September 30, 1998 and unsecured long-term lines of credit of DEM
26,589 at September 30, 1998.
F-39
198
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate amounts of debt maturing during the next five years and
thereafter as of September 30, 1998 are as follows:
DEM
-------
1999........................................................ 360,365
2000........................................................ 21,567
2001........................................................ 23,169
2002........................................................ 17,278
2003........................................................ 10,219
Remaining years............................................. 25,622
-------
Total....................................................... 458,220
=======
(10) RELATED PARTY TRANSACTIONS
The transactions of the Company with its parent company Klockner Mercator
Maschinenbau GmbH include mostly financing and the distribution/absorption of
profit/losses. Additionally there were minor purchases of machinery from sister
companies.
The financing of the Company is done exclusively via short-term credits
without fixed repayment dates.
According to the profit distribution agreement (see note 3: related party
transactions) final net profits (before taxes) are to be distributed to the
parent company while net losses are to be absorbed.
In 1997/98 the parent company granted operating subsidies to the Company.
The current accounts with the parent company are to be charged with
variable interest rates.
The following is a summary of transactions with the parent company at
September 30, 1997 and 1998:
AT SEPTEMBER 30,
---------------- AT DECEMBER 31,
1997 1998 1998
------ ------ ---------------
(UNAUDITED)
Revenue received for:
Operating subsidies granted by the parent company... 0 13,335 0
------ ------ -----
0 13,335 0
====== ====== =====
Expenses charged for:
Interest on current intercompany accounts........... 9,962 14,320 3,257
Tax charge by parent company........................ 4,252 0 0
------ ------ -----
14,214 14,320 3,257
====== ====== =====
F-40
199
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on the control and profit distribution agreement with the parent
company, in the year ended September 30, 1997 the company distributed its net
income for the year in the amount of DEM 4,549. In the year ended September 30,
1998 the parent company absorbed the company's loss of DEM 13,335.
The result of the related party transactions is the following net payable.
The amounts are shown on a gross basis in accounts receivable and in accounts
payable and short-term debt:
AT SEPTEMBER 30,
------------------ AT DECEMBER 31,
1997 1998 1998
------- ------- ---------------
(UNAUDITED)
Amounts Receivable.................................. 0 0 0
Amounts Payable..................................... 266,030 308,931 278,128
------- ------- -------
Net Amounts Payable................................. 266,030 308,931 278,128
======= ======= =======
(11) COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases certain of its manufacturing
facilities, sales offices, transportation and other equipment under operating
leases. Total rental expense was approximately DEM 14,946 and DEM 19,994 for the
years ended September 30, 1997 and 1998 respectively.
Future minimum lease commitments under non-cancellable operating leases
with initial or remaining terms in excess of one year are as follows:
DEM
------
1999........................................................ 6,726
2000........................................................ 5,738
2001........................................................ 4,346
2002........................................................ 3,243
2003........................................................ 1,382
Remaining years............................................. 785
------
Total....................................................... 22,220
======
Other Commitments and contingencies -- The Company has in 1995 entered into
an agreement with a company regarding the use of EDP hardware components and
software as well as technical support. This agreement is not cancellable and
runs until September 30, 2003. Total expense was DEM 16,240 and DEM 22,841 for
the years ended September 30, 1997 and 1998 respectively.
F-41
200
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future EDP cost commitments under this non-cancellable agreement are as
follows:
DEM
------
1999........................................................ 15,683
2000........................................................ 13,209
2001........................................................ 11,972
2002........................................................ 11,512
2003........................................................ 11,117
Remaining years............................................. 0
------
Total....................................................... 63,493
======
(12) PENSION PLANS
PEGUFORM GmbH maintains one defined benefit pension plan covering all its
full-time hourly and salaried employees plus some individual defined benefit
pension agreements for managers and members of the board. The benefits payable
under the plans are generally determined based on the employees' length of
service and earnings. These are no external findings of these schemes.
The funded status of the defined benefit plans was as follows:
ACCUMULATED
BENEFITS
EXCEED ASSETS
AT SEPTEMBER 30,
----------------
1997 1998
------ ------
Actuarial present value of benefit obligations
Vested Benefits........................................... 33,086 37,841
Nonvested benefits........................................ 6,372 7,073
------ ------
Accumulated benefit obligation.............................. 39,458 44,914
====== ======
Projected benefit obligation................................ 40,529 45,871
Market value of plan assets................................. 0 0
------ ------
Excess (deficiency) of assets over projected benefit
obligation................................................ 40,529 45,871
Unrecognized transitional amount............................ 1,331 1,210
Unrecognized net loss....................................... 3,553 5,951
Unrecognized prior service cost............................. 0 0
------ ------
Accrued pension cost........................................ 35,645 38,710
====== ======
F-42
201
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCUMULATED
BENEFITS
EXCEED ASSETS
AT SEPTEMBER 30,
----------------
1997 1998
------ ------
Amounts recognized in the balance sheet consist of
Accrued pension liability................................. 39,458 44,913
Intangible asset.......................................... 1,331 1,210
Unrecognized prior service cost........................... 2,482 4,993
------ ------
Net amount recognized....................................... 35,645 38,710
====== ======
The date used to measure plan liabilities is as of September 30 each year.
The weighted-average assumed discount rate was 6.0% for the years ended
September 30, 1997 and 1998 respectively. The expected rate of increase in
compensation levels was 2.0% and 1.6% respectively for the years ended September
30, 1997 and 1998 respectively. The same rates as for the compensation were used
for inflation and increase in social security contribution ceiling in the
actuarial calculation.
Net periodic pension expense for the years ended September 30, 1997 and
1998 included the following components:
AT
SEPTEMBER 30,
--------------
1997 1998
----- -----
Service cost benefits during the year....................... 1,692 1,910
Interest cost on projected benefit obligation............... 2,183 2,393
Actual return on plan assets................................ 0 0
Net amortization and deferral............................... 121 121
----- -----
Net periodic pension expense................................ 3,996 4,424
===== =====
(13) INCOME TAXES
Amounts in the financial statements related to income taxes are for the
operations of the consolidated subsidiaries as listed under note 3 and for
PEGUFORM GmbH as charged by its parent company.
As explained under note 3 deferred taxes for PEGUFORM GmbH are recorded
considering a full taxation of future profits and losses although this company
is currently not subject to German corporate and trade income taxes.
F-43
202
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income tax expense for the period ended:
AT
SEPTEMBER 30,
---------------
1997 1998
------ -----
Currently Payable
Germany................................................... 4,252 38
Foreign................................................... 1,367 4,728
------ -----
Total....................................................... 5,619 4,766
------ -----
Deferred
Germany................................................... 6,480 (624)
Foreign................................................... (6,070) 1,918
------ -----
Total....................................................... 410 1,294
------ -----
Total....................................................... 6,029 6,060
====== =====
German corporate tax law applies a split-rate computation with regard to
the taxation of the income of a corporation and its shareholders. Current German
taxes are recorded as being charged by the parent company based on the tax law
in effect for the respective fiscal period. Corporate income is initially
subject to a federal corporation tax of 45% plus a solidarity surcharge of 7.5%
until 1997 and 5.5% effective January 1, 1998 on the federal corporate tax
payable. Including the impact of the surcharge, the federal corporate tax rate
amounted to 48.375% until 1997 and to 47.475% effective January 1, 1998. Upon
distribution of retained earnings to stockholders, the corporate income tax rate
on the earnings is adjusted to 30%, plus the solidarity surcharge on the
distribution corporate tax by means of a refund for taxes previously paid. Upon
distribution of retained earnings in the form of a dividend, stockholders who
are taxpayers in Germany are entitled to a tax credit in the amount of federal
income taxes previously paid by the corporation.
Current taxes are calculated on the basis of the respective tax rates in
effect for the periods presented. This may presumably also apply to the tax
charges by the parent company of PEGUFORM GmbH for the German operations. The
calculation of the deferred taxes is based on future tax rates. As a result, the
deferred taxes for PEGUFORM GmbH are calculated with an effective corporate
income tax rate of 48.375% as of September 30, 1997 and 47.475% as of September
30, 1998 plus the after federal tax benefit rate for trade tax of 7.8% and 7.9%
as of September 30, 1997 and 1998 respectively.
A reconciliation of income taxes determined using the German corporate tax
rate of 48.375% plus the after federal tax benefit rate for trade taxes of 7.8%
for a combined statutory rate of 55.4% for the year ended September 30, 1997 and
of 47.475% plus the after federal tax benefit rate for trade
F-44
203
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
taxes of 7.9% for a combined statutory rate of 56.2% for the year ended
September 30, 1998 is as follows:
YEAR ENDED
SEPTEMBER 30,
----------------
1997 1998
------ ------
Expected provision (benefit) for income taxes............... 8,392 (5,613)
Non-deductible items........................................ 2,566 1,092
Tax free income............................................. (1,363) (1,631)
Write off of goodwill not tax-deductible.................... 5,237 5,159
Badwill credited to income not taxable...................... 0 (1,058)
Consolidation items not taxable............................. (907) (71)
Foreign tax rate differential............................... (6,893) (3,409)
Changes in valuation allowances on deferred tax assets...... (990) 2,090
Parent company's tax allocation differential................ 2,078 10,970
Investment and export tax credits (Spain)................... (1,966) (1,891)
Other....................................................... (125) 422
------ ------
Actual income tax expense................................... 6,029 6,060
====== ======
The amounts shown under Parent company's tax allocation differential relate
to the tax charges by Klockner Werke AG. There were no credits given for the
losses the year ending September 1998, while the charge for the year ending
September 1997 was not based on the taxable income of PEGUFORM GmbH.
The amount of the Group's deferred tax valuation allowances is based upon
management's belief that it is more likely than not that not all of the deferred
tax assets will be realized. In future periods, depending upon the Group's
financial results, management's estimate of the amount of the deferred tax
assets considered realizable may change, and hence the valuation allowance may
increase or decrease.
F-45
204
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax-effected temporary differences and carryforwards which comprised
deferred assets and liabilities were as follows:
YEAR ENDED
SEPTEMBER 30,
------------------
1997 1998
------- -------
Deferred tax assets:
Accounts receivable....................................... 127 235
Inventories............................................... 1,557 776
Property, plant and equipment............................. 368 0
Other accrued expenses.................................... 5,191 5,596
Net operating loss carryforwards.......................... 19,207 20,923
Additional minimum pension liability...................... 1,395 2,766
Other..................................................... 0 415
------- -------
27,845 30,711
Valuation allowances................................... (17,293) (19,413)
------- -------
Total deferred tax assets.............................. 10,552 11,298
------- -------
Deferred tax liabilities:
Accounts receivable....................................... 1,179 1,890
Inventories............................................... 0 603
Property, plant and equipment (including capital
leases)................................................ 17,998 17,483
Other accrued expenses.................................... 3,915 2,845
Other..................................................... 1,319 1,229
------- -------
Total deferred tax liabilities......................... 24,411 24,050
------- -------
Net deferred tax liabilities........................... (13,859) (12,752)
======= =======
At September 30, 1998, the Group had net operating losses ("NOLs")
amounting to DEM 53,883. The NOLs relate to losses of foreign companies and are
partly limited in their use to the Group.
Management believes the net operating loss carryforwards at September 30,
1998 are only to a limited extent realizable based on forecasted earnings and
available tax planning strategies.
With regard to the additional minimum pension liability we refer to Note
12. Changes in these deferred tax assets have no impact on the provision for
income tax expenses.
F-46
205
PEGUFORM GMBH, BOTZINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred income tax assets and liabilities in the consolidated balance
sheets are as follows:
YEAR ENDED
SEPTEMBER 30,
------------------
1997 1998
------- -------
Current
Deferred income tax assets................................ 6,479 5,235
Deferred income tax liabilities........................... (3,564) (3,618)
------- -------
Total....................................................... 2,915 1,617
------- -------
Non-current
Deferred income tax assets................................ 4,073 6,063
Deferred income tax liabilities........................... (20,847) (20,432)
------- -------
Total....................................................... (16,774) (14,369)
------- -------
Total....................................................... (13,859) (12,752)
======= =======
F-47
206
[VENTURE LOGO]
207
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 through 571 of the Michigan Business Corporation Act set forth
the conditions and limitations governing the indemnification of corporate
directors, officers and other persons. Section 408 of the Michigan Limited
Liability Company Act sets forth the conditions and limitations governing the
indemnification of managers of limited liability companies.
Reference is made to Section 7.2 of the Restated Articles of Organization
of Venture Holdings Company LLC, filed as Exhibit 3.1, and to Articles IX, IX,
VIII, VIII, VIII, VIII and VIII of the Articles of Incorporation of Vemco, Inc.,
Venture Industries Corporation, Venture Mold & Engineering Corporation, Venture
Leasing Company, Vemco Leasing, Inc., Venture Holdings Corporation and Venture
Service Company, respectively, copies of which are incorporated by reference as
Exhibits 3.2, 3.3, 3.4, 3.5, 3.6, 3.7 and 3.8, respectively, which generally
provide for the indemnification of managers or directors, as applicable, against
certain liabilities to the fullest extent permitted by Michigan law. Reference
is also made to Section 7.5 of the Amended and Restated Operating Agreement of
Venture Holdings Company LLC, filed as Exhibit 3.12, Articles V, V, V, VI, VI,
VI and VI of the Bylaws of Vemco, Inc., Venture Industries Corporation, Venture
Mold & Engineering Corporation, Venture Leasing Company, Vemco Leasing, Inc.,
Venture Holdings Corporation and Venture Service Company, respectively,
incorporated by reference as Exhibits 3.13, 3.14, 3.15, 3.16, 3.17, 3.18 and
3.19, respectively, Section B.4 of the Operating Agreement of Experience
Management LLC, filed as Exhibit 3.20, and Article VI of the Bylaws of each of
Venture Europe, Inc. and Venture EU Corporation, filed as Exhibits 3.21 and
3.22, respectively, which generally authorize each registrant to provide
indemnification for directors, officers, managers and certain other persons of
the registrants to the full extent permitted by Michigan law. The registrants,
along with certain affiliated companies, maintain primary directors and officers
liability coverage in the amount of $6.0 million.
The registrants entered into agreements with certain of their officers and
directors for indemnification and advancement of expenses in 1994. Such
indemnification agreements are filed as Exhibits 10.20, 10.21 and 10.22.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2.1** Share Purchase and Transfer Agreement between Klockner
Mercator Maschinenbau GmbH, on the one hand, and Venture
Beteiligungs GmbH and Venture Holdings Trust, on the other
hand, dated March 8, 1999, filed as Exhibit 2.1 to the
Issuer's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 333-34475) and incorporated
herein by reference. Schedules to the Agreement, listed on
the last two pages of the Agreement, were not filed, but
will be provided to the Commission supplementally upon
request.
2.2** Share Purchase and Transfer Agreement among Neptuno
Verwaltungs-und-Treuhand-Gesellschaft mbH, and Venture
Verwaltungs GmbH and Venture Holdings Trust, dated March 8,
1999, filed as Exhibit 2.2 to the Issuer's Current Report on
Form 8-K on June 11, 1999 (File No. 333-34475) and
incorporated herein by reference.
II-1
208
2.3** Trust Contribution Agreement, made as of the 27th day of
May, 1999, by and between Venture Holdings Trust and Venture
Holdings Company LLC, filed as Exhibit 2.3 to the Issuer's
Current Report on Form 8-K on June 11, 1999 (File No.
333-34475) and incorporated herein by reference.
3.1* Restated Articles of Organization of Venture Holdings
Company LLC.
3.2** Restated Articles of Incorporation of Vemco, Inc., filed as
Exhibit 3.1 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and
incorporated herein by reference.
3.3** Restated Articles of Incorporation of Venture Industries
Corporation, filed as Exhibit 3.2 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.4** Restated Articles of Incorporation of Venture Mold &
Engineering Corporation, filed as Exhibit 3.3 to Venture's
Registration Statement on Form S-4, effective October 27,
1997 (Registration No. 333-34475), and incorporated herein
by reference.
3.5** Restated Articles of Incorporation of Venture Leasing
Company, filed as Exhibit 3.4 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.6** Restated Articles of Incorporation of Vemco, Leasing, Inc.,
filed as Exhibit 3.5 to Venture's Registration Statement on
Form S-4, effective October 27, 1997 (Registration No.
333-34475), and incorporated herein by reference.
3.7** Restated Articles of Incorporation of Venture Holdings
Corporation, filed as Exhibit 3.6 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.8** Restated Articles of Incorporation of Venture Service
Company, filed as Exhibit 3.7 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.9* Articles of Organization of Experience Management LLC.
3.10* Articles of Incorporation of Venture Europe, Inc.
3.11* Articles of Incorporation of Venture EU Corporation.
3.12* Amended and Restated Operating Agreement of Venture Holdings
Company LLC.
3.13** Bylaws of Vemco, Inc., filed as Exhibit 3.9 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
3.14** Bylaws of Venture Industries Corporation, filed as Exhibit
3.10 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.15** Bylaws of Venture Mold & Engineering Corporation, filed as
Exhibit 3.11 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826)
and incorporated herein by reference.
3.16** Bylaws of Venture Leasing Company, filed as Exhibit 3.12 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.17** Bylaws of Vemco Leasing, Inc., filed as Exhibit 3.13 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
II-2
209
3.18** Bylaws of Venture Holdings Corporation, filed as Exhibit
3.14 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.19** Bylaws of Venture Service Company, filed as Exhibit 3.15 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.20* Operating Agreement of Experience Management LLC.
3.21* Bylaws of Venture Europe, Inc.
3.22* Bylaws of Venture EU Corporation.
4.1* Indenture, dated as of May 27, 1999, between Venture
Holdings Trust and The Huntington National Bank, as Trustee,
regarding 11% Senior Notes due 2007 (including form of
Notes).
4.1.1* First Supplemental Indenture to the Indenture filed as
Exhibit 4.1, made as of the 27th day of May, 1999, by and
among Venture Holdings Trust and The Huntington National
Bank, as Trustee.
4.2* Indenture, dated as of May 27, 1999, between Venture
Holdings Trust and The Huntington National Bank, as Trustee,
regarding 12% Senior Subordinated Notes due 2009 (including
form of Notes).
4.2.1* First Supplemental Indenture to the Indenture filed as
Exhibit 4.2, made as of the 27th day of May, 1999, by and
among Venture Holdings Trust and The Huntington National
Bank, as Trustee.
4.3** Indenture for 9 1/2% Senior Notes due 2005 (including form
of Notes) filed as Exhibit 4.1 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
4.3.1* First Amendment to the Indenture incorporated by reference
as Exhibit 4.3, by and among Venture Holdings Trust, Vemco,
Inc. Vemco Leasing, Inc., Venture Industries Corporation,
Venture Holdings Corporation, Venture Leasing Company,
Venture Mold & Engineering Corporation and Venture Service
Company, as Issuers, and The Huntington National Bank, as
Trustee, made as of the 27th day of May, 1999.
4.3.2* First Supplemental Indenture to the Indenture incorporated
by reference as Exhibit 4.3, by and among Venture Holdings
Trust, Vemco, Inc. Vemco Leasing, Inc., Venture Industries
Corporation, Venture Holdings Corporation, Venture Leasing
Company, Venture Mold & Engineering Corporation and Venture
Service Company, as Issuers, Venture Holdings Company LLC,
Experience Management LLC, Venture Europe, Inc. and Venture
EU Corporation, as Guarantors, and The Huntington National
Bank, as Trustee, made as of May 27, 1999.
4.3.3* Second Amendment to the Indenture incorporated by reference
as Exhibit 4.3, by and among Venture Holdings Trust, Vemco,
Inc. Vemco Leasing, Inc., Venture Industries Corporation,
Venture Holdings Corporation, Venture Leasing Company,
Venture Mold & Engineering Corporation and Venture Service
Company, as Issuers, and The Huntington National Bank, as
Trustee, made as of May 27, 1999.
4.3.4* Second Supplemental Indenture to the Indenture incorporated
by reference as Exhibit 4.3, by and among Venture Holdings
Trust, Vemco, Inc. Vemco Leasing, Inc., Venture Industries
Corporation, Venture Holdings Corporation, Venture Leasing
Company, Venture Mold & Engineering Corporation and Venture
Service Company, as Issuers, Venture Holdings Company LLC,
and The Huntington National Bank, as Trustee, made as of May
27, 1999.
II-3
210
4.3.5* Guarantee executed by Venture Holdings Company LLC on the
27th day of May, 1999, pursuant to the terms of the
Indenture incorporated by reference as Exhibit 4.3,
including Trustee's Certificate of Authorization.
4.3.6* Guarantee executed by Experience Management LLC on the 27th
day of May, 1999, pursuant to the terms of the Indenture
incorporated by reference as Exhibit 4.3, including
Trustee's Certificate of Authorization.
4.3.7* Guarantee executed by Venture Europe, Inc. on the 27th day
of May, 1999, pursuant to the terms of the Indenture
incorporated by reference as Exhibit 4.3, including
Trustee's Certificate of Authorization.
4.3.8* Guarantee executed by Venture EU Corporation on the 27th day
of May, 1999, pursuant to the terms of the Indenture
incorporated by reference as Exhibit 4.3, including
Trustee's Certificate of Authorization.
4.4* Registrant Rights Agreement, made and entered into as of May
27, 1999, among Venture Holdings Trust, Vemco, Inc., Vemco
Leasing, Inc., Venture Industries Corporation, Venture
Holdings Corporation, Venture Leasing Company, Venture Mold
& Engineering Corporation, Venture Service Company, Venture
Europe, Inc., Venture EU Corporation, Experience Management
LLC and Venture Holdings Company LLC, as Issuers, and Banc
One Capital Markets, Inc. and Goldman Sachs & Co., as
Initial Purchasers.
5.1* Opinion of Dykema Gossett PLLC.
10.1* Credit Agreement, dated as of May 27, 1999, among Venture
Holdings Trust, the Lenders (as defined therein) and The
First National Bank of Chicago, as Administrative Agent.
10.1.1* First Amendment, dated June 4, 1999, to the Credit Agreement
filed as Exhibit 10.1.
10.2* ISDA Master Agreement, dated May 27, 1999, between Venture
Holdings Company LLC and The First National Bank of Chicago.
10.2.1* Schedules to the Agreement filed as Exhibit 10.2.
10.3* Corporate Opportunity Agreement, made and entered into on
the 27th day of May, 1999, by and between Larry J. Winget
and The Huntington National Bank, as Indenture Trustee.
10.4** Corporate Opportunity Agreement, dated February 16, 1994, by
and between Larry J. Winget and Comerica Bank, as Indenture
Trustee, filed as Exhibit 10.3 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
10.4.1** Agreement, dated July 9, 1997, by Larry J. Winget to be
bound by the terms of the Corporate Opportunity Agreement,
filed as Exhibit 10.3, for the benefit of the holders of the
Issuers' 9 1/2% Senior Notes due 2005 filed as Exhibit
10.3.1 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and
incorporated herein by reference.
10.5** Service Agreement, dated as of January 1, 1992, by and
between Venture Industries Corporation, Vemco, Inc., Venture
Mold & Engineering Corporation, Venture Leasing Company,
Vemco Leasing, Inc., Deluxe Pattern Corporation, Venture
Automotive Corp., Venture Sales & Engineering Corp. and
Venture Service Company, filed as Exhibit 10.11 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
II-4
211
10.6** Lease, dated as of November 1, 1990, by and among Venture
Industries Corporation, Venture Technical Development
Company, Venture Mold & Engineering Corporation, Vemco,
Inc., Deluxe Pattern Company, Venture Automotive Corp.,
Larry J. Winget and Alicia Winget (Acropolis Resort), filed
as Exhibit 10.14 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.7** Real Estate Lease Agreement, dated December 7, 1988, by and
between Harper Properties of Clinton Township Limited
Partnership and Venture Industries Corporation (Harper
Lease), filed as Exhibit 10.15 to Venture's Registration
Statement on Form S-1, effective February 8, 1994
(Registration No. 33-72826), and incorporated herein by
reference.
10.7.1** First amendment to Real Estate Lease Agreement, dated
December 30, 1993, by and between Harper Properties of
Clinton Township Limited Partnership and Venture Industries
Corporation (Harper Lease), filed as Exhibit 10.15.1 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.8** Machinery and Equipment Lease Agreement, dated as of
December 7, 1988, by and between Realven Corporation and
Venture Industries Corporation (Realven Lease), filed as
Exhibit 10.16 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.8.1** First Amendment to Machinery and Equipment Lease Agreement,
dated December 30, 1993, by and between Realven Corporation
and Venture Industries Corporation (Realven Lease), filed as
Exhibit 10.16.1 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.9** Real Estate Lease Agreement, dated as of January 27, 1989,
by and between Venture Real Estate, Inc. and Venture Mold &
Engineering Corporation (Commerce Road facility), filed as
Exhibit 10.17 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.10** Real Estate Lease Agreement, dated as of August 1, 1992, by
and between Venture Real Estate, Inc. and Venture Industries
Corporation (17400 Malyn), filed as Exhibit 10.18 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.11** Real Estate Lease Agreement, dated as of August 1, 1992, by
and between Venture Real Estate, Inc. and Venture Industries
Corporation (17350 Malyn), filed as Exhibit 10.19 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.12** Farm and Country Real Estate Company and Vemco, Inc. Real
Estate Availability and Usage Agreement, dated April 24,
1992, filed as Exhibit 10.20 to Venture's Registration
Statement on Form S-1, effective February 8, 1994
(Registration No. 33-72826), and incorporated herein by
reference.
10.13** Sales Representation Agreement by and between Vemco, Inc.
and Venture Sales & Engineering Corporation, filed as
Exhibit 10.21 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
II-5
212
10.13.1** Sales Representation Agreement by and between Venture
Industries Corporation and Venture Sales & Engineering
Corporation, filed as Exhibit 10.21.1 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.14** Manufacturing Agreement by and between Venture Automotive
Corp. and Vemco, Inc., filed as Exhibit 10.22 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.15** Machinery Usage Agreements between Larry J. Winget Living
Trust and Venture Industries Corporation, filed as Exhibit
10.23 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.15.1** Machinery Usage Agreement between Larry J. Winget Living
Trust and Vemco, Inc., filed as Exhibit 10.23.1 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.16** Machinery Usage Agreement between Deluxe Pattern Corporation
and Venture Mold & Engineering, filed as Exhibit 10.24 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.17** Form of Machinery and Equipment Lease Agreement between
Venture Industries Corporation and Nova Industries, Inc.,
filed as Exhibit 10.25 to Venture's Registration Statement
on Form S-1, effective February 8, 1994 (Registration No.
33-72826), and incorporated herein by reference.
10.18** Form of Machinery and Equipment Lease Agreement between
Venture Industries Corporation and Nova Industries, Inc.,
filed as Exhibit 10.26 to Venture's Registration Statement
on Form S-1, effective February 8, 1994 (Registration No.
33-72826), and incorporated herein by reference.
10.19* Indemnification Agreement between the Company and Larry J.
Winget.
10.20* Indemnification Agreement between the Company and Michael G.
Torakis.
10.21* Indemnification Agreement between the Company and A. James
Schutz.
10.22** Insurance Policies issued by Pompo Insurance & Indemnity
Company Ltd. to the Registrants and affiliated companies,
filed as Exhibit 10.32 to Venture's Registration Statement
on Form S-1, effective February 8, 1994 (Registration No.
33-72826), and incorporated herein by reference.
10.23** Real Estate Usage Agreement between Venture Real Estate
Acquisition Company and Venture Industries Corporation,
dated February 15, 1995, filed as Exhibit 10.23 to Venture's
Registration Statement on Form S-4, effective October 27,
1997 (Registration No. 333-34475), and incorporated herein
by reference.
10.24** Machinery Usage Agreement between Venture Equipment
Acquisition Company and Venture Industries Corporation,
dated February 15, 1995, filed as Exhibit 10.24 to Venture's
Registration Statement on Form S-4, effective October 27,
1997 (Registration No. 333-34475), and incorporated herein
by reference.
10.25** Venture Industries Group Participation Agreement between
Venture Industries Corporation and Venture Asia Pacific Pty
Ltd. filed as Exhibit 10.29 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
II-6
213
10.26** License Agreement as to Proprietary Technologies and Processes, dated July 2, 1997, between Larry J.
Winget and Venture Industries Corporation, Vemco, Inc., Venture Mold & Engineering Corporation,
Venture Industries Canada Ltd., Vemco Leasing, Inc., Venture Leasing Company, Venture Service
Company, Venture Holdings Corporation and Venture Holdings Trust filed as Exhibit 10.30 to Venture's
Registration Statement on Form S-4, effective October 27, 1997 (Registration No. 333.34475), and
incorporated herein by reference.
10.27** License Agreement as to Patents, dated July 2, 1997, between Larry J. Winget and Venture Industries
Corporation, Vemco, Inc., Venture Mold & Engineering Corporation, Venture Industries Canada Ltd.,
Vemco Leasing, Inc., Venture Leasing Company, Venture Service Company, Venture Holdings Corporation
and Venture Holdings Trust filed as Exhibit 10.31 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and incorporated herein by reference.
12.1* Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Registrants.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of BDO International GmbH Wirtschaftsprufungsgesellschaft.
23.3* Consent of Dykema Gossett PLLC (contained in their opinion filed as Exhibit 5.1).
24.1* Power of Attorney (included on signature page to this Registration Statement).
25.1* Statement of Eligibility of Trustee related to 11% Senior Notes due 2007.
25.2* Statement of Eligibility of Trustee related to 12% Senior Subordinated Notes due 2009.
99.1* Form of Letter of Transmittal related to exchange for the Senior Exchange Notes.
99.2* Form of Notice of Guaranteed Delivery related to exchange for the Senior Exchange Notes.
99.3* Form of Letter of Transmittal related to exchange for the Senior Subordinated Exchange Notes.
99.4* Form of Notice of Guaranteed Delivery related to exchange for the Senior Subordinated Exchange Notes.
- -------------------------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules
Valuation and Qualifying Accounts.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which,
II-7
214
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrants hereby undertake 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.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
215
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Detroit, State of
Michigan, on July 8, 1999.
VENTURE HOLDINGS COMPANY LLC, VEMCO, INC.,
VENTURE INDUSTRIES CORPORATION, VENTURE
MOLD & ENGINEERING CORPORATION, VENTURE
LEASING COMPANY, VEMCO LEASING, INC.,
VENTURE SERVICE COMPANY, VENTURE HOLDINGS
CORPORATION, EXPERIENCE MANAGEMENT LLC,
VENTURE EUROPE, INC., VENTURE EU
CORPORATION
By: /s/ JAMES E. BUTLER, JR.
---------------------------------------
James E. Butler, Jr.
Executive Vice President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James E. Butler, Jr. his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that such attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 8, 1999.
SIGNATURES TITLE
---------- -----
/s/ LARRY J. WINGET Principal Executive Officer and Special
- --------------------------------------------------- Advisor to the Issuer, and director of each
Larry J. Winget guarantor
/s/ MICHAEL G. TORAKIS Principal Executive Officer and director of
- --------------------------------------------------- each guarantor
Michael G. Torakis
Director of each guarantor
- ---------------------------------------------------
A. James Schutz
/s/ JAMES E. BUTLER, JR. Principal Financial Officer and Principal
- --------------------------------------------------- Accounting Officer of each registrant and
James E. Butler, Jr. director of Venture Holdings Corporation
II-9
216
VENTURE HOLDINGS TRUST
VALUATION AND QUALIFYING ACCOUNTS
FOR THE QUARTER ENDED MARCH 31, 1999 AND
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
-------- ---------- ---------- ---------- ---------- ----------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
ALLOWANCE FOR DOUBTFUL ACCOUNTS BEGINNING COSTS AND ACCOUNTS DEDUCTIONS END OF
FOR THE YEAR ENDED DECEMBER 31, OF PERIOD EXPENSES DESCRIBED DESCRIBED PERIOD
------------------------------- ---------- ---------- ---------- ---------- ----------
For the quarter ended March 31,
1999............................... $4,518 $ 830 $0 $ (173) $5,175
For the year ended December 31,
1998............................... 3,572 3,226 0 (2,280) 4,518
For the year ended December 31,
1997............................... 2,781 1,635 0 (844) 3,572
For the year ended December 31,
1996............................... 1,679 3,175 0 (2,073) 2,781
II-10
217
INDEX TO EXHIBITS
2.1** Share Purchase and Transfer Agreement between Klockner
Mercator Maschinenbau GmbH, on the one hand, and Venture
Beteiligungs GmbH and Venture Holdings Trust, on the other
hand, dated March 8, 1999, filed as Exhibit 2.1 to the
Issuer's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 333-34475) and incorporated
herein by reference. Schedules to the Agreement, listed on
the last two pages of the Agreement, were not filed, but
will be provided to the Commission supplementally upon
request.
2.2** Share Purchase and Transfer Agreement among Neptuno
Verwaltungs-und-Treuhand-Gesellschaft mbH, and Venture
Verwaltungs GmbH and Venture Holdings Trust, dated March 8,
1999, filed as Exhibit 2.2 to the Issuer's Current Report on
Form 8-K on June 11, 1999 (File No. 333-34475) and
incorporated herein by reference.
2.3** Trust Contribution Agreement, made as of the 27th day of
May, 1999, by and between Venture Holdings Trust and Venture
Holdings Company LLC, filed as Exhibit 2.3 to the Issuer's
Current Report on Form 8-K on June 11, 1999 (File No.
333-34475) and incorporated herein by reference.
3.1* Restated Articles of Organization of Venture Holdings
Company LLC.
3.2** Restated Articles of Incorporation of Vemco, Inc., filed as
Exhibit 3.1 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and
incorporated herein by reference.
3.3** Restated Articles of Incorporation of Venture Industries
Corporation, filed as Exhibit 3.2 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.4** Restated Articles of Incorporation of Venture Mold &
Engineering Corporation, filed as Exhibit 3.3 to Venture's
Registration Statement on Form S-4, effective October 27,
1997 (Registration No. 333-34475), and incorporated herein
by reference.
3.5** Restated Articles of Incorporation of Venture Leasing
Company, filed as Exhibit 3.4 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.6** Restated Articles of Incorporation of Vemco, Leasing, Inc.,
filed as Exhibit 3.5 to Venture's Registration Statement on
Form S-4, effective October 27, 1997 (Registration No.
333-34475), and incorporated herein by reference.
3.7** Restated Articles of Incorporation of Venture Holdings
Corporation, filed as Exhibit 3.6 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.8** Restated Articles of Incorporation of Venture Service
Company, filed as Exhibit 3.7 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
3.9* Articles of Organization of Experience Management LLC.
3.10* Articles of Incorporation of Venture Europe, Inc.
3.11* Articles of Incorporation of Venture EU Corporation.
3.12* Amended and Restated Operating Agreement of Venture Holdings
Company LLC.
3.13** Bylaws of Vemco, Inc., filed as Exhibit 3.9 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
218
3.14** Bylaws of Venture Industries Corporation, filed as Exhibit
3.10 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.15** Bylaws of Venture Mold & Engineering Corporation, filed as
Exhibit 3.11 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826)
and incorporated herein by reference.
3.16** Bylaws of Venture Leasing Company, filed as Exhibit 3.12 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.17** Bylaws of Vemco Leasing, Inc., filed as Exhibit 3.13 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.18** Bylaws of Venture Holdings Corporation, filed as Exhibit
3.14 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.19** Bylaws of Venture Service Company, filed as Exhibit 3.15 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
3.20* Operating Agreement of Experience Management LLC.
3.21* Bylaws of Venture Europe, Inc.
3.22* Bylaws of Venture EU Corporation.
4.1* Indenture, dated as of May 27, 1999, between Venture
Holdings Trust and The Huntington National Bank, as Trustee,
regarding 11% Senior Notes due 2007 (including form of
Notes).
4.1.1* First Supplemental Indenture to the Indenture filed as
Exhibit 4.1, made as of the 27th day of May, 1999, by and
among Venture Holdings Trust and The Huntington National
Bank, as Trustee.
4.2* Indenture, dated as of May 27, 1999, between Venture
Holdings Trust and The Huntington National Bank, as Trustee,
regarding 12% Senior Subordinated Notes due 2009 (including
form of Notes).
4.2.1* First Supplemental Indenture to the Indenture filed as
Exhibit 4.2, made as of the 27th day of May, 1999, by and
among Venture Holdings Trust and The Huntington National
Bank, as Trustee.
4.3** Indenture for 9 1/2% Senior Notes due 2005 (including form
of Notes) filed as Exhibit 4.1 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
4.3.1* First Amendment to the Indenture incorporated by reference
as Exhibit 4.3, by and among Venture Holdings Trust, Vemco,
Inc. Vemco Leasing, Inc., Venture Industries Corporation,
Venture Holdings Corporation, Venture Leasing Company,
Venture Mold & Engineering Corporation and Venture Service
Company, as Issuers, and The Huntington National Bank, as
Trustee, made as of the 27th day of May, 1999.
219
4.3.2* First Supplemental Indenture to the Indenture incorporated
by reference as Exhibit 4.3, by and among Venture Holdings
Trust, Vemco, Inc. Vemco Leasing, Inc., Venture Industries
Corporation, Venture Holdings Corporation, Venture Leasing
Company, Venture Mold & Engineering Corporation and Venture
Service Company, as Issuers, Venture Holdings Company LLC,
Experience Management LLC, Venture Europe, Inc. and Venture
EU Corporation, as Guarantors, and The Huntington National
Bank, as Trustee, made as of May 27, 1999.
4.3.3* Second Amendment to the Indenture incorporated by reference
as Exhibit 4.3, by and among Venture Holdings Trust, Vemco,
Inc. Vemco Leasing, Inc., Venture Industries Corporation,
Venture Holdings Corporation, Venture Leasing Company,
Venture Mold & Engineering Corporation and Venture Service
Company, as Issuers, and The Huntington National Bank, as
Trustee, made as of May 27, 1999.
4.3.4* Second Supplemental Indenture to the Indenture incorporated
by reference as Exhibit 4.3, by and among Venture Holdings
Trust, Vemco, Inc. Vemco Leasing, Inc., Venture Industries
Corporation, Venture Holdings Corporation, Venture Leasing
Company, Venture Mold & Engineering Corporation and Venture
Service Company, as Issuers, Venture Holdings Company LLC,
and The Huntington National Bank, as Trustee, made as of May
27, 1999.
4.3.5* Guarantee executed by Venture Holdings Company LLC on the
27th day of May, 1999, pursuant to the terms of the
Indenture incorporated by reference as Exhibit 4.3,
including Trustee's Certificate of Authorization.
4.3.6* Guarantee executed by Experience Management LLC on the 27th
day of May, 1999, pursuant to the terms of the Indenture
incorporated by reference as Exhibit 4.3, including
Trustee's Certificate of Authorization.
4.3.7* Guarantee executed by Venture Europe, Inc. on the 27th day
of May, 1999, pursuant to the terms of the Indenture
incorporated by reference as Exhibit 4.3, including
Trustee's Certificate of Authorization.
4.3.8* Guarantee executed by Venture EU Corporation on the 27th day
of May, 1999, pursuant to the terms of the Indenture
incorporated by reference as Exhibit 4.3, including
Trustee's Certificate of Authorization.
4.4* Registrant Rights Agreement, made and entered into as of May
27, 1999, among Venture Holdings Trust, Vemco, Inc., Vemco
Leasing, Inc., Venture Industries Corporation, Venture
Holdings Corporation, Venture Leasing Company, Venture Mold
& Engineering Corporation, Venture Service Company, Venture
Europe, Inc., Venture EU Corporation, Experience Management
LLC and Venture Holdings Company LLC, as Issuers, and Banc
One Capital Markets, Inc. and Goldman Sachs & Co., as
Initial Purchasers.
5.1* Opinion of Dykema Gossett PLLC.
10.1* Credit Agreement, dated as of May 27, 1999, among Venture
Holdings Trust, the Lenders (as defined therein) and The
First National Bank of Chicago, as Administrative Agent.
10.1.1* First Amendment, dated June 4, 1999, to the Credit Agreement
filed as Exhibit 10.1.
10.2* ISDA Master Agreement, dated May 27, 1999, between Venture
Holdings Company LLC and The First National Bank of Chicago.
10.2.1* Schedules to the Agreement filed as Exhibit 10.2.
10.3* Corporate Opportunity Agreement, made and entered into on
the 27th day of May, 1999, by and between Larry J. Winget
and The Huntington National Bank, as Indenture Trustee.
220
10.4** Corporate Opportunity Agreement, dated February 16, 1994, by
and between Larry J. Winget and Comerica Bank, as Indenture
Trustee, filed as Exhibit 10.3 to Venture's Registration
Statement on Form S-4, effective October 27, 1997
(Registration No. 333-34475), and incorporated herein by
reference.
10.4.1** Agreement, dated July 9, 1997, by Larry J. Winget to be
bound by the terms of the Corporate Opportunity Agreement,
filed as Exhibit 10.3, for the benefit of the holders of the
Issuers' 9 1/2% Senior Notes due 2005 filed as Exhibit
10.3.1 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and
incorporated herein by reference.
10.5** Service Agreement, dated as of January 1, 1992, by and
between Venture Industries Corporation, Vemco, Inc., Venture
Mold & Engineering Corporation, Venture Leasing Company,
Vemco Leasing, Inc., Deluxe Pattern Corporation, Venture
Automotive Corp., Venture Sales & Engineering Corp. and
Venture Service Company, filed as Exhibit 10.11 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.6** Lease, dated as of November 1, 1990, by and among Venture
Industries Corporation, Venture Technical Development
Company, Venture Mold & Engineering Corporation, Vemco,
Inc., Deluxe Pattern Company, Venture Automotive Corp.,
Larry J. Winget and Alicia Winget (Acropolis Resort), filed
as Exhibit 10.14 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.7** Real Estate Lease Agreement, dated December 7, 1988, by and
between Harper Properties of Clinton Township Limited
Partnership and Venture Industries Corporation (Harper
Lease), filed as Exhibit 10.15 to Venture's Registration
Statement on Form S-1, effective February 8, 1994
(Registration No. 33-72826), and incorporated herein by
reference.
10.7.1** First amendment to Real Estate Lease Agreement, dated
December 30, 1993, by and between Harper Properties of
Clinton Township Limited Partnership and Venture Industries
Corporation (Harper Lease), filed as Exhibit 10.15.1 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.8** Machinery and Equipment Lease Agreement, dated as of
December 7, 1988, by and between Realven Corporation and
Venture Industries Corporation (Realven Lease), filed as
Exhibit 10.16 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.8.1** First Amendment to Machinery and Equipment Lease Agreement,
dated December 30, 1993, by and between Realven Corporation
and Venture Industries Corporation (Realven Lease), filed as
Exhibit 10.16.1 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.9** Real Estate Lease Agreement, dated as of January 27, 1989,
by and between Venture Real Estate, Inc. and Venture Mold &
Engineering Corporation (Commerce Road facility), filed as
Exhibit 10.17 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
221
10.10** Real Estate Lease Agreement, dated as of August 1, 1992, by
and between Venture Real Estate, Inc. and Venture Industries
Corporation (17400 Malyn), filed as Exhibit 10.18 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.11** Real Estate Lease Agreement, dated as of August 1, 1992, by
and between Venture Real Estate, Inc. and Venture Industries
Corporation (17350 Malyn), filed as Exhibit 10.19 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.12** Farm and Country Real Estate Company and Vemco, Inc. Real
Estate Availability and Usage Agreement, dated April 24,
1992, filed as Exhibit 10.20 to Venture's Registration
Statement on Form S-1, effective February 8, 1994
(Registration No. 33-72826), and incorporated herein by
reference.
10.13** Sales Representation Agreement by and between Vemco, Inc.
and Venture Sales & Engineering Corporation, filed as
Exhibit 10.21 to Venture's Registration Statement on Form
S-1, effective February 8, 1994 (Registration No. 33-72826),
and incorporated herein by reference.
10.13.1** Sales Representation Agreement by and between Venture
Industries Corporation and Venture Sales & Engineering
Corporation, filed as Exhibit 10.21.1 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.14** Manufacturing Agreement by and between Venture Automotive
Corp. and Vemco, Inc., filed as Exhibit 10.22 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.15** Machinery Usage Agreements between Larry J. Winget Living
Trust and Venture Industries Corporation, filed as Exhibit
10.23 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.15.1** Machinery Usage Agreement between Larry J. Winget Living
Trust and Vemco, Inc., filed as Exhibit 10.23.1 to Venture's
Registration Statement on Form S-1, effective February 8,
1994 (Registration No. 33-72826), and incorporated herein by
reference.
10.16** Machinery Usage Agreement between Deluxe Pattern Corporation
and Venture Mold & Engineering, filed as Exhibit 10.24 to
Venture's Registration Statement on Form S-1, effective
February 8, 1994 (Registration No. 33-72826), and
incorporated herein by reference.
10.17** Form of Machinery and Equipment Lease Agreement between
Venture Industries Corporation and Nova Industries, Inc.,
filed as Exhibit 10.25 to Venture's Registration Statement
on Form S-1, effective February 8, 1994 (Registration No.
33-72826), and incorporated herein by reference.
10.18** Form of Machinery and Equipment Lease Agreement between
Venture Industries Corporation and Nova Industries, Inc.,
filed as Exhibit 10.26 to Venture's Registration Statement
on Form S-1, effective February 8, 1994 (Registration No.
33-72826), and incorporated herein by reference.
10.19* Indemnification Agreement between the Company and Larry J.
Winget.
10.20* Indemnification Agreement between the Company and Michael G.
Torakis.
10.21* Indemnification Agreement between the Company and A. James
Schutz.
222
10.22** Insurance Policies issued by Pompo Insurance & Indemnity Company Ltd. to the Registrants and
affiliated companies, filed as Exhibit 10.32 to Venture's Registration Statement on Form S-1,
effective February 8, 1994 (Registration No. 33-72826), and incorporated herein by reference.
10.23** Real Estate Usage Agreement between Venture Real Estate Acquisition Company and Venture Industries
Corporation, dated February 15, 1995, filed as Exhibit 10.23 to Venture's Registration Statement on
Form S-4, effective October 27, 1997 (Registration No. 333-34475), and incorporated herein by
reference.
10.24** Machinery Usage Agreement between Venture Equipment Acquisition Company and Venture Industries
Corporation, dated February 15, 1995, filed as Exhibit 10.24 to Venture's Registration Statement on
Form S-4, effective October 27, 1997 (Registration No. 333-34475), and incorporated herein by
reference.
10.25** Venture Industries Group Participation Agreement between Venture Industries Corporation and Venture
Asia Pacific Pty Ltd. filed as Exhibit 10.29 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and incorporated herein by reference.
10.26** License Agreement as to Proprietary Technologies and Processes, dated July 2, 1997, between Larry J.
Winget and Venture Industries Corporation, Vemco, Inc., Venture Mold & Engineering Corporation,
Venture Industries Canada Ltd., Vemco Leasing, Inc., Venture Leasing Company, Venture Service
Company, Venture Holdings Corporation and Venture Holdings Trust filed as Exhibit 10.30 to Venture's
Registration Statement on Form S-4, effective October 27, 1997 (Registration No. 333.34475), and
incorporated herein by reference.
10.27** License Agreement as to Patents, dated July 2, 1997, between Larry J. Winget and Venture Industries
Corporation, Vemco, Inc., Venture Mold & Engineering Corporation, Venture Industries Canada Ltd.,
Vemco Leasing, Inc., Venture Leasing Company, Venture Service Company, Venture Holdings Corporation
and Venture Holdings Trust filed as Exhibit 10.31 to Venture's Registration Statement on Form S-4,
effective October 27, 1997 (Registration No. 333-34475), and incorporated herein by reference.
12.1* Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Registrants.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of BDO International GmbH Wirtschaftsprufungsgesellschaft.
23.3* Consent of Dykema Gossett PLLC (contained in their opinion filed as Exhibit 5.1).
24.1* Power of Attorney (included on signature page to this Registration Statement).
25.1* Statement of Eligibility of Trustee related to 11% Senior Notes due 2007.
25.2* Statement of Eligibility of Trustee related to 12% Senior Subordinated Notes due 2009.
99.1* Form of Letter of Transmittal related to exchange for the Senior Exchange Notes.
99.2* Form of Notice of Guaranteed Delivery related to exchange for the Senior Exchange Notes.